Some people are out to clip the wings of Europe’s Paris-based markets watchdog.
The campaign against the European Securities and Markets Authority — led by the European Parliament and a group of countries — is intended to stop the apolitical, technocratic body from expanding its mandate.
It is intended to water down, possibly derail, proposals pushed by the European Commission in Brussels that bite into financial rule-making powers currently held by national authorities. The Commission says its plans to boost ESMA are necessary to stabilize Europe’s financial system.
ESMA has already gained greater powers with the launch of a major revision of market rules (known by the unlovely acronym MiFID II). Under the oversight of Steven Maijoor, a low-key but ambitious Dutch financial regulator, the agency has significantly expanded its remit since its birth in 2011.
Last year, the Commission proposed to give it a bigger budget and staff. Unveiling the proposals in September, Valdis Dombrovskis, the Commission vice president for financial services, said the EU should “act as one player … More integrated financial supervision will make the economic and monetary union more resilient.”
ESMA is critical to the French capital’s push to become the EU’s post-Brexit financial center.
The proposals have irked many EU countries, particularly Ireland and Luxembourg, which don’t want to get big-footed by a stronger ESMA. All parties in the Parliament, from left to right, appear to be opposed. The German MEPs who are leading the negotiations sound the most aggrieved by the proposals.
“It will be tough to get it through before the end of this mandate [in 2019]. I’m afraid it will take a lot of debate, a lot of discussions between political groups, the Commission, the industry and with national supervisors,” said Wolf Klinz, a German MEP from the Alliance of Liberals and Democrats for Europe.
City on the Seine
The Paris-based agency does have a powerful backer in France. The head of the French regulator AMF, Robert Ophèle, said in November that financial supervision in the EU should be carried out by one European authority, calling the strengthening of ESMA’s role an “urgent” necessity.
ESMA is critical to the French capital’s push to become the EU’s post-Brexit financial center. Late last year, Paris won the race to host the London-based European Banking Authority (EBA) after the U.K. leaves the bloc in 2019. As part of his own drive to reform and revitalize France, President Emmanuel Macron has actively courted financiers to come over to France.
The Commission proposals would be a small step toward turning ESMA into a European version of the powerful U.S. Securities and Exchange Commission. It would gain supervisory powers, including on key new regulations for the EU such as on market abuse. It would also be allowed to adopt measures that would restrict the use of certain products it deems to be risky.
These changes would leave ESMA a relative giant among the so-called European Supervisory Authorities, which also include the EBA and the European Insurance and Occupational Pensions Authority (EIOPA), the insurance equivalent of ESMA.
ESMA’s staffing would jump by 156, almost doubling its current 200 employees. For ESMA, 97 of those additional staff members will work on supervisory tasks. Additional IT costs, estimated at €10.2 million for 2019-2020, and translation costs, estimated at €1.8 million, would also be covered for the three ESAs. The changes would put ESMA way ahead of its two counterparts — the EBA is proposed to get 29 employees in addition to its current 150 or so staff members, while EIOPA is slated to add 35 to its current 140.
For ESMA, this is welcome news, of course. It vindicates seven years of its efforts to find its feet as a new supervisor.
The agency hasn’t been shy about asking for more. Maijoor on several occasions has called for ESMA to be granted more authority in areas such as supervisory convergence and oversight of non-EU firms. The revised MiFID has put it front and center in implementing changed trading and transparency rules for all firms, ranging from banks to pension funds.
The big concern for MEPs and member countries is where this leaves the national competent authorities — the 28 EU national regulators that make up ESMA’s board (plus the three EEA non-voting members).
Certain countries in the Council and Parliament are looking to change the Commission’s proposal on overhauling the ESAs by watering down the extra powers foreseen for ESMA.
“I’ve been critical of the strengthening of ESMA’s powers from the beginning,” said Burkhard Balz, a German EPP member and rapporteur for the file in the Parliament. “ESMA is definitely in the middle of the interest [in the ESAs file].”
“The reception has not been too positive across the board,” said Klinz. “The national supervisors feel they are in close contact with the industry and know best. They’re afraid now the European super institution will tell them what to do and how. They feel they’ll in a way be degraded.”
According to a spokesperson for Germany’s finance ministry, the case for a “fundamental shift towards a more centralized model” in the Commission’s proposal has not been sufficiently made.
“We need high supervisory quality without additional, expensive bureaucracy, but we do not believe that the Commission’s proposals live up to this,” the spokesperson added. “Making the European Supervisory Authorities ‘supervisors of the supervisors’ will slow down decision-making and lead to rising costs for firms without any benefit.”
To house its extra employees, it looks like ESMA will get a new home, too. The watchdog has put out multiple tenders asking for a property advisory firm to help it in its search for future premises, relocating from its current headquarters in the posh Invalides neighborhood of Paris.
The Parliament’s rapporteurs are set to publish a report on the Commission’s proposals soon, and the Council will discuss the file under the Bulgarian presidency over the next six months. The topic will be prioritized in the Council, and the Parliament’s first debate on the proposals took place last week. But given the backlash, it’s unclear if and when the three-way discussions between the two and the Commission will begin — the final process to formalize the proposals.
The only thing certain is that conversations are expected to be thorny — like in earlier meetings of finance ministers.