Commission legislative proposals for reforms to the European System of Financial Supervision

By Simon Lovegrove (UK) & Lucy Dodson (UK) on September 22, 2017

The European Commission (Commission) has published legislative proposals for reforming the European System of Financial Supervision.

The Commission press release that accompanies the legislative proposals summarises the key features which include the following:

the European Supervisory Authorities (ESAs) will be given coordination powers over day-to-day supervision by Member State competent authorities. The ESAs will set EU-wide priorities for supervision in ‘Strategic Supervisory Plans’ against which Member State competent authorities would be assessed. Member State competent authorities will be required to draw up annual work programmes in line with the Strategic Supervisory Plan;
the ESAs will have a stronger role in coordinating certain areas of supervision. For example the ESAs will be notified and asked for an opinion in specific cases when a financial institution or market participant intends to significantly outsource, delegate or transfer risks to non-EU countries in a way that would allow it to benefit from the EU passport while essentially carrying out its activities outside the EU;
the European Securities and Markets Authority (ESMA) will supervise benchmarks that are deemed to be critical (such as EURIBOR and EONIA) and will also endorse all non-EU benchmarks used in the EU;
ESMA will collect data on transactions in financial instruments directly from market participants;
ESMA will have a greater co-ordinating role in market abuse cases. It will have the right to act in specific cases, where certain orders, transactions or behaviour give rise to well-founded suspicion and have cross-border implications for the integrity of financial markets or financial stability in the EU. ESMA will be able to recommend that authorities in the Member States concerned initiate an investigation and exchange relevant information among each other and with ESMA;
while the majority of prospectuses will still be supervised nationally, supervision of certain prospectuses will be transferred to ESMA. These include prospectuses for certain wholesale non-equity securities and asset-backed securities, prospectuses by specialist issuers (such as property companies, mineral companies, scientific research-based companies and shipping companies) and prospectuses by non-EU country issuers. ESMA will also be able to control advertisements for offers of securities or requests for admission to trading for which ESMA has approved the corresponding prospectus;
ESMA will have direct supervision of European Venture Capital Funds, European Social Entrepreneurship Funds, and European Long-Term Investment Funds;
ESMA’s product intervention powers under MiFIR are to be extended to cover fund managers, in addition to MiFID investment firms and credit institutions; and
the governance of the ESAs will change. National supervisors will continue to set overall directions and decide on regulatory matters within the boards of supervisors in each ESA. However, newly-created, independent executive boards, similar to the boards of the European Central Bank and the Single Resolution Board, will be in charge of case-by-case decisions and certain supervisory matters in each ESA.