EU financial agencies’ proposed powers face test before skeptical ministers

6 November 2017 2:18pm
EU Flag Flying

3 November 2017.  By John Rega

Proposed new powers for the EU's financial supervisory agencies will face a tough test before national ministers next week over fears that they would burden companies and increase complexity.

Economy and finance ministers will meet next Tuesday in Brussels, where they are likely to dispute the proposed legislation to shift some oversight tasks from national market watchdogs to EU authorities.

Last week, a majority of permanent representatives from the 28 member states criticized the European Commission’s proposals for going further than governments and industry representatives supported in a previous consultation. France was the lone member to champion the proposal, MLex has learned.

The national officials have also asked lawyers at the Council of the European Union, which represents member states, to examine the legality of some elements of the proposal.

The European System of Financial Supervision, or ESFS, would become more complex and potentially burdensome for companies, the officials said. The commission’s plan would make financial services companies pay levies to the agencies for securities, banking and insurance.

Centralizing power

The European Securities and Markets Authority, or ESMA, would oversee more financial businesses, under the bills now before legislators. Areas under debate include critical financial benchmarks — such as the Euro Interbank Offered Rate benchmark, now overseen by Belgian regulators — along with data-reporting services, some securities offering documents, and EU-based venture capitalists and long-term investment funds.

Paris-based ESMA would also get a further role in coordinating market-manipulation and insider-trading cases that cross borders. The proposals come on top of a separate initiative before lawmakers to put the agency in charge of big clearinghouses.

Both the European Banking Authority and the European Insurance and Occupational Pensions Authority, or Eiopa, would also gain wider remits, including more power to mediate disputes among national regulators. Eiopa would gain a formal role in setting the ground rules for insurers using risk models to set their capital requirements.

The European Supervisory Authorities, as the agencies are collectively known, would be empowered to conduct peer reviews, among other efforts to forge more consistent oversight among countries. Executive boards, to be created under the proposal, would streamline the ESAs’ work apart from rule-writing, rather than the full boards now comprising all the national regulators.

The agencies would also coordinate regulators on financial technology and play a greater role in examining whether non-EU countries’ rulebooks meet the bloc's standards — an area of rising importance due to Brexit. Such “equivalence” findings are the main way for foreign financial companies to do business in the bloc.

The commission has defended its proposals as necessary to boost Europe’s capital markets, which are just a fifth of the size of those in the US, as measured by figures such as stock trading. More unified oversight is needed after harmonized rules alone have failed to close the gap, the EU executive arm argued before the ambassadors last week.

Picking priorities

National ministers — who must sign off on the proposals before they can become law — will be asked at a scheduled meeting next week whether to move ahead with some elements of the package, according to a note circulated by Estonian officials, who are chairing the talks as the country currently holds the EU’s rotating presidency.

“Are there elements of the ESFS review package which should be prioritized in order to address short-term challenges?” the note asks. The ministers also will be asked how to prepare the agencies for “potential future challenges.”

The questions come as the EU faces the impact of the UK's withdrawal, when the region’s biggest financial center breaks off from the union in March 2019.

The anticipated change has already led the governments to consider moving ahead with Brexit-tinged parts of the separate proposal on clearinghouses, particularly rules for clearing euro-denominated derivatives.

The ministerial debate next week doesn’t aim to adopt legislation but to set the agenda for talks on the shakeup of the financial regulators, likely extending into next year.

Fintech Regulation in 2018