The EU’s Financial Markets Watchdog is seeking expanded powers in order to supervise major stock exchanges and critical parts of the financial infrastructure of the EU. It wants to be a European equivalent of the US Securities and Exchange Commission.
Verena Ross is the chair of the European Securities and Markets Authority. She said that “there’s clearly a political appetite”, in the newly-appointed European Commission, to centralise EU financial market oversight as part of , a renewed push, to revive the region’s struggling capital markets.
“Let’s assess in which areas a move to centralized EU supervision would be logical.” Ross said that we should pay particular attention to all infrastructure players with a cross-border impact, including exchanges, clearinghouses and settlement systems.
Esma launched in 2011 was to improve the harmonisation rules throughout the EU, but the majority of its financial markets activities are still supervised by 27 national authorities.
Esma, based in Paris, supervises a relatively small number of entities. These include credit rating agencies, non EU central counterparty clearinghouses, securitisation repositories, and benchmark administrators.
In recent months, the idea of transferring additional powers from national authorities into Esma gained momentum as Brussels officials looked for ways to increase capital market activity in order to finance estimated €800bn worth of extra investment.
Mario Draghi – the former president of the European Central Bank – identified last month the transformation of Esma to a version SEC of the SEC in as “a key component” of boosting Europe’s capital markets.
Draghi stated that Esma “should transition from an organisation that coordinates national regulators to the single common regulator of all EU security markets”, by giving it powers to supervise large multinational issues, cross-border markets and all central counter-parties.
Some smaller EU member states, such as Luxembourg or Ireland, have been opposed to the idea. They fear it will undermine their flourishing financial sector.
Ross is convinced the change will improve Europe’s financial market efficiency for investors as well as issuers.
“An effective regulatory and supervision framework is essential to the success of a single European capital market, but we do not have one in Europe.” Ross stated that this is an area where we should focus.
She said that a “step by step” process to increase Esma’s power was better than trying to transform it overnight into an all-powerful European SEC.
It is about being practical. “We shouldn’t forget the fact that the EU and US markets are very different in terms of their legal systems,” she said. “Let us make a central EU supervision role happen in the areas where it is most sensible at this time.”
She said that the process could begin by giving Esma greater powers to supervise “bigger cross-border players”, such as Euronext or Deutsche Borse, that “often service not only one country or two of them, but truly serve investors across the whole EU”, adding that smaller markets would continue to receive local supervision.
She said the EU had missed an opportunity by failing to implement its landmark crypto market regulation. The new law will come into effect at the end this year, but it will leave the oversight of companies up to national authorities. Would it have been better to do it at the EU level? This was a discussion we had in the board,” she said.
Draghi called on Esma, the Eurozone’s central bank, to increase its independence by introducing members who are independent of national authorities, which hold the majority of voting positions. These independent members would be similar to those on the ECB supervisory board that oversees the major Eurozone banks.
Ross rejected that, stating “the governance structures work pretty well right now”. She added that it was crucial “to make sure that national supervisors were fully involved in that decision-making, because much of the implementation happens at the national level”.
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