Gudula Deipenbrock

The European Securities and Markets Authority and Its Regulatory Mission: A Plea for Steering a Middle Course

The European Securities and Markets Authority (ESMA) has played a pivotal role in shaping the operation of the European supervisory structure since its establishment in January 2011. The overall objective of the European Supervisory Authorities (ESAs) is to safeguard the stability and orderly functioning of the European financial system. ESMA shall achieve this objective in the realm of European capital markets (securities trading). Against the backdrop of ESMA’s operation so far, this chapter will revisit from a scholarly perspective the organisational and operational design, tasks, powers and governance of ESMA. Focus is on ESMA’s regulatory role, not its supervisory mission. ESMA’s regulatory tasks are likely to keep it on top of the watch-list of the European Commission (Commission). In context with the Commission’s work on establishing a Capital Markets Union (CMU) the Commission has emphasized particularly the importance of well-regulated capital markets. Main areas for action in this context are linked to ESMA’s remit. Have ESMA’s design and powers allowed it to contribute adequately to the development of a high-quality single rulebook as an essential element of an enhanced regulatory harmonisation and coherence? Has ESMA’s institutional profile fostered or hindered it to become an efficient and effective ‘rule-maker’? What features of ESMA’s current design have proved themselves to be appropriate? Which of ESMA’s institutional characteristics remain areas of improvement with a view to ESMA’s regulatory mission?

More Risks than Achievements

Regulating and supervising financial markets has never been more complex than after the 2007/2008 crisis. This is true in particular for the approach taken by the European Union and its Member States. The European Commission proposed more than forty legislative and other measures as part of the financial reforms since the 2007/2008 crisis. Critics increasingly doubt whether market players, regulators and supervisors have learned their lessons from recent crisis scenarios. For instance, some elements of the Capital Markets Union prominently featuring currently on the European legislator’s agenda seek to revive the securitisation market without fully recognising the financial stability risks it poses. The main thrust of any regulatory effort is tackling dysfunctions of financial markets. Firstly, it aims at addressing flaws revealed in former crises. Secondly, it shall prevent or at least mitigate the development of new dysfunctions and risks. The latter preventive objective has become particularly important in the context with systemic risks. Global financial markets appear to be a permanently fertile ground for new crises. Dysfunctions and risks appear on a global scale. International cooperation of states, supranational entities and institutions in the realm of financial markets is more than ever in need. This, however, is not specific to financial markets regulation and supervision. Other crucial global risks in need of a joint international regulatory response include the current refugee influx in the European Union and climate change. Such developments in recent decades show that the principle of territoriality has so far lost its predominant role as a starting point for regulatory and supervisory measures. Supranational and international cooperation efforts whether in financial markets regulation and supervision or in the realm of combatting climate change or solving the question of refugees have gained remarkable momentum. They follow the insight that the dichotomy of internal and external affairs is no longer an uncontested tenet. The interconnection of climate change and the question of refugees in a not strictly legal sense is obvious. The progressing climate change—if not mitigated sustainably—is considered to become an important cause for population displacements leading to further migration waves. The interconnection of climate change and financial markets is meanwhile also acknowledged. The G20 Financial Stability Board announced at the Paris Climate Summit in December 2015 to set up a task force on climate-related financial disclosures. From the legal perspective this requires however rethinking and reshaping traditional legal concepts in all realms of law. This is particularly true for the realm of public law such as constitutional and administrative law but also for private law. This trajectory of further Europeanization and globalisation of traditionally national realms of law might however not be taken for granted. Strong opposite political movements particularly in some Member States of the European Union challenge such developments. Such movements include considering an exit from the European Union. Other different forms of strong opposition to further supranationalization or globalisation are evidenced by nationalist and also separatist tendencies gaining strength. The political landscape and the often unpredictable shifts and turns in political disputes at European level require undivided attention when discussing the idea of further centralisation of regulatory and supervisory powers at European level and thereby any continuous erosion of the principle of territoriality.