SSRN Id2638620

European System of Financial
Supervision
Thomas Papadopoulos
Content type: Product: Max Planck

Encyclopedia Entries Encyclopedia of Public
Article last updated: May International Law [MPEPIL]
2014
Subject(s):
International financial law — European Union (EU)
Published under the auspices of the Max Planck Foundation for International Peace and the Rule of Law
under the direction of Rüdiger Wolfrum.
From: Oxford Public International Law (http://opil.ouplaw.com). (c) Oxford University Press, 2013. All Rights Reserved. Subscriber:
EPIL Gratis; date: 31 October 2014
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A. Background
1. Introduction
1 In September 2009, the European Commission (‘the Commission’) brought forward proposals to
replace the EU’s existing supervisory architecture with a European System of Financial Supervision
(‘ESFS’), consisting of three European Supervisory Authorities—the European Banking Authority
(‘EBA’), the European Securities and Markets Authority (‘ESMA’), and the European Insurance and
Occupational Pensions Authority (‘EIOPA’) (hereinafter collectively referred to as the ‘ESAs’)—as
well as the European Systemic Risk Board (‘ESRB’), the Joint Committee of the European
Supervisory Authorities and the competent or supervisory authorities in the Member States. The
ESAs and the ESRB were established in January 2011 and their main role is to upgrade the quality
and consistency of national supervision, to strengthen oversight of cross-border groups, to
establish a European single rule-book applicable to all financial institutions in the financial market,
as well as to prevent and mitigate systemic risks to the financial stability of the European Union
(European Commission–Europa MEX/13/0426).
2. The Necessity and the Steps towards Reform

2 The incentive for this regulatory reform, as proclaimed in identical Recital 1 of the Preambles of
the ESMA/EBA/EIOPA Regulations, was the fact that the financial crisis in 2007 and 2008 exposed
important shortcomings in financial supervision, both in particular cases and in relation to the
financial system as a whole. Nationally based supervisory models have lagged behind financial
globalization and the integrated and interconnected reality of European financial markets, in which
many financial institutions operate across borders. The crisis exposed shortcomings in the areas of
cooperation, coordination, and the consistent application of EU law and trust between national
supervisors. Before and during the financial crisis, the European Parliament has called for a move
towards more integrated European supervision in order to ensure a true level playing field for all
actors at the level of the EU and to reflect the increasing integration of financial markets in the EU.
In November 2008, the Commission mandated a High-Level Group chaired by Jacques de Larosière
to make recommendations on how to strengthen European supervisory arrangements with a view
to better protecting citizens and rebuilding trust in the financial system.
3 In its final report presented on 25 February 2009 (the ‘de Larosière Report’), the High-Level
Group recommended that the supervisory framework be strengthened to reduce the risk and
severity of future financial crises. It recommended reforms to the structure of supervision of the
financial sector in the EU. The group also concluded that an ESFS should be created, comprising
three ESAs, one for the banking sector, one for the securities sector and one for the insurance and
occupational pensions sector and recommended the creation of a European Systemic Risk Council
(‘ESRC’). The report presented the reforms the experts considered were needed and on which
work had to begin immediately.
4 In its Communication of 4 March 2009 entitled ‘Driving European Recovery’, the Commission
proposed to put forward draft legislation creating an ESFS and an ESRB. In its Communication of 27
May 2009 entitled ‘European Financial Supervision’, it provided more detail about the possible
architecture of such a new supervisory framework reflecting the main thrust of the de Larosière
Report. The European Council, in its conclusions of 19 June 2009, confirmed that an ESFS,
comprising three new ESAs, should be established. The system should be aimed at upgrading the
quality and consistency of national supervision, strengthening oversight of cross-border groups
and establishing a European single rule book applicable to all financial market participants in the
internal market (Recitals 1–5 of the Preambles of the ESMA/EBA/EIOPA Regulations).
3. The Foundations of the New Legal Framework and its Relationship with
the Old Regime
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5 Finally, legislation establishing the ESFS was adopted. The ESFS comprises the ESMA (ESMA
Regulation 1095/2010), the EBA (EBA Regulation 1093/2010), the EIOPA (EIOPA Regulation
1094/2010), the ESRB (ESRB Regulation 1092/2010), the Joint Committee of the European
Supervisory Authorities (identical Arts 54–7 ESMA/EBA/EIOPA Regulations) and the competent or
supervisory authorities in the Member States (Art. 1 (2) ESMA/EBA/EIOPA Regulations). The ESMA,
the EBA and the EIOPA should cooperate regularly and closely with each other and with the ESRB
through the Joint Committee, ensuring cross-sectoral consistency of work and reaching joint
positions in the area of supervision of financial conglomerates and on other cross-sectoral issues
(Art. 2 ESMA/EBA/EIOPA Regulations). The macro-prudential supervision is conducted by the ESRB,
while ESMA, EBA and EIOPA are responsible for the micro-prudential supervision. A ‘hub-and-spoke’
model was adopted with respect to regulation. According to this model, ESAs (the ‘hub’) process
and adopt detailed rules and recommendations and the national authorities (the ‘spokes’)
implement them partly in their rule-making work and partly in their day-to-day supervision
(Wymeersch ‘The European Financial Supervisory Authorities or ESAs’ 235). The seat of ESMA is in
Paris, the seat of EBA is in London and the seat of EIOPA is in Frankfurt.
6 The previous regime had reached its limits and was considered to be obsolete. Some of the
deficiencies of the previous regime that the new ESFS seeks to rectify concern situations where
there is no mechanism to ensure that national supervisors arrive at the best possible supervisory
decisions for cross-border financial market participants; where there is insufficient cooperation and
information exchange between national supervisors; where joint action by national authorities
requires complicated arrangements to take account of the patchwork of regulatory and supervisory
requirements; where national solutions are most often the only feasible option in responding to
problems at the level of the EU and where different interpretations of the same legal text exist. The
ESFS should be an integrated network of national and EU supervisory authorities, leaving day-to-
day supervision to the national level. Greater harmonization and the coherent application of rules
for financial market participants across the EU should also be achieved.
7 The authorities should replace the Committee of European Banking Supervisors established by
Commission Decision 2009/78/EC, the Committee of European Insurance and Occupational
Pensions Supervisors established by Commission Decision 2009/79/EC, and the Committee of
European Securities Regulators established by Commission Decision 2009/77/EC, and should
assume all of the tasks and competences of those committees including the continuation of
ongoing work and projects, where appropriate (Recitals 8–10 of the Preambles of the
ESMA/EBA/EIOPA Regulations).
B. The Legal Framework of ESMA, EBA, and EIOPA
1. Introduction
8 It is very interesting, as Wymeersch discusses, that the three ESAs were regulated in largely
identical wording. The parliamentary discussion dealt with the EBA, the text of its Regulation being
considered applicable ne varietur to the two other authorities (Wymeersch ‘Europe’s Financial
Regulatory Bodies’ 262).
9 With regard to the legal status of the ESAs, they constitute EU bodies with legal personality. In
each Member State, the authorities shall enjoy the most extensive legal capacity accorded to legal
persons under national law (Art. 5 ESMA/EBA/EIOPA Regulations). When carrying out their tasks, the
authorities shall act independently and objectively and in the interest of the EU alone. The
Chairperson, the voting members of the Board of Supervisors, the members of the Management
Board, the Executive Director and the members of the Board of Appeal shall act independently and
objectively in the sole interest of the EU as a whole and shall neither seek nor take instructions from
EU institutions or bodies, from any government of a Member State or from any other public or
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private body. Neither Member States, the EU institutions or bodies, nor any other public or private
body shall seek to influence these bodies in the performance of their tasks (Arts 42, 46, 49, 52, 59
2. Supervision
10 Under the new ESFS, national authorities retain their powers to supervise markets on a daily
basis. Nevertheless, ESMA, EBA, and EIOPA supervise the relevant national authorities and must
fulfil a general role coordinating competent authorities, in particular in situations where adverse
developments could potentially jeopardize the orderly functioning and integrity of financial markets,
or the stability of the financial system in the EU (Art. 31 ESMA/EBA/EIOPA Regulations). The ESAs
are also responsible for the peer reviews of the national authorities. The authorities shall
periodically organize and conduct peer reviews of some or all of the activities of national
authorities, to further strengthen consistency in supervisory outcomes. To that end, the ESAs shall
develop methods to allow for objective assessment and comparison between the national
authorities reviewed. When conducting peer reviews, existing information and evaluations already
made with regard to the national authority concerned shall be taken into account (Art. 30
11 However, the new regime provides two ways of intervening against national authorities or in
exceptional cases against market participants. The first one refers to breaches of EU law by
national supervisory authorities and the second one refers to decisions on emergency situations
and disagreements. According to Art.17 ESMA/EBA/EIOPA Regulations, when a national authority
does not apply EU law correctly or sufficiently, there is a three step mechanism ensuring
compliance (Veil 114–15). Upon a request from one or more national authorities, the European
Parliament, the Council, the Commission, or the Banking Stakeholder Group, or on its own initiative,
and after having informed the national authority concerned, the ESAs may investigate the alleged
breach or non-application of EU law. The national authority must provide the ESAs with all
information they consider necessary for their investigation. The ESAs may, not later than two
months from initiating its investigation, address a recommendation to the national authority
concerned setting out the action necessary to comply with EU law. The national authority shall,
within 10 working days of receipt of the recommendation, inform the ESAs of the steps it has taken
or intends to take to ensure compliance with EU law. Where the national authority has not complied
with EU law within one month from receipt of the ESAs’ recommendation, the Commission may, after
having been informed by the ESAs, or on its own initiative, issue a formal opinion requiring the
competent authority to take the action necessary to comply with EU law. The Commission’s formal
opinion shall take into account the ESAs’ recommendation.
12 The new regime introduces the possibility of the ESAs of intervening directly against market
participants. Without prejudice to the powers of the Commission pursuant to Art. 258 Treaty on the
Functioning of the European Union (‘TFEU’), where a national authority does not comply with the
formal opinion of the Commission and where it is necessary to remedy in a timely manner such
non-compliance in order to maintain or restore neutral conditions of competition in the market, the
specific ESA may adopt an individual decision addressed to a financial institution requiring the
necessary action to comply with its obligations under EU law, including the cessation of any
practice. This breach of EU law must concern directly applicable provisions of the EU and this
possibility of intervention on behalf of the ESAs is considered to be a form of ‘right of entry’ (Veil
114).
13 The ESAs enjoy the possibility of direct intervention and of adopting specific decisions
addressed to specific market participants, in case of emergency situations and of settlement of
disagreements between competent authorities in cross-border situations. This direct intervention
requires non-compliance on behalf of the national authorities.

14 In the case of adverse developments which may seriously jeopardize the orderly functioning
and integrity of financial markets or the stability of the whole or part of the financial system in the
EU, the ESAs shall actively facilitate and, where deemed necessary, coordinate any actions
undertaken by the relevant national competent supervisory authorities. The Council, in consultation
with the Commission and the ESRB and, where appropriate, the ESAs, may adopt a decision
addressed to the ESAs, determining the existence of an emergency situation. Where the Council
has adopted this kind of decision mentioned in the latter sentence, the ESAs may adopt individual
decisions requiring national authorities to take the necessary action to address any such
developments in the emergency situations by ensuring that financial institutions and national
authorities satisfy the requirements laid down in that legislation. If a national authority does not
comply with these decisions of the ESAs within the period laid down in that decision, the specific
ESA may, where there are directly applicable EU rules to market participants, adopt an individual
decision addressed to a market participant requiring the necessary action to comply with its
obligations under that legislation, including the cessation of any practice (Art. 18 ESMA/EBA/EIOPA
Regulations).
15 Apart from the terms and conditions of Art. 18, the ESAs could also intervene and directly
supervise market participants in accordance with Art. 9 (3) and (5) ESMA/EBA/EIOPA Regulations.
This article states that the specific ESA may also issue warnings in the event that a financial activity
poses a serious threat to the stability and effectiveness of the financial system, for the EU
economy, its citizens and businesses. More specifically, the ESAs could temporarily prohibit or
restrict certain financial activities that threaten the orderly functioning and integrity of financial
markets or the stability of the whole or part of the financial system in the EU.
16 The same right of the ESAs of addressing individual decisions to market participants exists in
case of disagreements between national authorities at cross-border situations. Where a national
authority disagrees about the procedure or content of an action or inaction of a national authority
of another Member State, the ESAs, at the request of one or more of the national authorities
concerned, may assist the authorities in reaching an agreement. The ESAs shall set a time limit for
conciliation between the national authorities. If the competent authorities concerned fail to reach an
agreement within this conciliation, the ESAs may, take a decision requiring them to take specific
action or to refrain from action in order to settle the matter, with binding effects for the national
authorities concerned, in order to ensure compliance with EU law. The powers of direct intervention
to market participants could be used when a national authority does not comply with this decision
of the ESAs. More specifically, if a competent authority does not comply with the decision of the
ESAs, and thereby fails to ensure that a financial institution complies with requirements directly
applicable to it, the specific ESA may adopt an individual decision addressed to a financial
institution requiring the necessary action to comply with its obligations under EU law, including the
cessation of any practice (Art. 19 ESMA/EBA/EIOPA Regulations).
17 The decisions of the ESAs referred to in Arts 17, 18, and 19 ESMA/EBA/EIOPA Regulations could
be challenged before the Board of Appeal by any natural or legal person, including national
authorities, which are addressed to that person, or against decisions which, although in the form of
a decision addressed to another person, are of direct and individual concern to that person (Art. 60
ESMA/EBA/EIOPA Regulations). The Board of Appeal shall be a joint body of the ESAs. The members
of the Board of Appeal shall be independent in making their decisions (Arts 58–9 ESMA/EBA/EIOPA
Regulations). Proceedings may be brought before the ECJ, in accordance with Art. 263 TFEU,
contesting a decision taken by the Board of Appeal or, in cases where there is no right of appeal
before the Board of Appeal, by the ESA. Member States and the EU institutions, as well as any
natural or legal person, may institute proceedings before the ECJ against decisions of the ESA, in
accordance with Art. 263 TFEU.
18 Additionally, ESMA was granted the competence to register and to directly supervise Credit
Rating Agencies (‘CRAs’). CRAs will have to apply for registration with ESMA, which will then decide

on each of them. ESMA will monitor that the CRAs continue to comply with the rules of the CRA
Regulation. In order to be in a position to do so, ESMA will be provided with supervisory powers, eg
requesting relevant information, hearing of persons, examining records, and conducting on-site
inspections. ESMA could take appropriate supervisory measures if it has discovered an
infringement of the CRA Regulation, ranging from the issuance of a public notice to the withdrawal
of the registration, depending on the seriousness of the breach (‘Improving EU Supervision of Credit
Rating Agencies—Frequently Asked Questions’ [3 June 2010] European Commission–
MEMO/10/230).
3. Rule-making Competences
19 The ESAs should replace, in the Lamfalussy process, the Committee of European Banking
Supervisors, the Committee of European Insurance and Occupational Pensions Supervisors, and
the Committee of European Securities Regulators and should assume all of the tasks and
competences of those committees. The ESAs should serve as independent advisory bodies to the
European Parliament, the Council, and the Commission in their areas of competence and, more
specifically, in new legislation under preparation (Recital 45 of the Preamble). The new regime
presents some differences with the old one. In the previous regime, when there was a level one
process, the old Committees gave their view on the technical aspects of the policies and regulation
for examination by the European Commission. Regarding level two regulations, the European
Commission invited the Committees to submit detailed advice. The opinions were issued after
extensive consultation by the Committee involved (Wymeersch ‘Europe’s Financial Regulatory
Bodies’ 268). The new regime preserves this advisory role. However, it makes it obligatory and
regarding technical issues, it strengthens the position of ESAs in the regulatory process.
Nevertheless, the advice is only mandatory in the cases expressly mentioned in the level one
instrument (Wymeersch ‘Europe’s Financial Regulatory Bodies’ 268).
20 The ESAs also have the right to issue guidelines and recommendations addressed to national
authorities or financial market participants, in accordance with Art. 16 ESMA/EBA/EIOPA
Regulations. Although these guidelines and recommendations are soft law non-binding legal
instruments, they are very important for the interpretation and implementation of the EU Directives
and Regulations (‘ensuring the common, uniform and consistent application of EU law’). Regarding
compliance of the national authorities with these guidelines and recommendations, Art. 16
ESMA/EBA/EIOPA Regulations also introduces a ‘comply or explain’ mechanism. The national
authorities and financial market participants shall make every effort to comply with those guidelines
and recommendations. Within two months of the issuance of a guideline or recommendation, each
national authority shall confirm whether it complies or intends to comply with that guideline or
recommendation. In the event that a national authority does not comply or does not intend to
comply, it shall inform the ESAs, stating its reasons. Additionally, the ESAs could publish the fact
that a national authority does not comply or does not intend to comply with that guideline or
recommendation. The adoption of this ‘comply or explain’ mechanism definitely urges national
authorities to follow the guidelines and recommendations.
21 Drafting regulatory and implementing technical standards, within the framework of Arts 290–1
TFEU, is another very important rule-making power of the ESAs. Art. 10 ESMA/EBA/EIOPA
Regulations focuses on the process for the adoption of regulatory technical standards. The
regulatory technical standards shall be adopted by means of regulations or decisions. Where the
European Parliament and the Council delegate power to the Commission to adopt regulatory
technical standards by means of delegated acts under Art. 290 TFEU in order to ensure consistent
harmonization in specific areas of EU securities regulation, ESAs may develop draft regulatory
technical standards. A reference to Art. 290 TFEU should be made at this point; Art. 290 TFEU
refers to the delegation of acts and states that a legislative act may delegate to the Commission the
power to adopt non-legislative acts of general application to supplement or amend certain non-
essential elements of the legislative act. ESAs shall submit their draft standards to the Commission

for endorsement. Regulatory technical standards shall be technical, shall not imply strategic
decisions or policy choices and their content shall be delimited by the legislative acts on which
they are based. Within three months of receipt of a draft regulatory technical standard, the
Commission shall decide whether to endorse it. The Commission may endorse the draft regulatory
technical standards in part only, or with amendments, where the EU’s interests so require. Where
the Commission intends not to endorse a draft regulatory technical standard, or to endorse it in part
or with amendments, it shall send the draft regulatory technical standard back to ESAs, explaining
why it does not endorse it, or, as the case may be, explaining the reasons for its amendments.
Within a period of six weeks, ESAs may amend the draft regulatory technical standard on the basis
of the Commission’s proposed amendments and resubmit it in the form of a formal opinion to the
Commission. The ESAs shall send a copy of its formal opinion to the European Parliament and to the
Council. If, on the expiry of that six-week period, ESAs have not submitted an amended draft
regulatory technical standard, or has submitted a draft regulatory technical standard that is not
amended in a way consistent with the Commission’s proposed amendments, the Commission may
adopt the regulatory technical standard with the amendments it considers relevant, or reject it. The
Commission may not change the content of a draft regulatory technical standard prepared by ESAs
without prior coordination with ESAs. Only where ESAs do not submit a draft regulatory technical
standard to the Commission within the specific time limits, may the Commission adopt a regulatory
technical standard by means of a delegated act without a draft from ESAs.
22 The power to adopt regulatory technical standards referred to in Art. 10 ESMA/EBA/EIOPA

Regulations shall be conferred on the Commission for a period of four years from 16 December
2010. The delegation of power shall be automatically extended for periods of an identical duration,
unless the European Parliament or the Council revokes it. The delegation of power referred to in Art.
10 ESMA/EBA/EIOPA Regulations may be revoked at any time by the European Parliament or by the
Council (Arts 11–12 ESMA/EBA/EIOPA Regulations).
23 Moreover, Art. 13 ESMA/EBA/EIOPA Regulations provides the possibility of objections to

regulatory technical standards. The European Parliament or the Council may object to a regulatory
technical standard within a period of three months from the date of notification of the regulatory
technical standard adopted by the Commission. As mentioned above, Art. 10 ESMA/EBA/EIOPA
Regulations gives the possibility for non-endorsement or amendment of draft regulatory technical
standards. In the event that the Commission does not endorse a draft regulatory technical standard
or amends it as provided for in Art. 10 ESMA/EBA/EIOPA Regulations, the Commission shall inform
the ESAs, the European Parliament and the Council, stating its reasons. Where appropriate, the
European Parliament or the Council may invite the responsible Commissioner, together with the
Chairperson of the relevant ESA for an ad hoc meeting of the competent committee of the European
Parliament or the Council to present and explain their differences (Art. 14 ESMA/EBA/EIOPA
Regulations).
24 With regard to implementing the technical standards, Art. 15 ESMA/EBA/EIOPA Regulations

describes in detail their procedure of adoption. ESAs may develop implementing technical
standards, by means of implementing acts under Art. 291 TFEU, in the areas of EU securities
regulation. Again, it is interesting to refer here to Art. 291 (2) TFEU on implementing acts; Art. 291
(2) TFEU states that, where uniform conditions for implementing legally binding EU acts are needed,
those acts shall confer implementing powers on the Commission, or, in duly justified specific cases
and in the cases provided for in Arts 24 and 26 TEU, on the Council. Implementing technical
standards shall be adopted by means of regulations or decisions. They shall be technical, shall not
imply strategic decisions or policy choices, and their content shall be to determine the conditions of
application of those acts.
25 The relevant ESA shall submit its draft implementing technical standards to the Commission for
endorsement. Within three months of receipt of a draft implementing technical standard, the
Commission shall decide whether to endorse it. The Commission may endorse the draft

implementing technical standard in part only, or with amendments, where the EU’s interests so
require. Where the Commission intends not to endorse a draft implementing technical standard or
intends to endorse it in part or with amendments, it shall send it back to the relevant ESA explaining
why it does not intend to endorse it, or, as the case may be, explaining the reasons for its
amendments. Within a period of six weeks, the relevant ESA may amend the draft implementing
technical standard on the basis of the Commission’s proposed amendments and resubmit it in the
form of a formal opinion to the Commission. The relevant ESA shall send a copy of its formal opinion
to the European Parliament and to the Council. If, on the expiry of this six-week period, the relevant
ESA has not submitted an amended draft implementing technical standard, or has submitted a draft
implementing technical standard that is not amended in a way consistent with the Commission’s
proposed amendments, the Commission may adopt the implementing technical standard with the
amendments it considers relevant or reject it. The Commission shall not change the content of a
draft implementing technical standard prepared by the relevant ESA without prior coordination with
ESA. Only where the relevant ESA does not submit a draft implementing technical standard to the
Commission within the specific time limits, may the Commission adopt an implementing technical
standard by means of an implementing act without a draft from the relevant ESA. While the
Parliament and the Council do not have any competence to oppose or revoke implementing
technical standards, they have this competence with regard to regulatory technical standards. This
constitutes an important difference between the procedure for the adoption of regulatory technical
standards and the procedure for the adoption of implementing technical standards.
26 This adoption of ESFS was escorted with the adoption of an Omnibus Directive amending
financial services sectoral legislation to ensure effective operation of the ESFS (Directive
2010/78/EU). In order for the ESFS to work effectively, changes to existing financial services
Directives are necessary, laying down the precise scope for them to exercise the proposed new
powers. The areas in which amendments are proposed fall broadly into the following categories.
The first category analyses the definition of the appropriate areas in which the ESAs will be able to
propose technical standards as an additional tool for supervisory convergence and with a view to
developing a single rule book. The second category refers to the incorporation in an appropriate
manner of the possibility for the ESAs to settle disagreements between national supervisors in a
balanced way, in those areas where common decision-making processes already exist in sectoral
legislation. The third one discusses the general amendments which are necessary for the
Directives to operate in the context of ESAs for example, renaming the level three committees to
the ESAs and ensuring the appropriate gateways for the exchange of information are present
(Europa IP/09/1582).
C. The European Systemic Risk Board

27 The European Systemic Risk Board is responsible for the macro-prudential oversight of the
financial system within the EU in order to contribute to the prevention or mitigation of systemic risks
to financial stability in the EU that arise from developments within the financial system and taking
into account macroeconomic developments, so as to avoid periods of widespread financial
distress. It shall contribute to the smooth functioning of the internal market and thereby ensure a
sustainable contribution of the financial sector to economic growth. The ESRB does not have its
own legal personality and cannot adopt legally binding rules. This could be contrasted to ESMA,
EBA, and EIOPA which enjoy legally binding rule-making and supervisory competences. However,
in case of systemic risks to financial stability, it could provide warnings and, where appropriate,
issue recommendations for remedial action, including, where appropriate, for legislative initiatives.
The ESRB must also cooperate closely with all the other parties to the ESFS. It must provide, where
appropriate, the authorities with the information on systemic risks required for the performance of
their tasks. It could also develop, in collaboration with the authorities, a common set of quantitative
and qualitative indicators (risk dashboard) to identify and measure systemic risk (Recital 15 of the
Preamble, Arts 3 and 15–16 ESRB Regulation).

D. Perspectives
28 Following the launch of the three new European Supervisory Authorities on 1 January 2011, the
Commission proposed the Omnibus II Directive. It proposes to make targeted changes to legislation
in the area of insurance and securities regulation to ensure that the ESAs can work effectively. In
particular, the proposal sets out in detail the scope for the ESAs to exercise their powers, which
include the possibility to develop draft technical standards and to settle disagreements between
national supervisors. The proposed Directive will be sent to the Council and the European
Parliament for consideration. This legislative proposal contains a limited set of amendments to the
Solvency II Directive. These amendments include the provision of more specific tasks for EIOPA
such as ensuring harmonized technical approaches on the use of ratings in relation to the
Solvency Capital Requirements, and extending the implementation date by two months to ensure
better alignment with the end of the financial year for the majority of insurance and reinsurance
undertakings. The amendments will also enable the Commission to specify transitional measures in
certain areas if deemed necessary to avoid market disruption and to allow a smooth transition to
the new regime under Solvency II (Europa IP/11/49).
29 In April 2013, the European Commission services launched a consultation on the European
System of Financial Supervision. The legislative acts establishing the ESFS provide for a review by
the Commission of the ESRB by 17 December 2013 and of the ESAs by 2 January 2014. The results
will provide important information on the effectiveness and efficiency of the ESAs and the ESRB
within the ESFS and on the ESFS as a whole and will help the Commission to prepare the relevant
reports (European Commission–Europa MEX/13/0426).
30 It could be argued that, in general, the multi-faceted tasks of this new regime are an important
step towards stronger and more stable EU financial markets. The ESAs contribute to the
establishment of high-quality common regulatory and supervisory standards and practices, in
particular by providing opinions to the EU institutions and by developing guidelines,
recommendations, and draft regulatory and implementing technical standards. They also contribute
to the consistent application of legally binding EU acts, in particular by contributing to a common
supervisory culture, ensuring consistent, efficient, and effective application of EU securities
regulations, preventing regulatory arbitrage, mediating, and settling disagreements between
national authorities, ensuring effective and consistent supervision of financial market participants,
ensuring a coherent functioning of colleges of supervisors and taking actions, inter alia, in
emergency situations (see Art. 18 ESMA/EBA/EIOPA Regulations).
31 However, the degree of fulfilment of these tasks, as well as the efficiency of certain aspects of
this new regime are questioned. Although the ESAs were equipped with strong rule-making powers,
which will lead to a more effective rule-book for EU securities regulation, their supervisory powers
might create a few problems regarding their efficiency and their delimitation with regard to the
supervisory competences of national authorities. On the one hand, the lack of centralization in
supervision attracted much criticism because it could lead to a dysfunctional regime. On the other
hand, the powers of the ESAs to issue and address decisions directly to individual market
participants were also criticized. These direct powers diminish the scope of competence of national
authorities and present practical problems in their function.
32 It is interesting to see how this new regime will work in practice. EU capital markets law is an
evolving area of law, affected significantly by economic conditions, and this new regime should
operate according to the specific needs and intricacies of the markets. This reform followed the
tendency towards centralization and financial integration. This tendency towards centralization
might continue in future amendments of financial supervision, at EU level. The crucial question is
what the extent of this centralization and market integration will be. It is argued that future
amendments must expand the rule-making powers of ESAs and must lead to a ‘multiple peaks’
model of specialized supervision. These are decisions which must be taken at the political level,

after careful consideration of the practical implications and the experiences, so far.
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European System of Financial

Content type: Product: Max Planck

2. The Necessity and the Steps towards Reform

B. The Legal Framework of ESMA, EBA, and EIOPA

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22 The power to adopt regulatory technical standards referred to in Art. 10 ESMA/EBA/EIOPA

23 Moreover, Art. 13 ESMA/EBA/EIOPA Regulations provides the possibility of objections to

24 With regard to implementing the technical standards, Art. 15 ESMA/EBA/EIOPA Regulations

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C. The European Systemic Risk Board

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