The Evolution of ESMA and Direct Supervision: Are there Implications for EU Supervisory Governance?

The European Securities and Markets Authority (‘ESMA’) was established over six years ago. It, and its sibling bodies for banking, and the insurance and occupational pensions sector, emerged from the ashes of the financial crisis, and the agencies have been the topic of much discussion in academic scholarship from a variety of perspectives. This article (recently published in the Common Market Law Review) provides a new situating of ESMA within this broader policy context. Using empirical observations gleaned from three case studies [1], and rooting the analysis within the related literature on supervisory governance (defined, in general terms, as the supervisory practices and enforcement measures that contribute towards the overseeing of the EU’s financial system), it examines the conferral on, and ESMA’s use of, its direct supervisory and enforcement powers, and uses this as a launching pad for reflecting on how EU supervisory governance is evolving.

Specifically, the article speculates that although ESMA is still at a relatively youthful stage with respect to its direct operational responsibilities, it is strengthening its reputation as a credible and pro-active supervisor, and is becoming an important driver with respect to the evolution of EU supervisory governance. The article suggests that, over time, and in line with arguments observable in the related scholarship on institutional governance, ESMA’s influence and approach could result in the greater centralization of supervisory governance at the EU level, but that any such shifts are likely to take place gradually. Further, although there are a number of barriers in place to its operations (ranging from the practical to the political), none of these should be intractable.

There is one caveat to this analysis, however; as the current EU set-up adjusts following the UK’s ‘Brexit’ vote, this could lead to a more interventionist agenda materializing from some quarters, including with respect to greater supervisory integration. Indeed, this stance is now evident in the Commission’s recent consultation on the operation of the three European Supervisory Authorities, which explores areas where extensions to ESMA’s direct supervisory powers could contribute to deeper market integration.      

Yet, despite the change in the political air following the Brexit decision, the article argues that it remains more probable that future supervisory governance shifts will continue to evolve slowly, ‘the way it has always happened’. Nevertheless, when one bears in mind the empirical evidence, ESMA is in a prime position to exert a major influence going forward.

Elizabeth Howell is the Slaughter and May Lecturer in Corporate Law at the University of Cambridge, and a Fellow of Magdalene College.

[1] Namely, ESMA’s direct responsibilities with respect to credit rating agencies, and trade repositories, and ESMA’s direct powers with respect to short selling. For clarity: the first two topics concern the conferral of direct day-to-day supervisory and enforcement responsibilities on ESMA; the third relates to the distinct, but related, grant of powers on ESMA to directly intervene in the market and prohibit or impose conditions on short sales in exceptional circumstances.