FIA, ISDA and FIA EPTA have jointly responded to the European Commission's targeted consultation on the functioning of the European Supervisory Authorities, which seeks to take stock of supervisory convergence and how the EU’s single rulebook works in practice. The results of the consultation will feed into a report reviewing the ESAs.
The Associations consider that supervisory convergence and the removal of cross-border impediments should be the primary focus of the ESAs. Should further direct powers be considered for ESMA, the Associations support a targeted approach and suggest several areas where ESMA has a strong and direct role to play.
The Associations have been fully supportive of the creation of the ESAs, which have played a crucial role in developing EU financial markets and we applaud the ESAs for all their achievements over the past 10 years. The ESAs will continue to be vital in the furtherance of an effective Capital Markets Union (CMU), and we will be working closely with the European Commission and the ESAs on an ongoing basis to continue to evolve safe and efficient EU capital markets.
By way of summary, the Associations consider that supervisory convergence and the removal of cross-border impediments should be the primary focus on the ESAs and that an extension of ESAs’ powers should be considered once the supervisory convergence goals have been fully achieved. Should further direct powers be considered for ESMA, the Associations would support a targeted approach and suggest: Centralisation of data used for the consolidated tape under MiFID; Data consolidation/Golden source; Sustainable finance; European Single Access Point (ESAP) for EU-wide access to relevant information; and Benchmarks as areas where the ESAs can play a strong role.
In addition, providing more flexibility is recommended when it comes to legislation deadlines and for setting regulatory and compliance deliverables. Markets would benefit from equipping ESMA with tools for more agility when it comes to the ESA’s decision-making to enable swifter reactions to change market conditions. On the consultation approach and while acknowledging that ESMA’s deliveries are subject to Level 1 timelines, the Associations recommend ESMA to provide adequate timelines for consultation periods and also allow sufficient time for the analysis of interconnectedness of related consultations and business impacts.
On industry engagement, the Association’s recommend enhanced interactions and standard practices (during and post-consultation phases) with the industry and welcome increased engagement with the industry in the form of roundtables, hearings for the industry before and during consultation processes, more visibility and transparency around roundtable invitations, etc.
The COVID-19 situation has been challenging for both the industry and regulators since March 2020 and the dialog between ESMA and the industry has been very positive. The industry welcomed the various de-prioritisation statements (to ensure coordinated supervisory actions by NCAs) by announcing a wide range of actions aimed at mitigating the impact of the Covid-19 outbreak on various market stakeholders and areas. However, given the extraordinarily disruptive nature of the crisis the Associations’ members note that the European Commission and ESMA could have considered a much more flexible agenda of review of certain fundamental pieces of legislation and did not sufficiently 'prioritise' between emergency regulatory intervention and longer-term review of existing legislation compared to the approach taken in many other jurisdictions.
The response includes recommendations to ESMA to provide Cost-Benefit Analysis (CBA) so as to justify its proposals of regulatory measures, included in its Consultation Papers, which market participants have been called to comment on and which have been perceived as potentially generating material impact on them and further improvements to the Q&A process.
Finally, the no-action letter mechanism introduced in 2019 does not provide a sufficiently effective and binding tool to the ESAs as these still have limited authority. Therefore, the Associations recommend developing the mechanism further to provide necessary flexibility in the process of applying new regulations in certain cases or facilitate the maintenance of orderly markets and financial stability.