The European securities and markets authority and institutional design for the EU financial market - A tale of two competences: Part (2) rules in action

European Business Organization Law Review

Volumn 12, Issue 2, 2011, Pages 177-225

  Moloney, Niamh ^a  

^a LONDON SCHOOL OF ECONOMICS   (United Kingdom)

Author keywords

ESMA; EU; EU financial markets; European Securities and Markets Authority; financial crisis; regulation of financial markets; supervision of financial markets

Indexed keywords

EID: 79959313868     PISSN: 15667529     EISSN: 17416205     Source Type: Journal    
DOI: 10.1017/S1566752911200016     Document Type: Article

References (121)

1. A Guide to Understanding ESMA (2011).
2. On ESMA, see further E. Ferran, 'Understanding the Shape of the New Institutional Architecture of EU Financial Market Supervision' (2010), available at:
3. E. Wymeersch, 'The Reforms of the European Financial Supervisory System-An Overview', 7 European Company and Financial Law Review (2010) p. 240.
4. See further K. Alexander and E. Ferran, 'Can Soft Law Bodies Be Effective: The Special Case of the European Systemic Risk Board', 35 European Law Review (2010) p. 751
5. F. Recine and P.G. Teixeira, 'The New Financial Stability Architecture in the EU' (2009), available at: .
6. The High-Level Group on Financial Supervision in the EU, Report (2009) (the DLG Report), at pp. 38-39.
7. For an early discussion of rule design and its impact on outcomes, see J. Black, 'Which Arrow? Rule Types and Regulatory Policy', Public Law (1995) p. 94.
8. E.g., J. Black, 'The Emergence of Risk-based Regulation and the New Public Risk Management in the UK', Public Law (2005) p. 512
9. idem, 'Risk Based Regulation: Choices, Practices and Lessons Being Learned', in Risk and Regulatory Policy: Improving the Governance of Risk (OECD, Paris 2010).
10. E.g. H. Jackson, 'An American Perspective on the UK FSA, Politics, Goals
11. Regulatory Intensity' (2005), available at:
12. idem, 'Variations in the Intensity of Financial Regulation: Preliminary Evidence and Potential Implications', 24 Yale Journal on Regulation (2007) p. 253
13. H. Jackson and M. Roe, 'Public and Private Enforcement of Securities Laws: Resource-Based Evidence', 93 Journal of Financial Economics (2009) p. 207. In the EU context
14. see E. Wymeersch, 'The Structure of Financial Supervision in Europe: About Single Financial Supervisors, Twin Peaks and Multiple Financial Supervisors', 8 European Business Organization Law Review (2007) p. 237.
15. IMF, Financial Sector Assessment Programmes Handbook (2005), at p. 102.
16. J. Black, 'Enrolling Actors in Regulatory Processes: Examples from UK Financial Services Regulation', Public Law (2003) p. 62.
17. and CESR, 2006 Report on Supervisory Convergence in the Field of Securities Markets (2006) (CESR/06-259b).
18. From the large financial crisis scholarship, see, on specific coordination mechanisms, D. Alford, 'Supervisory Colleges: The Global Financial Crisis and Improving International Supervisory Coordination' (2010), available at:
19. and, on the underlying problems including divergences in national policy preferences, C. Brummer, 'How International Financial Law Works (and How It Doesn't)', 99 Georgetown Law Journal (2011) p. 257.
20. N. Moloney, EC Securities Regulation, 2nd edn. (Oxford, OUP 2008), at pp. 1102-1107.
21. >.) (Himalaya Report).
22. E.g., European Commission, Review of the Lamfalussy Process. Strengthening Supervisory Convergence (2007) (COM(2007) 727).
23. Particularly in terms of the inability of IOSCO and the Basel Committee to respond to the crisis: D. Zaring, 'International Institutional Performance in Crisis', 10 University of Chicago Journal of International Law (2010) p. 475
24. P.H. Verdier, 'International Regulatory Networks Their Limits', 34 Yale Journal of International Law (2009) p. 113.
25. See, e.g., N. Moloney, 'EU Financial Market Regulation after the Financial Crisis: "More Europe" or More Risks?', 47 Common Market Law Review (2010) p. 1317
26. W. Fonteyne, et al., 'Crisis Management and Resolution for a European Banking System', IMF Working Paper WP/10/10 (2010), available at:
27. M. Dabrowski, 'The Global Financial Crisis: Lessons for European Integration' (2009), available at:
28. S. Cotterli and E. Gualandri, 'Financial Crisis and Supervision of Cross-Border Groups in the EU' (2009), available at: .
29. Brussels European Council Conclusions, 18-19 June 2009.
30. DG Internal Market and Services, Working Document, Technical Details of a Possible EU Framework for Bank Recovery Resolution, January 2011.
31. European Commission, Public Consultation. Review of the Markets in Financial Instruments Directive, December 2010 (MiFID Review).
32. On Intensive Supervision and the related Supervisory Enhancement Programme, see (initially) FSA, The Turner Review. A Regulatory Response to the Global Banking Crisis (2009), at pp. 86-91
33. FSA, Discussion Paper 09/2, A Regulatory Response to the Global Banking Crisis (2009), ch. 11. More recently
34. Speech by FSA Chief Executive Sants on 'Reforming Supervisory Practices: Practical Progress to Date', Reuters Newsmakers Event, 13 December 2010, available at: .
35. The Pittsburgh G20 conclusions, e.g., were broadly concerned with regulatory reform: Pittsburgh G20 Meeting, Leaders' Statement on 'Strengthening the International Financial Regulatory System', available at: .
36. C. Brunner, 'Why Soft Law Dominates International Finance-And Not Trade', 13 Journal of International Economic Law (2010) p. 623, at p. 636.
37. E.g., IOSCO, Principles Regarding Cross-border Supervisory Cooperation (2010).
38. See D. Langevoort, 'U.S. Securities Regulation and Global Competition', 3 Virginia Law & Business Review (2008) p. 191, noting the difficulties in moving from standard-setting to enforcement.
39. Its 2009 review of 'fit and proper' standards, e.g., examines the best supervisory practices in this area: IOSCO, Fit and Proper Assessment, Best Practice Report (2009).
40. It has recommended, e.g., that emerging market regulators adopt a risk-based supervisory approach: IOSCO, Guidelines to Emerging Market Regulators Regarding Requirements for Minimum Entry and Continuous Risk-Based Supervision of Market Intermediaries (2009).
41. FSB, Framework for Adherence to International Standards (2010). Peer review of the FSB executive compensation standards has taken place: FSB, Thematic Review on Compensation. Peer Review Report (2010).
42. R. Baldwin and J. Black, 'Really Responsive Regulation', 71 Modern Law Review (2008) p. 59.
43. E.g., E. Pan, 'Four Challenges to Financial Regulatory Reform', 55 Villanova Law Review (2009) p. 101.
44. See further, N. Moloney, 'Monitoring Regulation: The Difficulties of Achieving "Law in Action" and the EU Challenge', in K. Hopt, G. Ferrarini and E. Wymeersch, eds., Financial Regulation and Supervision in the New Financial Architecture (Oxford, OUP, forthcoming 2011).
45. N. Moloney, 'Regulating the Retail Markets: Law, Policy and the Financial Crisis', in G. Letsas and C.O. Cinneide, eds., Current Legal Problems 2010 (Oxford, OUP 2010) p. 375.
46. E.g., J. Black, M. Hopper and C. Band, 'Making a Success of Principles-Based Regulation', 1 Law and Financial Markets Review (2007) p. 191.
47. N. Moloney, How to Protect Investors. Lessons from the EU and the UK (Cambridge, CUP 2010), ch. 4.
48. Similarly, R. Romano, 'Against Financial Regulation Harmonization: A Comment' (2010), available at: .
49. Key staging posts include: FSA, Retail Conduct Risk Outlook (2011)
50. HM Treasury, A New Approach to Financial Regulation: Building a Stronger System (2011), at pp. 69-70.
51. Speech by FSA Director of Conduct Policy Sheila Nicoll on 'Product Intervention and EU Engagement: Two Key Strands of Our Consumer Protection Strategy,' Copenhagen, 26 January 2011, available at: .
52. see J. Black, 'The Rise, Fall and Fate of Principles Based Regulation' (2010), available at: .
53. Speech by FSA Chief Executive Sants on 'UK Financial Regulation: After the Crisis,' 12 March 2010, available via: .
54. D. Langevoort, 'Global Securities Regulation after the Financial Crisis', 13 Journal of International Economic Law (2010) p. 799
55. G. Ferrarini and F. Chiodini, 'Regulating Multinational Banks in Europe. An Assessment of the New Supervisory Framework' (2010), available at:
56. K. Pistor, 'Host's Dilemma: Rethinking EU Banking Regulation in the Light of the Global Financial Crisis' (2010), available at: .
57. E.g., Turner Review, supra n. 31, at pp. 11-49.
58. E.g., IOSCO, Managing Systemic Risk. A Role for Securities Regulators (2011), noting the traditional focus of securities regulators on market efficiency, fairness and transparency
59. European Council, Presidency Conclusions, 18-19 June 2009.
60. 2948th ECOFIN Meeting, June 2009.
61. CESR, CEBS and CEIOPS, '3L3 Committees Welcome European Parliament Landmark Vote to Reform Financial Supervision in Europe', 22 September 2010.
62. E.g., CONSOB, Annual Report (2008), at p. 103, highlighting CONSOB's risk-based approach to supervision
63. BaFIN, Annual Report (2008), at pp. 125-130, explaining how BaFIN applies a risk-based model to the banking sector.
64. DNB, 'DNB's Vision of Supervision in 2006-2010', DNB Quality Bulletin (2006) p. 54.
65. Annual Report (2008), at pp. 18-19.
66. Annual Report (2008), at p. 221.
67. E.g., AMF, Better Regulation: Initial Assessment and 2008/2009 Work Agenda (2008), at p. 1.
68. FSA resourcing levels climbed significantly in the wake of the crisis, with a projected increase of 460 staff and a 9.9% increase in its annual funding requirement: FSA, Business Plan 2010/2011, at p. 54.
69. FSA, Business Plan 2010-2011, at p. 11.
70. For a summary see E. Hüpkes, M. Quintyn and M. Taylor, 'The Accountability of Financial Sector Supervisors-Principles and Practice', 16 European Business Law Review (2005) p. 1575, at p. 1585.
71. Considerable efforts are being made in the UK to clarify the different strategic objectives, operational objectives and regulatory principles which will govern the proposed Prudential Regulatory Authority and the Financial Conduct Authority: HM Treasury, supra n. 54, at pp. 45-48 61-66.
72. E.g., J. Coffee and H. Sale, 'Redesigning the SEC-Does the Treasury Have a Better Idea?', 95 Virginia Law Review (2009) p. 707.
73. E.g., FATF, Methodology for Assessing Compliance with the FATF 40 Recommendations the FATF Special Recommendations (2004, updated 2009)
74. FATF, AML/CFT Evaluations Assessments. Handbook for Countries and Assessors (2009).
75. Speech by FATF President Vlaanderen on 'The Challenge of Compliance with the FATF Standards', 3 June 2010, available via: .
76. D. Geradin and A. Petit, 'The Development of Agencies at EU and National Levels: Conceptual Analysis and Proposals for Reform' (2004), Jean Monnet Working Paper 01/04, at p. 52.
77. ECON Legislative Report, February 2010 (Giegold Report) (PE.438.409 and A7-0169/2010) and Parliament Partial First Reading, July 2010 (T7-0270/2010).
78. Consumer Savings Patterns (2007).
79. N. Tait, 'ESMA Watchdog Prepared to Clash with Brussels,' 2 March 2011, available via:
80. R. Froynovich, 'ESMA To Be Strongly Independent,' 2 March 2011 (quoting Chairman Maijoor as stating that 'we need to have an eye
81. it needs to improve, on serving the interest of the financial consumer and retail investor'), available via: .
82. Similarly, Keynote Address of ESMA Chairman Steven Maijoor, ISDA AGM, 13 April 2011, noting that ESMA was 'conducting work - to form our future policies and procedures in this important area', available via: .
83. European Commission, Impact Assessment for the 2010 Credit Rating Proposal (SEC(2010) 678), at p. 9 (noting that Moody's was expected to have 14 supervisors in its supervisory college under the 2009 Regulation).
84. ECON Legislative Report, November 2010 (Gauzès Report) (PE 448.995 and A7/340-2010).
85. The Commission's 2008 report on agencies, e.g., argued that agencies could not be entrusted with powers which had been conferred on the Commission by the Treaty: The European Agencies-The Way Forward (2008) (COM(2008) 135).
86. CESR, Annual Report 2009, at p. 40.
87. The MiFID Review also foresees ESMA's ability to decide whether a derivative should be approved for trading on different categories of organised market: MiFID Review, at p. 13.
88. CESR Annual Report 2009, at p. 52
89. MiFID Review, at p. 23. This represents a significant change from the current position.
90. See further, E. Ferran, 'The Regulation of Hedge Funds and Private Equity: A Case Study in the Development of the EU's Regulatory Response to the Financial Crisis' (2011), available at: .
91. ECOFIN Meeting, 2 December 2009: 16571/1-09.
92. E.g., FSA Chairman Turner, Speech at the City of London Corporation's Annual Reception for the City Office, 6 October 2009, available at: .
93. Similarly, Turner Review, supra n. 31, at p. 101, noting 'very strong arguments for keeping the primary responsibility for supervision at Member State level'.
94. H. Jackson, 'A Pragmatic Approach to the Phased Consolidation of Financial Regulation in the US' (2009), available at:
95. E. Ferran, 'The Break Up of the FSA' (2010), available at: .
96. M. Thatcher and D. Coen, 'Reshaping European Regulatory Space: An Evolutionary Analysis', 31 Western European Politics (2009) p. 806.
97. These dynamics have been extensively discussed in the US context. E.g., M. Roe, 'Delaware's Competition', 117 Harvard Law Review (2003) p. 588.
98. A March 2011 speech by FSA Director Sheila Nicoll underlines the importance of the four relevant ESMA task forces in designing the delegated measures to be adopted under the proposed 2011 AIFM Directive: Speech on 'The Alternative Investment Fund Managers Directive-The Road Ahead', Brussels, 17 March 2011, available at: .
99. FSA, The European Supervisory Authorities, available at: .
100. FSA, ibid. Similarly, the FSA has described the ESAs as 'member-led' and as complementing, not replacing, national authorities: FSA, The FSA's International Agenda (2010), at pp. 5-6.
101. FSA, Working towards Effective and Confident European Supervisory Authorities. The FSA's Views on Policy Considerations (2010), highlighting the FSA's preference for non-binding mediation and suggesting acute concern with respect to ESMA's emergency decision-making powers: at pp. 8 and 11.
102. Letters from ECON Chairperson Bowles to the President-in-Office of the ECOFIN Council to Commissioner Barnier, both of 1 February 2011, The Hungarian President-in-Office responded that 'the Council has put high ambitions in the ESAs ?. it now belongs to both Institutions [the Council and Parliament] to ensure that these ambitions translate into appropriate means each year': Letter to ECON Chairperson Bowles, 2 February 2011.
103. Documents available via the ECON website: .
104. E.g., D. Langevoort, 'Re-reading Cady Roberts: The Ideology and Practice of Insider Trading Regulation', 99 Columbia Law Review (1999) p. 1319.
105. The retail markets have typically been overlooked at international level. A significant change in tone came with the February 2011 Paris G20 Communiqué of Financial Ministers and Central Bank Governors, which called on the OECD, the FSB and other relevant international organisations to develop common principles on consumer protection: available via: , para. 6.
106. As initially outlined in E. Tafara and R. Peterson, 'A Blueprint for Cross-Border Access to U.S. Investors: A New International Framework', 48 Harvard Journal of International Law (2007) p. 31.
107. Similarly, C. Brummer, 'Post-American Securities Regulation', 98 Columbia Law Review (2010) p. 327.
108. Similarly, FSA Chief Executive Sants has noted that 'it is vital that we achieve effective domestic coordination cooperation between the regulatory authorities to ensure the UK's views are best represented': Speech on 'Creating the FCA', BBA Conference, 2 March 2011, available at: .
109. The 2009 CESR Annual Report, e.g., detailed the extensive 3L3 workplan: at pp. 72-80.
110. E.g., E. Chiti, 'An Important Part of the EU's Institutional Machinery: Features, Problems Perspectives of European Agencies', 46 Common Market Law Review (2009) p. 1395.
111. The UK's Financial Law Committee was less trenchant, although concerned as to conformity with the Treaty and with the practical implications with respect to enforcement and whether the ESAs' powers would undermine the ability of national authorities to discharge their regulatory functions: Financial Markets Law Committee, Issue 152, European Financial Supervision: Legal Risks (2010), at pp. 9-10 and 13-16.
112. CONSOB, Annual Report 2008, at pp. 15-16.
113. AFM, Report on General Findings Regarding Audit Quality and Quality Control Monitoring (2010).
114. E.g., D. Curtin, 'Holding (Quasi-)Autonomous EU Administrative Actors to Public Account', 13 European Law Journal (2007) p. 523
115. E.g., M. Busuioc, 'Accountability, Control and Independence: The Case of European Agencies', 15 European Law Journal (2009) p. 599
116. R. Dehousse, 'Misfits: EU Law and the Transformation of European Governance', Jean Monnet Working Paper 2/02 (2002), at p. 13.
117. D. Curtin, 'Delegation to EU Non-Majoritarian Agencies and Emerging Practices of Public Accountability', in D. Geradin, R. Mu?oz and N. Petit, eds., Regulation through Agencies in the EU. A New Paradigm of European Governance? (Cheltenham, Elgar 2005) p. 87, at pp. 93-95.
118. The particular difficulties which ESMA raises aside, the chain of delegation to an agency is generally not easy to identify: Curtin, ibid., at p. 90.
119. Ibid., at p. 94
120. and argued for ESMA (rather than the Commission) to exercise the power to impose fines under the Regulation (I. Wishart, 'MEPS Want to Give More Power to Securities and Markets Authority', European Voice, 25 November 2011, available via: );
121. called for additional ESMA information-gathering powers and a hardening of ESMA's power to offer an 'opinion' on a national short-selling decision to the power to make a binding 'decision', ECON Legislative Report, November 2010 (Canfin Report) (PE.454.372).