European Union: The Rise Of The Esas: EU Proposals To Extend Direct Supervision Of Financial Markets

Last Updated: October 2 2017
Article by Peter Green and Jeremy C. Jennings-Mares

On 20 September 2017, the European Commission published a package of measures designed to increase the powers of the three European Supervisory Authorities (ESAs), primarily by transferring certain powers of regulation and supervision from national competent authorities to the ESAs.

The proposals are significant in relation to a number of aspects of financial services and capital markets activity. We highlight below some of the key features of the proposals.


The ESAs comprise the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA). The ESAs were established in 2010 as part of the creation of a Single Rulebook for financial regulation in the EU to take over the functions of previous committees of EU supervisors and regulators. The ESAs were granted more direct powers to coordinate the work of competent authorities of member states, providing technical advice to the EU Commission on specified matters and producing draft technical standards and guidelines to supplement provisions of EU regulations and directives.

The precise framework of regulation, supervision and enforcement in relation to each piece of EU financial regulation varies on a case by case basis. Generally, however, the primary role of supervision and enforcement in each member state is the responsibility of the relevant competent authority or authorities in that member state. One or more of the ESAs will usually have a role in coordinating work of competent authorities and may have specific powers to approve certain actions by competent authorities. On the whole, however, the ESAs do not perform the primary function of regulation and supervision under relevant legislation. There are, however, already some exceptions. For example, ESMA has the role of authorising and supervising non-EU central counterparties and all trade repositories under the European Market Infrastructure Regulation and is the single supervisor of credit rating agencies within the EU.

In addition to the three ESAs, the European Systemic Risk Board (ESRB) was also established in 2010 with the function of overseeing the EU financial system as a whole and coordinating EU policies for financial stability.

In recent years, the EU has sought to move towards a more integrated system of supervision of financial markets. In September 2015, the EU Commission launched its Capital Markets Union (CMU) Action Plan1 to seek to strengthen and deepen capital markets across the EU with the aim of having a fully functioning CMU by 2019. The mid-term review of CMU in May 2017 highlighted the need for more integrated financial markets. In the "Five Presidents Report" in June 20152, it was concluded that there would in due course be the need for a single EU capital markets supervisor.

Proposals to further centralise powers within the ESAs will not be without political controversy. Individual financial markets vary greatly among member states and many are likely to argue that primary responsibility for the bulk of financial regulation should remain with individual competent authorities. Although the EU Commission will be likely to argue that the proposals do not undermine this principle, the proposals will inevitably lead to a significant change in the balance of power towards the ESAs.

What Is Proposed?

The specific proposals comprise:

  • a draft Omnibus Regulation which contains amendments to various EU financial regulations including the Markets in Financial Instruments Regulation (MiFIR), the Benchmarks Regulation and the new Prospectus Regulation3;
  • a draft Omnibus Directive which contains amendments to the recast Markets in Financial Instruments Directive ("MiFID II") and the Solvency II Directive4;
  • a draft Regulation amending the ESRB Regulation5; and
  • an amendment to the EU Commission's June 2017 proposed Regulation amending EMIR (referred to generally as "EMIR II")6.

Some of the key features of the proposals include:

Prospectuses. At present under the Prospectus Directive and the new Prospectus Regulation (which is due to come into effect from July 2019), all prospectuses are required to be approved by the competent authority of the issuer's home member state. For non-EU issuers the home member state is determined by reference to specified criteria.

Under the proposals, all non-EU issuers required to prepare a prospectus under the Prospectus Regulation will have to file the prospectus with ESMA and ESMA will take over the role of the home competent authority in approving such prospectus. In addition, ESMA will take over the role of competent authority for any prospectus drawn up:

  • relating to the admission for trading of non-equity securities which are to be traded on a regulated market, or a specific segment thereof, to which only qualified investors can have access for the purpose of trading such securities;
  • relating to asset-backed securities;
  • by property companies, mineral companies, scientific research-based companies and shipping companies.

These proposals will give rise to a significant role for ESMA in directly authorising securities prospectuses. It is worth noting that after the UK leaves the EU following Brexit, the proposals will mean that all prospectuses relating to securities issued by UK entities and offered to the public in the EU will be subject to approval by ESMA. The proposal does, however, fix the solution as to what authority would be the home member state for such prospectuses after Brexit. Assuming this proposal eventually comes into force, it is to be hoped that transitional arrangements in relation to Brexit will allow the UK FCA to continue to approve such prospectuses up to the date the new rules become effective. Otherwise, there will be an interim period where a new home member state has to be appointed by such issuer. Similarly non-EU issuers that currently have the UK as their home member state in relation to securities prospectuses (as with all non-EU issuers) will be required to seek approval from ESMA in relation to their prospectuses for securities offered to the public in the EU.

Financial Benchmarks. The Benchmark Regulation will come into effect from 1 January 2018 and, subject to transitional arrangements, will require EU-based administrators of financial benchmarks within the scope of the regulation to be authorised in respect of the administration of such benchmarks with their relevant EU competent authority. For non-EU benchmark administrators whose benchmark is used in the EU, the benchmark can be registered with ESMA subject to certain conditions.

Under the proposals, ESMA will take over the role of the relevant national competent authority for authorising and supervising all EU administrators of critical benchmarks. The definition of "critical benchmark" includes a benchmark that is used as a reference for financial instruments/contracts or for measuring the performance of investment funds, having a total value of at least €500 billion. Where the relevant value is at least €400 billion, the benchmark will also be critical if it has no, or very few, appropriate market-led substitutes and if, in circumstances where the benchmark is no longer provided, its absence would have a significant and adverse impact on market integrity, financial stability, consumers, the real economy or the financing of households and businesses. A benchmark is also regarded as critical if it is based on submissions by contributors, the majority of which are located in one member state, and is recognised as being critical by the relevant competent authority in accordance with specified criteria. At present, the only benchmarks that have been designated as critical benchmarks are EURIBOR and EONIA but others are expected to be so designated shortly, including LIBOR.

In the context of Brexit, LIBOR is currently administered by ICE Benchmark Administration (IBA) and regulated by the Financial Conduct Authority (FCA) in the UK (although the FCA has recently announced that it does not intend to exercise its powers to require firms to contribute to LIBOR after 2021). Assuming that LIBOR is designated as a critical benchmark then, but for Brexit, the effect of the EU's proposals would be that ESMA would take over the role of regulator of LIBOR from the FCA. However, assuming that LIBOR continues to be administered by IBA, it will be regarded as a non-EU benchmark following Brexit. The FCA would therefore likely continue to be the regulator for LIBOR even if the new proposals come into effect, although the IBA would also be required to be registered with ESMA under the Benchmark Regulation.

Data Reporting Services. Data reporting service providers under MiFID II/MiFIR (which comes into effect from January 2018) will be required to be authorised and supervised by their relevant competent authority and to provide relevant information to such competent authority. The proposals would transfer the authorisation and supervision of data reporting service providers to ESMA. The EU Commission argues that this will allow for centrally managed authorisation and oversight and avoid market participants having to provide multiple competent authorities with data which is then provided to ESMA. The proposals will also give ESMA the power to conduct investigations and on-site inspections and to impose sanctions for non-compliance.

EMIR. The draft Regulation published by the EU Commission in June 2017 includes provisions to establish a CCP Executive Session within ESMA which will be responsible for aspects of the regulation and supervision of CCPs. These powers are expanded under the new proposal.

Solvency II Directive. The EU Commission proposes to make amendments to the Solvency II Directive. The proposed changes include enhancing the role of EIOPA in relation to insurance and reinsurance undertakings and groups using internal models for the solvency capital requirement calculation. EIOPA will have additional powers in relation to cooperation and information sharing in this regard.

ESRB. The EU Commission believes that the move towards CMU and the establishment of the Banking Union through the Single Supervisory Mechanism (SSM) requires some changes to the ESRB's governance. It proposes that representatives of the SSM and the Single Resolution Board (SRB) become voting members of the ESRB General Board. It is also proposed that the ECB should be included as a potential addressee of ESRB warnings and recommendations. It is also proposed that the European Central Bank president be given the permanent role of acting as chairman of the ESRB.

Governance of ESAs. It is proposed that the ESAs will each have new Executive Boards which will prepare the relevant ESA's work programme and budget. Each Executive Board will have powers in specified areas to prepare decisions for adoption by the Board of Supervisors. Each Executive Board will comprise a chairperson and three full-time members (five for ESMA).

The enhanced roles of the ESAs will inevitably lead to further staffing needs and additional costs. The current fixed distribution of funding between national authorities and the EU budget is to be amended. It is intended that less of the funding for the ESAs will come from the public sector and more will be met by industry and market participants.

Next Steps

The legislative proposals will now need to be considered by the European Parliament and the EU Council of Ministers. The EU Commission is pushing for the legislation to be finalised by 2019 in the current legislative term. The EU Commission has also invited public/industry feedback by 15 November 2017.

Some Thoughts

The proposals, although significant, do not, on the whole, represent a huge change in the balance of power between the ESAs and national competent authorities who will continue to maintain much of their current role in relation to financial regulation and supervision. The changes, however, do continue a slow but steady rise in the powers and responsibilities of the ESAs since they were established in June 2010 and it will be surprising if this does not continue to be the direction of travel in the future. The balance of power shift is most acute in relation to the new Prospectus Regulation. Effectively designating ESMA as the competent authority for all non-EU issuers in terms of approving prospectuses in respect of securities to be offered to the public in the EU and all issuers in respect of non-equity securities to be admitted to trading on a regulated market is likely to result in it being asked to consider the approval of a very significant number of prospectuses.

A number of member states, most notably the UK, have fought hard to maintain the role and independence of national competent authorities. It is therefore perhaps not surprising that with the UK on the verge of leaving the EU, the move towards centralisation of powers within the ESAs seems to be accelerating. There is perhaps some irony in the fact that, once the UK leaves the EU, one of the most significant consequences of the proposals is that all prospectuses prepared by UK issuers of securities to be offered to the public in an EU member state will need to be authorised by ESMA.

The extra burden on ESMA as a result of this new role is not to be underestimated. Even with the UK within the EU, a significant number of non-EU entities issue securities to the public within the EU. It is to be expected that UK issuers will continue to actively seek investors in the EU. This role itself is therefore likely to add considerably to ESMA's workload and staffing requirements and is likely to need some preparation by ESMA to be able to fulfil this role. Also, with the likely increase in the designation of critical benchmarks under the Benchmark Regulation, ESMA's role as competent authority in relation to such benchmarks is also likely to be material. It is therefore likely that ESMA, in particular, will need significant new resources and staff to be able to fulfil its new role.


1 "Action Plan on Building a Capital Markets Union,"

2 "Completing Europe's Economic and Monetary Union,"





Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Peter Green
Jeremy C. Jennings-Mares
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.