EU: The European Securities And Markets Authority

Question 1

What are three main failures in Europe that we learnt about after the 2008 Global Financial Crisis?

Answer 1

1. Accumulation of excessive risk was not detected.
2. Surveillance and supervision were not effective in time.
3. Coordination between national authorities was far from optimal when transnational financial institutions faced problems.

Question 2

What are the names of the three European authorities for supervision of financial activities that were established in Jan 2011?

Answer 2

1. ESMA: European Securities and Markets Authority
2. EBA; European Banking Authority
3. EIOPA: European Insurance and Occupational Pensions Authority

Question 3

What are the five main aims of ESMA in Europe?

Answer 3

1. Integrity.
2. Transparency.
3. Efficiency.
4. Orderly functioning of securities markets.
5. Investor protection.

Question 4

What are the main powers of ESMA in Europe?

Answer 4

1. draft technical standards that are legally binding in EU member states.
2. launch a fast-track procedure to ensure consistent application of EU law.
3. Resolve disagreements between national authorities.
4. Additional responsibilities for consumer protection. I.e. Prohibit financial products for 3 months if they threaten financial stability and orderly functioning of markets
5. Emergency powers
6. Participating in Colleges of Supervisors and on-site inspections.
7. Monitoring systematic risk of cross-border financial institutions.
8. enter into administrative arrangements with supervisor authorities, international organisations and administration of third countries.

Question 5

Explain the concept of level 1, 2, 3 and 4 with regards to the EU supervisory system

Answer 5

1. Level 1: directives and regulations set high-level political objectives on the area concerned.
2. Level 2: ESMA plays a primary role here in drafting “subordinate acts”
3. Level 3: ESMA develops guidelines and recommendations to establish consistent, efficient and effective supervisory practices of the EU law. Also includes supervisory convergence (ensure uniform application of the law)
4. Level 4: ESMA can be requested to launch an inquiry and can issue a recommendation addressed to the national authority (within 2 months) of launching the investigation.