# European Securities and Markets Authority

The European Securities and Markets Authority (ESMA) is an agency of the European Union located in Paris.
ESMA replaced the Committee of European Securities Regulators (CESR) on 1 January 2011. It is one of three European Supervisory Authorities set up within the European System of Financial Supervision, together with the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA).

## Legal Force

ESMA derives its legal force from the 'ESMA Regulation'. This regulation governs ESMA's competencies and delimits its powers.

## Objective

The ESMA regulation states in Article 1(5): "The objective of the Authority shall be to protect the public interest by contributing to the short-, medium- and long-term stability and effectiveness of the financial system, for the Union economy, its citizens and businesses."
This mission is further specified in Article 1(6):
   ESMA shall contribute to:
   * (a) improving the functioning of the internal market, including in particular a sound, effective and consistent level of regulation and supervision
   * (b) ensuring the integrity, transparency, efficiency and orderly functioning of financial markets,
   * (c) strengthening international supervisory coordination
   * (d) preventing regulatory arbitrage and promoting equal conditions of competition
   * (e) ensuring that the taking of investment and other risks are appropriately regulated and supervised
   * (f) enhancing customer and investor protection
   * (g) enhancing supervisory convergence across the internal market

## Composition and Seat

ESMA is structured as follows: a Board of Supervisors; a Management Board, a Chairperson; an Executive Director; and a Board of Appeal - ESMA regulation Article 6. These roles are further specified in the Regulation.
Its seat is, by law, in Paris (Article 7).

## Overview

ESMA's birth is intimately intertwined with the 2008 financial crisis and the 2010 Eurozone crisis. At the light of these major turmoils, the prevailing EU financial supervision framework put on place by Lamfalussy did not stand the shock and was replaced by De Larosière regulatory framework. Therefore, what was known as the level 3 Lamfalussy agencies, the 3L3 Committees (CESR, CEIOPS, CEBS) in this four level framework, were taken over by the current European Supervisory Authorities (ESA are composed of ESMA, EIOPA, EBA) in the European System of Financial Supervision (ESFS) launched in 2011 in answer to the debt crisis.
However, this incremental change was subject to a whole new flow of criticism treating about the EU administrative landscape and, more specifically, the literature around agencification. In fact, scholars studied the rise of EU agencies with executive powers through a critical lens as it raised questions on the democratic principle of the delegation of these powers to external agents, the threat toward the institutional balance of the EU, the impact on the European Parliament and the Council of the EU co-decision process, and the fragmentation it can cause within member states as capitals battle to host them.
ESMA formally came into existence on 1 January 2011, per article 82 of the ESMA Regulation. It started the first page of its history and enjoyed a succession of executive delegations from the commission starting with the Omnibus I (2010) and Omnibus II (2011), which made the ESA operational and gave ESMA the role of direct supervisor of credit rating agencies and trade repositories. Similarly, ESMA's role in overseeing environmental, social, and governance (ESG) rating providers can help ensure consistency in how these ratings are applied and interpreted across the European Union. In 2012, its competences were enhanced through the EU regulation on short selling and credit default swaps. The year 2014 marked an intensive regulatory pressure on financial markets. The MiFID II and MiFIR directives gave ESMA the responsibility of implementing technical standards in the financial markets. Its mandate includes investor protection and financial integrity and transparency with the Market abuse regulation (MAR), which is increasingly tied to ESG factors. Ensuring that ESG ratings are reliable and not misleading is an essential part of this role.
As of its growing power, they are heavily criticized by some member states. The most vocal of them was the former EU country, the UK. As a matter of fact, the growing weight of the agency was seen as a threat to national sovereignty and the matter grew to a litigation process in front of the European Court of Justice on the particular case of the possibility of ESMA to block short-sellings in time of crisis. UK argument, based on the Meroni case (case 9-56), was that this delegation of power was anti-constitutional and was a breach to national sovereignty. However, the ECJ held against UK in this matter reassuring ESMA of outmost trust in dealing with financial regulations in case of emergency.
Each of these regulations and judgements have served as a springboard and settled ESMA as a key player in the financial realm regulatory framework. However, if ESMA is said to be accountable, independent and competent in EU financial supervision, a glance on its relations and network signals potential conflict of interests while dealing with ESG investing. The surveillance of the ESMA is up the European parliament that still has a double discourse regarding agencification and might use this supervisory power for the sake of advancing a set of personal preferred policies. ESMA works in the field of securities legislation and regulation to improve the functioning of financial markets in Europe, strengthening investor protection and co-operation between national competent authorities.
The idea behind ESMA is to establish an "EU-wide financial markets watchdog". One of its direct supervision tasks is to regulate credit rating agencies. In 2010, credit rating agencies were criticized for the lack of transparency in their assessments and for a possible conflict of interest. At the same time, the impact of the assigned ratings became significant not only for companies and banks but also for states.
In October 2017, ESMA organised its first conference which was held in Paris. The event examined issues critical to European financial markets and was attended by 350 participants.

### ESMA's product intervention measures

On 1 August 2018, the ESMA implemented modified trading restrictions concerning contracts for difference (CFDs) and spread betting for retail clients. The most significant change was that binary options will be completely banned, while the CFD leverage that retail clients can trade with will be restricted to 30:1 and 2:1, depending on the volatility of the underlying asset traded. These restrictions applied to traders categorized as retail investors only. Experienced traders, which fall under the category of professional clients, were excluded. This also meant that professional clients did not receive the same investor protections as retail investors. The restrictions, initially imposed as a temporary measure, were renewed on 1 February 2019 ,for a further three-month period. On 31 July 2019, the ESMA announced that it will not renew the restrictions after they expire on 1 August 2019, as all the EU member countries have managed to implement similar restrictions on the national level.

### ESMA's supervision of ESG rating activities

The addition of overseeing Environmental, Social, and Governance (ESG) rating providers to the European Securities and Markets Authority's (ESMA) responsibilities can be seen as a coherent extension of its existing mandate and expertise. Its association through the proposal of a regulation on ESG ratings activities integrity and transparency therefore aligns with the aim to concentrate a comprehensive EU Finance Single Rulebook on the hand of ESMA. ESMA would have supervisory powers over ESG rating providers in addition to the supervision of credit rating agencies. Since there are similarities between supervisory functions, ESMA will have much more facilitated future supervision.
Under the proposed regulations, any entity wishing to offer Environmental, Social, and Governance (ESG) rating services within the European Union must obtain official authorization. Entities based in the EU are obliged to seek this authorization from the European Securities and Markets Authority. ESMA will grant authorization upon determining that the applicant meets the criteria outlined in the Proposal and the right to apply fines in case of non-compliance to the set of requirements on quality, integrity, independence and transparency.

### ESMA's issuance of guidance

To ensure the consistent day-to-day application of Union law within ESMA's remit, ESMA issues and maintains "Guidelines (“GL”), Opinions (“OP”) and Q&As (“Q&As”)". As for the legal basis,the ESMA regulation specifically empowers ESMA to issue and maintain Guidelines and recommendations (Article 16), Opinions (Article 16a), and Q&As (Article 16b).
As for Q&As, in February 2017 ESMA launched a process to allow stakeholders to submit a Q&A. Once scrutinised, if these Q&As are selected, they are published in English on ESMA's website.

### Single Rulebook

In a major initiative designed to facilitate access to information, ESMA created an interactive single rulebook. It stated, "The Interactive Single Rulebook is an on-line tool that aims at providing a comprehensive overview of and easy access to all level 2 and level 3 measures adopted in relation to a given level 1 text. The purpose of the Interactive Single Rulebook is to facilitate the consistent application of the EU single rulebook in the securities markets area. ESMA’s objective is to provide an interactive version for each key level 1 text under ESMA’s remit over time."

## National Competent Authorities

* Austria: Financial Market Authority (FMA)
* Belgium: Commission Bancaire, Financière et des Assurances (CBFA), then Financial Services and Markets Authority (FSMA) from 1 April 2011
* Bulgaria: Financial Supervision Commission [bg]
* Croatia: Croatian Financial Services Supervisory Agency [hr] (Hanfa), from accession on 1 July 2013
* Cyprus: Cyprus Securities and Exchange Commission
* Czechia: Czech National Bank
* Denmark: Finanstilsynet
* Estonia: Financial Supervisory Authority (Finantsinspektsioon)
* Finland: Finnish Financial Supervisory Authority (FIN-FSA)
* France: Autorité des Marchés Financiers (AMF)
* Germany: Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin)
* Greece: Capital Market Commission (CMC)
* Hungary: Hungarian Financial Supervisory Authority [hu] (PSZÁF), then Hungarian National Bank from 1 October 2013
* Iceland: Financial Supervisory Authority (FME), then Central Bank of Iceland from 1 January 2020
* Ireland: Central Bank of Ireland (CBI)
* Italy: Commissione Nazionale per le Società e la Borsa (CONSOB)
* Latvia: Financial and Capital Market Commission [lv] (FKTK), then Bank of Latvia from 1 January 2023
* Liechtenstein: Finanzmarktaufsicht (FMA)
* Lithuania: Lithuanian Securities Commission [lt] (2011), then Bank of Lithuania from 1 January 2012
* Luxembourg: Commission de Surveillance du Secteur Financier (CSSF)
* Malta: Malta Financial Services Authority (MSFA)
* Netherlands: STE (2001-2002), then Autoriteit Financiële Markten (AFM)
* Norway: Finanstilsynet
* Poland: Financial Supervision Authority (KNF)
* Portugal: Comissão do Mercado de Valores Mobiliários (CMVM)
* Romania: National Securities Commission [ro] (CNVM), then Financial Supervisory Authority (ASF) from 26 April 2013
* Slovakia: National Bank of Slovakia
* Slovenia: Securities Market Agency (ATVP)
* Spain: Comisión Nacional del Mercado de Valores (CNMV)
* Sweden: Finansinspektionen
* United Kingdom: Financial Services Authority (FSA), then Financial Conduct Authority (FCA) from 1 April 2013 until Brexit on 31 January 2020

## Leadership

ESMA Chair:
* Steven Maijoor (1 April 2011 - 31 March 2021)
* Anneli Tuominen [fi] (interim chair, 2021)
* Verena Ross (since 1 November 2021)
ESMA CCP Supervisory Committee Chair:
* Klaus Löber (since 1 December 2020)
ESMA Executive Director:
* Verena Ross (2011-2021)
* Natasha Cazenave (since 1 June 2021)