title: Lobbying across venues in EU financial regulation: the role of institutions’ demand for information
Creators: name: Cencig, Elisa
Publisher: name: London School of Economics and Political Science (LSE)
Year: 2021

description: Research has often conceptualised lobbying as an exchange between what is often called the “supply side” – interest groups – and the “demand side”, namely policymakers and institutions which are targeted by lobbyists. Within this conceptual framework, lobbyists provide some access good (usually information or money, the latter notably under the form of campaign contributions) to policymakers in exchange for influence on policy outcomes. While research on advocates’ features and how they influence lobbying has abounded traditionally, and scholarly attention has more recently acknowledged the importance of contextual factors such as policy characteristics, the role played by the policymaker (the “demand side”) has often been neglected by researchers. Similarly, research on agency lobbying in the EU has traditionally been scarce, as most scholars have focused on the European Commission, Parliament and Council, while stakeholders routinely also engage with the EU’s independent authorities, which have gained significant rulemaking powers over time. My research question aims to explore the role played by policymakers’ information demand in affecting advocates’ lobbying success: does lobbying success vary by the targeted institutional venue? If yes, is the information need of the institutional venue an explanatory factor? I hypothesise that the higher information capacity of the European Securities and Markets Authority, the EU agency in charge of securities markets rules, compared to that of the European Commission, translates into lower success chances for stakeholders as the policymaker’s demand for the information they supply is less significant. Furthermore, I expect that institutions’ “baseline” information demand varies depending on contextual factors, notably the complexity of the policy, and that stakeholders will accordingly be more successful when trying to influence rules pertaining to a more complex policy, all else equal. Independent agencies are now an integral part of the institutional framework behind EU financial regulation. The European Supervisory Authorities (ESAs) created in the wake of the financial crisis have indeed been granted significant rulemaking powers and tasked with the responsibility of drafting delegated legislation. While the European Commission maintains the monopoly of initiative and power to draft primary legislative acts, the ESAs now hold the pen for delegated rules, which are 4 meant to be of a more detailed and technical nature but are often similar to the former in practice. Agency-drafted delegated rules are also of increasing importance in EU financial services law, as demonstrated for instance by the various oversight mechanisms created to control ESAs’ drafting powers. The internal procedures leading to the preparation of rule drafts by the Commission and ESAs respectively are highly similar, and so are the requirements pertaining to how policymakers engage with stakeholders prior to rule adoption. Two of the lobbying strategies most frequently used by stakeholders are submitting a response to a policymaker’s consultation and meeting with the former to directly discuss a given policy issue. The data I collected, which include a main database of over 4000 consultation submissions (covering almost a decade) and a database of circa 1800 meetings (taking place between 2014 and 2018), display no significant difference in stakeholders’ engagement with the European Commission and ESMA. Stakeholders target both policymaking institutions in a similar way in terms of both responding to their consultations and seeking a meeting, and do not clearly prioritise one institution over the other. In both cases, business interests represent the majority of stakeholders represented in the databases, and more complex policies are the subject of most consultation submissions and meetings with the two institutions. Measuring lobbying success has long been a challenge for political scientists, but recent advances in quantitative text analysis coupled with spatial theories of lobbying offer a promising avenue for lobbying researchers. Extracting advocates’ policy preferences through text analysis (in my case Wordfish) and using these estimates to calculate lobbying success as relative improvement yields results with very good face validity, and allows to analyse large amount of data. The regression analysis of my consultations database confirms as expected that lobbying success varies by the targeted institutional venue, namely that targeting ESMA compared to the Commission significantly lowers advocates’ chances of achieving their preferences. This effect is moderated by the level of policy complexity, which is also positively correlated with lobbying success: in the case of a more complex policy and all else equal, advocates will be more successful in influencing the related rules. In the case of Credit Rating Agency policy, the information demand of the Commission was significantly higher than that of ESMA, which when drafting the relative legislation could count on a team of specialised officials with relevant prior experience. In contrast, the Commission had no expertise on CRA policy and took 5 significant steps to gather stakeholder feedback when preparing CRA rules, pointing to its higher information demand in this area. Affected by this difference in the two policymakers’ information capacity, stakeholders’ lobbying success was considerably higher in the case of the Commission rules. Advocates were indeed successful in achieving considerable changes on corporate governance requirements, conflict of interest rules and provisions for structured finance ratings. In contrast, stakeholders were unable to influence the standards drafted by ESMA, notwithstanding similar lobbying efforts, as the authority’s final proposals were only marginally different from its initial drafts. In the case of MIFID II, a significantly more complex policy, the inhouse expertise possessed by ESMA compared to the Commission was also significantly higher, meaning that stakeholders were similarly better able to influence the Commission final rules than those drafted by the agency. The gap in lobbying success levels between the two venues was smaller in the case of MIFID II compared to CRAs, as ESMA accepted a comparatively larger proportion of stakeholder comments in the MIFID II case. The information demand of the two institutions was higher in the MIFID case, deepened by the considerable level of policy complexity, but the effect of policy complexity on the policymaker’s demand for information and in turn stakeholders’ success was stronger for ESMA compared to the Commission. In conclusion, the research question can be answered in the positive, as the findings of this thesis show that lobbying success varies by the targeted institutional venue, and that policymakers’ demand for information is a significant driver behind this effect.