EN

Brussels, 23.9.2009

COM(2009) 503 final

2009/0144 (COD)

Proposal for a

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

establishing a European Securities and Markets Authority

{COM(2009) 499 final}

{COM(2009) 500 final}

{COM(2009) 501 final}

{COM(2009) 502 final}

{SEC(2009) 1233}

{SEC(2009) 1234}

{SEC(2009) 1235}

EXPLANATORY MEMORANDUM

1. Context of the proposal

Experience of the financial crisis has exposed important failures in financial supervision, both in particular cases and in relation to the financial system as a whole. President Barroso therefore requested a group of high level experts, chaired by Mr Jacques de Larosière, to make proposals to strengthen European supervisory arrangements, with the objective of establishing a more efficient, integrated and sustainable European system of supervision. The Group presented its report on 25 February 2009. Building on its recommendations, the Commission set out proposals for a new European financial supervisory architecture in its Communication to the Spring European Council of March 2009. The Commission presented its ideas in more detail in its Communication of May 2009 which proposed:

– Establishing a European System of Financial Supervisors (ESFS), consisting of a network of national financial supervisors working in tandem with new European Supervisory Authorities (ESAs), created by transforming the existing European supervisory committees [1] into a European Banking Authority (EBA), a European Insurance and Occupational Pensions Authority (EIOPA), and a European Securities and Markets Authority (ESMA), thereby combining the advantages of an overarching European framework for financial supervision with the expertise of local micro-prudential supervisory bodies that are closest to the institutions operating in their jurisdictions; and

– Establishing a European Systemic Risk Board (ESRB), to monitor and assess potential threats to financial stability that arise from macro-economic developments and from developments within the financial system as a whole. To this end, the ESRB would provide an early warning of system-wide risks that may be building up and, where necessary, issue recommendations for action to deal with these risks. [2]

2. Consultation of the interested parties

Two open consultations were conducted in the development of these proposals. Firstly, following the report of the high-level group chaired by Mr Jacques de Larosière and the publication of the 4 March 2009 Commission Communication, the Commission organised a consultation from 10 March to 10 April 2009 as input to its Communication on Financial Supervision in Europe published on 27 May 2009. A summary of the public submissions received can be found on:

http://ec.europa.eu/internal_market/consultations/docs/2009/fin_supervision/summary_en.pdf

Secondly, from 27 May to 15 July 2009, the Commission organised another consultation round, inviting all interested parties to comment on the more detailed reforms presented in the May Communication on Financial Supervision in Europe. The responses received were for the greater part supportive of the suggested reforms, with comments on detailed aspects of the proposed ESRB and ESFS. A summary of the public submissions received can be found on:

http://ec.europa.eu/internal_market/consultations/docs/2009/fin_supervision_may/replies_summary_en.pdf

3. Impact assessment

The May Commission Communication on Financial Supervision in Europe was accompanied by an impact assessment analysing the main policy options for establishing the ESFS and ESRB. A second impact assessment accompanies these proposals, examining the options in more detail. The second impact assessment report is available on the Commission website.

4. Legal elements of the proposal

The Court of Justice has acknowledged [3] that Article 95 of the Treaty relating to the adoption of measures for the approximation of legislation for the establishment and functioning of the internal market provides an appropriate legal basis for setting up a "Community body responsible for contributing to the implementation of a process of harmonisation", when the tasks conferred on such a body are closely related to the subject-matter of the acts approximating the national legislations.

The financial and economic crisis has created real and serious risks to the stability of the internal market. Restoring and maintaining a stable and reliable financial system is an absolute prerequisite to preserving trust and coherence in the internal market, and hence to preserve and improve the conditions for the establishment of a fully integrated and functioning internal market in the field of financial services. Moreover, deeper and more integrated financial markets offer better opportunities for financing and risk diversification, and thus help to improve the capacity of the economies to absorb shocks. Financial integration and stability are therefore mutually reinforcing. The establishment of the ESFS will be accompanied by the development of a single rule book which will ensure uniform application of rules in the EU and thus contribute to the functioning of the internal market. The task of the ESAs will be to assist the national authorities in the consistent interpretation and application of the Community rules.

As the tasks to be conferred on the Authorities are closely linked to the measures put in place as a response to the financial crisis and to those announced in the Commission Communications of 4 March and 27 May 2009, they can, in line with the Court's case law, be established on the basis of Article 95 of the Treaty.

Community action can address the weaknesses highlighted by the crisis and provide a system that is in line with the objective of a stable and single EU financial market for financial services – linking up national supervisors into a strong Community network. However, the focal point for day-to-day supervision will remain at the national level, with national supervisors remaining responsible for the supervision of individual entities. In this way, the provisions do not go beyond what is strictly necessary to achieve the objectives pursued. The proposals are therefore in accordance with the principles of subsidiarity and proportionality as set out in Article 5 of the Treaty.

5. Budgetary implications

For the transformation of the existing European supervisory committees into effective ESAs, enhanced resources are needed - both personnel and budgetary. An overview of the budgetary implications of these proposals is presented in the impact assessment report and accompanying legislative financial statements (attached to this proposal).

6. Detailed explanation of the proposal

In order to take account of sectoral specificities, three separate Regulations are needed to establish the Authorities for banking, insurance and occupational pensions, and securities. The broad thrust of these proposals is however identical. This memorandum therefore first discusses the common elements and briefly touches upon the differences between the three Regulations.

6.1. Establishment of the ESAs and their legal status

The objective of the ESAs shall be to contribute to: (i) improving the functioning of the internal market, including in particular a high, effective and consistent level of regulation and supervision, (ii) protecting depositors, investors, policyholders and other beneficiaries, (iii) ensuring the integrity, efficiency and orderly functioning of financial markets, (iv) safeguarding the stability of the financial system, and (v) strengthening international supervisory coordination. For this purpose, each ESA shall contribute to ensuring the coherent, efficient and effective application of the relevant Community law.

The ESAs will be Community bodies with a legal personality and a key element of the proposed ESFS. The latter shall function as a network of supervisors and comprise the national authorities in the Member States, a Joint Committee of European Supervisory Authorities, to cover cross-sectoral issues, and the European Commission. While the ESAs should enjoy maximum independence to objectively fulfil their mission, the Commission has to be involved where institutional reasons and the responsibilities under the Treaty so require.

The main decision-making body of each ESA will be its Board of Supervisors, consisting of the heads of the relevant national supervisors as well as the Chairperson of the respective Authority. The Chairperson will preside over meetings of the Board of Supervisors and the Management Board, and act as the head and representative of the Authority. The day-to-day management of each Authority will be in the hands of an Executive Director. As for the location of the new ESAs, it is proposed to maintain the present place of residence of the existing European committees of supervisors, as this allows for a fast and effective transition to the new regime. Section 6.3 discusses the internal organisation of the ESAs in more detail.

6.2. Tasks and powers of the ESAs

The ESAs will take on all the tasks of the existing European supervisory committees, but in addition have significantly increased responsibilities, defined legal powers and greater authority, as set-out in the Commission Communication of 27 May 2009 and agreed upon by the European Council of 18-19 June 2009.

6.2.1. Develop technical standards

The European Council endorsed the Commission's proposal that a single EU rule book should be established, applicable to all financial institutions in the Single Market. To this end, differences in the national transposition of Community law stemming from exceptions, derogations, additions or ambiguities must be identified and removed, so that one harmonised core set of standards can be defined and applied. To contribute to this, the Authorities will, in areas specified in the relevant sectoral legislation, develop draft technical standards. These standards constitute an effective instrument to strengthen Level 3 of the Lamfalussy structure, which currently is limited to the adoption of non-binding guidelines. The areas where the Authority may develop such draft standards concern issues of a highly technical nature where uniform conditions for the application of Community legislation are needed. These matters do not involve policy decisions and their content is tightly framed by the Community acts adopted at Level 1 (see the accompanying Commission Staff Working Paper for a detailed discussion on the necessary changes to the relevant Community legislation). Development of the standards by the ESAs ensures that they benefit in full from the specialised expertise of national supervisors.

The draft technical standards will be adopted by the Authority on the basis of qualified majority of the members of the Boards of Supervisors, as defined in Article 205 of the Treaty. The Community legal order requires the Commission to subsequently endorse these draft standards in the form of regulations or decisions so as to give those direct legal effects. In very exceptional cases, and only for reasons of Community interest, the Commission may decide to endorse the standards in part, or with amendments, or not at all, the reasons for which it has to make available to the Authority. The Commission's proposal is without prejudice to discussions on future procedures in the context of the transition to a new Treaty.

For the purpose of consultation with stakeholders, a Stakeholder Group will be established for each ESA, consisting of representatives of the industry, financial sector employees and users of financial services. The relative proportions of each should be balanced and no one group should dominate over the others. In those areas not covered by the technical standards, the ESAs shall, like the existing European supervisory committees, have the possibility to issue non binding guidelines and recommendations to national supervisory authorities and financial institutions and market participants. If in any specific case authorities choose not to comply with the guidelines and recommendations it should explain its decision to the Authority.

6.2.2. Powers to ensure the consistent application of Community rules

Even with a single set of harmonised rules, the application of these rules may, in occasional cases, lead to differences of opinion on the application of Community legislation. Without prejudice to the initiation of infringement proceedings by the Commission against Member States, the ESAs should therefore have a general power to contribute to ensuring coherent application of Community legislation. To this end, a mechanism should be put in place to address behaviour by national supervisory authorities who are considered to be diverging from the existing Community legislation (including the technical standards discussed in 6.2.1). This mechanism consists of three different steps:

First, the ESAs, on their own initiative or upon request from one or more national supervisors or from the Commission, would investigate these cases and, where necessary, adopt a recommendation for action addressed to the supervisory authority. Within the general duty of compliance with Community legislation the supervisory authority would be called to comply with the recommendation within one month.

Second, if the recommendation is not complied with, the European Commission may, after being informed by the ESA or on its own initiative, take a decision, requiring the national supervisory authority to either take specific action or to refrain from an action. The latter shall, within ten working days of receipt of the decision, inform the Commission and the ESA of the steps it has taken or intends to take to implement this decision.

Third, in the exceptional situation that the supervisory authority does not comply with the latter, the ESAs may as a last resort adopt a decision addressed to financial institutions in respect to Community law which is directly applicable to them (i.e. Regulations). This is without prejudice to the Commission's powers to enforce its own decision.

6.2.3. Action in emergency situations

The ESAs shall fulfil an active coordination role between national supervisory authorities, in particular in case of adverse developments which potentially jeopardise the orderly functioning and integrity of the financial system in the EU. However, in some emergency situations, coordination may not be sufficient, notably when national supervisors alone lack the tools to respond rapidly to an emerging cross-border crisis. The ESAs should therefore, in such exceptional circumstances, have the power to require national supervisors to jointly take specific action. The determination of a cross-border emergency situation involves a degree of appreciation, and should therefore be left to the European Commission. This is subject to the safeguard clause (see 6.2.11). In parallel, work should be accelerated to build a comprehensive cross-border framework to strengthen the European Union's financial crisis management/resolution systems, including guarantee schemes and burden sharing.

6.2.4. Settlement of disagreements between national supervisory authorities

A mechanism is proposed to ensure that relevant national supervisory authorities take due account of the interests of other Member States, including within colleges of supervisors. If a supervisory authority disagrees on the procedure or content of an action or inaction by another supervisory authority where the relevant legislation requires cooperation, coordination or joint decision making, the Authority, at the request of the supervisory authority concerned, may assist the authorities in reaching a common approach or settle the matter. This mechanism consists of three possible steps: [4]

First, if one or more national supervisory authorities request the ESA to assist in resolving such disagreements, it may first set a phase of conciliation between the authorities to try to reach agreement among themselves, with the involvement of the Authority as necessary in a mediatory capacity.

Second, if, after a phase of conciliation, they have not been able to reach such an agreement, the ESAs may, through a decision, settle the matter. [5] However, this would clearly be exceptional as in most cases the respective national authorities should be able to come to an agreement in the preceding conciliation procedure.

Third, in case of non-compliance by a supervisory authority with the previous decision, the Authority may also decide to adopt decisions addressed to financial institutions specifying their obligations in respect of Community law which is directly applicable to financial institutions.

It should be stressed that the dispute settlement mechanism should only address material issues, e.g. cases where action or inaction by a supervisory authority has a serious detrimental impact on the ability of a supervisory authority to protect the interest of depositors, policy holders, investors, or persons to whom services are provided in one or several other Member States, or on the financial stability of these Member States. The Authority reserves the right not to launch a settlement procedure or adopt any decision where such requirements are not fulfilled. These arrangements are subject to the safeguard clause (see 6.2.11).

6.2.5. Colleges of supervisors

Colleges of supervisors are central to the EU supervisory system and play an important role in ensuring a balanced flow of information between home and host authorities. The ESAs will contribute to promoting the efficient and consistent functioning of colleges of supervisors and monitoring the coherence of the implementation of Community legislation across colleges. Against this background, the ESAs may participate as observers in colleges of supervisors and receive all relevant information shared between the members of the college.

6.2.6. Common supervisory culture, delegation of tasks and responsibilities and peer reviews

The ESAs shall play an active role in building a common European supervisory culture and ensuring uniform procedures and consistent supervisory practices throughout the Community. In combination with the mechanism to settle disagreements between national supervisory authorities, the common supervisory culture should help build trust and cooperation, and may increasingly create opportunities for supervisors to delegate certain tasks and responsibilities to one another. The ESAs shall facilitate this by identifying tasks and responsibilities which can be delegated or jointly exercised as well as by promoting best practices. In this respect, the Authority shall encourage and facilitate the set-up of joint supervisory teams. Moreover, the ESAs shall periodically conduct peer review analysis of national supervisory authorities.

6.2.7. Assessment of market developments

One of the new tasks assigned to the existing European supervisory committees in the revised Commission Decisions adopted on 23 January 2009 is the monitoring, assessing and reporting on trends, potential risks and vulnerabilities in the banking, insurance and securities sector. Although the proposed ESRB will be responsible for macro-prudential analysis of the EU financial sector, the ESAs should continue the work of the existing European supervisory committees in this area as: (i) the focus of their analysis is different, i.e., micro-prudential analysis provides a bottom-up analysis, rather than macro-prudential analysis which is top-down, and (ii) their analysis may serve as helpful input into the work carried-out by the ESRB.

6.2.8. International and advisory role

Through these proposals the Commission is clearly responding to the weaknesses identified during the crisis as well as to the G20 call to take action to build a stronger, more globally consistent, regulatory and supervisory system for financial services. The ESAs could serve as helpful contact points for supervisory authorities from third countries. In this context, they may, without prejudice to the competences of the European Institutions, enter into administrative arrangements with international organisations and the administrations of third countries. The ESAs may also assist in preparing equivalence decisions pertaining to supervisory regimes in third countries. Moreover, the ESAs may, upon request or on their own initiative, provide advice to the European Parliament, the Council and the Commission or publish opinions, including with respect to the prudential assessments of cross-border mergers and acquisitions. The latter should provide for additional safeguards to ensure a sound and objective assessment of future cross-border mergers or acquisitions.

6.2.9. Collection of information

At the request of the Authority, supervisory authorities and other public authorities of the Member States shall provide the Authority with all the necessary information to carry out the duties assigned to it by this Regulation. Moreover, the Authority shall, in collaboration with the supervisors operating in colleges of supervisors, define and collect as appropriate all relevant information from supervisory authorities, in order to facilitate the work of colleges of supervisors. It shall establish and manage a central system to make such information accessible to the supervisory authorities in colleges of supervisors. In principle, all information should be transferred to the ESAs by the national supervisory authorities.

6.2.10. Relationship with the ESRB

The proposed framework for EU supervision can only work if the ESRB and ESFS cooperate closely. Indeed, the objective of the reform is to ensure a smoother interaction of supervision at the macro-prudential and micro-prudential levels. In fulfilling its role as macro-prudential supervisor, the ESRB would need a timely flow of micro-prudential information, while micro-prudential supervision by national authorities would benefit from the ESRB’s insights on the macro-prudential environment. The Regulations also specify the procedures to be followed by the ESAs to act upon recommendations by the ESRB and how the ESAs should use their powers to ensure timely follow-up to recommendations addressed to one or more national supervisory authorities.

6.2.11. Safeguard

In line with the Ecofin and European Council conclusions of June 2009, which stress that, without prejudice to the application of Community law and recognising the potential or contingent liabilities that may be involved for Member States, decisions by the ESAs should not impinge on the fiscal responsibilities of the Member States, a safeguard clause is introduced. This clause ensures that, where a Member State considers that a decision taken under Article 10 (i.e. emergency decisions) or 11 (i.e. settlement of disagreements) of these Regulations impinges on its fiscal responsibility, it may notify the Authority and the Commission that the national supervisory authority does not intend to implement the Authority's decision, clearly demonstrating how the decision by the Authority impinges on its fiscal responsibilities. Within a period of one month the Authority shall inform the Member State as to whether it maintains its decision or whether it amends or revokes it. Where the Authority maintains its decision, the Member State may refer the matter to the Council and the decision of the Authority is suspended. The Council shall, within two months, decide whether the decision should be maintained or revoked, acting by qualified majority. For Authority decisions adopted under Article 10, an expedited procedure applies to take into account the need for rapid decisions in emergency circumstances.

6.3. The internal organisation of the ESAs and the ESFS

Each ESA shall comprise: (i) a Board of Supervisors; (ii) a Management Board; (iii) a Chairperson; and (iv) an Executive Director. Moreover, a single Board of Appeal should be established for all three ESAs.

6.3.1. Board of Supervisors

The Board of Supervisors is the main decision making body of the ESAs and will among other things be responsible for the adoption of the draft technical standards, opinions, recommendations, and decisions described in section 6.2 of this explanatory memorandum. The Board of Supervisors shall be composed of:

– the Chairperson of the respective ESA, who will chair the meetings of the Board, but shall be non-voting;

– the Head of the relevant national supervisory authority in each Member State;

– one representative of the Commission who shall be non-voting;

– one representative of the ESRB who shall be non-voting;

– one representative of each of the other two European Supervisory Authorities who shall be non-voting, and

– where relevant, the Board may decide to admit observers.

As a rule, decisions by the Board will be taken by simple majority, except for those decisions pertaining the setting of draft technical standards and guidelines and decisions in relation to the articles on financial provisions, for which qualified majority voting will be used. The Board may set up panels for dispute settlement. However, the final decision is adopted by the Board of Supervisors on proposal from this panel.

6.3.2. Management Board

The Management Board shall ensure that the Authority carries out its mission and performs the tasks assigned to it. In particular, it should be responsible for preparing the Authority's work programme, adopting the rules of procedure, and play a central role in the adoption of its budget. It will be composed of the ESA's Chairperson, a representative of the Commission, and four members elected by the Board of Supervisors among its members, who shall act independently and objectively in the Community interest. The Executive Director may participate in meetings of the Management Board without the right to vote.

6.3.3. Chairperson and Executive Director

The ESA shall be represented by a full-time independent Chairperson, who shall be responsible for preparing the work of the Board of Supervisors as well as chairing both the meetings of the Board of Supervisors and the Management Board. The day-to-day activities of the ESAs shall however be managed by an Executive Director, who, similarly to the Chairperson, shall be a full-time independent professional. He or she shall be responsible for the implementation of the annual work programme and take the necessary measures to ensure the functioning of the ESA. Both persons shall be selected by the Board of Supervisors on the basis of merit, skills, knowledge of financial institutions and markets, and experience relevant to financial supervision and regulation, following an open selection procedure. The candidate selected by the Board of Supervisors for the position of Chairperson shall be subject to confirmation by the European Parliament. The term of both offices shall be five years and may be extended once. Such extension would depend on the outcome of an evaluation executed by the Board of Supervisors.

6.3.4. Joint Committee of European Supervisory Authorities

Within the proposed structure, cross-sectoral cooperation will be fundamental so as to reflect the relevant market trends and realities. A Joint Committee of European Supervisory Authorities will ensure mutual understanding, cooperation and consistent supervisory approaches between the three new ESAs. A Subcommittee to the Joint Committee shall be established to specifically address cross-sectoral issues, including financial conglomerates, and ensuring a level playing field. While the actual decisions on, for example the Financial Conglomerates Directive, are being taken by the individual ESAs, the Joint Committee should ensure that common decisions are taken by the ESAs in parallel.

6.3.5. Board of Appeal

An appeal system will ensure that any natural or legal person, including national supervisory authorities, may in first instance appeal to a Board of appeal against a decision by the ESAs to ensure the coherent application of Community rules (Article 9), action in emergency situations (Article 10), and the settlement of disagreements (Article 11). The Board of Appeal shall be a joint body of three ESAs, i.e., it will deal with issues related to banking, insurance and securities. The Board of Appeal will have six members and six alternates with relevant knowledge and experience, excluding current staff of the national supervisory authorities or other national or Community institutions involved in the activities of the Authority. Two members of the Board of Appeal and two alternates shall be appointed by the Management Board of each ESA from a short-list proposed by the European Commission.

6.4. Financial provisions

These provisions deal with the budgetary aspects of the ESAs and stress that the revenues of the Authorities may stem from different sources, e.g. obligatory contributions from the national supervisory authorities, a subsidy from the Community or fees paid by the industry to the Authority. It also specifies the procedures for the annual establishment, the implementation and control of the budget. The Framework Financial Regulation for bodies established under Article 158 of the Financial Regulation shall apply.

6.5. General and final provisions

The general provisions set out practical issues related to staffing, liability of the ESAs, professional secrecy obligations, data protection, access to documents, language arrangements, headquarter agreements and participation of third countries. Within three years from the effective start of operations and every three years thereafter, the Commission shall publish a report on the functioning of the ESAs and the procedures laid down in the Regulation. This report will also evaluate progress achieved towards regulatory and supervisory convergence in the fields of crisis management and resolution in the EU.

6.6. Key differences between the three Regulations

The main differences between the three proposed Regulations concern the objectives of the Authorities, the scope of action, and the definitions, which are adapted to the specificities of the relevant sector and existing Community legislation. Moreover, the European Council concluded that the ESAs should also have supervisory powers for credit rating agencies. ESMA would be responsible to register credit rating agencies. ESMA would also be empowered to take supervisory measures such as withdrawing the registration or suspending the use for regulatory purposes of credit ratings. Supervisory powers could include the power to request information and to conduct investigations or on-site inspections. The responsibilities and powers of ESMA with regard to credit rating agencies will be defined in an amendment to the Regulation on Credit Rating Agencies.

2009/0144 (COD)

Proposal for a

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

establishing a European Securities and Markets Authority

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 95 thereof,

Having regard to the proposal from the Commission [6],

Having regard to the opinion of the European Economic and Social Committee [7],

Having regard to the opinion of the Committee of the Regions [8],

Having regard to the opinion of the European Central Bank,

Acting in accordance with the procedure laid down in Article 251 of the Treaty [9],

Whereas:

(1) The financial crisis in 2007/2008 exposed important shortcomings in financial supervision, both in particular cases and in relation to the financial system as a whole. Nationally-based supervisory models have lagged behind the integrated and interconnected reality of European financial markets, in which many financial firms operate across borders. The crisis exposed shortcomings in the area of cooperation, coordination, consistent application of Community law and trust between national supervisors.

(2) A report published on 25 February 2009 by a high-level group of experts chaired by J. de Larosière, requested by the Commission, concluded that the supervisory framework needed to be strengthened to reduce the risk and severity of future financial crises and recommended far-reaching reforms to the structure of supervision of the financial sector in the Community. That group of experts also concluded that a European System of Financial Supervisors should be created, comprising three European Supervisory Authorities, one for the securities sector one for the insurance and occupational pensions sector and one for the banking sector, and the creation of a European Systemic Risk Council.

(3) The Commission in its Communication of 4 March 2009 entitled "Driving European Recovery" [10] proposed to bring forward draft legislation creating a European System of Financial Supervisors and a European Systemic Risk Board, and in its Communication of 27 May 2009 entitled "European Financial Supervision" [11] provided more detail about the possible architecture of such a new supervisory framework.

(4) The European Council, in its conclusions of 19 June 2009, recommended that a European System of Financial Supervisors, comprising three new European Supervisory Authorities, be established. The system should be aimed at upgrading the quality and consistency of national supervision, strengthening oversight of cross border groups and establishing a European single rule book applicable to all financial market participants in the Single Market. It emphasised that the European Supervisory Authorities should also have supervisory powers for credit rating agencies and invited the Commission to prepare concrete proposals on how the European System of Financial Supervisors could play a strong role in crisis situations, while stressing that decisions taken by the European Supervisory Authorities should not impinge on the fiscal responsibilities of Member States.

(5) The financial and economic crisis has created real and serious risks to the stability of the internal market. Restoring and maintaining a stable and reliable financial system is an absolute prerequisite to preserving trust and coherence in the internal market, hence to preserve and improve the conditions for the establishment of a fully integrated and functioning internal market in the field of financial services. Moreover, deeper and more integrated financial markets offer better opportunities for financing and risk diversification, and thus help to improve the capacity of the economies to absorb shocks.

(6) The Community has reached the limits of what can be done with the present status of the Committees of European Supervisors, which remain advisory bodies to the Commission. The Community cannot remain in a situation where there is no mechanism to ensure that national supervisors arrive at the best possible supervisory decisions for cross-border institutions; where there is insufficient cooperation and information exchange between national supervisory authorities; where joint action by national authorities requires complicated arrangements to take account of the patchwork of regulatory and supervisory requirements; where national solutions are most often the only feasible option in responding to European problems, where different interpretations of the same legal text exist. The European System of Supervisors should be designed to overcome these deficiencies and provide a system that is in line with the objective of a stable and single Community financial market for financial services, linking national supervisors into a strong Community network.

(7) The European System of Financial Supervisors should be a network of national and Community supervisory authorities, leaving day-to-day supervision of financial market participant at the national level, and according a central role in the supervision of cross-border groups to colleges of supervisors., Greater harmonisation and the coherent application of rules for financial market participants and markets across the Community should also be achieved. A European Securities and Markets Authority should be established, along with a European Insurance and Occupational Pensions Authority and a European Banking Authority (the European Supervisory Authorities).

(8) The European Supervisory Authorities should replace the Committee of European Banking Supervisors established by Commission Decision 2009/78/EC [12], the Committee of European Insurance and Occupational Pensions Supervisors established by Commission Decision 2009/79/EC [13] and the Committee of European Securities Regulators established by Commission Decision 2009/77/EC [14] , and assume all of the tasks and competences of those committees. The scope of each Authority's action should be clearly defined so that national supervisory authorities and financial market participants can identify the authority competent in their field of activity. Where institutional reasons and the responsibilities assigned in the Treaty so require the Commission should also be part of the network of supervisory activities.

(9) The European Securities and Markets Authority ("the Authority") should act with a view to improving the functioning of the internal market, including in particular by ensuring a high, effective and consistent level of regulation and supervision taking account of the varying interests of all Member States, to protect investors, to ensure the integrity, efficiency and orderly functioning of financial markets, to safeguard the stability of the financial system, and to strengthen international supervisory coordination, for the benefit of the economy at large, including financial market participants and other stakeholders, consumers and employees. Its tasks also include promoting supervisory convergence and providing advice to the EU institutions in areas of securities and markets regulation and supervision, as well as related corporate governance and financial reporting issues. In order to be able to fulfil its objectives, it is necessary and appropriate that the Authority should be a Community body having legal personality and that it should have legal, administrative and financial autonomy.

(10) The Court of Justice of the European communities in its judgement of 2 May 2006 in Case C-217/04 (United Kingdom/European Parliament and Council) [15] has acknowledged that Article 95 of the Treaty relating to the adoption of measures for the approximation of legislation for the establishment and functioning of the internal market provides an appropriate legal basis for setting up a "Community body responsible for contributing to the implementation of a process of harmonisation", when the tasks conferred on such a body are closely related to the subject-matter of the acts approximating the national legislations. The purpose and tasks of the Authority - assisting competent national supervisory authorities in the consistent interpretation and application of Community rules and contributing to financial stability necessary for financial integration - are closely linked to the objectives of the Community acquis concerning the internal market for financial services. The Authority should therefore be established on the basis of Article 95 of the Treaty.

(11) The legal acts which lay down the tasks for competent authorities of Member States, including cooperating with each other and with the Commission, are the following: Directive 97/9/EC of the European Parliament and of the Council of 3 March 1997 on investor-compensation schemes [16], Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and securities settlement systems, [17] Directive 2001/34/EC of the European Parliament and of the Council of 28 May 2001 on the admission of securities to official stock exchange listing and on information to be published on those securities [18], Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial collateral arrangements [19], Directive 2002/87/EC of the European Parliament and of the Council of 16 December 2002 on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate [20], Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation (market abuse) [21], Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading and amending Directive 2001/34/EC [22], Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids [23], Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments [24], Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive [25], Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing [26], Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services [27], Directive 2006/49/EC of the European Parliament and the Council of 14 June 2006 on the capital adequacy of investment firms and credit institutions (recast), without prejudice to the competence of the European Banking Authority in terms of prudential supervision [28], Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 concerning Undertakings for Collective Investment in Transferable Securities [29], Directive … (future AIFM Directive), and Regulation … (future CRA Regulation), including all Commission directives, regulations and decisions based on these acts, and of any further Community act which confers tasks on the Authority.

(12) The term financial market participant should cover a diverse range of participants who are subject to Community legislation in this area. It may include both legal persons and individuals. It can include for example investment firms, UCITS and their management companies, alternative investment fund managers, market operators, clearing houses, settlement systems, credit rating agencies, issuers, offerors, investors, persons who control or have an interest in participants, persons involved in the management of participants as well as other persons in relation to whom a requirement in the legislation applies. It should also include financial institutions such as credit institutions and insurance companies when engaging in activities covered by Community legislation in this area. Competent authorities in the EU and of third countries as well as the Commission do not fall within this definition.

(13) It is desirable that the Authority promote a consistent approach in the area of investor compensation schemes to ensure a level playing field and the equitable treatment of investors across the Community. As investor compensation schemes are subject to oversight in their Member States rather than regulatory supervision, it is appropriate that the Authority should be able to exercise its powers under this Regulation in relation to the investor compensation schemes itself and its operator who can be considered as being the equivalent of a supervisory authority in this area.

(14) There is a need to introduce an effective instrument to establish harmonised technical standards in financial services to ensure, also through a single rulebook, a level playing field and an adequate protection investors and consumers across Europe. As a body with highly specialised expertise, it is efficient and appropriate to entrust the Authority, in areas defined by Community law, with the elaboration of draft technical standards, which do not involve policy choices. The Commission should endorse those draft technical standards in accordance with Community law in order to give them binding legal effect. The draft technical standards have to be adopted by the Commission. They would be subject to amendment if, for example, the draft technical standards were incompatible with Community Law, would not respect the principle of proportionality or would run counter to the fundamental principles of the internal market for financial services as reflected in the acquis of Community financial services legislation. To ensure a smooth and expedited adoption process for those standards, the Commission should be subject to a time limit for its decision on the endorsement.

(15) The process for the development of technical standards in this regulation is without prejudice to the Commission's powers to adopt on its own initiative implementing measures under comitology procedures at level 2 of the Lamfalussy structure as laid out in the relevant Community legislation. The matters concerned by the technical standards do not involve policy decisions, and their content is framed by the Community acts adopted at Level 1. Development of the draft standards by the Authority ensures that they fully benefit from the specialised expertise of national supervisory authorities.

(16) In areas not covered by technical standards, the Authority should have the power to issue non-binding guidelines and recommendations on the application of Community legislation. In order to ensure transparency and strengthen compliance by national supervisory authorities with those guidelines and recommendations, national authorities should be obliged to state their reasons where they do not comply with those guidelines and recommendations.

(17) Ensuring the correct and full application of Community law is a core prerequisite for the integrity, efficiency and orderly functioning of financial markets, the stability of the financial system, and for neutral conditions of competition for financial market participants in the Community. A mechanism should therefore be established whereby the Authority addresses instances of incorrect or insufficient application of Community law. This mechanism should apply in areas where Community legislation defines clear and unconditional obligations.

(18) To allow for a proportionate response to instances of incorrect or insufficient application of Community law, a three-step mechanism should apply. At a first level, the Authority should be empowered to investigate alleged incorrect or insufficient application of Community law obligations by national authorities in their supervisory practice, concluded by a non-binding recommendation.

(19) Where the national authority does not comply with the recommendation, the Commission should be empowered to address a Decision to the national supervisory authority concerned in order to ensure compliance with Community law, creating direct legal effects which can be invoked before national courts and authorities and enforced under Article 226 of the Treaty.

(20) To overcome exceptional situations of persistent inaction by the competent authority concerned, the Authority should be empowered, as a last resort, to adopt decisions addressed to individual financial institutions. This power should be limited to exceptional circumstances in which a competent authority does not comply with the decisions addressed to it and in which Community law is directly applicable to financial institutions by virtue of existing [30] or future EU Regulations.

(21) Serious threats to the orderly functioning and integrity of financial markets or the stability of the financial system in the Community require a swift and concerted response at Community level. The Authority should therefore be able to require national supervisory authorities to take specific actions to remedy an emergency situation. As the determination of an emergency situation involves a significant degree of discretion, this power should be conferred on the Commission. To ensure an effective response to the emergency situation, in the event of inaction by the competent national supervisory authorities, the Authority should be empowered to adopt, as a last resort, decisions directly addressed to financial market participants in areas of Community law directly applicable to them aimed at mitigating the effects of the crisis and restoring confidence in the markets.

(22) In order to ensure efficient and effective supervision and a balanced consideration of the positions of the competent authorities in different Member States, the Authority should be able to settle disagreements between those competent authorities with binding effect, including within colleges of supervisors. A conciliation phase should be provided for, during which the competent authorities may reach an agreement. The Authority's competence should cover disagreements on procedural obligations in the cooperation process as well as on the interpretation and application of Community law in supervisory decisions. Existing conciliation mechanisms provided for in sectoral legislation have to be respected. In the event of inaction by the national supervisory authorities concerned, the Authority should be empowered to adopt, as a last resort, decisions directly addressed to financial market participants in areas of Community law directly applicable to them.

(23) Colleges of supervisors play an important role in the efficient, effective and consistent supervision of financial market participants operating across borders. The Authority should have full participation rights in colleges of supervisors with a view to streamlining the functioning of and the information exchange process in colleges and to foster convergence and consistency across colleges in the application of Community law.

(24) The delegation of tasks and responsibilities can be a useful instrument in the functioning of the network of supervisors in order to reduce the duplication of supervisory tasks, foster cooperation and thereby streamline the supervisory process as well as reduce the burden imposed on financial institutions. The Regulation should therefore provide a clear legal basis for such delegation. Delegation of tasks means that tasks are carried out by another supervisory authority instead of the responsible authority, while the responsibility for supervisory decisions remains with the delegating authority. By delegation of responsibilities one national supervisory authority, the delegatee, shall be able to decide upon a certain supervisory matter in its name in lieu of another national supervisory authority. Delegations should be governed by the principle of allocating supervisory competence to a supervisor which is well placed to take action in the subject matter. A reallocation of responsibilities can be appropriate for example for reasons of economies of scale or scope, of coherence in group supervision, and of optimal use of technical expertise among national supervisory authorities. Relevant Community legislation may further specify the principles for reallocation of responsibilities upon agreement. The Authority should facilitate delegation agreements between national supervisory authorities by all appropriate means. It should be informed in advance of intended delegation agreements to be able to express an opinion where appropriate. It should centralise the publication of such agreements to ensure timely, transparent and easily accessible information about agreements for all parties concerned.

(25) The Authority should actively foster supervisory convergence across the Community with the aim of establishing a common supervisory culture.

(26) Peer reviews are an efficient and effective tool for fostering consistency within the network of financial supervisors. The Authority should therefore develop the methodological framework for such reviews and conduct them on a regular basis. Reviews should focus not only on convergence of supervisory practices but also on the capacity of supervisors to achieve high quality supervisory outcomes as well as the independence of competent authorities.

(27) The Authority should actively promote a coordinated Community supervisory response, in particular where adverse developments could potentially jeopardise the orderly functioning and integrity of financial markets or the stability of the financial system in the Community. In addition to its powers for action in emergency situations, it should therefore be entrusted with a general coordination function within the European System of Financial Supervisors. The smooth flow of all relevant information between competent authorities should be a particular focus of the Authority's actions.

(28) In order to safeguard financial stability it is necessary to identify, at an early stage, trends, potential risks and vulnerabilities stemming from the micro-prudential level, across borders and across sectors. The Authority should monitor and assess such developments in the area of its competence and, where necessary, inform the European Parliament, the Council, the Commission, the other European Supervisory Authorities and the European Systemic Risk Board on a regular and, as necessary, ad hoc basis. The Authority should also coordinate Community-wide stress tests to assess the resilience of financial market participants to adverse market developments, ensuring an as consistent as possible methodology is applied at the national level to such tests.

(29) Given the globalisation of financial services and the increased importance of international standards, the Authority should foster the dialogue and cooperation with supervisors outside the Community. It shall fully respect the existing roles and competences of the European Institutions in relations with authorities outside the Community and in international forums.

(30) The Authority should serve as an independent advisory body to the European Parliament, the Council, and the Commission in the area of its competence. It should be able to provide its opinion on the prudential assessment of mergers and acquisitions under Directive 2004/39/EC, amended by 2007/44/EC [31].

(31) In order to effectively carry out its duties, the Authority should have the right to request all necessary information. To avoid duplication of reporting obligations for financial market participants, that information should normally be provided by the national supervisory authorities who are closest to financial markets and market participants. However, the Authority should have the power to request information directly from financial market participants and other parties where a national competent authority does not or cannot provide such information in a timely fashion. Member States' authorities should be obliged to assist the Authority in enforcing such direct requests.

(32) Close cooperation between the Authority and the European Systemic Risk Board is essential to give full effectiveness to the functioning of the European Systemic Risk Board and the follow-up to its warnings and recommendations. The Authority should share any relevant information with the European Systemic Risk Board. Data related to individual undertakings should be provided only upon reasoned request. Upon receipt of warnings or recommendations addressed by the European Systemic Risk Board to the Authority or a national supervisory authority, the Authority should take immediate action and ensure follow-up.

(33) Where appropriate, the Authority should consult interested parties on technical standards, guidelines and recommendations and provide them with a reasonable opportunity to comment on proposed measures. For reasons of efficiency, a Securities and Markets Stakeholder Group should be established for that purpose, representing in balanced proportions Community financial market participants (including as appropriate institutional investors and other financial institutions which themselves use financial services), their employees, and consumers and other retail users of financial services, including SMEs. The Securities and Markets Stakeholder Group should actively work as an interface with other user groups in the financial services area established by the Commission or Community legislation.

(34) Member States have a core responsibility in preserving financial stability in crisis management, in particular with regard to stabilising and resolving individual ailing financial market participants. Measures by the Authority in emergency or settlement situations affecting the stability of a financial market participant should not impinge on the fiscal responsibilities of Member States. A mechanism should be established whereby Member States may invoke this safeguard and ultimately bring the matter before the Council for decision. It is appropriate to confer on the Council a role in this matter given the particular responsibilities of the Member States in this respect.

(35) In its decision-making procedures, the Authority should be bound by Community rules and general principles on due process and transparency. The right to be heard of the addressees of the Authority's decisions should be fully respected. The Authority's acts form an integral part of Community law.

(36) A Board of Supervisors composed of the heads of the relevant competent authority in each Member State, and chaired by the Chairperson of the Authority, should be the principal decision-making organ of the Authority. Representatives of the Commission, the European Systemic Risk Board and the other two European Supervisory Authorities should participate as observers. Members of the Board of Supervisors should act independently and only in the Community's interest. For acts of a general nature, including those related to the adoption of technical standards, guidelines and recommendations as well as budgetary matters, it is appropriate to apply the rules on qualified majority as laid down in the Treaty, whereas for all other decisions simple majority of members should apply. Cases concerning the settlement of disagreements between national supervisory authorities should be examined by a restricted panel.

(37) A Management Board composed of the Chairperson of the Authority, representatives of national supervisory authorities and the Commission should ensure that the Authority carries out its mission and performs the tasks assigned to it. The Management Board should be entrusted with the necessary powers to, inter alia, propose the annual and multi-annual work programme, exercise certain budgetary powers, adopt the Authorities staff policy plan, adopt special provisions on the right to access to documents and adopt the annual report.

(38) A full time Chairperson, selected by the Board of Supervisors through an open competition, should represent the Authority. The management of the Authority should be entrusted to an Executive Director, who should have the right to participate in meetings of the Board of Supervisors and the Management Board without the right to vote.

(39) In order to ensure cross-sectoral consistency in the activities of the European Supervisory Authorities, those authorities should coordinate closely in a Joint Committee of European Supervisory Authorities and reach common positions where appropriate. The Joint Committee of European Supervisory Authorities should assume all of the functions of the Joint Committee on Financial Conglomerates. Where relevant, acts also falling within the area of competence of the European Insurance and Occupational Pensions Authority or the European Banking Authority should be adopted in parallel by the European Supervisory Authorities concerned.

(40) It is necessary to ensure that the parties affected by decisions adopted by the Authority may exercise the necessary remedies. To effectively protect the rights of parties and for reasons of procedural economy, where the Authority has decision-making powers, parties should be granted a right of appeal to a Board of Appeal. For reasons of efficiency and consistency, the Board of Appeal should be a joint body of the three European Supervisory Authorities, independent from their administrative and regulatory structures. The decision of the Board of Appeal should be subject to appeal before the Court of First Instance and the Court of Justice of the European Communities.

(41) In order to guarantee its full autonomy and independence, the Authority should be granted an autonomous budget with revenues mainly from obligatory contributions from national supervisory authorities and from the General Budget of the European Union. The Community budgetary procedure should be applicable as far as the Community contribution is concerned. The auditing of accounts should be undertaken by the Court of Auditors.

(42) Regulation (EC) No 1073/1999 of the European Parliament and of the Council of 25 May 1999 concerning investigations conducted by the European Anti-Fraud Office (OLAF) [32] should apply to the Authority. The Authority should also accede to the Inter-institutional Agreement of 25 May 1999 between the European Parliament, the Council of the European Union and the Commission of the European Communities concerning internal investigations by the European Anti-Fraud Office (OLAF) [33].

(43) In order to ensure open and transparent employment conditions and equal treatment of staff, the Staff Regulations of Officials of the European Communities and the Conditions of Employment of Other Servants of the European Communities [34] should apply to the staff of the Authority.

(44) It is essential that business secrets and other confidential information are protected. The confidentiality of information exchanged in the network should likewise be safeguarded.

(45) The protection of individuals with regard to the processing of personal data is governed by Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data [35] and by Regulation (EC) No 45/2001 of the European Parliament and of the Council of 18 December 2000 on the protection of individuals with regard to the processing of personal data by the Community institutions and bodies and on the free movement of such data [36], which are fully applicable to the processing of personal data for the purposes of this Regulation.

(46) In order to ensure the transparent operation of the Authority, Regulation (EC) No 1049/2001 of the European Parliament and of the Council of 30 May 2001 regarding public access to European Parliament, Council and Commission documents [37] should apply to the Authority.

(47) Countries which are not members of the European Union should be allowed to participate in the work of the Authority in accordance with appropriate agreements to be concluded by the Community.

(48) Since the objectives of this Regulation, namely improving the functioning of the internal market by means of ensuring a high, effective and consistent level of prudential regulation and supervision, protecting depositors and investors, protecting the integrity, efficiency and orderly functioning of financial markets, maintaining the stability of the financial system, and strengthening international supervisory coordination, cannot be sufficiently achieved by the Member States and can, therefore, by reason of scale of the action, be better achieved at Community level, the Community may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve those objectives.

(49) The Authority assumes all current tasks and powers of the Committee of European Securities Regulators. Commission Decision 2009/77/EC of 23 January 2009 establishing the Committee of European Securities Regulators should therefore be repealed, and Decision …/…/EC of the European Parliament and of the Council establishing a Community programme to support specific activities in the field of financial services, financial reporting and auditing, should be amended accordingly.

(50) It is appropriate to set a time limit for the application of this Regulation in order to ensure that the Authority is adequately prepared to begin operations and to ensure a smooth transition from the Committee of European Securities Regulators.

HAVE ADOPTED THIS REGULATION:

CHAPTER I

ESTABLISHMENT AND LEGAL STATUS

Article 1

Establishment and Scope of action

1. This Regulation establishes a European Securities and Markets Authority ("the Authority").

2. The Authority shall act within the scope of Directive 97/9/EC, Directive 98/26/EC, Directive 2001/34/EC, Directive 2002/47/EC, Directive 2002/87/EC, Directive 2003/6/EC, Directive 2003/71/EC, Directive 2004/25/EC, Directive 2004/39/EC, Directive 2004/109/EC, Directive 2005/60/EC, Directive 2009/65/EC, Directive 2002/65/EC, Directive 2006/49/EC (without prejudice to the competence of the European Banking Authority in terms of prudential supervision), Directive … [future AIFM Directive], and Regulation … [future CRA Regulation], including all directives, regulations, and decisions based on these acts, and of any further Community act which confers tasks on the Authority.

3. The provisions of this Regulation are without prejudice to the powers of the Commission, in particular under Article 226 of the Treaty to ensure compliance with Community law.

4. The objective of the Authority shall be to contribute to: (i) improving the functioning of the internal market, including in particular a high, effective and consistent level of regulation and supervision, (ii) protecting protect investors, (iii) ensuring the integrity, efficiency and orderly functioning of financial markets, (iv) safeguarding the stability of the financial system, and (v) strengthening international supervisory coordination. For this purpose, the Authority shall contribute to ensuring the consistent, efficient and effective application of the Community law referred to in Article 1(2) above, fostering supervisory convergence and providing opinions to the European Parliament, the Council, and the Commission.

5. The Authority shall form part of a European System of Financial Supervisors, hereinafter referred to as 'ESFS', which shall function as a network of supervisors, as further specified in Article 39.

6. The European Securities and Markets Authority shall co-operate with the European Systemic Risk Board, hereinafter referred to as 'ESRB' as laid down in Article 21 of this Regulation.

Article 2

Definitions

For the purposes of this Regulation the following definitions apply:

(1) 'financial market participant' means any person in relation to whom a requirement in the legislation referred to in Article 1(2) or a national law implementing such legislation applies.

(2) 'key financial market participant' means a financial market participant, whose regular activity or financial viability has or is likely to have a significant effect on the stability, integrity, or efficiency of the financial markets in the Community.

(3) 'competent authorities' means competent authorities and/or supervisory authorities as defined in the legislation referred to in Article 1(2). Bodies which administer national compensation schemes pursuant to Directive 97/9/EC shall also be considered as competent authorities.

Article 3

Legal status

1. The Authority shall be a Community body with legal personality.

2. In each Member State, the Authority shall enjoy the most extensive legal capacity accorded to legal persons under national law. It may, in particular, acquire or dispose of movable and immovable property and be a party to legal proceedings.

3. The Authority shall be represented by its Chairperson.

Article 4

Composition

The Authority shall comprise the following:

(1) a Board of Supervisors, which shall exercise the tasks set out in Article 28;

(2) a Management Board, which shall exercise the tasks set out in Article 32;

(3) a Chairperson, who shall exercise the tasks set out in Article 33;

(4) an Executive Director, who shall exercise the tasks set out in Article 38;

(5) a Board of Appeal, as referred to in Article 44,which shall exercise the tasks set out in Article 46.

Article 5

Seat

The Authority shall have its seat in Paris.

CHAPTER II

TASKS AND POWERS OF THE AUTHORITY

Article 6

Tasks and Powers of the Authority

1. The Authority shall have the following tasks:

(a) contribute to the establishment of high quality common regulatory and supervisory standards and practices, in particular by providing opinions to the Community institutions and by developing guidelines, recommendations, and draft technical standards which shall be based on the legislation referred to in Article 1(2);

(b) contribute to a consistent application of Community legislation, in particular by contributing to a common supervisory culture, ensuring consistent, efficient and effective application of the legislation referred to in Article 1(2), preventing regulatory arbitrage, mediating and settling disagreements between competent authorities, promoting a coherent functioning of colleges of supervisors and taking actions in emergency situations;

(c) facilitate the delegation of tasks and responsibilities between competent authorities;

(d) cooperate closely with the ESRB, in particular by providing the ESRB with the necessary information for the achievement of its tasks and by ensuring a proper follow up to the warnings and recommendations of the ESRB;

(e) conduct peer review analysis of competent authorities, to strengthen consistency in supervisory outcomes;

(f) monitor and assess market developments in the area of its competence;

(g) fulfil any other specific tasks set out in this Regulation or in the Community legislation referred to in Article 1(2).

2. To achieve the tasks set out in paragraph 1, the Authority shall have the powers set out in this Regulation, in particular the power to:

(a) develop draft technical standards in the specific cases referred to in Article 7;

(b) issue guidelines and recommendations, as laid down in Article 8;

(c) issue recommendations in specific cases, as referred to in Article 9(3);

(d) take individual decisions addressed to competent authorities in the specific cases referred to in Article 10 and 11;

(e) take individual decisions addressed to financial market participants, in the specific cases referred to in Article 9(6), Article 10(3), and Article 11(4);

(f) issue opinions to the European Parliament, the Council, or the Commission as provided in Article 19;

3. The Authority shall execute any exclusive supervisory powers over entities with Community-wide reach or economic activities with Community-wide reach entrusted to it in the legislation referred to in Article 1(2).

For that purpose, the Authority shall have appropriate powers of investigation and enforcement as specified in the relevant legislation, as well as the possibility of charging fees.

Article 7

Technical standards

1. The Authority may develop technical standards in the areas specifically set out in the legislation referred to in Article 1(2). The Authority shall submit its draft standards to the Commission for endorsement.

Before submitting them to the Commission, the Authority shall, where appropriate, conduct open public consultations on technical standards and analyse the potential related costs and benefits.

Within three months of receipt of the draft standards, the Commission shall decide whether to endorse the draft standards. The Commission may extend that period by one month. The Commission may endorse the draft standards only in part or with amendments where the Community interest so requires.

Where the Commission does not endorse the standards or endorses them in part or with amendments, it shall inform the Authority of its reasons.

2. The standards shall be adopted by the Commission by means of Regulations or Decisions and published in the Official Journal of the European Union.

Article 8

Guidelines and recommendations

The Authority shall, with a view to establishing consistent, efficient and effective supervisory practices within the ESFS, and to ensuring the common, uniform and consistent application of Community legislation, issue guidelines and recommendations addressed to competent authorities or financial market participants.

The competent authorities shall make every effort to comply with those guidelines and recommendations.

Where the competent authority does not apply those guidelines or recommendations it shall inform the Authority of its reasons.

Article 9

Consistent application of Community rules

1. Where a competent authority has not correctly applied the legislation referred to in Article 1(2), in particular by failing to ensure that a financial market participant satisfies the requirements laid down in that legislation, the Authority shall have the powers set out in paragraphs 2, 3 and 6 of this Article.

2. Upon request from one or more competent authorities, from the Commission or on its own initiative and after having informed the competent authority concerned, the Authority may investigate the alleged incorrect application of Community law.

Without prejudice to the powers laid down in Article 20, the competent authority shall provide the Authority with all information which the Authority considers necessary for its investigation without delay.

3. The Authority may, at the latest within two months from initiating its investigation, address to the competent authority concerned a recommendation setting out the action necessary to comply with Community law.

The competent authority shall, within ten working days of the receipt of the recommendation, inform the Authority of the steps it has taken or intends to take to ensure compliance with Community law.

4. Where the competent authority has not complied with Community law within one month from receipt of the Authority's recommendation, the Commission may, after having been informed by the Authority or on its own initiative, take a decision requiring the competent authority to take the action necessary to comply with Community law.

The Commission shall take such a decision no later than three months from the adoption of the recommendation. The Commission may extend this period by one month.

The Commission shall ensure that the right to be heard of the addressees of the decision is respected.

The Authority and the competent authorities shall provide the Commission with all necessary information.

5. The competent authority shall, within ten working days of receipt of the decision referred to in paragraph 4, inform the Commission and the Authority of the steps it has taken or intends to take to implement the Commission's decision.

6. Without prejudice to the powers of the Commission under Article 226 of the Treaty, where a competent authority does not comply with the decision referred to in paragraph 4 of this Article within the period of time specified therein, and where it is necessary to remedy in a timely manner the non compliance by the competent authority in order to maintain or restore neutral conditions of competition in the market or ensure the orderly functioning and integrity of the financial system, the Authority may, where the relevant requirements of the legislation referred to in Article 1(2) are directly applicable to financial market participants, adopt an individual decision addressed to a financial market participant requiring the necessary action to comply with its obligations under Community law including the cessation of any practice.

The decision of the Authority shall be in conformity with the decision adopted by the Commission pursuant to paragraph 4.

7. Decisions adopted under paragraph 6 shall prevail over any previous decision adopted by the competent authorities on the same matter.

Any action by the competent authorities in relation to facts which are subject to a decision pursuant to paragraph 4 or 6 shall be compatible with those decisions.

Article 10

Action in emergency situations

1. In the case of adverse developments which may seriously jeopardise the orderly functioning and integrity of financial markets or the stability of the whole or part of the financial system in the Community, the Commission, upon its own initiative or following a request by the Authority, the Council, or the ESRB, may adopt a decision addressed to the Authority, determining the existence of an emergency situation for the purposes of this regulation.

2. Where the Commission has adopted a decision pursuant to paragraph 1, the Authority may adopt individual decisions requiring competent authorities to take the necessary action in accordance with the legislation referred to in Article 1(2) to address any risks that may jeopardise the orderly functioning and integrity of financial markets or the stability of the whole or part of the financial system by ensuring that financial market participants and competent authorities satisfy the requirements laid down in that legislation.

3. Without prejudice to the powers of the Commission under Article 226 of the Treaty, where a competent authority does not comply with the decision of the Authority referred to in paragraph 2 within the period laid down therein, the Authority may, where the relevant requirements laid down in the legislation referred to in Article 1(2) are directly applicable to financial market participants, adopt an individual decision addressed to a financial market participant requiring the necessary action to comply with its obligations under that legislation, including the cessation of any practice.

4. Decisions adopted under paragraph 3 shall prevail over any previous decision adopted by the competent authorities on the same matter.

Any action by the competent authorities in relation to facts which are subject to a decision pursuant to paragraph 2 or 3 shall be compatible with those decisions.

Article 11

Settlement of disagreements between competent authorities

1. Without prejudice to the powers laid down in Article 9, where a competent authority disagrees on the procedure or content of an action or inaction by another competent authority in areas where the legislation referred to in Article 1(2) requires cooperation, coordination or joint decision making by competent authorities from more than one Member State, the Authority, at the request of one or more of the competent authorities concerned, may assist the authorities in reaching an agreement in accordance with the procedure set out in paragraph 2.

2. The Authority shall set a time limit for conciliation between the competent authorities taking into account any relevant time periods specified in the legislation referred to in Article 1(2) and the complexity and urgency of the matter.

3. If, at the end of the conciliation phase, the competent authorities concerned have failed to reach an agreement, the Authority may take a decision requiring them to take specific action or to refrain from action in order to settle the matter, in compliance with Community law.

4. Without prejudice to the powers of the Commission under Article 226 of the Treaty, where a competent authority does not comply with the decision of the Authority, and thereby fails to ensure that a financial market participant complies with requirements directly applicable to it by virtue of the legislation referred to in Article 1(2), the Authority may adopt an individual decision addressed to a financial market participant requiring the necessary action to comply with its obligations under Community law, including the cessation of any practice.

Article 12

Colleges of supervisors

1. The Authority shall contribute to promote the efficient and consistent functioning of colleges of supervisors and foster the coherence of the application of Community legislation across colleges.

2. The Authority shall participate as an observer in colleges of supervisors as it deems appropriate. For the purpose of that participation, it shall be considered a 'competent authority' within the meaning of the relevant legislation and, at its request, shall receive all relevant information shared with any member of the college.

3. The Authority shall, in cooperation with the supervisors operating in colleges of supervisors, determine and collect as appropriate all relevant information from competent authorities, in order to facilitate the work of those colleges.

It shall establish and manage a central system to make such information accessible to the competent authorities in colleges of supervisors.

Article 13

Delegation of tasks and responsibilities

1. Competent authorities may, by bilateral agreement, delegate tasks and responsibilities to other competent authorities supervisory.

2. The Authority shall facilitate the delegation of tasks and responsibilities between competent authorities by identifying those tasks and responsibilities that can be delegated or jointly exercised and by promoting best practices.

3. Competent authorities shall inform the Authority of delegation agreements they intend to enter into. They shall put the agreements into effect at the earliest one month after informing the Authority.

The Authority may give an opinion on the intended agreement within one month of being informed.

The Authority shall publish any delegation agreement as concluded by the competent authorities by appropriate means, in order to ensure that all parties concerned are informed appropriately.

Article 14

Common supervisory culture

1. The Authority shall play an active role in building a common European supervisory culture and consistent supervisory practices, and ensuring uniform procedures and consistent approaches throughout the Community and shall carry out, at a minimum, the following activities:

(a) provide opinions to competent authorities;

(b) promote an effective bilateral and multilateral exchange of information between competent authorities, with full respect of the applicable confidentiality and data protection provisions provided for in the relevant Community legislation;

(c) contribute to developing high quality and uniform supervisory standards, including reporting standards;

(d) review the application of the relevant technical standards adopted by the Commission, guidelines and recommendations issued by the Authority and propose amendments where appropriate;

(e) establish sectoral and cross-sectoral training programmes, facilitate personnel exchanges and encourage competent authorities to intensify the use of secondment schemes and other tools.

2. The Authority may, as appropriate, develop new practical instruments and convergence tools to promote common supervisory approaches and practices.

Article 15

Peer review of competent authorities

1. The Authority shall periodically conduct peer review analyses of some or all of the activities of competent authorities, to further enhance consistency in supervisory outcomes. To this end, the Authority shall develop methods to allow for objective assessment and comparison between the authorities reviewed.

2. The peer review shall include an assessment of, but not be limited to:

(a) the adequacy of institutional arrangements, resourcing and staff expertise of the competent authority, with particular regard to the effective application of the legislation referred to in Article 1(2) and to the capacity to respond to market developments;

(b) the degree of convergence reached in the application of Community law and in supervisory practice, including technical standards, guidelines and recommendations adopted under Articles 7 and 8, and the extent to which the supervisory practice achieves the objectives set out in Community law;

(c) good practices developed by some competent authorities which might be of benefit for other competent authorities to adopt.

3. On the basis of the peer review the Authority may issue recommendations to the competent authorities concerned.

Article 16

Coordination function

The Authority shall fulfil a general coordination role between competent authorities, including where adverse developments could potentially jeopardise the orderly functioning and integrity of financial markets or the stability of the financial system in the Community.

The Authority shall promote a coordinated Community response, inter alia by:

(1) facilitating the exchange of information between the competent authorities;

(2) determining the scope and verifying the reliability of information that should be made available to all competent authorities concerned;

(3) without prejudice to Article 11, acting as mediator on the request of competent authorities or on its own initiative;

(4) notifying the ESRB of any potential emergency situations without delay.

Article 17

Assessment of market developments

1. The Authority shall monitor and assess market developments in the area of its competence and, where necessary, inform the European Insurance and Occupational Pensions Authority, the European Banking Authority, the ESRB and the European Parliament, the Council and the Commission about the relevant micro-prudential trends, potential risks and vulnerabilities.

In particular, the Authority shall, in cooperation with the ESRB, initiate and coordinate Community-wide assessments of the resilience of key financial market participants to adverse market developments To that end, it shall develop the following, for application by the competent authorities:

(a) common methodologies for assessing the effect of economic scenarios on a key financial market participant's financial positions;

(b) common approaches to communication on the outcomes of these assessments of the resilience of key financial market participants.

2. Without prejudice to the tasks of the ESRB set out in Regulation (EC) No …/… [ESRB], the Authority shall, at least once a year, and more frequently as necessary, provide assessments to the European Parliament, the Council, the Commission and the ESRB of trends, potential risks and vulnerabilities in the area of its competence.

The Authority shall include a classification of the main risks and vulnerabilities in these assessments and, where necessary, recommend preventative or remedial actions.

3. The Authority shall ensure an adequate coverage of cross-sectoral developments, risks and vulnerabilities by closely cooperating with the European Insurance and Occupational Pensions Authority and the European Banking Authority.

Article 18

International relations

Without prejudice to the competences of the Community Institutions, the Authority may develop contacts with supervisory authorities from third countries. It may enter into administrative arrangements with international organisations and the administrations of third countries.

The Authority shall assist in preparing equivalence decisions pertaining to supervisory regimes in third countries in accordance with the legislation referred to in Article 1(2).

Article 19

Other tasks

1. The Authority may, upon a request from the European Parliament, the Council, the Commission or on its own initiative provide opinions to the European Parliament, the Council and the Commission on all issues related to its area of competence.

2. With regard to prudential assessments of mergers and acquisitions falling under the terms of Directive 2007/44/EC, the Authority may, on its own initiative or on application of any competent authorities, issue and publish an opinion on a prudential assessment to be carried out by any authority of a Member State. Article 20 shall apply.

Article 20

Collection of information

1. At the request of the Authority, competent authorities and other public authorities of the Member States shall provide the Authority with all the necessary information to carry out the duties assigned to it by this Regulation.

The Authority may also request information to be provided at recurring intervals.

2. Where information is not available or is not made available in a timely fashion by the competent authorities and other public authorities of the Member States, the Authority may address a reasoned request directly to relevant financial market participants and other parties. It shall inform the relevant competent authorities of such requests.

At the request of the Authority, the competent authorities and other public authorities of the Member States shall assist the Authority in collecting such information.

3. The Authority may use confidential information received from competent authorities and other public authorities or from financial market participants and other parties only for the purposes of carrying out the duties assigned to it by this Regulation.

Article 21

Relationship with the ESRB

1. The European Securities and Markets Authority shall co-operate with the ESRB.

2 The Authority shall cooperate closely with the ESRB. It shall provide the ESRB with regular and up-to-date information necessary for the achievement of its tasks. Any data necessary for the achievement of its tasks that are not in summary or collective form shall be provided without delay to the ESRB upon a reasoned request, as specified in Article [15] of Regulation (EC) No …./… [ESRB].

3. The Authority shall, in accordance with paragraphs 4 and 5, ensure a proper follow-up to ESRB warnings and recommendations referred to in Article [16] of Regulation (EC) No …/… [ESRB].

4. On receipt of a warning or recommendation from the ESRB addressed to the Authority, it shall convene a meeting of the Board of Supervisors without delay and assess the implications of such a warning or recommendation for the fulfilment of its tasks.

It shall decide, by the relevant decision-making procedure, on the actions to be taken in accordance with the powers conferred upon it by this Regulation for addressing the issues identified in the warnings and recommendations.

If the Authority does not act further to a recommendation, it shall explain to the ESRB its reasons for not doing so.

5. On receipt of a warning or recommendation from the ESRB addressed to a competent national supervisory authority, the Authority shall, where relevant, use the powers conferred upon it by this Regulation to ensure a timely follow-up.

Where the addressee intends not to follow the recommendation of the ESRB, it shall inform and discuss with the Board of Supervisors its reasons for not acting.

The competent authority shall take due account of the views of the Board of Supervisors when informing the ESRB in accordance with Article [17] of Regulation (EC) no …/…[ESRB].

6. In discharging its tasks set out in this regulation, the Authority shall take the utmost account of the warnings and recommendations of the ESRB.

Article 22

Securities and Markets Stakeholder Group

1. For the purpose of consultation with stakeholders in areas relevant to the tasks of the Authority, a Securities and Markets Stakeholder Group shall be established.

2. The Securities and Markets Stakeholder Group shall be composed of 30 members, representing in balanced proportions Community financial market participants, their employees as well as consumers, investors and users of financial services.

The Securities and Markets Stakeholder Group shall meet at least twice a year.

3. The members of the Securities and Markets Stakeholder Group shall be appointed by the Board of Supervisors of the Authority, following proposals from the relevant stakeholders.

In making its decision, the Board of Supervisors shall, to the extent possible, ensure an appropriate geographical balance and representation of stakeholders across the Community.

The Authority shall ensure adequate secretarial support for the Securities and Markets Stakeholder Group.

4. Members of the Securities and Markets Stakeholder Group shall serve for a period of two and a half years, following which a new selection procedure shall take place.

The members may serve two successive terms.

5. The Securities and Markets Stakeholder Group may submit opinions and advice to the Authority on any issue related to the tasks of the Authority specified in Articles 7 and 8.

6. The Securities and Markets Stakeholder Group shall adopt its rules of procedure.

7. The Authority shall make public the opinions and advice of the Securities and Markets Stakeholder Group and the results of its consultations.

Article 23

Safeguards

1. The Authority shall ensure that no decision adopted under Articles 10 or 11 impinges in any way on the fiscal responsibilities of Member States.

2. Where a Member State considers that a decision taken under Article 11 impinges on its fiscal responsibilities, it may notify the Authority and the Commission within one month after notification of the Authority's decision to the competent authority that the decision will not be implemented by the competent authority.

In its notification, the Member State shall justify why and clearly demonstrate how the decision impinges on its fiscal responsibilities.

In that case, the decision of the Authority shall be suspended.

Within a period of one month from the notification by the Member State, the Authority shall inform the Member State as to whether it maintains its decision or whether it amends or revokes it.

Where the Authority maintains its decision, the Council, acting by qualified majority as defined in Article 205 of the Treaty, shall, within two months, decide whether the Authority's decision is maintained or revoked.

Where the Council decides to maintain the Authority's decision, or where it does not take a decision within two months, the suspension of that decision shall be immediately terminated.

3. Where a Member State considers that a decision taken under Article 10(2) impinges on its fiscal responsibilities, it may notify the Authority, the Commission and the Council within three working days after notification of the Authority's decision to the competent authority that the decision will not be implemented by the competent authority.

In its notification, the Member State shall justify why and clearly demonstrate how the decision impinges on its fiscal responsibilities.

The Council, acting by qualified majority as defined in Article 205 of the Treaty, shall, within ten working days, decide whether the Authority's decision is maintained or revoked.

Where the Council does not take a decision within ten working days, the Authority's decision shall be deemed to be maintained.

Article 24

Decision-making procedures

1. Before taking the decisions provided for in Article 9(6), Article 10(2) and(3) and Article 11(3) and (4), the Authority shall inform the addressee of its intention to adopt the decision, setting a time limit within which the addressee may express its views on the matter, taking full account of the urgency of the matter.

2. The decisions of the Authority shall state the reasons on which they are based.

3. The addressees of decisions of the Authority shall be informed of the legal remedies available under this Regulation.

4. Where the Authority has taken a decision pursuant to Article 10(2) or (3), it shall review that decision at appropriate intervals.

5. The decisions which the Authority takes pursuant to Articles 9, 10 and 11 shall be made public and shall state the identity of the competent authority or financial market participant concerned and the main content of the decision, having regard to the legitimate interest of financial market participants in the protection of their business secrets.

CHAPTER III

ORGANISATION

Section 1

board of Supervisors

Article 25

Composition

1. The Board of Supervisors shall be composed of:

(a) the Chairperson, who shall be non-voting;

(b) the Head of the competent authority in each Member State. If there is more than one competent authority in a Member State, the authorities shall agree on one of the Heads to be the representative on the Board of Supervisors;

(c) one representative of the Commission who shall be non-voting;

(d) one representative of the ESRB who shall be non-voting;

(f) one representative of each of the other two European Supervisory Authorities who shall be non-voting.

2. Each competent authority, and if there is more than one competent authority, those authorities together, shall be responsible for nominating a high-level alternate from the authority or authorities, who may replace the member of the Board of Supervisors referred to in paragraph 1(b), in case this person is prevented from attending.

3. For the purpose of acting within the scope of Directive 97/9/EC the member of the Board of Supervisors referred to in paragraph 1(b) may, where appropriate, be accompanied by a representative from the relevant bodies which administers investor compensation schemes in each Member State, who shall be non-voting.

4. The Board of Supervisors may decide to admit observers.

The Executive Director may participate in meetings of the Board of Supervisors without the right to vote.

Article 26

Internal committees and Panels

1. The Board of Supervisors may establish internal committees or panels for specific tasks attributed to the Board of Supervisors, and may provide for the delegation of certain clearly defined tasks and decisions to internal committees or panels, to the Management Board or to the Chairperson.

2. For the purposes of Article 11, the Board of Supervisors shall convoke a panel to facilitate the settlement of the disagreement, consisting of the Chairperson and two of its members, who are not representatives of the competent authorities which are parties to the disagreement.

3. A Decision pursuant to Article 11 shall be adopted by the Board of Supervisors on proposal from the panel.

Article 27

Independence

When carrying out the tasks conferred upon it by this Regulation, the Chairperson and the voting members of the Board of Supervisors shall act independently and objectively in the Community interest and shall neither seek nor take instructions from Community institutions or bodies, from a Government of a Member State or from any other public or private body.

Article 28

Tasks

1. The Board of Supervisors shall give guidance to the work of the Authority and shall be in charge of taking the decisions referred to in Chapter II.

2. The Board of Supervisors shall adopt the opinions, recommendations, and decisions, and issue the advice referred to in Chapter II.

3. The Board of Supervisors shall appoint the Chairperson.

4. The Board of Supervisors shall adopt, before 30 September each year, on the basis of a proposal by the Management Board, the work programme of the Authority for the coming year, and shall transmit it for information to the European Parliament, the Council and the Commission.

The work programme shall be adopted without prejudice to the annual budgetary procedure and shall be made public.

5. The Board of Supervisors shall adopt the multi-annual work programme of the Authority, and shall transmit it for information to the European Parliament, the Council and the Commission.

The multi-annual work programme shall be adopted without prejudice to the annual budgetary procedure and shall be made public.

6. The Board of Supervisors shall approve the draft budget i