COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Accompanying the document Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulation (EU) No 1093/2010 establishing a European Supervisory Authority (European Banking Authority), Regulation (EU) No 1094/2010 establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority), Regulation (EU) No 1095/2010 establishing a European Supervisory Authority (European Securities and Markets Authority), Regulation (EU) No 345/2013 on European venture capital funds, Regulation (EU) No 346/2013 on European social entrepreneurship funds, Regulation (EU) No 600/2014 on markets in financial instruments, Regulation (EU) 2015/760 on European long-term investment funds, Regulation (EU) 2016/2011 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds, Regulation (EU) 2017/1129 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market
Date: 2017-09-20
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: EU office or agency, advertising, financial control, financial institution, financial legislation, financial market, fund (EU), market supervision, operation of the Institutions, third country

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 20.9.2017  SWD(2017) 308 final   COMMISSION STAFF WORKING DOCUMENT  IMPACT ASSESSMENT  Accompanying the document Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulation (EU) No 1093/2010 establishing a European Supervisory Authority (European Banking Authority), Regulation (EU) No 1094/2010 establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority), Regulation (EU) No 1095/2010 establishing a European Supervisory Authority (European Securities and Markets Authority), Regulation (EU) No 345/2013 on European venture capital funds, Regulation (EU) No 346/2013 on European social entrepreneurship funds, Regulation (EU) No 600/2014 on markets in financial instruments, Regulation (EU)  2015/760 on European long-term investment funds, Regulation (EU) 2016/2011 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds, Regulation (EU) 2017/1129 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market   
 
 
1  Contents 

List of abbreviations ................................................................................................................... 4 

Glossary ...................................................................................................................................... 7 

1 

Introduction and policy context .......................................................................................... 8 

2  Evaluation and stakeholder consultation .......................................................................... 11 

3  Background to the ESAs ................................................................................................... 12 

3.1  Brief history of the ESAs ........................................................................................... 12 

3.2  What the ESAs do ...................................................................................................... 12 

4  General problem definition and General Baseline ............................................................ 16 

4.1  General problem I ...................................................................................................... 16 

4.2  General problem II ..................................................................................................... 17 

4.3  General baseline ........................................................................................................ 19 

5  The EU's right to act and justification............................................................................... 21 

5.1  General objectives ..................................................................................................... 22 

6 

Powers ............................................................................................................................... 24 

6.1 

6.2 

State of play ............................................................................................................... 24 

Problem definition ..................................................................................................... 24 

6.2.1 

Problem 1: ESAs cannot make proper use of some powers ............................... 26 

6.2.2 
Problem 2: Absence of legal arrangements allowing for EU-wide supervision in 
some areas ......................................................................................................................... 27 

6.3  Objectives .................................................................................................................. 30 

6.4 

Policy options and impact analysis ............................................................................ 32 

7  Governance ....................................................................................................................... 44 

7.1 

7.2 

State of play ............................................................................................................... 44 

Problem definition ..................................................................................................... 45 

7.3  Objectives .................................................................................................................. 51 

7.4 

Policy options and impact analysis ............................................................................ 51 

7.4.1 

7.4.2 

7.4.3 

Baseline scenario ................................................................................................ 52 

Targeted changes to the current governance model ........................................... 53 

Fundamental rebalancing of decision-making powers within the ESAs ............ 54 

7.5  Comparing the options ............................................................................................... 55 

7.6  Detailing and assessing the preferred policy option (sub-options) ............................ 57 

7.6.1 

Enhancing the role of the Management Board including the Chairperson ........ 57 

Assessing  proposed  changes 

7.6.2 
the 
to 
Chairperson ....................................................................................................................... 61 

the  Management  Board 

including 

2 

 
 
7.6.3 

Allocation of decision-making powers on certain non-regulatory issues .......... 62 

7.6.4 
Assessing the proposed changes to the allocation of decision-making powers on 
certain non-regulatory issues ............................................................................................ 64 

8 

Funding ............................................................................................................................. 66 

8.1 

State of play ............................................................................................................... 66 

8.1.1 

8.1.2 

8.1.3 

Funding basis and fees collection ....................................................................... 66 

Establishment and approval of the budget ......................................................... 67 

Accountability and Audit ................................................................................... 68 

8.2 

Problem Definition .................................................................................................... 69 

8.2.1 

8.2.2 

Sufficiency ......................................................................................................... 70 

Proportionality .................................................................................................... 75 

8.3  Objectives .................................................................................................................. 77 

8.4 

Policy Options and Impact Analysis ......................................................................... 78 

8.4.1 

8.4.2 

8.4.3 

Baseline scenario ................................................................................................ 79 

Adjusted public funding ..................................................................................... 80 

Introducing private funding contribution ........................................................... 82 

8.5  Comparing the Options .............................................................................................. 93 

9  Cumulative impact of the chosen options ......................................................................... 96 

9.1 

Impact on EU budget ................................................................................................. 99 

9.2  Overall coherence .................................................................................................... 100 

10  Monitoring and Evaluation .......................................................................................... 102 

11 

Annexes ....................................................................................................................... 104 

11.1  Procedural Information ............................................................................................ 104 

11.2  Stakeholder consultation – Synopsis report ............................................................. 111 

11.3  Who is affected by the initiative and how ............................................................... 122 

11.4  Funding .................................................................................................................... 124 

11.4.1  Comparison  of  EU  texts  within  the  scope  of  the  ESA's  remits  (2010  versus 
2017) 

124 

11.4.2  Simulations for Option 2 .................................................................................. 128 

11.4.3  Simulations for the allocation of private sector contributions across the financial 
industry (Options 3 & 4) ................................................................................................. 131 

11.4.4  Overview of costs of preferred options ............................................................ 134 

11.5  Evaluation of the ESAs operations .......................................................................... 136 

11.6  Background on the elements of direct supervision in Option 3 of chapter 6 .......... 177 

3 

 
 
 
List of abbreviations 
AIF 

Alternative Investment Fund 

AIFMD 

Alternative Investment Fund Manager 

APAs   

Approved Publication Arrangements 

ARMs  

Approved Reporting Mechanisms  

BRRD  

Bank Recovery and Resolution Directive 

CA 

CCP 

Competent Authority 

Central Counterparty  

CEAOB 

 Committee of European Auditing Oversight Bodies 

CEBS   

Committee of European Banking Supervisors  

CEIOPS 

Committee of European Insurance and Occupational Pensions Supervisors  

CESR  

Committee of European Securities Regulators  

CMU   

Capital Markets Union  

CMU SWD  Capital Markets Union Staff Working Document 

CRAs   

Credit Rating Agencies  

CRD IV 

Capital Requirements Directive 

CRR 

CSD 

Capital Requirements Regulation 

Directive on Central Securities Depositories 

CSDR  

Regulation on Central Securities Depositories  

CTPs   

Consolidated Tape Providers 

DA 

Delegated Acts 

DGSD  

Deposit Guarantee Schemes Directive 

DRSPs 

Data Reporting Service Providers 

EBA 

ECA 

ECB 

European Banking Authority  

European Court of Auditors 

European Central Bank 

ECOFIN 

Economic and Financial Affairs Council  

4 

 
 
 
 
 
 
 
 
 
 
 
ECON  

Committee on Economic and Monetary Affairs 

EFRAG 

European Financial Reporting Advisory Group 

EIOPA 

European Insurance and Occupational Pensions Authority  

ELTIF 

European Long-Term Investment Funds 

EMD   

Electronic Money Directive 

EMU   

Economic and Monetary Union  

EMIR  

European Market Infrastructure Regulation  

ESAs   

European Supervisory Authorities  

ESFS   

European System of Financial Supervision  

ESMA  

European Securities and Markets Authority  

ESRB   

European Systemic Risk Board 

ESRC  

European Systemic Risk Council  

EuSEF 

European Social Entrepreneurship Funds  

EuVECA 

European Venture Capital Funds 

FFR 

Framework Financial Regulation 

FICOD 

Financial Conglomerates Directive  

FTE 

IFR 

Full Time Equivalent 

Interchange Fee Regulation  

IORPs  

Institutions for Occupational Retirement Provision  

ITS 

Implementing Technical Standards  

MCD   

Mortgage Credit Directive  

MFF 

Multiannual Financial Framework 

MiFID  

Directive on Markets in Financial Instruments  

NACE  

Statistical classification of economic activities in the European Community 

OLAF  

European Anti-Fraud Office 

Omnibus II  New European Supervisory Framework for Insurers 

OTC 

Over the counter 

5 

 
 
 
 
 
 
 
 
PAD 

Payment Accounts Directive  

PRIIPs 

Regulation on Packaged Retail and Insurance-Based Investment Products  

PSD2   

Revised Directive on Payment Services  

QMV   

Qualified Majority Voting 

RSB 

RTS 

Regulatory Scrutiny Board  

Regulatory Technical Standards 

SMEs   

Small and Medium-Sized Enterprises 

SRB 

SSM 

Single Resolution Board  

Single Supervisory Mechanism  

TFEU  

Treaty on the Functioning of the European Union  

TRs 

Trade Repositories  

UCITS 

Undertakings 

for  Collective 

Investment 

in  Transferable  Securities

6 

 
 
 
 
 
 
 
 
Glossary  
APAs 

ARMs 

Benchmarks 

CCP 

CTPs 

DRSPs 

OTC 

Prospectuses 

An  APA  is  a  system  that  requires  firms  executing  transactions  to 
publish  trade  reports  through  a  body  that  ensures  timely  and  secure 
consolidation and publication of such data. 

An ARM is a platform that reports transactions on behalf of firms. This 
can also be done via the multilateral trading facility or regulated market 
on which the transaction was performed. 

Any index by reference to which the amount payable under a financial 
instrument or a financial contract, or the value of a financial instrument 
is determined or is used to measure the performance of an investment 
fund. 

A  legal  person  that  interposes  itself  between  the  counterparties  to  the 
contracts traded on one or more financial markets, becoming the buyer 
to every seller and the seller to every buyer. 

A consolidated tape provider is a person authorised under MiFID II to 
provide the service of collecting trade reports for financial instruments 
from  exchanges  and  consolidating  them  into  a  consolidated  tape.  A 
consolidated tape is an electronic system which combines sales volume 
and  price  data  from  different  exchanges  and  certain  broker-dealers.  It 
consolidates  these  into  a  continuous  electronic  live  data  stream, 
providing  summarised  price  and  volume  data  by  security  across  all 
markets. 

DRSPs is a term used to refer to APAs, ARMs and CTPs collectively. 

The phrase  OTC can  be used  to  refer to  stocks that  trade via a dealer 
network  as  opposed  to  on  a  regulated  market.  It  also  refers  to  debt 
securities and other financial instruments such as derivatives, which are 
traded through a dealer network. 

Prospectuses  are  public  disclosure  documents  prepared  by  companies 
in the context of an offer of securities to the public and/or an admission 
of  such  securities  to  trading  on  a  regulated  market.  Prospectuses 
contain  all  relevant  information  concerning  the  company  and  the 
securities  to  be  offered  to  the  public  or  admitted  to  trading.  They  are 
approved  by  a  competent  authority  and  their  content  is  harmonised  at 
EU level. 

TRs 

TRs  are  entities  that  centrally  collect  and  maintain  the  records  of 
derivatives. 

7 

 
 
1 

Introduction and policy context 

In  response  to  the  financial  crisis  of  2007/8,  the  EU  reinforced  its  regulatory  framework  in 
line  with  global  commitments. 
  Furthermore,  efforts  to  reduce  differences  in  the 
implementation  of  the  regulatory  framework  across  Member  States  were  stepped  up  via  the 
development  of  a  Single  Rulebook  for  financial  regulation  in  the  EU.    The  European 
Supervisory  Authorities  ("ESAs")  were  established  to  ensure  consistent  application  of  the 
Single Rulebook and thereby promote both regulatory and supervisory convergence.1  In this 
way, the ESAs have contributed to a smother functioning Single Market for financial services 
as well as helping to deepen the Economic and Monetary Union ("EMU"). 

Despite the post-crisis measures, there remains significant potential to enhance regulatory and 
supervisory  convergence  in  the  Single  Market.    Integrated  financial  markets  require  more 
integrated  supervisory  arrangements 
to  function  effectively,  while  more  centralised 
supervisory  arrangements  can,  in  turn,  foster  market  integration.    The  ESAs  can  play  a  key 
role  in  this  symbiotic  relationship  between  market  integration  and  supervisory  convergence 
and can assume more direct responsibility for supervision in targeted areas.  In assuming such 
enhanced  responsibility  for  supervision,  the  ESAs  must  be  adequately  equipped  in  terms  of 
powers, governance and funding.   

The case in favour of targeted reinforcement of EU supervision is predicated on the need to 
address two main challenges:  

 

 

First,  following  the  establishment  of  the  Banking  Union  ("BU"),  the  EU  has 
committed  to  further  integration  across  the  broader  financial  sector  on  a  sound  and 
stable basis. In particular, the Capital Markets Union ("CMU") has been launched so 
as  to  lay  the  foundations  for  a  Single  Market  in  capital.    In  this  context,  the  Five 
Presidents'  Report  of  June  20152  highlighted  the  need  to  strengthen  the  EU 
supervisory  framework,  leading  ultimately  to  a  single  capital-markets  supervisor.  
More recently, the Commission Reflection Paper on the deepening of EMU3 suggests 
that  a  review  of  the  ESAs  should  deliver  the  first  steps  towards  such  a  single 
supervisor by 2019.  

the 

revealed 

financial  crisis  of  2007/8 

Second, 
the 
interconnectedness  of  global  financial  markets  and  resulted  in  major  international 
efforts to improve the consistency of regulation and supervision, notably among G20 
countries.  It is essential that EU supervisory arrangements develop in a manner which 
ensures  that  cross-border  risks  between  the  EU  and  the  rest  of  the  world  can  be 
monitored  and  managed  most  effectively.  The ESAs have  a key role to play in  this 
regard. 

linked 

risks 

the 

to 

1   The three ESAs are: the European Banking Authority, the European Insurance and Occupational Pensions 

Authority and the European Securities and Markets Authority. 

2 

https://ec.europa.eu/commission/publications/five-presidents-report-completing-europes-economic-and-
monetary-union_en 

3   The Five Presidents' Report: Completing Europe's Economic and Monetary Union June 22, 2015; Reflection 

Paper on the Deepening of the Economic and Monetary Union, COM(2017) 291 of 31 May 2017. 

8 

 
 
                                                            
The  decision  of  the  United  Kingdom  to  leave  the  EU  reinforces  these  challenges  for 
supervisory  arrangements  within  the  remaining  EU27.    The  future  departure  of  the  EU’s 
largest  financial  centre  means  that  EU27  supervisory  arrangements  must  be  strengthened  to 
ensure  that  financial  markets  continue  to  support  the  economy  on  an  adequate  and  sound 
basis.    In  addition,  the  EU27  supervisory  arrangements  must  take  account  of  the  fact  that 
financial services providers based in the United Kingdom will relocate activities to the EU27, 
which  will  require  enhanced  monitoring  and  management  from  a  financial-stability 
perspective.  The ESAs again have a key role to play in addressing this specific challenge. 

The upcoming ESAs review – which will cover powers, governance and funding - provides a 
very timely opportunity  to  consider  the necessary targeted reinforcement of EU  supervisory 
arrangements.    Article  81  of  the  ESA  Regulations  provides  for  a  review  of  the  ESAs' 
operations in 2017, and the Commission's 2017 Work Programme announced a review of the 
European  System  of  Financial  Supervisors  ("ESFS")  (which  comprises  the  three  ESAs  and 
the European Systemic Risk Board).  

In  preparing  the  review,  the  Commission  services  have  carried  out  an  evaluation  of  the 
operations of the ESAs which highlighted several important shortcomings.  These include: (a) 
insufficiently defined powers to ensure effective supervision to the same standards across the 
EU;  (b)  the  absence  of  powers  to  effectively  deal  with  cross-border  risks  relating  to 
interconnectedness  between  the  EU  and  the  rest  of  the  world;  (c)  a  governance  framework 
that leads to a misalignment of incentives between the EU and national levels within decision-
making processes; and (d) a funding framework that is not ensuring sufficiency in relation to 
the tasks allocated to the ESAs.  (See Annex 11.5)  These shortcomings limit the capacity of 
ESAs to deliver on their mandates in terms of financial stability and market functioning.  A 
stakeholder  consultation  on  the  functioning  of  the  ESAs,  undertaken  in  the  spring  of  2017, 
highlighted similar shortcomings (see Annex 11.2). 

The scope of this impact assessment covers the powers, governance and funding framework 
of the ESAs, as these are the areas which need to be reinforced to allow the ESAs to meet the 
challenges outlined above and to undertake the responsibility for direct supervision in targeted 
areas.   

The impact assessment accompanies the Commission proposals to amend the following legal 
acts:  Regulation  (EU)  No  1093/2010  establishing  a  European  Supervisory  Authority 
(European  Banking  Authority);  Regulation  (EU)  No  1094/2010  establishing  a  European 
Supervisory  Authority  (European  Insurance  and  Occupational  Pensions  Authority); 
Regulation  (EU)  No  1095/2010  establishing  a  European  Supervisory  Authority  (European 
Securities  and  Markets  Authority);  Regulation  (EU)  No  2015/760  on  European  long-term 
investment  funds;  Regulation  (EU)  No  345/2013  on  European  venture  capital  funds; 
Regulation  (EU)  No  346/2013  on  European  social  entrepreneurship  funds;  Regulation  (EU) 
No 600/2014 on markets in financial instruments; Regulation (EU) 2016/2011 on indices used 
as benchmarks in financial instruments and financial contracts or to measure the performance 
of  investment  funds;  Regulation  (EU)  2017/1129  on  the  prospectus  to  be  published  when 
securities  are  offered  to  the  public  or  admitted  to  trading  on  a  regulated  market,  Directive 
2014/65/EU  on  markets  in  financial  instruments  and  the  Commission's  proposal  for  a 
Regulation  amending  Regulation  (EU)  No  1095/2010  establishing  a  European  Supervisory 

9 

 
 
Authority  (European  Securities  and  Markets  Authority)  and  amending  Regulation  (EU)  No 
648/2012..  Neither the proposals nor the impact assessment cover macro-prudential aspects. 

10 

 
 
2  Evaluation and stakeholder consultation 
In  accordance  with  Article  81  of  the  ESA  Regulations4  an  evaluation  was  carried  out  in 
combination with this impact assessment during the spring of 2017 (see Annex 11.5).  This 
evaluation concludes that the ESAs have broadly delivered on their current objectives and that 
the  current  sectoral  supervisory  architecture  of  the  ESAs  is  appropriate.    However,  targeted 
improvements  are  needed  to  face  future  challenges.    In  particular  the  evaluation  concludes 
that: 

 

 

 

powers  could  be  enhanced  in  some  areas  so  as  to  ensure  better  regulatory  and 
supervisory outcomes for all market participants and to ensure effective and efficient 
handling of cross border risk; 

the current governance framework seems conducive to conflicts of interests between 
the  EU  and  national  levels,  which  complicates  the  decision-making  process  and 
creates an apparent bias against using certain tools and powers;   

the current funding arrangements do not seem sustainable and commensurate with the 
tasks  which  the  ESAs  perform  and  will  be  expected  to  perform  in  the  future.    This 
inadequacy of funding risks becoming acute going forward, as the tasks to be carried 
out by the ESAs expand significantly.  The current funding arrangements also reflect 
unjustified differences in contributions among Member States. 

As  a  complement  to  the  evaluation,  the  Commission  service  conducted  an  extensive  public 
consultation  in  the  spring  of  2017.    The  consultation  attracted  almost  230  responses.  
Feedback was also gathered through targeted consultations with the ESAs and in exchanges 
with  Member  States  and  industry  representatives.    A  summary  of  stakeholders'  views  is  in 
Annex 11.2. 

4   Article 81 of Regulation (EU) No 1093/2010, Regulation (EU) No 1094/2010 and of Regulation (EU) No 

1095/2010 – the ESA Regulations. 

11 

 
 
                                                            
3  Background to the ESAs 

3.1  Brief history of the ESAs 

The  financial  crisis  of  2007/8  brought  weaknesses  in  the  EU  financial  supervisory 
arrangements  sharply  into  focus.    These  supervisory  arrangements  were  primarily  national 
based  arrangements,  implying  a  patchwork  of  regulatory  and  supervisory  requirements  and 
insufficient cooperation and information exchange among national supervisors.  In response, 
the  Commission  established  a  High  Level  Group  on  financial  supervision  in  the  EU,  which 
came forward with recommendations based on the creation of a two pillar supervisory system 
as follows:5 

 

 

a  European  System  of  Financial  Supervisors  ("ESFS"),  for  the  supervision  of 
individual  financial  institutions  ("micro-prudential  supervision")  consisting  of  new 
European  Supervisory  Authorities  working  in  tandem  with  the  national  financial 
supervisors, and 

a  European  Systemic  Risk  Council  ("ESRC")  to  oversee  the  stability  of  the  financial 
system  as  a  whole  ("macro-prudential  supervision")  and  provide  early  warning  of 
systemic  risks  and  recommendations  where  necessary  (today's  European  Systemic 
Risk Board).  

Building  on  those  recommendations,  the  Commission  put  forward  legislative  proposals  to 
strengthen  EU  level  financial  supervision  in  October  2009,  which  were  adopted  by  the  co-
legislators in November 2010.  The three ESAs – the European Banking Authority ("EBA"), 
the  European  Insurance  and  Occupational  Pensions  Authority  ("EIOPA")  and  the  European 
Securities and Markets Authority (ESMA) – became operational in January 2011.  These new 
authorities  were  a  reinforcement  of  the  existing  EU  “committees  of  supervisors”  –  the 
Committee  of  European  Banking  Supervisors  ("CEBS"),  the  Committee  of  European 
Insurance  and  Occupational  Pensions  Supervisors  ("CEIOPS")  and  the  Committee  of 
European Securities Regulators ("CESR"), which had more limited powers and operated on a 
consensus-basis only. 

3.2  What the ESAs do  

The  over-arching  objective  of  the  ESAs  is  to  sustainably  reinforce  the  stability  and 
effectiveness of the EU financial system and enhance consumer and investor protection.  More 
specifically they should contribute to: 

a) 

5  

improving  the  functioning  of  the  internal  market,  including,  in  particular,  a  sound, 
effective and consistent level of regulation and supervision; 

"Report  of  the  high-level  group  on  financial  supervision  in  the  EU",  chaired  by  J.  de  Larosière,  Brussels 
25/2/2009.  Available  at:  http://ec.europa.eu/internal_market/finances/docs/de_larosiere_report_en.pdf.  The 
report  has  also  been  endorsed  by  the  Spring  European  Council  as  a  basis  for  action  to  reform  financial 
supervision. See annex for a summary of the deviations from the de Larosière report in the options retained 
in this Impact Assessment.  

12 

 
 
                                                            
b) 

c) 

d) 

e) 

ensuring  the  integrity,  transparency,  efficiency  and  orderly  functioning  of  financial 
markets;  

strengthening international supervisory coordination; 

preventing regulatory arbitrage and promoting equal conditions of competition; 

ensuring that risks in their respective sectors are appropriately regulated and supervised; 
and 

f) 

enhancing customer protection. 

The ESAs contribute to the Single Rulebook - regulatory activities 

The ESAs may, in areas specified in the relevant sectoral legislation (primary level, "level 1"), 
develop  draft  technical  standards  (secondary  level,  "level  2")  that  are  endorsed  by  the 
Commission (i.e., Articles 10 to 15).6 

The  ESAs  may  also  issue  guidelines  and  recommendations  with  a  view  to  establishing 
consistent, efficient and effective supervisory practices within the ESFS and to ensuring the 
common,  uniform  and  consistent  application  of  Union  law  (Article  16  of  the  ESA 
the  European  Parliament 
Regulations).  The  ESAs  may  also  provide  opinions 
("Parliament"),  the  Council  and  the  Commission  on  all  issues  related  to  their  area  of 
competence  such  as,  for  instance,  technical  advice.  (Article  34  ESA  Regulations).  The 
common  framework  developed  by  the  EBA  on  the  basis  of  EU  legislation  creates  the 
conditions for all institutions operating in the EU single market to efficiently and safely fulfil 
their role of financial intermediaries. 

to 

The  ESAs  contribute  to  and  promote  a  common  supervisory  culture/convergence  of 
supervisory practices 

The ESAs have a key role in promoting and monitoring the efficient, effective and consistent 
functioning  of  the  colleges  of  supervisors.    For  this  purpose  they  can  participate  in  the 
activities  of  the  supervisory  colleges  (Article  21(1)  of  the  ESA  Regulations).    The  ESA 
Regulations  also  empower  the  ESAs  to  carry  out  various  activities  in  view  of  building  a 

6   With regards to EBA and ESMA this includes, among others, the capital requirements framework (consisting 
of the capital requirements directive ("CRD IV") and the capital requirements regulation ("CRR")), the bank 
recovery and resolution directive ("BRRD"), the deposit guarantee schemes directive ("DGSD"), the revised 
directive on payment services ("PSD2"), the mortgage credit directive ("MCD"), the payment accounts 
directive ("PAD"), the regulation on key information documents for packaged retail and insurance-based 
investment products ("PRIIPs"), the fourth anti-money laundering directive ("AMLD"), the electronic money 
directive ("EMD"), the EU market infrastructure regulation ("EMIR"), the financial conglomerates directive 
("FICOD"), the directive on central securities depositories ("CSD"), the markets in financial instruments 
directive ("MiFID II") and the interchange fee regulation ("IFR"). EIOPA, on the other hand, inherited 
responsibility for two sectors, insurance and occupational pension funds, where national markets, products 
and legislation vary markedly from one Member State to another. The creation of new draft regulations and 
technical input to the legal framework discussions have therefore been complex, in both the areas of 
insurance and occupational pension funds, with a considerable amount of work which is not reflected by draft 
regulatory measures (draft RTSs, draft ITSs, guidelines and recommendations). 

13 

 
 
                                                            
common EU supervisory culture and consistent supervisory practices, as well as to ensuring 
uniform procedures and consistent approaches throughout the Union (Article 29 of the ESA 
Regulations).  

In  order  to  strengthen  consistency  in  supervisory  outcomes  the  ESAs  shall  periodically 
organise and conduct peer reviews (Article 30(1) of the ESA Regulations).  To carry out these 
duties  the  ESAs  may  request  competent  authorities  ("CA")  to  provide  them  with  all  the 
necessary information including at recurring intervals and in specified formats (Article 35 of 
the ESA Regulations). 

The ESAs ensure the consistent application of legally binding Union acts 

The  ESA  Regulations  enable  the  ESAs  to  assist  CAs  at  the  request  of  one  or  more  CAs  in 
reaching  a  common  approach  or  settling  the  matter.    The  ESAs  also  have  direct  decision 
making powers to require financial institution to comply with the obligations under Union law 
(Article 19 of the ESA Regulations).   

Similarly the ESAs are entitled to address recommendations to CAs when a CA appears to be 
in breach of Union law and, following a predefined procedure and as a last resort, to directly 
address  decisions  to  financial  institutions  to  ensure  respect  of  Union  law  which  is  directly 
applicable to them (Article 17 of the ESA Regulations).   

The ESAs can take emergency actions 

The  ESA  Regulations  set  out  that  the  ESAs  must  fulfil  an  active  coordination  role  between 
CAs, in particular, in case of adverse developments which potentially jeopardise the orderly 
functioning  and  integrity  of  financial  markets  or  the  stability  of  the  EU  financial  system.  
Following the determination of an emergency situation by the Council the ESAs may, as a last 
resort,  adopt  individual  decisions  directly  to  financial  institutions/insurers  requiring  the 
necessary action including the cessation of any practice (Article 18 of the ESA Regulations). 

The ESAs have a coordination function  

Beyond  their  coordination  role  in  emergency  situations  the ESAs  are  required  to  promote  a 
coordinated  Union  response  particularly  in  adverse  market  conditions  by  e.g.,  facilitating 
information exchange between authorities, determining the scope/reliability of information to 
be  made  available  by  CAs  and  centralising  information  received,  carrying  out  non-binding 
mediation, notifying to the ESRB potential emergency situations; taking all appropriate action 
to facilitate action by CAs (Article 31 of the ESA Regulations). 

The ESAs have tasks related to consumer protection and financial activities 

The  ESA  Regulations  require  the  ESAs  to  take  a  leading  role  in  promoting  transparency, 
simplicity and fairness in the market for consumer financial products or services.  The ESAs 
may  also  issue  warnings  in  the  event  that  a  financial  activity  poses  a  serious  threat  to  the 
ESAs' objectives and may, under specific circumstances, even "temporarily prohibit or restrict 

14 

 
 
certain financial activities" which threaten the integrity of financial markets or the stability of 
the financial system (Article 9 ESA Regulations).  

A more comprehensive outline of the background to the ESAs and what they do is developed 
in the evaluation report.  See Annex 11.5. 

Decision-making of the ESAs 

The  main  decision-making  body  of  the  ESAs  is  the  Board  of  Supervisors  where 
representatives  from  national  competent  authorities  from  each  Member  State  are  the  only 
representatives  with  voting  powers.    Decisions  by  the  Board  of  Supervisors  are  generally 
taken by simple majority.  However, qualified majority voting ("QMV") is used in the case of 
"regulatory decisions" under the ESA Regulations7.   

The voting system within the EBA was modified after the creation of the Single Supervisory 
Mechanism ("SSM") to better take into account the position of Member States which do not 
participate  in  the  Banking  Union  ("BU").    For  instance,  some  EBA  decisions  require,  in 
addition to the general majority requirements, a simple majority of national CAs participating 
in the SSM and a simple majority of national CAs not participating in the SSM, respectively 
("double simple majority").  Other decisions require a simple majority from both participating 
and  non-participating  Member  States  and  for  those  the  EBA  Regulation  also  foresees  a 
mechanism to ensure that this system remains workable when the number of non-participating 
Member States decreases until the date when four or fewer voting members are from CAs of 
non-participating Member States.  Decisions will then be adopted by a simple majority of the 
voting  members  of  the  Board  of  Supervisors,  which  shall  include  at  least  one  vote  from 
members from CAs of non-participating Member States.  Chapter 7 on governance analyses 
in more detail the decision-making process within the ESAs.  

7   Articles 10 to 16 of the ESA Regulations. 

15 

 
 
 
                                                            
4  General problem definition and General Baseline 

The overall objective of the ESAs is to sustainably reinforce the stability and effectiveness of 
the  financial  system  throughout  the  EU  and  to  enhance  consumer  and  investor  protection.  
After  six  years  of  operation,  the  evaluation  and  the  public  consultations  undertaken  by  the 
European  Commission  services  indicate  that  the  ESAs  are  increasingly  constrained  in  their 
capacity to meet this objective in the context of further integration of markets both within the 
EU and between the EU and the rest of the world. The constraints on the ESAs' functioning  
can be summarised in the form of two general problems: 

1. 

2. 

General problem I is the constraints on the ESAs to fully fulfil their existing mandates. 
The  ESAs  are  already  stretched  in  their  ability  to  meet  existing  tasks  in  full,  i.e.,  in 
terms of delivering the right regulatory outputs8 and supervisory convergence actions,9 
and  will  be  under  even  greater  pressure  as  the  process  of  financial  integration 
continues. 

General problem II is the inadequate scope of existing mandates going forward. This 
problem concerns the absence or limited scope of certain powers and tasks over large 
EU-wide cross-border firms, products or market infrastructures, as well as over third-
country instruments and aspects. 

The  constraints  implied  by  these  two  general  problems,  described  in  more  detail  in  the 
following sections, will become increasingly acute as the integration of EU financial markets 
deepens  in  future  years,  notably  with  the  creation  of  the  CMU  and  the  growing 
interconnection between global financial markets, as well as a result of the United Kingdom's 
departure from the EU. The extent to which these problems have an impact on the three ESAs 
can largely vary. General problem I affects the ESA functioning in the same way across the 
three agencies.  General problem II, instead, emerges more forcefully as an issue for ESMA 
and only in selected areas for the other two agencies. 

The  2017  ESA  review  provides  an  opportunity  to  address  the  underlying  problems  at  the 
earliest opportunity.   

4.1  General problem I  

As  illustrated  in  the  evaluation,  the  ESAs  are  facing  increasing  responsibilities  and  an 
increasing workload which have an important impact on their ability to meet their mandates in 
full  especially  from  a  forward  looking  perspective.    Section  8.2.1.2  reviews  evidence  from 
different  sources  of  this  growing  problem  and  illustrates  the  significant  increase  in  Level  2 
legislation compared to the situation when the ESAs were established in 2011.  This scale of 
workload was not foreseen in 2010, when the ESAs were established. Meanwhile, feedback 

8   This  refers  to  the  fact  that  while  Level  2  legislation  is  enacted  by  the  Commission,  Level  1  legislation 
requires the ESAs to deliver the draft acts by specific dates to the Commission and these dates have often 
not been kept. 

9   Such  as  comply-or-explain  guidelines  or  other  interpretative  guidance,  peer  reviews  of  supervisory 

practices, breach of Union law procedures or mediation between national CAs. 

16 

 
 
                                                            
from  stakeholders  is  critical  of  the  ESAs  for  the  failure  to  fully  use  their  powers  in  some 
respects, e.g., fulfilling the mandate for regulatory convergence and supervisory convergence 
(see Annex 11.2).  

Constraints on the ESAs to fully fulfil their mandates come from various sources: 

1. 

2. 

3. 

The  ESAs  are  constrained  in  fulfilling  their  objectives  by  insufficient  and  unclearly 
defined  powers,  e.g.,  when  ensuring  consistent  application  of  EU  law,  drafting 
technical advice or providing ongoing support to equivalence decisions.   

The  constraints  preventing  the  ESAs  from  fully  fulfilling  existing  mandates  is  also 
attributable  to  the  governance  of  the  ESAs.  Notably,  the  incentive  structure  in  the 
decision-making  process  leads  to  a  lack  of  decisions  in  particular  in  the  area  of 
regulatory  convergence  and  supervisory  convergence,  or  decisions  that  are  overly 
oriented  towards  national  instead  of  broader  EU  interests.    This  reflects  an  inherent 
tension between the European mandate of the ESAs and the national mandate of the 
competent authorities that are members of the ESA Boards.10  For instance, due to the 
need  for  approval  by  the  Board  of  Supervisors,  the  ESAs  have  made  limited  use  of 
peer reviews, of their powers to settle disputes and pursue breaches of Union law.  A 
greater  role  for  the  ESAs  in  deepening  financial  integration  or  strengthening  the 
stability of the Single Market will also require effective convergence powers.11 

Insufficient funding reduces the ESAs' ability to allocate resources in relation to their 
needs  to  fully  meet  their  mandates.    Current  budget  arrangements  are  and  will  be 
constraining the ESAs' activities, as pressure to consolidate public spending remains. 
Uneven contributions from Member States could also hamper the ESAs in managing 
their  evolving  funding  needs,  to  the  extent  that  Member  States  currently  making  a 
disproportionately  large  contribution  (relative  to  the  size  of  their  financial  sector) 
would be unwilling to increase their contributions further.   

4.2  General problem II  

The  current  scope  of  the  ESAs'  mandates  must  be  reconsidered  in  the  context  of  efforts  to 
further integrate financial markets within the EU.  In order to deepen market integration,12 and 

10   See section 7.2 and the 2013 Study of the European Parliament "the Review of the New European System of 
Financial  Supervision  ,  Part  1:  the  Work  of  the  European  Supervisory  Authorities  (EBA,  EIOPA  and 
ESMA) 
(http://www.europarl.europa.eu/RegData/etudes/etudes/join/2013/507446/IPOL-
ECON_ET(2013)507446_EN.pdf) 

11   "A more integrated supervisory framework ensuring common implementation of the rules for the financial 
sector  and  more  centralised  supervisory  enforcement  is  key."  Reflection  Paper  on  the  Deepening  of  the 
Economic and Monetary Union, page 20, COM(2017) 291 of 31 May 2017 

12   See  the  European  Commission  (2017),  Staff  Working  Document,  Economic  Analysis  accompanying  the 
Communication  on  Capital  Markets  Union  Mid-term  Review,  Chapter  1,  p.  11;  European  Commission 
(2017),  European  Financial  Integration  and  Stability  Review,  May,  p.  18; European  Central  Bank  (2017), 
Financial  Integration  in  Europe,  p.  3  (FINTEC  indicators).  While  price-based  indicators  have  not  yet 
reached pre-crisis levels, they are at much higher level than 2011 and an EU indicator of home bias, which 
measures  the  extent  to  which  domestic  equity/bonds  (held  by  EU  residents  in  their  country)  are 
overweighing their domestic investment portfolio (i.e. holding a proportion of domestic assets that is higher 
than  the  relative  importance  of  local  equity  and  bond  markets  over  the  total  in  the  EU),  is  close  to  a 

17 

 
 
                                                            
ensure  more  consistent  supervisory  practices  and  implementation  of  EU  rules  a  more 
integrated supervision should be achieved in targeted areas.  For example, a more integrated 
supervisory framework ensuring common implementation of the rules for the financial sector 
and more centralised supervisory enforcement has been identified as key to the completion of 
the CMU.  The feasibility of more common supervision has already been showed in the case 
of trade repositories and credit rating agencies, directly supervised by ESMA.  While there is 
no majority of stakeholders suggesting changes to the current toolkit available to the ESAs, 
recognition  of  the  problem  in  some  areas  and  support  for  targeted  increases  in  centralised 
supervision  is  also  part  of  the  stakeholders'  feedback  to  the  ESAs  review,  particularly  with 
respect  to  cross-border  activities.    Also  the  evaluation  illustrates  areas  where  the  current 
toolkit is not sufficient.  In light of the policy objectives of the CMU, more common direct 
supervision in targeted areas will mainly affect ESMA over the other two ESAs.  For instance, 
the  recent  Commission  proposal  to  amend  the  European  Market  Infrastructure  Regulation 
("EMIR")13  strengthens  ESMA's  role  in  the  supervision  of  Central  Counterparty  Clearing 
("CCPs") to support the development of deeper and better integrated capital markets. 

historical  bottom  since  early  2000s  and  anyway  lower  than  its  2011  level  (p.  11  CMU  SWD).  It  is  also 
worth  to  note  that  pre-crisis  levels  of  financial  integration  were  largely  driven  by  financial  flows 
concentrated in specific areas, like the interbank  market. The financial reintegration process that is taking 
place after the crisis (mostly since 2011) relies on a more diversified set of financial flows (see CMU SWD, 
p.  10),  which  strengthens  the  stability  of  the  financial  system.  Nonetheless,  this  diversification  involves 
complexity and may require a more elaborated regulatory and supervisory framework to deal with potential 
sources of vulnerabilities that may not mainly come from the banking sector anymore.  

13   Proposal  for  a  Regulation  of  the  European  Parliament  and  of  the  Council  amending  Regulation  (EU)  No 
1095/2010 establishing a European Supervisory Authority (European Securities and Markets Authority) and 
amending  Regulation  (EU)  No  648/2012  as  regards  the  procedures  and  authorities  involved  for  the 
authorisation of CCPs and requirements for the recognition of third-country CCPs, COM(2017) 331 final, 
2017/0136 (COD) 

18 

 
 
                                                                                                                                                                                          
Figure 4.1 General Problem Tree 

The  general  problems  outlined  above  can  be  traced  to  issues  relating  to  the  powers, 
governance and funding of the ESAs.  The following sections will discuss in detail the policy 
actions proposed in respect of these three drivers so as to ensure a proper assessment in terms 
of efficiency, coherence and effectiveness. 

4.3  General baseline 

The  ESAs'  framework  currently  relies  on  a  combination  of  powers,  governance  rules  and 
funding  structure  that  are  aimed  at  ensuring  a  certain  balance  between  national,  EU  and 
shared  competences  in  matters  related  to  banking,  capital  markets,  pensions  and  insurance.  
Current  ESAs'  powers  aim  at  ensuring  a  proper  and  convergent  application  of  EU  law  and 
contributing to the Single Rulebook by preparing draft Level 2 legislation for adoption by the 
Commission.  Over time, ESMA has also received specific powers to be the only supervisor 
that authorises and supervises credit rating agencies ("CRAs") and trade repositories ("TRs").  

In  general  terms,  the  ESAs  function  according  to  a  similar  set  of  rules  that  determine  their 
governance,  powers  and  funding.  For  governance,  rules  relating  to  the  appointment  and 
powers  of  the  Chairpersons  and  the  Management  Boards,  the  powers  of  the  Boards  of 
Supervisors  as  decision-making  body,  the  allocation  of  voting  powers  among  national 
competent  authorities  and  the  decision-making  powers  on  operational  matters  are  the  same 
with  the  notable  exception  of  EBA  in  relation  to  certain  decisions  (see Sections  3.2  and  7).  
All three ESAs are funded through public budgets distributed in fixed proportions between the 
EU  and  national  competent  authorities'  budgets.    In  addition,  ESMA  collects  fees  directly 

19 

 
 
 
from market participants in the areas where it is directly supervising entities (CRAs and TRs). 
The current toolkit of powers for the three ESAs is also very similar and includes a key role in 
contributing  to  the  Single  Rulebook  via  selected  tools  to  promote  greater  regulatory  and 
supervisory  convergence.  In  addition,  ESMA  currently  has  direct  supervisory  powers  in 
relation to TRs and CRAs.  

Without action, the baseline scenario would evolve towards an unsustainable situation for the 
ESAs and a worsening of the two general problems described in Section 4, i.e., the constraints 
to meet mandates in full and the inadequacy of the current scope of mandates.  For instance, 
the ESAs would increasingly fall short in meeting their expected funding needs and so would 
be  forced  to  reallocate  resources  and  reprioritise  actions  while  keeping  the  same  mandates. 
Carrying on with the current ESA framework may also result in slow progress in supervisory 
convergence  across  the  Single  Market,  as  markets  become  more  integrated  and  a  growing 
number of entities and activities are conducted on a cross-border basis both within the EU and 
between the EU and the rest of the world, so increasing risks of major supervisory gaps.  For 
instance,  the  current  incentive  structure  in  the  decision  making  process  may  not  ensure  the 
needed regulatory  and supervisory convergence stemming  from  more integrated markets,  as 
well  as  an  adequate  response  to  issues  in  the  implementation  and  enforcement  of  EU  law. 
Moreover, the lack of direct supervisory powers in specific areas (such as data providers and 
EU-labelled  funds)  may  increasingly  create  conflicts  between  national supervisory practices 
and cross-border activities in those markets, failing to reach the underlying objectives of the 
Single  Rulebook.  The  current  ESAs'  framework  would  thus  be  unable  to  deal  with  more 
integrated  financial  markets  on  a  sound  and  stable  basis  and  to  ensure  coherence  with  key 
European financial policies, like the CMU and the BU.  

20 

 
 
5  The EU's right to act and justification 

The  legal  basis  for  the  establishment  of  the  ESAs  is  Article  114  of  the  Treaty  on  the 
Functioning of the European Union ("TFEU").  The objectives of the ESAs are set out in the 
ESA Regulations.  It is to protect the public interest by contributing to the short, medium and 
long-term  stability  and  effectiveness  of  the  financial  system,  for  the  Union  economy,  its 
citizens and businesses.  The impact assessment accompanying the Commission's proposal on 
setting up the ESAs has demonstrated that these objectives are better achieved at Union level. 

Article 81 of the ESA Regulations provides for an obligation for the Commission to publish a 
general  report  on  the  experience  acquired  as  a  result  of  the  operation  of  the  ESAs  by  2 
January  2014,  and  every  three  years  thereafter.    Article  81(4)  calls  for  an  evaluation  report 
and,  if  appropriate,  a  legislative  proposal  to  accompany  it  should  any  change  of  the  legal 
framework be necessary to allow the ESAs to fulfil their mandate and to ensure stability and 
effectiveness of the financial system. 

The  first  Commission  report  on  the functioning of  the  ESAs  was  published  in  2014.14    The 
report  highlighted  several  areas  that  merited  improvements,  including  through  legislative 
changes.    However,  it  was  considered  premature  to  propose  legislative  changes  to  the  ESA 
Regulations  after  only  three  years  of  operations  and  with  the  regulatory  and  supervisory 
framework still in development.  The 2017 evaluation report (see Annex 11.5) also identifies 
several  areas  which  merit  improvements.    The  evaluation  demonstrates  that  EU  action  is 
justified  and necessary to address identified problems in  the area  of powers  available to  the 
ESAs, their governance framework and their funding framework.  Any actions in this respect 
will  require  amendments  to  the  ESA  Regulations.    Furthermore,  the  results  of  the  public 
consultation  launched  by  the  Commission  in  March  2017  provide  further  support  to  the 
conclusions made in the evaluation.  

With regards to the adjustment of the powers of the ESAs the present impact assessment (see 
Chapter  6)  demonstrates  that  certain  powers  of  the  ESAs  can  be  improved  and  that 
amendments  to  the  ESA  Regulations  will  allow  more  consistent  application  of  EU  law, 
stronger supervisory convergence and will improve the functioning of the internal market, as 
foreseen  in  Article  114  TFEU.  In  some  areas  it  has  been  not  clear  whether  the  ESAs  have 
genuine  powers  to  be  involved  and  to  assist  the  Commission  on  their own  initiative.    In  all 
these cases the specific nature of these powers and the impact of the potential ESAs actions 
justify an initiative at EU level and amendment of the ESA Regulations.   

Adaptations of the governance model of the ESAs would change their functioning, considered 
as  means  to  improve  harmonisation,  and  would  therefore  also  be  covered  by  Article  114 
TFEU.    The  present  impact  assessment  explores  options  for  a  more  effective  and  efficient 
governance model which would serve better the protection of the EU interests in the ESFS. 

14    Commission  report  on  the  operation  of  the  European  Supervisory  Authorities  (ESAs)  and  the  European 

System of Financial Supervision (ESFS), COM(2014) 509 final, August 8 2014. 

21 

 
 
                                                            
Moreover,  as  regards  funding,  Article  114  TFEU  allows  amendments  of  the  funding 
framework  to  include  funding  through  contributions  from  the  industry.    This  is  because  the 
funding  regime  can  be  considered  an  integral  part  of  the  establishment  of  the  ESAs 
themselves.    Furthermore,  where  the  industry's  activity  is  considered  potentially  risky  and 
where the tasks and the powers of the ESAs are intended to contribute to the containment of 
such risk, it is justified for the same industry to bear the costs arising out of the nature of its 
activity.  

Finally, the ESAs are Union bodies whose powers and operation can only be amended by the 
Union legislator – in this case on the basis of Article 114 TFEU. 

The choice of legal instrument  

The  proposed  legislative  amendments  that  will  follow  on  this  impact  assessment  aim  in 
particular  at  reinforcing  the  ESAs'  framework.    To  this  end  the  legislative  measures  will 
amend the current ESA Regulations to reinforce current powers of the ESAs, to create a more 
effective  and  efficient  governance  structure  of  the  ESAs  in  line  with  other  EU  supervisory 
bodies such as the Single Resolution Board ("SRB") and the ECB/SSM, and to stipulate the 
general criteria for changing the current funding contribution.  The latter will eventually also 
have to be implemented through a separate legal instrument detailing the implementation of 
the change in the contribution to the ESAs' funding.  

There will also be amendments to various pieces of sectoral financial legislation to strengthen 
the  ESAs'  powers  in  areas  such  as  e.g.,  third  country  equivalence  and  to  centralize  certain 
areas  of  supervision.    As  many  of  the  necessary  amendments  would  be  minor  changes  to 
existing legal texts they could be summarised in an Omnibus Directive/Regulation. 

The  legal  basis  for  the  ESA  Regulations  is  Article  114(1)  TFEU.  Any  amending  regulation 
will have the same legal basis.   

5.1  General objectives 

The overall objective of the ESAs is to protect the public interest by contributing to the short, 
medium and long-term stability and effectiveness of the financial system for the EU economy, 
its citizens and businesses.  More specifically ESAs should contribute to: 

 

 

 

 

 

improving  the  functioning  of  the  internal  market,  including,  in  particular,  a  sound, 
effective and consistent level of regulation and supervision; 

ensuring  the  integrity,  transparency,  efficiency  and  orderly  functioning  of  financial 
markets;  

preventing regulatory arbitrage and promoting equal conditions of competition; 

ensuring  that  risks  in  their  respective  sectors  are  appropriately  regulated  and 
supervised; and 

enhancing consumer protection. 

22 

 
 
General objectives can be broken down in the following specific objectives:  

 

 

 

 

ensuring  greater  regulatory  and  supervisory  convergence  and  more  effective 
supervision with better defined powers for the ESAs (S-1);  

ensuring  that  ESAs'  powers  are  coherent  with  other  EU  policies  (e.g.  CMU)  and 
developments in EU financial integration (S-2). 

ensuring  that  ESAs  have  the  proper  incentives  to  effectively  apply  their  powers  and 
carry out their tasks in line with their mandates, and to take swift decisions in the EU 
interest (S-3).  

ensuring  that  the  ESAs'  annual  funding  is  sufficient  to  meet  their  objectives  in  a 
sustainable  way  and  in  a  way  proportionate  to  the  costs  that  all  contributing  parties 
generate (S-4)  

Clear and fit for purpose powers, appropriate governance and sufficient funding for ESAs to 
meet their objectives are closely intertwined.  Without appropriate governance and sufficient 
funding the ESAs  will not  be in the position to properly use their powers; at  the same time 
broad powers alone might not be sufficient to achieve the ESAs' objectives if they do not avail 
of sufficient funding or if they are not governed in an effective and efficient manner.   

23 

 
 
6  Powers 

6.1  State of play 

One of the objectives of the ESFS (the ESAs, the national CAs and the ESRB) is to ensure 
that supervision of financial services and entities takes place at the appropriate level (national 
or EU level) and that the respective CAs are equipped with the necessary powers to execute 
their tasks.  

The  powers  of  the  ESAs  derive  from  the  ESA  Regulations.  Sectoral  legislation15  further 
specifies when some of these powers can be used.  

The ESAs' have three broad sets of powers:  

 

 

 

powers  in  relation  to  regulatory  tasks,  in  the  form  of  drafting  Regulatory  Technical 
Standards  ("RTS")  and  Implementing  Technical  Standards  ("ITS")  and  issuing  non-
binding guidelines, recommendations and opinions; 

powers  to  foster  regulatory  and  supervisory  convergence,  where  different  competent 
authorities across the EU are in charge of direct supervision (including the possibility 
for the ESAs to ensure the consistent and proper application of EU legislation through, 
for example, dispute settlement powers and breach of Union law investigation and to 
conduct peer reviews); 

ESMA  also  has  direct  supervisory  powers  (including  authorisation  and  ongoing 
supervision)  over  credit  rating  agencies  under  Regulation  (EU)  No  462/201316  and 
trade repositories under Regulation (EU) No 648/2012 (EMIR).17  

Beyond the example of CRAs and TRs, supervisory powers of the ESAs directly applicable to 
market participants are limited and restricted to dispute settlements with a binding outcome, 
decisions  taken  as  a  result  of  a  breach  of  Union  law,  and  specific  situations  where  certain 
financial  activities  have  the  potential  to  threaten  the  orderly  functioning  and  integrity  of 
financial markets or the stability of the whole or part of the financial system in the Union and 
in cases of emergency identified by Council (Article 18 of the ESA Regulations). 

6.2  Problem definition  

The predecessors of the ESAs, the former Committees of Supervisors (i.e., the Committee of 
European  Banking  Supervisors,  Committee  of  Insurance  and  Occupational  Pension 
Supervisors and the Committee of European Securities Regulators) had only an advisory role 

15   The  term  'sectoral  legislation'  is  used  in  this  report  for  Regulations  and  Directives  regulating  financial 
services and banking in the Union and to separate this body of legislation from the ESA Regulations which 
do not deal with the substance of financial services and banking but only with the establishment of the three 
ESAs. Sectoral legislation is nevertheless relevant for this impact assessment as it also allocates tasks and 
powers to the ESAs.  

16   http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32013R0462 
17   http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A32012R0648 

24 

 
 
                                                            
towards the Commission and coordination tasks in respect of the CAs. The ESA Regulations, 
therefore, represented a major strengthening of EU level supervision, in performing regulatory 
tasks  and  ensuring  consistency  in  supervisory  outcomes  and  in  the  application  of  EU  law. 
Nevertheless,  the  regulatory  and  economic  context  has  developed  significantly  since  the 
powers of the ESAs were defined in 2010. Financial integration has progressed further18 and 
there has been a very substantial amount of new legislation, notably:  

 

 

 

 

 

 

 

 

 

 

 

Regulation  (EU)  No  648/2012  on  OTC  derivatives,  central  counterparties  and  trade 
repositories ("EMIR"), effective since August 2012 

Short-selling Regulation (EU) No 236/2012, effective since November 2012 

Directive 2011/89/EU on financial conglomerates, effective since June 2013 

Single  Rule  Book  of  prudential  requirements  for  banks  capital,  liquidity  &  leverage 
and  stricter  rules  on  remuneration  and  improved  transparency  ("CRD  IV  /  CRR"), 
effective since December 2013 and January 2014, respectively 

New  European  supervisory  framework  for  insurers  ("Omnibus  II")  effective,  since 
March 2015  

Directive 2014/49/EU on Deposit Guarantee Schemes, effective since July 2015 

Mortgage Credit Directive 2014/17/EU, effective since March 2016 

Strengthened regime on anti-money laundering, effective May 2017 

Enhanced  framework  for  securities  markets  ("MIFID  II/MIFIR"),  effective  as  of 
January 2018 

Directive (EU) 2015/2366 on payment services in the internal market (cards, internet 
& mobile payments), effective as of January 2018 

Regulation  (EU)  2016/1011  on  indices  used  as  benchmarks  in  financial  instruments 
and financial contracts or to measure the performance of investment funds, applicable 
from January 2018 

  Regulation  (EU)  2017/1129  on  the  prospectus  to  be  published  when  securities  are 
offered to the public or admitted to trading on a regulated market, applicable from 21 
July 2019 

These various pieces of sector legislation confer powers on the relevant ESAs, building on the 
respective  ESA  Regulation.  In  this  context,  it  should  be  noted  that,  as  a  consequence  of 
Article 1(2) of the ESAs Regulations, all the powers provided for those Regulations become 
applicable  in  respect  of  any  Union  act  "which  confers  tasks  on  the  Authority".  Thus,  the 
responsibilities of the ESAs have significantly expanded since their establishment in 2011 and 

18   See footnote 15 above.  

25 

 
 
                                                            
are set to expand further including in the area of retail markets, in years to come as indicated 
notably  in  the  Communication  on  the  mid-term  review  of  the  CMU  Action  plan  and  the 
Reflection paper on the EMU.19 

In  view  of  this  expected  expansion  in  responsibilities,  the  2017  evaluation  addressed  the 
question  whether  the  tasks  and  powers  attributed  to  the  ESAs  have  been  appropriate.  The 
evaluation concluded that the system has overall functioned quite well to date. However, there 
are concerns about whether the current framework is still appropriate in the perspective of the 
further intra-EU integration implied by the CMU, the completion of the Banking Union (BU) 
and the likely further integration between EU financial markets and the rest of the world as 
well  as  the  fact  that  the  currently  by  far  most  important  financial  market  in  the  Union  will 
become  a  third  country  soon.  They  are  discussed  as  "Problem  1"  below.  In  particular,  the 
evaluation suggests a need for more common direct supervision by the ESAs in a few targeted 
areas as the most effective and efficient means to meet their objectives. This issue is discussed 
as  "Problem  2"  below.  Such  concerns  about  the  definition  and  allocation  of  powers  in  the 
ESA  powers  are  closely  intertwined  with  two  other  issues:  governance  and  their  funding. 
Without appropriate governance and funding the ESAs will not be in the position to properly 
exercise any additional powers.  However, it should  be noted that  the situation of each ESA 
has  evolved  differently  amid  the  broader  changes  to  the  EU  supervisory  and  regulatory 
framework  so  not  all  aspects  of  the  two  problems  apply  or  will  apply  equally  to  the  three 
ESAs. 

6.2.1  Problem 1: ESAs cannot make proper use of some powers  

The evaluation suggests that the ESAs have not always been in a position to fully reach their 
objectives  in respect  of financial stability,  market integrity and investor protection, partially 
because  efforts  to  integrate  EU  financial  markets  have  intensified  in  recent  years.  An 
important  driver  behind  this  problem  is  that  some  of  the  powers  of  the  ESAs  are  not 
sufficiently well defined or are not sufficiently comprehensive.  

As an illustrative example, when investigating an alleged breach of Union law, the ESAs can 
obtain  information  only  from  the  competent  authority  under  investigation  and  not  from  a 
wider  range  interested  parties;  this  restriction  limits  the  ESAs  ability  to  build  a  case  and 
effectively pursue their investigations. Similarly, the current dispute settlement provision has 
been criticised for not being sufficiently clear on when the ESAs can settle disagreements and 
that the effect of the current language goes too far in restricting the ESAs right to initiate or 
trigger dispute settlements with a binding outcome.  

In  relation  to  accessing  information,  the  ESAs  have  mandates  to  foster  transparency  and 
consumer protection and one of the CMU commitments is to develop performance indicators 
on retail investment products. In this context, it is important that ESMA particular EIOPA can 
secure access to information from national CAs, which is not always the case. The preferred 

19   http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52017DC0139  

26 

 
 
                                                            
Option in relation to funding will also depend on the ESAs being able to can secure access to 
information that is needed to invoice relevant market participants.  

Also in the area of internal models, inconsistencies remain between approved internal models 
of  different  (re)insurance  (groups)  despite  the  ongoing  work  on  convergence  within  the 
current  framework.  A  stronger  role  for  EIOPA  in  this  processes  and  ensuring  it  can  have 
access  to  the  necessary  information  on  applications  could  foster  further  supervisory 
convergence in this area. 

Yet  another  example  is  to  be  found  in  the  area  of  equivalence.  While  sectoral  legislation 
empowers  the  Commission  to  adopt  equivalence  decisions,  it  does  not  always  indicate 
necessary follow-up action (for example, ex post monitoring of the regulatory and supervisory 
arrangements  in  third  countries)  after  the  equivalence  decision  has  been  taken.20  In 
consequence,  situations  could  emerge  where  a  deterioration  in  regulatory  and  supervisory 
rules  and  standards  in  relevant  third  countries  go  unnoticed  and  create  risks  for  investors, 
consumers and markets in the EU. While adverse situations may vary in recurrence, gravity or 
risk potential, the ESAs were initially established to deal effectively with them at EU-level. 
Therefore, solutions are needed to address the fact that ESAs are not able to exert powers they 
have  due  to  insufficient  means  or  otherwise  and  that  their  powers  are  not  sufficiently  well 
defined. 

6.2.2  Problem  2:  Absence  of  legal  arrangements  allowing  for  EU-wide  supervision  in 

some areas 

The current allocation of powers reflects an accumulation of sector specific decisions of the 
past years. In each case, new powers and tasks have typically been allocated to national CAs. 
This  has  created  inefficiencies  and  will  create  further  inefficiencies  as  market  integration 
progresses,  not  least  because  of  the  CMU.  These  inefficiencies  stem  partly  from  different 
interpretation  and  implementation  of  rules  by  national  CAs,  but  also  from  a  lack  of 
information and experience to assess cross-border situations and highly complex practices.21 
Moreover,  market  participants  will  find  it  difficult  to  reap  the  benefits  of  scale  economies 
across borders when they are confronted with different implementations and interpretations in 
different Member States. This is sub-optimal in light of the need for greater convergence and 
to anticipate great market integration.  

20   Third-country  provisions  exist  in  about  15  core  pieces  of  EU  financial  legislation.  These  provisions 
empower the Commission to decide on the equivalence of foreign rules and supervision for EU regulatory 
purposes. The practical effect of a determination by the Commission through an equivalence decision is that 
a foreign regulatory, supervisory and enforcement regime is considered equivalent from a prudential point 
of view, to the corresponding EU framework, so that authorities in the EU to are able to rely on supervised 
entities’ compliance with the equivalent foreign framework. It does not mean that the third country entities 
subject to the regime declared equivalent have access to the internal market. 

21   A  case  in  point  being  internal  risk  models;  the  SSM  in  the  Banking  Union  is  able  to  compare  models  of 
banks from all across Europe (see the ECBs TRIM) program to identify and promote best practices, while 
for  insurers  and  investment  firms,  such  comparison  is  hampered  because  each  individual  national  CAs  is 
only confronted with few if any cases and will be unable to identify best practices. 

27 

 
 
                                                            
Problem 2 reflects an increasing imbalance in supervisory competences between the national 
and  EU  level  in  view  of  EU's  objective  to  further  the  integration  of  the  financial  markets 
through  initiatives  such  as  the  CMU  and  the  mid-term  review  thereof.22  The  drivers  behind 
this  imbalance  are  the  growth  in  cross-border  financial  services  and  the  increase  in  EU 
financial services legislation described above. The balance between the national and the EU 
level  has  shifted  considerably  in  favour  of  the  latter  both  with  respect  to  economic  activity 
and  with  respect  to  the  level  at  which  financial  services  and  capital  market  participants  are 
regulated. At the same time the balance of supervisory powers between the national and the 
EU  level  has  hardly  changed.  The  notable  exception  is  the  BU,  which  established  the 
European Central Bank ("ECB") as the single supervisor of the euro area banking system and 
of the banking system of Member States that are not part of the euro area joining the SSM and 
the SRB as the single resolution authority. 

Although  financial  market  participants  operate  increasingly  across  the  Single  Market  and  a 
growing part of EU law is directly applicable, the powers of the ESAs in supervision are still 
almost exclusively indirect: the ESAs coordinate among CAs in supervisory colleges and try 
to  enhance  regulatory  and  supervisory  convergence  through  dispute  settlements,  training, 
technical assistance, Supervisory Handbooks, peer reviews, and the like.  

Furthermore,  a  significant  share  of  cross-border  activities  in  the  integrated  market  is 
performed  by  a  relatively  small  number  of  large  financial  actors  like  investment  firms  and 
many specialised asset managers. Especially for those actors and activities supervision at the 
national level seems sub-optimal. There is  a risk that  these actors  would exploit differences 
not  only  in  supervisory  approaches  but  also  in  how  the  EU  legislation  is  interpreted  and 
applied.  For  example,  there  are  concerns  that  home  CAs  might  be  less  strict  in  enforcing 
rules, in particular on consumer and investor protection, in relation to activities carried out in 
Member  States  other  than  the  home  Member  State.  This  might  be  due  to  constraints  in 
(financial)  resources  or  (language)  skills  or  due  to  a  lack  of  incentive  or  simply  due  to 
consumers or investors having problems to identify and to address the competent authority in 
another Member State. 

A  number  of  specific  examples  illustrate  the  fact  that  the  current  or  envisaged  supervisory 
approach (supervision at national level) risks creating problems (for further details, see Annex 
11.6): 

The business of data reporting service providers23 is predominantly of a cross-border nature. 
Registration and supervision by national CAs risks being not fully effective as national CAs 
might not have the necessary capacity to detect, assess and monitor potential problems which 
might  emerge  in  other  Member  States  in  relation  to  the  activities  of  such  data  service 
providers.  In  particular,  consolidated  tape  providers  ("CTPs")  and  approved  reporting 
mechanisms  ("APAs")  will  gather  trading  data  from  providers  across  the  EU  (from  trading 
venues  where  the  trades  take  place  and  firms  carrying  out  over  the  counter  ("OTC") 
execution)  and  put  it  in  consolidated  streams  to  overcome  market  fragmentation/lack  of 

22   Commission Communication "Action Plan on Building a Capital Markets Union" (COM/2015/0468 final) 
and  Commission  Communication  on  the  Mid-Term  Review  of  the  Capital  Markets  Union  Action  Plan, 
COM(2017) 292 final 

23   Regulation (EU) No 600/2014. 

28 

 
 
                                                            
transparency.  As  these  activities  themselves  are  meant  to  overcome  market  fragmentation  it 
would not be consistent to supervise them in a fragmented way at national level.24 

There  current  discretion  and  divergent  administrative  practices  among  national  CA  in  the 
authorisation and supervision of European long-term investment funds ("ELTIF")25 as well as 
in  relation  to  the  registration  and  supervision  of  collective  investment  undertakings,  or 
managers  (e.g.,  European  social  entrepreneurship  funds  ("EuSEF")  and  European  venture 
capital  funds  ("EuVECA")),26  maintains  certain  barriers  for  the  cross-border  marketing  of 
funds and does not ensure a full level playing field among fund managers in different Member 
States.27 Furthermore, as for specialist issuers' prospectuses, in light of the limited number of 
these fund types their supervision at national level is not very efficient.28  

The  Benchmark  Regulation  envisages  the  creation  of  colleges  of  supervisors  for  the 
supervision  of  critical  benchmarks  to  assist  the  relevant  national  CA  of  the  benchmark 
administrator  in  the  supervision.29  Creating  and  running  such  colleges  is  a  relatively  time-
consuming  task,  which  is  problematic  in  an  emergency  situation.  It  is  unlikely  that  the 
national  CA  will  have  sufficient  time  to  consult  the  other  college  members  but  will  rather 
have to act quickly to avoid a disruption in the provision of the benchmark. In addition, it is 
likely that there will be several national CAs having to organise colleges. This organisational 
set-up therefore is suboptimal in terms of efficiency and effectiveness.30  

The  approval  of  prospectuses  for  specialist  issuers  by  national  CAs  risks  complicating  the 
cross-border use of prospectuses and risks being inefficient as many national CAs would have 
to  hire  prospectus  readers  with  the  skills  to  deal  with  these  relatively  rare  types  of 
prospectuses. There is also a risk of supervisory arbitrage as issuers might target national CAs 
which  they  consider  less  demanding  in  order  to  get  approval  for  prospectuses.  The  non-
financial information items specialist issuers must disclose in their prospectuses is set out in 
an ESMA recommendation31, not in the implementing measures of the Prospectus Directive. 
In practise, this can allow for diverging applications by national CAs. There is a similar risk 
of supervisory arbitrage with regard to the approval of prospectuses for wholesale non-equity 
securities, asset-backed securities by national CAs as issuers would in most cases be able to 
choose the competent authority relatively freely.32  

24   As the legal framework for some of the DRSPs will only be applicable when MiFID II applies in January 
2018, there is no reliable indication yet as to how many such data service providers will seek authorisation, 
but there will be a sizable number of APAs. The more firms active in this field, the larger the challenge to 
ensure consistency. 

25   Regulation (EU) 2015/760. 
26   Referred to in Regulation (EU) No 346/2013 on European social entrepreneurship funds ("EuSEF") and in 

Regulation (EU) No 345 on European venture capital funds ("EuVECA"). 

27   For  sake  of  convenience,  these  three  types  of  investment  funds,  EuVECA,  EuSEF  and  ELTIF,  will  be 

referred to as 'European investment funds' in what follows. 

28   Currently there are 124 EuVECAs and less than 10 EuSEFs and ELTIFs.  
29   Article 20(1)(a) and (c), Regulation (EU) 2016/1011. 
30   Currently there are only two critical benchmarks. It is expected that this number might go up to about 20. 
31  ESMA update of the CESR recommendations (ESMA/2011/81). 
32   Regulation (EU) 2017/1129.  On the basis of information provided by ESMA, this would cover about 1600 
prospectuses (1100 wholesale prospectuses and 60 prospectuses from specialist issuers) in the Union.  

29 

 
 
                                                            
Finally  and  in  a  similar  vein,  the  approval  of  prospectuses  drawn  up  by  non-EU  entities  in 
accordance  with  Regulation  (EU)  2017/112933  by  ESMA  (Articles  32  and  33  of  Regulation 
(EU) 2016/1011)34 by potentially 28/27 different national CAs carries the risk of supervisory 
arbitrage and is not very efficient in view of the duplication of resources in different national 
CAs for a few cases only.  

Problem 2 has potentially similar consequences as Problem 1. It increases risks for consumers 
and  investors,  for  market  integrity  and  financial  stability.  These  adverse  impacts  would 
become  increasingly  severe  over  time  when  and  if  markets  integrate  further  and  regulatory 
harmonisation of financial services progresses.  

Figure 6.1 Specific Problem Tree - Powers 

6.3  Objectives 

The overall objective of the ESAs is to promote an effective and efficient supervision of the 
EU  financial  system,  in  particular  with  regard  to  cross-border  activities  and  entities,  which 
ensures  financial stability  and  an  appropriate  protection  of  consumers  and  investors  and  the 
proper functioning of financial markets in the EU.  

If  these  objectives  are  to  be  delivered  effectively  amid  an  increasingly  integrated  financial-
market environment within the EU, it will be necessary to ensure:  

33   This Regulation will be applicable only as of 21 July 2019, but the current Prospectus Directive 2003/71/EC 
entails similar provisions. As no third country regime has been recognised as equivalent, there are no third 
country  issuers  with  prospectuses  drawn  up  under  their  third  country  national  law.  Third  country  issuers 
who wish to raise capital in the EU therefore draw up an EU prospectus in accordance with the Prospectus 
Directive. According to an ad-hoc survey in 2015, only 3 national CAs approved a total of 117 prospectuses 
from third country issuers in 2013 and 5 national CAs approved 119 such prospectuses in 2014; Luxemburg 
approving the lion share with 112 and 109, respectively. 

34   As benchmarks are currently not regulated in almost all countries of the world, there is no data about their 
number and even less so on the number of benchmark from third countries that are being used in the Union, 
but it can be assumed that the number is likely to be in the thousands. Many of these are, however, provided 
by a few 'major players'. 

30 

 PROBLEM DRIVERS PROBLEM CONSEQUENCES Some powers are not well defined.  Limited powers to complement national supervisory frameworks ESAs powers are inadequate to implement Single Rulebook and support market integration  - Risk of cross-border supervisory and regulatory gaps   - Inefficient and insufficient supervision of cross-border entities  ESAs cannot make proper use of some powers   
 
 
                                                            
 

 

greater  regulatory  and  supervisory  convergence  and  more  effective  supervision  with 
better defined powers for the ESAs (S-1);  

that  ESAs'  powers  are  coherent  with  other  EU  policies  (e.g.,  the  CMU)  and 
developments in EU financial integration (S-2) 

Given that the regulatory framework and institutional architecture have evolved differently in 
various  financial  sectors,  the  nature  of  the  changes  in  powers  will  differ  among  the  three 
ESAs. For example, the creation of the CMU suggests the need for both enhanced powers to 
drive convergence and more direct supervisory responsibilities for ESMA, while the creation 
of the SSM and SRM within the BU imply less need for direct supervisory responsibilities for 
the EBA. Meanwhile, the level of progress in integration and in the insurance/pensions sector 
is different to that in banking and securities markets and hence the balance of powers between 
EIOPA and relevant national CAs is also different. Notwithstanding this, the advantages and 
disadvantages of various options for enhancing powers are otherwise basically the same in the 
case of the three ESAs.  

Problems 

Problem drivers 

Specific 
objective 1 

Specific 
objective 2 

ESAs  cannot  make  proper 
use of some powers 

powers 

are 
Some 
sufficiently well defined 

not 

√ 

implement 

ESAs  powers  are  inadequate 
to 
Single 
Rulebook and support market 
integration  

Limited powers to complement 
national 
supervisory 
frameworks 

√ 

√ 

√ 

It is important  to  note that the achievement of these  objectives  will be closely linked to  the 
problems related to the governance and the funding of the ESAs which are discussed in the 
following sections. 

31 

 
 
6.4  Policy options and impact analysis 

Policy option 

Description 

1. No policy action 

The  baseline  scenario  applies  –  no  change  in  the 
current powers of the ESAs. 

2.  Clarify  certain  existing  powers  and 
strengthen oversight over national CAs 

that  are  not 
Re-define  current  ESA  powers 
sufficiently  clear  and  broad  to  allow  the  ESAs  to 
fulfil their tasks and to achieve their objectives, in 
supervisory 
promotion 
particular 
convergence 

the 

of 

3.  Option  2  +  provide  ESMA  with 
additional  direct  supervisory  powers  in 
targeted areas 

Attribute  new  powers  to  ESMA,  reflecting  the 
importance  of  cross-border  activities  and  the 
growing acquis of Union law in financial services 

4. The ESAs as single supervisors in the 
Union 

Centralise  supervision  in  the  area  of  financial 
services at Union level.  

Option  1  -  No  policy  action.  Current  powers  in  relation  to  regulatory  and  supervisory 
convergence  tasks  remain  unchanged;  as  well  as  ESMA's  direct  supervisory  responsibilities 
(baseline scenario). 

Impacts:  If  the  ESAs  cannot  have  powers  to  make  more  progress  in  regulatory  and 
supervisory  convergence  in  all  areas  of  financial  services,  participants  in  highly  integrated 
markets  might  face  a  non-level  playing  field  where  rules  are  interpreted  and  applied 
differently  in  different  Member  States.  This  could  result  in  higher  costs  for  some  market 
participants  and  distorted  cross-border  competition.  Investors  might  be  confronted  with 
differences in protection, potentially without noticing this.  

If the ESAs cannot ensure efficient collection of relevant data, costs would be higher for data 
contributors  and  users.  CAs  might  detect  problems  belatedly  or  not  at  all.  Problems  with 
access  to  data  were  highlighted  in  the  financial  crisis  in  the  aftermath  of  the  collapse  of 
Lehman  Brothers  investment  bank.  This  could  create  or  increase  risks  in  financial  markets 
and,  in  particular,  for  retail  investors  who  do  not  have  the  possibility  to  monitor  markets 
themselves but have to rely on the authorities.  

If  cross-border  supervision  does  not  keep  up  with  the  increase  in  cross-border  activities,  it 
might not be as effective as necessary to protect consumers and investors, as well as market 
integrity  and  financial  stability.  While  colleges  of  supervisors  help  the  exchange  of 
information  and  should  further  convergence,  their  scope  and  efficiency  is  limited.  The 
problems  regarding  data  gathering  and  analysis  might  be  aggravated.  This  would  not  only 
have  adverse  impacts  for  consumers  and  investors  directly  involved  but  would  undermine 
trust in the Single Market. In the extreme, undetected risks might endanger market integrity or 
financial stability. This Option would therefore not help achieving the objectives. It is also not 

32 

 
 
coherent with the Union's objectives to promote market integration and to protect consumers 
and investors effectively.  

Option  2  –  Clarify  certain  existing  powers  and  strengthen  oversight:  The  ESA 
Regulations  and/or  sectoral  legislation  could  be  amended  in  certain  parts  in  order  to  ensure 
that the ESAs can perform their tasks efficiently and effectively.  

In  particular,  the  ESAs'  ability  to  ensure  coherence  in  supervisory  actions  and  in  the 
application of EU law would be strengthened, by directing the legislator to conferring dispute 
settlement powers, including powers to take binding decisions, in a broader set of situations, 
not only upon request by a CA as is the case in many sectoral laws35 and by making sure that 
they  can  access  information  to  investigate  alleged  breaches  of  Union  law.  Enhancing  the 
ESAs powers to ensure that they can access information necessary to pursue their tasks should 
also  be  done.  Furthermore,  the  ESAs  would  be  attributed  the  task  of  defining  and  steering 
supervisory  actions  of  CAs  regarding  Union  law.  The  ESAs  would  steer  the  focus  of 
supervision in financial markets. They would agree on annual working programmes with the 
CAs  and  monitor  their  implementation  and  compliance  with  EU  level  strategic  goals  and 
standards.  EIOPA's  role  in  supervisory  colleges  should  be  strengthened  to  promote 
convergence in the assessment and approval of group internal models.  

In addition, the ESAs will be tasked to help the Commission in the monitoring of compliance 
of  third  countries  with  equivalence  requirements  in  sectoral  legislation  after  Commission 
decisions on equivalence under sectoral legislation. 

This  Option  would  require  legislative  proposals  amending  the  ESA  Regulations  and 
potentially some of the relevant sectoral legislation. 

Impacts:  These  targeted  changes  could  be  implemented  in  a  transparent  and  predictable 
manner  based  on  updates  to  relevant  legislation  agreed  by  co-legislators.  These  changes 
would also result in noticeable improvements of the efficiency and effectiveness of the ESAs' 
work compared to the baseline scenario. They would help ensuring that going ahead with the 
creation of the CMU and the BU does not result in the "proliferation" of the supervisory gaps 
or  shortcomings  identified  in  the  baseline.  Closing  these  gaps  by  empowering  the  ESAs  to 
address them would also be consistent and coherent with the Commission's various flagship 
projects.  It  would  help  to  ensure  consistent  application  of  Union  law  and  avoid  the  risk  of 
regulatory arbitrage.  

Clarifications would encourage ESAs to pay more attention to the respective areas and they 
would probably be more inclined to take action instead of having to lose time in discussions 
with  CAs  and/or  the  Commission  to  find  out  if  the  ESAs  are  actually  empowered  to  take  a 
certain  action.  This  would  close  potential  loop-holes  in  EU  supervision  which  exist  in  the 
baseline  scenario  to  the  benefit  of  all  supervisors  and  market  participants  as  well  as  tax 
payers.  

35   It should be noted however that the possibilities for binding mediation by ESAs cannot be applied in areas 
where MS have discretion, i.e. where the sectoral legislation provides some flexibility in its implementation, 
in particular in Directives.  

33 

 
 
                                                            
Generally  the  clarifications  and  redefinitions  of  certain  powers  should  not  result  in  higher 
costs for the ESFS as a whole. In some cases there might be a shift of costs from national CAs 
to the ESAs if the changes were to trigger more activities by the ESAs and thereby reduce the 
work load of CAs. Overall, such shifts would be expected to result in a reduction of total costs 
as tasks would not have to be executed by several national CAs but by one of the ESA.  

An increased role of EIOPA in relation to internal models would ensure a level-playing field 
among insurance groups as diverging SCRs can result in very different costs for the entities 
concerned. At the same time it would  be much less  disruptive than installing EIOPA as  the 
sole authority looking into group internal models. The latter would also risk that approaches 
in  the  approval  of  group  internal  models  and  of  other  internal  models  might  deviate.  More 
consistent  approaches  to  group  internal  models  would  also  address  wider  macro-prudential 
concerns.  Insurance  policy  holders  would  also  benefit  from  fair  competition,  undistorted  by 
differences in SCRs. 

Closer oversight of the supervisory work of national CAs by ESMA would be an important 
step  towards  harmonised  supervision  of  capital  market  participants  subject  to  Union  law. 
While  national  CAs  would  still  be in  charge  of,  and  best  placed  for,  the  actual  supervision, 
ESMA could promote best practices and a common implementation of Union law much more 
effectively.  Divergences  in  the  interpretation  of  Union  law  could  be  detected  much  earlier. 
However,  this  would  require  considerable  additional  resources  for  ESMA  to  gather  the 
necessary high level of technical expertise and appropriate IT tools to manage the exchange of 
data and information between ESMA and national CAs. Member States would have to agree 
to a considerable reduction of the autonomy of their national CAs.  

In  comparison  with  the  baseline  scenario,  Option  2  should  lead  to  greater  supervisory 
convergence and better application and compliance with EU law. As this would also reduce 
the scope for regulatory/supervisory arbitrage, supervision in the Union would become more 
effective. 

Option 3 – Provide ESMA with additional direct supervisory powers in targeted areas. 
This  Option  adds  upon  Option  2,  which  comprises  of  horizontal  measures  concerning  all 
ESAs, by empowering ESMA with the direct supervision over specific products, activities or 
actors in securities markets, which are already regulated at Union level but are still supervised 
at national level.36 As the following areas are characterised by a large share of cross-border 
activity within the EU, as discussed in the problem description, supervision at national level 
cannot (always) ensure effectiveness and efficiency, in particular with respect to the impacts 
the respective activities might have in other Member States than the one of the national CA, 
the following task could be transferred to ESMA: 

1. 

Authorisation  and  supervision  of  data  reporting  service  providers  (DRSPs)  and  a 
mechanism  for  trading  data  compilation  from  market  participants  and  distribution  to 
competent authorities 

36   The  transfer  of  additional  powers  to  the  ESAs  would  have  to  respect  the  limits  set  by  the  ECJ  in  its 
"Meroni" jurisprudence, which clarified that the powers granted to supervisory authorities had to be well-
framed, leaving little room for discretion to the authority. 

34 

 
 
                                                            
2. 

3. 

4. 

5. 

Authorisation  and  supervision  of  European  long-term  investment  funds  (ELTIF)  and 
registration  and  supervision  of  collective  investment  undertakings  or  managers,  as 
appropriate, referred to in the EuSEF Regulation and in the EuVECA Regulation  

Supervision of administrators of critical benchmarks  

Approval of prospectuses for wholesale non-equity securities admitted to trading on a 
regulated  market  or  its  specific  segment  to  which  only  qualified  investors  can  have 
access,  asset-backed  securities  and  specialist  issuers,  and  control  of  all  related 
marketing materials  disseminated in the Member States where  such prospectuses are 
used  

Approval  of  EU  prospectuses  drawn  up  by  non-EU  entities  in  accordance  with 
Regulation  (EU)  2017/1129  and  control  of  all  related  marketing  materials 
disseminated in the Member States where such prospectuses are used 

6. 

Recognition and approval of endorsement of third country benchmarks 

Impacts:  

The  impacts  described  for  Option  2  would  apply  here  as  well.  In  addition,  the  following 
general impacts are expected:  

Generally,  the  centralisation  of  certain  tasks and  powers,  in  particular those related  to  areas 
with a high degree of cross-border activities within the EU would lead to considerable gains 
in  efficiency  and  effectiveness  of  supervision  across  the  EU  compared  to  the  baseline 
scenario:  In  these  more  integrated  parts  of  the  financial  services  sector,  centralisation  of 
supervisory  activity  would  promote  market  integration  by  reducing  the  costs  of  compliance 
for  market  participants  as  they  would  only  have  to  deal  with  one  supervisor  while  they 
currently  often  have  to  deal  with  national  CAs  in  all  Member  States  in  which  they  want  to 
market  their  products  or  services.  Costs  of  supervision  for  national  CAs  would  also  be 
reduced  as  the  number  of  entities,  products  or  activities  they  have  to  supervise  would  be 
reduced.  ESMA's  costs  would  increase  less  than  the  significant  savings  from  economies  of 
scale and specialisation.  

Also, when defining a response to prudential risk, a national CA might not take the EU-wide 
impacts fully into account or might not avail itself of all the necessary information and data 
this would render supervision less effective.  

By  attributing  the  supervision  of  certain  actors  or  activities  of  a  primarily  or  almost 
exclusively  cross-border  nature  to  ESMA  similar  effects  would  also  be  achieved  within  the 
EU.  Similar  to  the  case  of  credit  rating  agencies  and  trade  repositories,  ESMA  would  be 
charged  with  the  supervision  of  certain  activities  which  are  almost  exclusively  provided 
across  borders.  This  would  reduce  compliance  costs  and  administrative  barriers  while 
enhancing the quality of supervision and contribute to the well-functioning of capital markets 
in general, to the opening up of new opportunities in the single market for investors, and to an 
improved access to finance.  

Supervision  would  be  improved  as  ESMA  would  have  all  relevant  information  about 
supervised  entities  or  financial  products  at  hand  for  the  entire  EU.  It  would  be  much  better 

35 

 
 
placed to identify risks building up in the EU. This should increase confidence in the CMU by 
market participants and preserve financial stability.  

The specific impacts of the proposed changes can be described as follows: 

1.  Authorisation  and  supervision  of  data  reporting  service  providers  (DRSPs)  and 
enhanced data gathering powers 

Direct supervision of these data providers would spare national CAs from having to supervise 
a  small  number  of  entities  across  Member  States.  As  the  data  is  typically  used  by  market 
participants  and  CAs  across  the  EU  and  not  only  in  individual  Member  States  there  is  no 
important need for the supervisor to be close to the data provider.  

As many APAs are likely to be entities set up by trading venues which are as such supervised 
nationally, a possible drawback of this option is that there is a risk that supervisory disputes 
might arise in this specific case as parts of a group might be supervised for some activities by 
the national supervisor and for others by ESMA. However, since trading and data provision 
activities are expected to be kept in in different entities, it should be easy for the supervisors 
involved to develop appropriate working arrangements. At the same time, the risk of having 
data  stored  in  different  formats  in  different  Member  States  would  be  prevented.  ESMA  as 
central  supervisor  could  better  compare  business  practices  and  work  towards  best  practices. 
Users  of  data  across  the  EU  (and  beyond)  could  rely  on  fully  harmonised  approaches  to 
supervision. In summary, supervision should be more efficient and effective if data providers 
were supervised by ESMA than if they were supervised nationally.  

Finally,  by conferring  powers  to  collect trading data directly from  market operators, ESMA 
would be a more efficient hub for compiling and processing and distribute trading data from 
across the EU necessary to design and apply technical rules and to monitor compliance with 
various  transparency  and  reporting  obligations.  Market  operators,  end  users  and  competent 
authorities  would  greatly  benefit  from  such  efficiencies  since  the  current  system  of  data 
distribution from multiple points (market operators) to multiple points (competent authorities) 
would be changed to a single flow of data via ESMA.   

2. Authorisation and supervision of ELTIF and registration and supervision of EuSEF 
and EuVECA  

The  objective  of  the  EuVECA/EuSEF  and  ELTIF  Regulations  is  to  boost  jobs  and  growth, 
SME  financing,  social  and  long-term  investments  but  also  to  promote  an  EU  investment 
culture. An appointment of a single EU supervisor would be fully in line with this objective 
and  would  further  facilitate  the  integration  and  marketing  of  such  funds  across  borders. 
Beyond this, single supervision would also address concerns regarding alleged differences in 
supervisory  cultures  and  performance  of  different  national  competent  authorities.  The  three 
funds  are  governed  by  EU  sectoral  regulations  with  no  room  for  Member  States' 
implementation gold plating.  

36 

 
 
As  a  potential  drawback,  some  managers  could  manage  next  to  EuVECAs,  EuSEFs  or 
ELTIFs  other  funds  such  as  UCITS.  Thus,  they  would  need  to  be  involved  not  only  with 
ESMA  but  also  with  national  CAs.  However,  already  now  managers  may  launch  funds  in 
different Member States, thus, are obliged to deal with different national CAs.  

3. Supervision of administrators of critical benchmarks 

Having ESMA as the single supervisor of administrators of critical benchmarks would allow 
it to pool experience and to immediately trace potential adverse developments in the evolution 
of  these  benchmarks  which  are  crucial  for  the  EU  economy  and  financial  stability.  All 
administrators of critical benchmarks would face the same approach of supervision. Users of 
critical  benchmarks  across  the  EU  and  beyond  could  rely  on  consistent  and  coherent 
supervision of such benchmarks.  

4. Approval of prospectuses for wholesale non-equity securities, asset-backed securities, 
specialist issuers 

Specialist  issuers  (e.g.,  property  companies,  mineral  companies,  shipping  companies)  are  a 
rare  category  where  the  relevant  "sector"  expertise  could  be  consolidated  with  ESMA.    As 
there  are  only  relatively  few  prospectuses  of  specialist  issuers,  centralising  the  scrutiny  of 
such prospectuses would allow building up expertise within ESMA. National CAs would not 
have to provision such expertise which is then hardly used and might therefore not always be 
developed in an optimal way.  These types of issuers are typically required to disclose non-
financial  information  items  of  a  very  specific  nature  (e.g.  valuation  of  real-estate  portfolio, 
details  of  mineral  resources  and  reserves,  anticipated  mine  life,  details  of  patents  and 
progression of product testing), which in turn requires skilled prospectus readers to scrutinise 
this  information  efficiently.  In  view  of  their  low  number,  the  scrutiny  of  prospectuses  of 
specialist issuers would not represent a major shift in terms of resources from national CAs to 
ESMA. 

Issuers would benefit as the ESMA prospectus readers would have a greater expertise, which 
would result in a swifter approval of prospectuses and in a more uniform level of quality of 
the  scrutiny.  This  would  facilitate  cross-border  use  and  ensure  a  level  playing  field  among 
issuers. Investors would also benefit if a persistently high level of supervisory quality could 
be ensured. National CAs could free up resources which they otherwise would have to invest 
in  these  specific  prospectus  approvals.  At  the  same  time,  some  of  them  might  consider  this 
loss of competences as an adverse impact.  

Charging ESMA with the approval of certain wholesale prospectuses (admitted to trading on a 
regulated market or its specific segment to which only qualified investors can have access37) 
and of ABS prospectuses could result in a significant streamlining of approval procedures, a 
reduction  of  the  timeline  for  approvals  and  a  welcome  concentration  of  strategic  expertise 

37   These regulated markets or segments of regulated markets dedicated only to qualified investors are expected 
to  develop  and  grow  over  time,  potentially  amounting  for  a  significant  number  of  future  wholesale  non-
equity prospectuses.  

37 

 
 
                                                            
with  ESMA  as  in  particular  ABS  is  a  complex  type  of  securities.  While  the  personnel 
implications  of  a  move  toward  central  ESMA  approvals  of  certain  wholesale  and  ABS 
prospectuses  could  be  considerable,  such  a  move  would  represent  a  unique  opportunity  to 
establish ESMA as a centre of expertise in the approval of CMU strategic prospectuses. 

The impacts on issuers and investors would be similar to those for the other 'smaller' types of 
prospectuses. The impact on national CAs, however, would be bigger as their workload would 
be reduced. Here as well the loss of competence could be seen as an adverse impact. ESMA 
would require additional resources in terms of personnel, office and IT equipment and office 
space. 

When  offering  securities  to  the  public  or  requesting  admission  of  securities  to  trading  on  a 
regulated  market,  issuers  usually  disseminate  advertisements  to  the  public  in  the  form  of 
marketing  materials,  in  addition  to  the  prospectus.  The  Prospectus  Regulation  requires  the 
contents  of  such  advertisements  to  be  accurate,  not  misleading  and  consistent  with  the 
corresponding  prospectus,  and  competent  authorities  are  empowered  by  Regulation  (EU) 
2017/1129 to control the compliance of advertisements with this principle. As the supervision 
of advertisements related to prospectuses is currently an integral part of the role of competent 
authorities  under  Regulation  (EU)  2017/1129,  it  is  also  logical  to  transfer  to  ESMA  such  a 
task in relation to all the aforementioned prospectuses whose approval is conferred to ESMA. 
To perform such a task, ESMA will need adequate staff resources with sufficient knowledge 
of  the  relevant  national  rules  on  consumer  protection.  Concentrating  at  ESMA  level  the 
control  of  advertisements  for  those  prospectuses  will  ensure  a  level  playing  field  and  a 
consistent  approach  irrespective  of  where  the  advertisements  are  disseminated,  and  thus  a 
high level of consumer protection. 

5. Approval of prospectuses drawn up by non-EU entities in accordance with Regulation 
(EU)  2017/1129  and  recognition  and  approval  of  endorsement  of  third  country 
benchmarks 

As the BMR is only applicable as of 1 January 2018 and as third country benchmarks can be 
used in the EU until 1 January /2020 without authorisation or registration, only a few CAs in 
the EU will have experience with the supervision of such benchmarks in the next years. The 
endorsement or recognition of third country benchmarks by ESMA would therefore avoid that 
national CAs have to develop and maintain capacities for these tasks. Such capacities would 
instead be pooled in one authority which would allow to benefit from economies of scale and 
to exploit learning curves. This would ensure a harmonised approach vis-à-vis administrators 
of  third  country  benchmarks,  their  contributors  and  their  users  in  the  EU.  The  risk  of 
regulatory arbitrage, e.g., by influencing the determination of the Member State of reference 
through the choice  of the entity requesting  endorsement, would be eliminated. In  its role of 
CA  for  third  country  benchmarks  ESMA  could  deepen  its  relationships  with  third  country 
supervisors. This  would make  cross-border cooperation more efficient and  effective. ESMA 
would gather valuable experience which would allow it to better represent the EU's interests 
in  international  fora.  Also,  in  view  of  the  United  Kingdom  leaving  the  EU,  a  smooth  but 
reliable  third  country  regime  would  be  crucial  to  ensure  that  the  use  of  third  country 

38 

 
 
benchmarks  by  supervised  entities  in  the  EU  is  not  unnecessarily  disrupted  once  the 
transitional period of the BMR expires.  

The  approval  of  prospectuses  drawn  up  by  third  country  issuers  entities  in  accordance  with 
Regulation  (EU)  2017/1129  by  ESMA,  and  the  control  by  ESMA  of  the  corresponding 
advertisements disseminated in the Union by such third country issuers, would ensure a fully 
harmonised approach vis-à-vis third country issuers, would avoid cumbersome procedures to 
identify the relevant 'home Member State' and therefore would prevent forum-shopping. Third 
country  issuers  would  have  a  single  point  of  contact  in  the  EU  and  would  not  need  to  deal 
with several national CAs if they offer different securities in different Member States.  

For  both  tasks  ESMA  would  require  considerable  additional  resources.  However,  as  this 
transfer  of tasks would reduce the workload  of national  CAs, the total costs  for supervision 
are not expected to go up by the full amount needed by ESMA. Yet, ESMA and national CAs 
would have to provision resources for the same tasks (but different issuers) in parallel. This 
might eliminate some of the savings which might result from a specialisation at ESMA in the 
respective  regulatory  and  supervisory  regimes  in  third  countries  and  potentially  smoother 
working arrangements with CAs in these countries. 

Overall,  this  Option  would  obviously  have  strong  direct  impacts  on  ESMA.  Its  role  in  the 
supervision  of  market  participants  in  financial  services  would  increase  considerably.  To  fill 
this  role  it  would  require  considerable  additional  human  and  financial  resources  and  would 
have  to  build  up  expertise  in  the  respective  areas.  As  some  of  the  areas  covered  are  not 
regulated  to  date  or  are  being  reformed  currently,  it  is  not  possible  to  provide  precise 
estimates of these resource needs. Based on experience of national CAs, it can be estimated 
that the tasks in relation to prospectuses would require about 15-20 FTE prospectus readers. 
While there is  no reliable evidence regarding  European investment funds per se data on the 
relation  between  the  number  of  supervisors  and  the  number  of  supervised  funds  in  various 
national CAs suggests that 5 to 10 FTE would be necessary to supervise about 130 European 
investment  funds.  These  very  rough  estimates  suggest  that  ESMA  would  require  probably 
around 100 FTE for the specific task of direct supervision. To this one would have to add the 
related overhead share and specialist support in the form of lawyers, accountants, etc. Such an 
increase  in  head  count  would  at  the  same  time  require  a  considerable  extension  of  ESMA's 
office  space  and  office  and  IT  equipment.  But  given  the  rapid  growth  of  ESMA  in  the  last 
years and that it is already the supervisor of credit rating agencies and trade repositories in the 
Union,  it  can  be  assumed  that  it  could  build  on experience gained  when  it  had to  deal  with 
these additional tasks.  

It  has  to  be  stressed,  however,  that  resulting  financial  needs  of  ESMA  do  not  represent  an 
equal increase in the costs of supervision of the respective activities but rather a partial shift 
of costs from national CAs to ESMA. In many cases, it can be assumed that the centralisation 
of  supervision  should  lead  to  efficiency  gains  and  therefore  net  cost  reductions.  Given  that 
most national CAs are currently financed by the financial industry and provided that the direct 
supervision by ESMA would also be financed through fees as was the case of CRAs and TRs, 
costs to  industry should not  increase. For  more detail  on the various  funding sources  of the 
ESAs see chapter 8. 

39 

 
 
An  advantage  of  this  Option  would  be  that  it  could  be  implemented  incrementally.  The 
transfer of powers in certain areas from national CAs to the ESAs would reflect the progress 
in market integration in the respective sector. If the ESAs were granted new direct supervisory 
powers within the EU, this option would require a substantial increase in the budgetary and 
human  resources  of  the  ESAs  in  light  of  the  extent  to  which  supervisory  powers  would  be 
transferred to them. This would potentially require a transitional period to allow the ESAs to 
equip themselves with the necessary skills and expertise. As they would potentially supervise 
entities in all Member States they would also have to enlarge their pool of language skills to 
be  in  the  position  to  communicate  with  citizens  and  retail  investors  in  all  Member  States. 
They might, at least in some areas, also have to acquire a certain degree of competence with 
regard to related national law, e.g., company law.  

A disadvantage of this Option when compared with the baseline scenario would be that some 
actors  might  be  supervised  by  an  ESA  for  some  of  their  activities  and  by  national  CAs  for 
others. This could create additional costs especially for smaller market participants which are 
active only in one or a few Member States and require additional coordination between these 
supervisors.  

Smaller market participants, and in particular citizens, might consider dealing with a central 
supervisor  in  a  location  potentially  far  away  from  their  home  Member  State  and  not  as 
familiar  with  the  local  language  and  context  as  the  national  CA  as  less  convenient  than  the 
status  quo  (baseline  scenario).  Larger  and  internationally  active  entities,  on  the  other  hand, 
would  most  likely  benefit  from  such  centralisation  and  prefer  this  option  over  the  baseline 
scenario.  

Stakeholder views on this option are split. Respondents to the ESA public consultation have 
explicitly supported the direct supervision at EU level of CCPs38 and of DRSPs which service 
the whole  EU rather  than specific  national markets. Some  also responded to  the idea to  put 
European  investment  funds  under  supervision  by  ESMA  and  partially  supported  it.  Many 
respondents did not reply to the question on direct supervision. Replies to the question as to 
whether  ESMA  should  be  entrusted  with  direct  supervision  of  pan-European  collective 
investment  funds  mostly  do  not  distinguish  the  different  types  of  funds  as  proposed  in  this 
impact assessment report. 

Views  expressed  against  consolidation  of  ESMA  supervision  mainly  refer  to  the  following 
arguments:  national  based  supervision  was  considered  best  suited  to  deal  with  the  different 
market  structures  of  Member  States.  Supervision  by  ESMA  would  conflict  with  national 
competence for retail investor protection and financial stability as well as taxation, litigation 
and conflict resolution. Operational difficulties such as control of local requirements related to 
distribution  arrangements  or  marketing  were  also  raised.  Instead,  existing  tools  to  ensure 
supervisory convergence should be better explored to develop integrated capital markets.  

38   A  Commission  proposal  on  CCPs  has  already  been  adopted  and  is  therefore  not  discussed  in  this  impact 
assessment. It introduces a more pan-European approach to the supervision of EU CCPs, to ensure further 
supervisory convergence and accelerate certain procedures. ESMA will be responsible for ensuring a more 
coherent  and  consistent  supervision  of  EU  CCPs  as  well  more  robust  supervision  of  CCPs  in  non-EU 
countries. 

40 

 
 
                                                            
The  main  arguments  in  favour  of  direct  supervision  by  ESMA  mentioned  were:  some 
respondents  recognised  potential  merits  in  ESMA  supervision  over  entities  or  instruments 
with  a  pan-European  dimension  which  would  allow  coordination  of  supervisory  practices, 
taking  into  account  different  market  structures  and  thus,  reflecting  the  principles  of 
subsidiarity  and  proportionality.  They  considered  that  such  solutions  were  appropriate  to 
address  the  problem  of  fragmentation  and  inefficiencies  of  current  regime  as  well  as 
regulatory arbitrage and divergent application of EU rules.  

Finally, this option would be subject to the limits imposed by primary law, as interpreted by 
the Courts, on the delegation of powers to EU bodies, as opposed to EU institutions. Whether 
these  limits  are complied  with  in  the  present  context  must  be  judged  notably  in  light  of  the 
breadth of discretion the substantive rules imply, as regards action by supervisory authorities. 

Option  4  –  Turn  ESAs  into  single  supervisors  in  the  EU:  The  supervision  of  financial 
services,  banking  and  insurance  would  be  centralised  in  the  three  ESAs.  This  option  has 
already been discussed in  the 2009 impact assessment and discarded at that time.  However, 
with  the creation  of the SSM in  2013, a step in  this direction has  already been  taken in  the 
field  of  banking  where  the  ECB  has  been  installed  as  the  single  supervisor  of  banks  in  the 
euro area and in Member States which have joined the SSM.39 In light of the developments 
discussed  under  Problem  2,  it  seems  appropriate  to  reconsider  this  assessment.  The  single 
supervisors could be organised as strictly central units or partially decentralised with offices 
or  branches  in  all  Member  States  either  serving  as  contact  points  for  (retail)  investors  and 
potential  complainants  as  well  as  the  supervised  entities,  or  (partially)  performing  the 
supervision on the spot. Also the model of the SSM could be envisaged, where supervisory 
competence  is  centralised  but  the  national  CAs  continue  to  exist  and  contribute  to  the 
functioning  of  the  supervisory  mechanism  in  different  degrees  depending  on  whether  the 
supervised entity is more or less significant. This option would require legislative proposals 
amending the ESA Regulations as well as all relevant sectoral legislation. 

Impacts:  This  Option  would  reduce  costs  of  supervision  considerably  because  it  would  no 
longer  be  required  that  competencies  for  all  supervisory  tasks  in  all  areas  are  ensured 
separately  in  all  Member  States  and  because  of  a  reduction  of  costs  of  coordination  among 
CAs and with ESAs. It would exploit economies of scale to the full and avoid the duplication 
of  tasks.  However,  transition  costs  could  be  considerable  as  ESAs  would  have  to  build  up 
human capacities and would need much more office space. Depending on the funding of the 
regime (see section 8) the absolute expenditure for the EU Budget could increase considerably 
while  total  costs  for  Member  States  would  most  likely  be  reduced  in  comparison  with  the 
baseline scenario.  

For  legal  reasons,  these  advantages  would  not  in  fact  be  available  in  full.  As  mentioned 
above, delegation of powers to an EU body is subject to the limits imposed by primary law. 
The  greater  the  number  of  sectors  covered,  the  higher  the  likelihood  that,  among  the 
substantive  rules  concerned,  there  are  some  at  least  that  could  not  be  subject  to  direct 
supervision  by  an  EU  body  (as  opposed  to  an  institution).  At  this  point  in  time,  difficulties 

39   With  regard  to  the  banking  sector  the  allocation  of  tasks  between  EBA  and  ECB  could  also  be  re-

considered.  

41 

 
 
                                                            
would also result from the degree of harmonisation of the material regulatory requirements in 
some sectors. To illustrate, the SSM as a single superviory mechanism was created in an area 
where  material  requirements  are  largely  fully  harmonised  in  directly  applicable  regulations; 
nevertheless,  reamining  areas  where  material  requirements  are  still  implemented  through 
national  law  or  where  directly  applicable  Regulations  entail  national  options  and  discretion 
have led to inefficiencies in the SSM's operations. 

Even if legally possible, this Option would imply that the pros and cons of Option 3 would be 
extended  to  all  sectors  and  actors:  major  international  actors  would  probably  be  the  main 
beneficiaries  while  smaller  financial  actors  and  retail  investors  might  suffer  from  a  lack  of 
proximity  of  the  supervisor  to  the  market.  Member  States  and  their  CAs  would  have  less 
direct influence on the financial sector in their jurisdictions.  

Overall, this option seems to go beyond the optimal degree of centralisation required as some 
supervisory  tasks  are  better  performed  by  a  supervisor  close  to  the  idiosyncracies  of  the 
regulatory framework at national level and close to the local market itself. This holds true for 
example  for  a  local  investment  firm  or  bank  serving  only  clients  in  a  local  market.  Full 
centralisation  seems  inappropriate  in  such  a  scenario.  A  "hub  and  spokes"  system  like  the 
SSM could, while achieving full coherence in the supervisory work, mitigate the problem of 
remoteness  from  the  market  but  would  find  it  difficult  to  overcome  a  lack  of  regulatory 
harmonisation. Some stakeholders also raised the questions of accountability and liability of 
single supervisors. Comparing the options 

Table 6-1. Comparison of policy options against effectiveness and efficiency criteria  

Objectives 

EFFECTIVENESS 

1: 

Objective 
supervisory 
convergence  and  more 
effective supervision 

2:  
Objective 
 enhanced investigations and 
control of compliance 

EFFICIENCY 
(cost-
effectiveness) 

1:  
policy 

0 

+ 

++ 

+ 

0 

+ 

++ 

++ 

0 

+ 

++ 

+ 

Policy  
options 

Option 
No 
change 

Option 2 

Option 3 

Option 4 

Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): 
++  strongly  positive;  +  positive;  –  –  strongly  negative;  –  negative;  ≈  marginal/neutral;  ? 
uncertain; n.a. not applicable  

In comparison to Option 1 (baseline scenario), Option 2 would not significantly improve the 
allocation  of  powers  between  CAs  and  ESAs.  It  would  nevertheless  be  helpful  as  it  would 

42 

 
 
 
 
avoid supervisory gaps and allow ESAs to achieve their objectives. This in turn would make 
their  work  more  efficient  and  effective.  This  Option,  while  in  principle  coherent  with  the 
overall objectives of the EU's policy in the area of financial services, is reaching its limits in 
view  of  the  full  harmonisation  of  capital  markets.  As  for  the  Banking  Union,  sheer 
coordination  at  Union  level  seems  no  longer  sufficient  to  ensure  an  efficient  and  effective 
supervision of international players and products in the CMU. 

Option 3, additional direct supervisory powers for the ESAs, would achieve both objectives 
much better than Option 1 and also than Option 2. It would therefore also be more efficient 
and effective, in particular when introduced incrementally in areas showing clear benefits of 
central  supervision.  It  is  more  effective  than  Option  2  as  it  avoids  the  increasing  risks  of 
adverse  cross-border  impacts  going  unnoticed  by  national  CAs  and  more  efficient  as  it 
exploits economies of scale. This Option would also be coherent with the overall objectives of 
the EU's policy in the area of financial services but would have to be carefully calibrated in its 
interactions with the SSM. 

Option 4, single supervisors, would most likely have significant positive and adverse impacts 
which might net out to a large extent. While, for example, the centralisation of all supervisory 
powers would shift the supervision of relevant cross-border and non-EU activities to a more 
appropriate level, it might at the same time move the supervision of smaller actors and purely 
national  activities  too  far  away  from  the  optimal  level.  This  could  compromise  the 
effectiveness of supervision. Similarly, there would efficiency gains in some areas, e.g., data 
collection and analysis and supervision of major actors, but there would also be risks of losses 
in efficiency if tasks were first centralised but had then to be delegated back to local offices. 
In  the  current  context,  this  Option  might  therefore  not  be  fully  coherent  with  the  overall 
objectives of the EU's policy in the area of financial services. 

For  the  current  situation,  Option  3  is  therefore  the  preferred  option.  It  could,  however,  be 
envisaged  that in  the  long  term  Option  3  would  pave  the  way  for  a  single  European  capital 
markets supervisor.  

43 

 
 
7  Governance 

7.1  State of play 

The three ESAs currently have an identical governance structure which comprises: (i) a Board 
of Supervisors; (ii) a Management Board; (iii) a Chairperson; and (iv) an Executive Director.  

The Board of Supervisors is the main decision-making body of each ESA.  It consists of the 
Chairperson, the head of the national CA in each Member State40, and one representative each 
from the Commission, the ESRB, the other two ESAs, the EEA-EFTA States and the EFTA 
Surveillance Authority.41  Only the representative of the national CAs can vote. National CAs, 
which are integrated supervisors, participate in more than one ESA.  

Decisions  by  the  Board  of  Supervisors  are  generally  taken  by  simple  majority.    However, 
QMV is used in the case of "regulatory decisions" under the founding regulations (Articles 10 
to  16  of  the  ESA  Regulations),  such  as  decisions  relating  to  RTSs  and  ITSs,  guidelines 
(Article 16) and  recommendations,  budget  matters, and in cases  of a decision  to  prohibit  or 
restrict certain financial activities. The rationale for using QMV in the case of regulatory tasks 
is their similarity to legislative tasks, for which decisions are taken in the Council with QMV. 
For decisions taken in relation to "non-regulatory" tasks (e.g. Breach of Union law processes, 
dispute-settlement,  peer  reviews)  simple  majority  voting  applies.  Where  ESMA  has  direct 
supervision  powers  (currently  CRAs  and  TRs),  simple  majority  voting  applies.  The  voting 
system within the EBA was modified after the creation of the SSM to better take into account 
Member States which do not participate in the BU. For instance, some EBA decisions require, 
in  addition  to  the  general  majority  requirements,  a  simple  majority  of  national  CAs 
participating in the SSM and a simple majority of national CAs not participating in the SSM, 
respectively ("double simple majority"). The regulation also foresees a mechanism to ensure 
that  this  system  remains  workable  when  the  number  of  non-participating  Member  States 
decreases, as would be the case if more Member States join the Banking Union, or as the UK 
leaves the EU.42 In addition, the Regulation foresees that the Commission should review the 
voting arrangements when there are less than 4 non-Banking Union countries. 

The  Management  Board  is  composed  of  the  Chairperson  and  six  members  of  the  Board  of 
Supervisors. It is mainly in charge of the ESA's work programme but also plays a central role 
in the adoption of the budget.  An Executive Director and a representative of the Commission 
participate as observers and the Commission has a right to vote on budget matters.  

40   These  representatives  are  the  heads  of  national  competent  authorities  who  have  been  appointed  through 

national processes and are accountable to their respective national government and parliament. 

41   In the case of the EBA, the Supervisory Board of the ECB participates as a non-voting member. In addition, 
the Chair of the SRB acts as an observer when resolution matters are dealt with by the Board of Supervisors. 
42  When  four  or  fewer  voting  members  are  from  competent  authorities  of  non-participating  Member  States, 
decisions shall be adopted by a simple majority of the voting members of the Board of Supervisors, which 
shall  include  at  least  one  vote  from  members  from  competent  authorities  of  non-participating  Member 
States.  

44 

 
 
                                                            
The  Chairpersons  of  the  ESAs'  Boards  of  Supervisors  are  appointed  by  the  Board  of 
Supervisors  following  an  open  selection  process  and  a  hearing  before  Parliament.    The 
Chairpersons' formal tasks comprise the preparation of the work of the Boards and chairing 
the Board meetings.  They do not have voting rights. 

7.2  Problem definition 

The  analysis  has  been  treating  the  ESAs  symmetrically  in  terms  of  problem  definition  and 
policy options.  This is justified by the fact the ESAs have a symmetric governance structure. 
However,  there  exist  some  specificities  among  the  ESAs,  notably  the  differing  tasks  that 
ESAs have (i.e. the governance of direct supervision of certain market segments for ESMA), 
or  specific  governance  features  (e.g.  the  voting  system  that  was  introduced  in  the  EBA  to 
reflect the creation of the SSM). Some further differentiation may therefore be warranted, to 
better  take  into  account  the  different  mandates  and  tasks  of  the  three  ESAs.  This  will  be 
highlighted throughout the text. 

An  optimal  governance  structure  should  allow  the  decision-making  bodies  of  the  ESAs  to 
fully achieve their objectives by making full and appropriate use of their powers with a view 
to  ensuring  that  financial  supervision  in  the  EU  is  consistent  and  coherent.  Under  such  a 
structure, the ESAs should first of all have a sufficiently broad and EU-wide perspective to be 
in a position to identify shortcomings and, secondly, be willing to address them by using their 
powers.  The objectives of the ESA Regulations can  only  be  achieved if both  conditions are 
met.  

The main issue with the current governance structure of the ESAs is that there is an inherent 
misalignment of incentives within the decision-making bodies of the ESAs, which may lead 
to  conflicts  of  interests  and  limits  the  development  of  an  EU  perspective  in  favour  of  a 
national  one.  The  scope  for  such  conflicts  of  interest  is  set  to  increase  as  progress  in 
integration proceeds across all financial sectors and notably in securities market in the context 
of the CMU.  

When  the  ESAs  were  established,  it  was  decided  to  maintain  a  key  role  for  national  CAs 
within  their  governance  structure,  while  specifying  in  the  legislation  that  members  of  the 
Board of Supervisors and of the Management Board should act independently and in the sole 
interest of the Union as a whole. This would prevent conflicts of interests.  For example when 
voting on dispute settlement issues, the representatives of CAs involved would be expected to 
vote  in  different  directions,  thus  eliminating  each  other.43  However,  the  initial  governance 
structure  of  the  ESAs  did  not  provide  for  other  safeguards  to  ensure  that  this  would  be 
achieved in practice.  In particular it did not include specific structural provisions to preclude 
risks of conflicts of interest. 

This  is  an  issue  because  decisions  are  exclusively  taken  by  national  representatives  on  the 
Boards of Supervisors, who have to combine their mandate within the ESA with their national 
mandate  as  heads  of  national  CAs.  As  a  result  of  this  double  mandate  they  may  have 

43   See the 2009 Staff Working Document accompanying the proposal for Regulations establishing the ESAs, p. 

32. 

45 

 
 
                                                            
conflicting  interests,  notably  as  regards  decisions  that  may  affect  their  national  CA  and/or 
market. A national CA may for example have a strong tendency to take a national perspective 
in the event of a procedure regarding an alleged breach of Union law under Article 17 of the 
ESA  Regulations.  This  does  not  necessarily  imply  that  the  ESAs  have  generally  not 
considered  the  EU-interest  in  their  functioning,  but  in  certain  instances  the  governance 
structure had an impact in the way the ESAs have been using (or not) their powers. 

In  other  institutions  and  agencies,  conflicts  of  interest  between  the  EU  and  national  levels 
have  been  addressed  by  specific  governance  arrangements,  involving  full-time  independent 
members  to  steer  decision-making  in  an  impartial  and  efficient  manner.  For  example,  the 
European  Central  Bank  and  the  Single  Resolution  Board  both  have  Executive  Boards 
comprising  such  independent  members.  The  ESAs  have  no  stable  independent  preparatory 
body, which has own powers and tasks, and can decide on certain issues or participate in the 
decision-making process.   

The absence of a stable preparatory body within the ESAs has led to various calls for changes 
to the governance structure throughout past consultations.  

 

 

 

 

The Parliament recommended in the 2013 report on the ESAs review44 to enhance the 
performance of the ESAs by introducing operational improvements in the governance 
structure (i.e., creating an Executive Board with more operational tasks) and by raising 
the  institutional  profile  of  the  Chairpersons  (i.e.,  granting  the  Chairperson  voting 
rights and changing the appointment procedure).  

The IMF45 also called for changes in the governance arrangements for the ESAs, with 
the aim of strengthening their operational independence and effective accountability, 
which would help to overcome the domination of national interests in decisions of the 
Boards of Supervisors and facilitate rapid decision-making.  

This was also recognised in the November 2014 ECOFIN conclusions on the ESFS46 
where  it  was  noted  that  considerations  should  be  given  as  to  "how  to  improve  the 
governance of the ESAs to  ensure that decisions are taken in the best interest  of the 
EU  as  a  whole  while  preserving  the  careful  balance  reached  in  the  context  of  the 
establishment  of  the  SSM,  having  regard  to  the  expertise  provided  by  the  national 
competent authorities".  

In his speech at the Parliament hearing on 3 May 201747, Jacques de Larosière shared 
the  assessment  that  in  some  circumstances  the  ESAs  have  not  been  able  to  obtain  a 
consistent  implementation  of  some  technical  rules,  and  argued  that  enhancing  the 
current  Management  Boards  into  Executive  Boards  with  independent  permanent 

44http://www.europarl.europa.eu/RegData/etudes/etudes/join/2013/507446/IPOL-

ECON_ET(2013)507446_EN.pdf  

45   IMF Country Report No. 13/65, March 2013.  
46   http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/145696.pdf  
47   http://www.europarl.europa.eu/cmsdata/117822/Written%20statement%20Jacques%20de%20Larosiere.pdf  

46 

 
 
                                                            
members  with  decision-making  powers  on  issues  such  as  binding  mediation  and  on-
site inspection would help the ESAs in promoting the European interest.  

 

A number of stakeholders in the public consultation also considered that there would 
be merit in making changes to the governance structure to address potential inherent 
conflicts of interest. To note, this view was the least shared among public authorities 
(including  those  currently  participating  in  the  ESAs'  Boards),  which  can  to  some 
extent be attributed to them not wanting to see their influence diminish.  

The potential for conflicts of interest between the EU and national mandates held by members 
of  the  ESAs  can  be  attributed  to  a  combination  of  factors  (problem  drivers)  intrinsic  to  the 
different parts of the governance structure: 

 

 

 

Decision-making  powers  on  the  Board  of  Supervisors  are  restricted  to  national 
competent authorities: The current structure of the Board of Supervisors favours the 
prevalence  of  national  perspectives  which  may  influence  decisions  accordingly,  as 
voting  rights  are  restricted  to  representatives  of  national  CAs.  Meanwhile,  the 
Chairperson  and  the  representatives  of  the  Commission,  ECB  and  ESRB  are  non-
voting,  and  there  are  no  permanent  independent  voting  members  on  the  Board  of 
Supervisors.48  This  implies  that  an  inherent  EU  perspective  is  both  numerically 
underrepresented and carries no weight in terms of votes. This set-up may dissuade the 
ESAs from taking decisions that affect individual national CAs. Such inaction biases 
may limit the progress in supervisory convergence and slow down enforcement.  

The appointment procedure of the Chairperson makes him/her dependent on the 
Board  of  Supervisors.  Given  that  the  Chairperson  is  appointed  by  the  Board  of 
Supervisors, this may favour "group thinking". 

The  Management  Board  is  composed  of  national  Competent  Authorities.  As  a 
subset of the Board of Supervisors, the Management Board faces similar problems as 
the Board of Supervisors, regarding the national perspectives and disincentives to take 
decisions that affect individual members. Stakeholders in the consultation also noted 
that the rotation of membership of the Management Board hinders the emergence of a 
coherent  executive  function.  This  is  corroborated  by  the  fact  that  there  are  no 
permanent members in the Management Board, which can fully dedicate their time to 
the tasks assigned to the ESAs. Rather, members of the Management Board also hold 
important  functions  within  the  national  CA,  which  may  have  an  impact  on  their 
material  time  commitment  to  the  Management  Board.    The  frequent  rotation  among 
Management Board members may therefore negatively affect continuity and weigh on 
the long-term perspective taken by the Management Board. 

 

The  Management  Board  and  the  Chairpersons  do  not  have  formal  powers.  All 
decisions are taken by the Board of Supervisors while the Management Board and the 
Chairpersons  are  not  attributed  specific  tasks.  In  particular,  the  Management  Board 

48   However, it should be noted that in the area of exclusive competence of the ECB, national authorities have 
to  follow  the  ECB's  instructions  when  voting  at  the  EBA  Board  of  Supervisors.  The  problem  highlighted 
here may therefore be less pronounced in this area. 

47 

 
 
                                                            
has no formal role as regards the initiation of procedures that lead to ESA decisions, 
notably  breach of Union law decisions, which contributes to an ineffective  decision-
making  process.  Indeed  it  appears  that  formally  only  few  tasks  are  delegated  to  the 
Management  Board,  while  the  Board  of  Supervisors  often  faces  a  high  workload, 
which  may  prevent  it  from  dedicating  its  efforts  to  strategic  issues  or  supervisory 
matters in general.  

However,  it  should  be  noted  that  any  assignment  of  wider  competences  to  the 
Management board would need to take into account that it is, in fact, a subset of the 
Board  of  Supervisors.  Failing  an  amendment  to  the  existing  rules,  the  problems 
identified  above  in  respect  of  the  Board  of  Supervisors  (national  perspectives  and 
disincentives  to  take  decisions  that  affect  individual  members)  would  also  affect  the 
Management Board.  

Regarding  the  Chairpersons,  while  it  is  generally  recognised  that  they  have  fulfilled 
their missions in an effective manner and supported the profile of the respective ESAs, 
their  formal  role  and  powers  is  very  limited  as  they  do  not  have  voting  powers  nor 
formal  tasks.  To  note,  the  current  legislation  allows  for  the  possibility  to  delegate 
powers to the Chairperson. However, this possibility has not been used, which may be 
a  further  illustration  of  the  incentive  structure  within  the  ESAs  which  tends  to 
concentrate powers  in  the  hands  of  national  CAs  rather than  delegating  or  seeking  a 
more independent approach.  

48 

 
 
 
 
Figure 7.1 Specific problem tree 

The identified problems in the governance structure lead to a number of adverse consequences 
(see  problem  tree  above)  that  are  likely  to  intensify  as  financial  markets  become  more 
integrated  and  the  balance  between  the  EU  mandate  and  the  national  mandate  of  ESA 
members, respectively, shifts in favour of the former.  

First,  there  is  a  lack  of  an  inherent  common  perspective  in  the  decision-making  of  the 
ESAs that may slow down progress, notably as regards convergence (see below). Instead, 
the  decision-making  process  is  strongly  influenced  by  individual  national  perspectives.  For 
example, EBA staff has recognised that potential conflict of interest may arise given the fact 
that  board  members  are  representatives  of  national  public  authorities,  which  have  national 
objectives.    For  instance,  a  voting  member  cannot  vote  on  a  matter  where  he/she  has  a 
material personal conflict, but it does not prevent him/her from voting on a matter concerning 
its own competent authority. 

Second, while the ESAs have delivered well on their tasks of a regulatory nature such as 
RTSs  and  ITSs,  there  is  scope  for  further  progress  regarding  their  tasks  to  promote 
supervisory  convergence  and  ensure  the  proper  application  of  EU  law  ("regulatory 
convergence").49    In  this  context,  it  should  be  noted  that  convergence  powers  of  the  ESAs 
(e.g., peer reviews, breach of Union law procedures, dispute settlements) can be seen as more 
intrusive and having more direct effects (hence potentially leading to a more cautious action 
on the part of national CAs) compared to regulatory tasks. Furthermore, and contrary to non-
regulatory tasks, the ultimate competence for the regulatory tasks lies with the Commission, 
the  ESAs  work  in  this  area  being  essentially  preparatory  in  nature.    The  misalignment  of 

49   See for instance the European Parliament's report on the Review of the New European System of Financial 

Supervision (ESFS): Part 1, p. 115. 

49 

                                       Misalignment of incentives in decision-making process  Decision-making restricted to (national) CAs in Board(s) of Supervisors Composition of Management Board(s) Allocation of tasks between Board(s) of Supervisors & Management Board(s) Lack of EU perspective in decision-making  Inability to push supervisory convergence Appointment procedure of the Chairperson(s)  
 
 
 
                                                            
incentives  would  therefore  have  more  direct  impact  on  the  ability  of  the  ESAs  to  use  these 
non-regulatory powers. To note, the EBA in its reply to the ESA public consultation made the 
point  that  if  changes  would  be  introduced  to  the  governance  set-up,  these  should  primarily 
concern  areas  in  which  the  decision  decision-making  process  could  turn  out  to  be  very 
difficult or influenced by national biases, such as dispute settlements or breach of Union law 
processes.  This  is  corroborated  by  stakeholders'  perceptions  expressed  in  the  public 
consultation,  which  suggest  that  regulatory  tasks  in  particular  have  been  carried  out  in  a 
satisfactory  manner,  while  more  could  be  done  in  the  areas  of  regulatory  and  supervisory 
convergence.50  For  example,  there  have  so  far  been  no  cases  of  dispute  settlements  with 
binding outcome adopted by the ESAs.  Furthermore, the use of peer reviews has been limited 
and  primarily  thematic.  There  have  been  no  formal  recommendations  following  the 
identification  of  a  breach  of  EU  law,  even  in  cases  where  this  was  expected  by  some 
stakeholders.51 The ESAs have thus so far focussed on their regulatory tasks such as drafting 
RTSs  and  ITSs.  This  can  be  partly  explained  by  the  need  for  prioritisation  given  scarce 
resources  and  by  the  fact  that  the  ESAs  were  established  at  a  time  when  the  EU  financial 
legislation  was  profoundly  overhauled,  implying  a  high  workload  for  the  ESAs  as  regards 
regulatory  matters.  However,  as  described  above,  the  governance  structure  of  the  ESAs  is 
inherently not conducive to an effective use of some of their powers52, hence impacting on the 
ESAs  ability  to  fulfil  some  parts  of  their  mandate  effectively  (e.g.  regarding  the  ability  to 
progress with convergence).  

These  two  consequences  will  become  even  more  relevant  in  a  context  where  the  ESAs 
will  have  to  play  an increased role  given  the objective to  increase  financial  integration 
and the exit of the United Kingdom from the EU. The current governance set-up may put 
the  ESAs  in  an  ill-equipped  position  to  face  upcoming  challenges.    Two  main  issues  are 
indeed  enhancing  the  need  for  convergence  going  forward:  the  CMU  and  the  exit  of  the 
United Kingdom from the EU, which will both have an impact on the structure of the EU's 
financial sector and therefore call for the ESAs to be able to fully play their role. The CMU 
initiative will lead to deeper financial integration in the EU capital markets and  will entail a 
progressive  shift  to  more  market-based  financing  of  the  economy  and  deeper  financial 
integration in Europe. To promote enhanced financial integration and reap the benefits of it, 
the  CMU  should  be  accompanied  by  increased  convergence  across  the  EU  to  ensure 
consistency  in  the  application  of  capital  markets  rules  and  the  oversight  of  market 
participants, particularly in cross-border and critical areas. In addition, the risks of regulatory 
arbitrage and regulatory or supervisory race to the bottom, notably in the context of possible 
relocations of financial firms following the United Kingdom's exit from the EU, increases the 
need for enhanced supervisory convergence across the EU.  

50   Stakeholders have perceived a certain reluctance to act.  To illustrate this, EBA has delivered a total of 144 
technical standards (TS) from 2011, corresponding to 85% of those required to be developed. Meanwhile, 
EIOPA delivered all ITS requested by the legislation, even though one was not adopted. 

51   See for example the European Parliament (ECON) study on the review of the ESFS – Part 1 review of the 

ESAs. 

52   See stakeholders' replies to the Commission's 2014 Review Report, the Commission's 2014 Review Report, 
the  European  Parliament's  2013  Review  Report  of  the  ESFS,  the  IMF  Country  Report  No  13/65  on  the 
Financial Sector Assessment of the EU. 

50 

 
 
                                                            
As  a  conclusion,  given  its  initial  design,  the  current  governance  structure  of  the  ESAs  may 
hamper  the  effective  and  adequate  use  of  some  of  the  powers,  notably  regulatory  and 
supervisory  convergence.  As  such,  enhancements  to  the  current  governance  structure  are 
necessary going forward, notably to avoid a possible inaction bias.  

7.3  Objectives 

The objective behind the review of the governance framework is to ensure that the ESAs have 
the proper incentives  to effectively apply their powers  and carry  out  their  tasks in line with 
their  mandates,  and  to  take  swift  decisions  in  the  EU  interest  so  that  the  ESAs  have  the 
appropriate  governance  structure  to  also  face  upcoming  challenges.  In  particular,  it  aims  at 
ensuring that misalignments of incentives in the decision-making process are corrected. 

Problems 

Problem drivers 

Objective 

Decision-making restricted to (national) 
CAs on Board(s) of Supervisors 

√ 

Misalignment  of  incentives 
in decision-making process  

Appointment 
Chairperson(s) 

procedure 

of 

the 

√ 

Management  Board(s)  made  up  of 
(national) CAs 

√ 

Allocation of tasks and powers between 
and 
Board(s) 
Management Board(s) 

Supervisors 

of 

√ 

7.4  Policy options and impact analysis 

This  section  describes  the  details  and  the  potential  positive  and  negative  impact  of  two 
alternative  high  level  policy  options  to  address  the  problem  identified  in  the  current 
governance structure. These high-level options will be compared against the baseline scenario 
that the current governance structure remains in place. On that basis, the preferred option will 
be refined along a number of sub-options in section 7.6. While the analysis sought to identify 
the  best  options  for  the  three  ESAs  as  a  whole,  it  also  highlights  where  a  differentiation  is 
needed to take into account the specificities or challenges faced by an individual ESA. 

Policy option 

Description 

1. No policy action 

The baseline scenario applies. 

2.  Targeted  changes  to  the  current  Targeted  changes  to  individual  elements  of  the 
governance  would  be  introduced.  Decisions  on 

51 

 
 
 
 
governance model 

certain non-regulatory issues would be allocated to 
decision-making  bodies 
independent 
members.  

including 

3. Fundamental rebalancing of decision-
making powers within the ESAs 

Decision-making powers on all decisions would be 
transferred  to  full-time  independent  members  at 
the core of the ESAs.  

7.4.1  Baseline scenario  

Option 1 - No policy action – The baseline scenario applies. No modifications to the current 
governance structure. 

Under  this  option,  the  governance  structure  of  the  ESAs  as  it  currently  exists  would  be 
maintained, implying that the misalignment of incentives in the ESAs decision-making would 
prevail. Most notably, the prominent role of the national CAs in the decision-making would 
be kept, as well as the appointment procedure and current roles of the Chairpersons and the 
Management  Boards.  The  consequences  of  the  problems  posed  by  the  current  governance 
model would likely become more pronounced going forward given the change in context in 
the EU with more financial integration (as a result of the CMU initiative). 

The main advantage of the current governance structure is that it arguably ensures buy-in of 
national CAs and also reflects the fact that certain elements, such as national specificities and 
laws, still play a key role in the functioning of the Single Market.   

However, the disadvantage is that keeping the current governance structure would leave the 
identified problem largely unaddressed. The absence of independent members in the decision-
making  process  would  maintain  the  misalignment  of  incentives  inherent  to  the  decision-
making  set-up  of  the  ESAs,  as  national  representatives  on  the  Board  of  Supervisors  would 
occasionally still be torn between their national and their ESA mandate, respectively, which 
could  prevent  them  adopting  an  EU  perspective  in  their  decision  making.  Given  that  the 
current  governance  set-up  has  proven  not  to  be  the  most  effective  in  terms  of  allowing  the 
ESAs  to  fully  achieve  their  objectives  by  using  their  power  in  the  area  of  supervisory 
convergence, and given the increasing importance of this area going forward, maintaining the 
status quo would make the existing problems even more relevant. In addition, there is room 
for  increasing  efficiency  of  decision-making  processes  within  the  ESAs,  for  instance  to 
address  the  current  overburdening  of  the  Boards  of  Supervisors  impeding  the  conduct  of 
thorough discussions during its meetings.  

When  the  United  Kingdom  leaves  the  EU,  the  number  of  members  in  the  Board  of 
Supervisors  will  be  reduced.    In  the  case  of  EBA,  the  current  double  majority  system  by 
which  a  decision  requires  the  majority  of  votes  both  from  national  CAs  from  the  Member 
States  within  the  BU  and  outside  the  BU  should  be  assessed  in  this  light.    Looking  at  the 
double-majority  provisions  in  the  EBA  Regulation,  it  might  be  argued  that  the  rationale  for 
such  a  safeguard  diminishes  with  the  exit  of  the  United  Kingdom  and  it  might  be  seen  as 

52 

 
 
giving  a  disproportionate  power  to  an  increasingly  small  number  of  Member  State  CAs 
(notably as other Member States are expected to join the BU in the future).  However, without 
such a Single Market safeguard, the role of the EBA would be reduced to applying decisions 
taken by Member States participating within the SSM (the BU) which would always have the 
majority of votes. Given that the added value of the EBA is specifically to have a broad EU 
perspective  for  the  Single  Market  as  a  whole,  maintaining  safeguards  for  considering  the 
interests  of  non-BU  Member  States  is  justified.    In  addition,  for  certain  decisions  such  as 
dispute  settlements  and  breach  of  Union  law  proceedings,  the  EBA  Regulation  already 
provides  for  safeguards  to  ensure  that  the  double-majority  system  remains  workable  in  the 
case that the number of non-BU Member States becomes less than four.   

7.4.2  Targeted changes to the current governance model 

Option 2 - Targeted changes to the current governance model 

Under  Option  2,  decision-making  powers  would  be  split  by  their  nature  and  allocated  to 
separate  decision-making  bodies  within  the  ESAs.  This  would  build  on  the  differential 
treatment that already exists currently with decisions taken in respect of regulatory tasks by 
QMV  and  non-regulatory  decisions  by  simple  majority.  Decision-making  powers  on 
regulatory  issues  would  remain  fully  with  the  Board  of  Supervisors,  while  certain  decision-
making powers on non-regulatory issues (such as peer reviews, dispute settlements, breach of 
Union  law  procedures)  would  involve  permanent,  independent  members.    Furthermore,  the 
EU  dimension  in  the  ESA  governance  would  be  strengthened  by  enhancing  the  selection 
procedure  of  the  Chairperson  and  opening  up  the  Board  of  Supervisors  to  independent, 
permanent (non-voting) members. 

Adjustments would be made to four key components of the ESAs' governance:  

 

 

 

 

enhancement  of  the  EU  dimension  in  the  decision-making  process  within  the 
Board of Supervisors by adding independent members who would not face conflicts 
of interest. 

transformation  of  the  Management  Board  into  a  body  with  independent 
members.  This  body  would  steer  decision-making  in  an  impartial  and  efficient 
manner  and  could  also  take  up  decision-making  responsibilities,  notably  for  non-
regulatory decisions. 

enhancement of the standing and role of the Chairperson to empower him/her with 
formal tasks.  

allocation of  decision-making powers in relation to certain non-regulatory tasks 
to  a decision-making body comprising  permanent, independent members.  These 
decision-making powers could either be allocated to an enlarged Board of Supervisors 
(i.e., including additional permanent, independent members which would be tasked to 
represent  the  EU  perspective)  or  to  the  newly  set  up  body  replacing  the  current 
Management Board. Under the lead of the ESA Chairperson, it would steer decision-
making in an impartial and efficient manner. 

53 

 
 
These  changes  would  reduce  the  propensity  of  inaction  as  regards  non-regulatory  decisions 
resulting  from  conflicts  of  interest  faced  by  voting  members.  Such  conflicts  would  be 
corrected by attributing to the permanent, independent members clear tasks and voting powers 
in  certain  decision  areas.  The  design  of  the  ESAs'  governance  would  thus  be  improved, 
providing  the  decision-making  bodies  with  better  incentives  to  use  their  powers  in  the 
supervisory area and better enable them to address upcoming challenges.  

The advantage of Option 2 is that it maintains the key elements of the governance structure 
which have proven to be functioning, while addressing in a targeted way the issues identified 
in the consultation and evaluation (highlighted in the problem definition). It will also ensure 
that  the  ESAs'  governance  structure  allows  the  ESAs  to  fully  play  their  role  notably  given 
upcoming challenges in the EU. The main disadvantage of Option 2 is that it arguably creates 
a  more  complicated  governance  model  whereby  the  role  of  the  various  decision-making 
bodies varies according to the issue being discussed, and could lead to power games among 
these bodies. 

In  sum,  targeted  changes  to  the  current  governance  set-up would  address  inherent  incentive 
misalignments  within  the  ESAs,  hereby  allowing  them  to  better  achieve  their  objective  by 
using  their  powers  and  increasing  their  overall  effectiveness.  In  addition,  granting decision-
making  powers  to  the  Chairperson  and  the  permanent,  independent  Board  members  would 
allow  for  more  efficient  decision-making  processes  as  it  would  free  up  time  for  swifter 
procedures  and  more  discussion  on  policy  and  strategy  within  the  Board  of  Supervisors. 
Decision-making processes would be allocated in a differentiated way, taking into account the 
nature of the decision to be taken and attributing them in a more efficient way (i.e., regulatory 
tasks would remain with the Board of Supervisors hereby recognising the need for taking into 
account the expertise of national CAs while supervisory decisions which need swifter and a 
more independent decision-making would be allocated to a newly created independent body 
as proposed in sub-options below).  

7.4.3  Fundamental rebalancing of decision-making powers within the ESAs 

Option 3. Fundamental rebalancing of decision-making powers within the ESAs 

Option 3 proposes a more fundamental change to the overall governance and functioning of 
the ESAs. It would go further than Option 2 by transferring full decision-making powers to a 
newly  set-up  body  of  independent  members  at  the  centre  of  the  ESAs.  The  Boards  of 
Supervisors, composed of national CA would have a primarily advisory role.  

In  practice,  the  current  Management  Board  would  be  replaced  by  a  newly  set-up  body  of 
independent members (as in Option 2). Voting powers on all decisions would be transferred 
from  the  current  Board  of  Supervisors  to  this  body.  As  a  result,  the  inherent  conflicts  of 
interest would disappear, as ultimate decision-makers would no longer have double mandates. 
In addition, the role of the ESA Chairpersons, as members of the independent body, would be 
strengthened  (in  line  with  Option  2).  Accountability  mechanisms  would  be  enhanced 
accordingly.  

54 

 
 
The  advantage  of  this  Option  is  that  it  would  remove  the  misalignment  of  incentives  that 
characterise the baseline scenario, as it would minimise decision-makers' potential conflicting 
interests,  as  they  would  not  have  other  mandates  besides  their  ESA  mandate.  It  would  give 
rise to a clearer governance model with a straightforward allocation of tasks. Knowledge of 
national markets would still be maintained through the advisory role of national CAs within 
the Boards of Supervisors.  

This Option also has a number of disadvantages. As the public consultation and the evaluation 
have  shown,  the  problems  related  to  the  ESAs  governance  predominantly  affect  non-
regulatory tasks and that there was no support for a fundamental overhaul of the ESAs. A full 
transfer of voting rights on all ESA powers, and regulatory tasks in particular, for which the 
ultimate  competence  lies  with  the  Commission,  would  also  affect  decision-making  in  areas 
that  function  well  and  may  therefore  seem  disproportionate  with  respect  to  the  problem 
characterising  the  ESAs'  current  governance  structure.  In  addition,  the  desired  rebalancing 
between  an  EU  perspective  and  national  perspectives,  respectively,  would  be  excessive,  if 
national CAs voting powers were fully transferred. The contribution of market knowledge and 
expertise by national CAs would be at risk of being lost. 

Overall,  compared  to  the  baseline,  the  third  option  would  increase  the  effectiveness  of  the 
ESAs  in  a  context  where  the  overall  mandate  and  tasks  of  the  ESAs  are  fundamentally 
changed  towards  more  centralised  powers.  In  case  the  current  mandates  and  powers  of  the 
ESAs  remain  broadly  unchanged,  this  option  would  imply  a  disproportionate  overhaul 
compared to the issues identified.   

7.5  Comparing the options 

This  section  examines  the  effectiveness  of  the  identified  options  in  achieving  the  objective 
that has been set in section 7.3.  The options will be compared with regard to the criteria of 
efficiency and coherence. 

Objectives 

EFFECTIVENESS 

EFFICIENCY 

Policy option 

(cost-effectiveness) 

1. No policy action 

0 

2. Targeted changes to 
the 
current 
governance model 

++ 

Fundamental 
of 

3. 
rebalancing 
decision-making 
powers  within 
ESAs 

+ 

the 

55 

0 

- 

- 

 
 
 
Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): 
++  strongly  positive;  +  positive;  –  –  strongly  negative;  –  negative;  ≈  marginal/neutral;  ? 
uncertain; n.a. not applicable 

Overall, changes under Options 2 and 3 should ensure that misalignments of incentives in the 
decision-making  process  are  rectified.  This  would  notably  be  achieved  by  allowing 
independent members to steer and participate in decision-making in an impartial and efficient 
manner. These permanent, independent members would have an exclusive ESA mandate and, 
as a result, would not face conflicts of interests between their ESA mandate and their national 
mandate.  Overall,  these  2  Options  would  increase  the  costs  of  running  the  ESAs  if  a  new 
independent body (substituting the current Management Board) and, possibly, some support 
structures could not be staffed with existing ESA Senior Managers and staff.  

The  main  difference  between  Options  2  and  3  concerns  the  allocation  of  decision-making 
powers  within  the  ESAs  alongside  these  two  Options.  In  Option  2,  changes  to  decision-
making  processes  would  be  targeted  to  the  areas  which  have  been  seen  as  progressing  the 
least since the establishment of the ESAs (i.e., regulatory and supervisory convergence) and 
would  leave  unchanged  the  decision-making  for  regulatory  tasks.  This  set-up  would 
contribute  to  overcome  inaction  biases  that  are  inherent  to  certain  decision  areas  under  the 
baseline scenario (e.g., breach of Union law decisions), and hence constitute a strengthening 
of  the  ESA  governance's  effectiveness.  The  simultaneous  strengthening  of  the  appointment 
procedure of the Chairperson would corroborate this.  The changes should enhance efficiency 
in  the  functioning  of  the  ESAs  and  notably  increase  efficiency  in  the Board  of  Supervisors' 
meetings, as a delegation of powers would free up time for the Board of Supervisors to have 
more efficient discussions. 

Option  3  would  imply  a  more  fundamental  shift  in  decision-making  processes  whereby  all 
decision-making powers which are currently in the hands of the Board of Supervisors would 
be  transferred  to  a  decision-making  body  composed  of  independent  members  with  an 
exclusive ESA mandate (replacing the current Management Board). However, the absence of 
national  CAs  as  voting  members  in  the  decision-making  structure  would  reduce  national 
perspectives  and  expertise,  which  would  hold  back  effectiveness.  A  transfer  of  all  ESA 
decisions under Option 3 would therefore seem disproportionate with respect to the problems 
identified. 

Based  on  the  advantages  and  disadvantages  outlined  above,  the  preferred  Option  is  to 
make  targeted  changes  to  the  current  governance  model  whereby  there  would  be  a 
differentiated allocation of decision-making within the ESAs by type of decision (Option 
2).  Compared  to  the  baseline,  Option  2  should  significantly  raise  the  effectiveness  of  the 
ESA's  decision-making  bodies,  notably  by  strengthening  the  role  of  independent  members 
with  an  exclusive  ESA  mandate,  while  preserving  an  important  role  for  national  CA 
representatives, thus making it more proportionate than Option 3. The preferred Option would 
involve  additional  personnel  expenditure  costs  (which  are  analysed  more  in  details  in  the 
following section) but appears attractive in terms of cost effectiveness.  

56 

 
 
7.6  Detailing and assessing the preferred policy option (sub-options) 

Under  the  preferred  (high-level)  Option  (Option  2  -  Targeted  changes  to  the  current 
governance model) a number of issues require further clarification. The main features of this 
Option are: (i) structural enhancements of ESA decision-making bodies and the Chairperson; 
and (ii) the allocation of decision-making powers in relation to certain non-regulatory tasks to 
a decision-making body comprising permanent, independent members. As regards the second 
issue it notably remains to be clarified how such a decision-making body would look like and 
how it would relate to the structural governance enhancements resulting from the first point. 

In  the  following,  various  sub-options  are  proposed  as  regards  the  two  main  features  of  the 
preferred  Option  2  and  compared  to  a  scenario  where  there  would  be  no  changes  to  this 
component of the governance structure. The proposed sub-options can be cumulative, in the 
sense that the choice regarding the attribution of decision-making powers can be accompanied 
by  various  structural  changes  to  the  ESA  governance.  Where  appropriate,  differentiations 
between the ESAs are highlighted.  

7.6.1  Enhancing the role of the Management Board including the Chairperson 

Policy Sub-option 

Description 

1. No policy action 

2. Set-up of Executive Board with ESA 
Senior Managers as board members 

3.  Set-up  of  Executive  Board  with 
independent full-time board members 

4.  Enhancing 
Chairpersons 

the  standing  of 

the 

No 
changes 
composition or tasks. 

to 

the  Management  Board 

The current Management Board would be replaced 
by  an  Executive  Board  composed  of  Senior 
Managers of the ESAs. Executive Board members 
would  participate  in  the  Board  of  Supervisors 
(national CAs representation may be envisaged). 

The current Management Board to be replaced by 
an Executive Board composed of independent full-
time  board  members.  Executive  Board  members 
would  participate  in  the  Board  of  Supervisors 
(national CAs representation may be envisaged). 

to 

tasks 

Granting  voting  powers  and 
the 
Chairpersons  (e.g.,  on  supervisory  convergence 
and  enforcement).  Changes  to  the  appointment 
procedure  could  also  strengthen  the  Chairperson's 
input  legitimacy  and  authority,  and  reduce  of  the 
possibility of capture by the Board of Supervisors. 

Sub-options 2 and 3 are alternatives whereas sub-option 4 can be combined with either one of 
them.  As  these  complementary  sub-options  relate  to  changes  to  the  current  Management 
Board  (note,  the  Chairperson  is  a  member  of  the  Management  Board)  they  are  presented 

57 

 
 
jointly. At the current juncture, decision-making is in the hands of national CAs (on the Board 
of Supervisors) and the formal roles of the Chairpersons and Management Board are limited. 
This has resulted in misalignment of incentives within the ESAs. Changes to the Management 
Board, including the role of the Chairperson, that would turn it into an independent body that 
could  steer  decision-making  in  an  impartial  and  efficient  manner,  would  correct  these 
misalignments. Statute, powers and tasks of this independent body and the Chairperson would 
require further clarification.  

Sub-options 2 and 3 would consist in a transformation of the Management Board into an 
Executive Board. Permanent, independent members would replace national CAs in the 
current Management Board (who are effectively a subset of the Board of Supervisors). 
The Executive Board would be chaired by the Chairperson of the ESA. Such a transformation 
would  be  accompanied  by  an  empowerment  of  the  new  Executive  Board  relative  to  the 
current Management Board, by giving it additional tasks and involving it in decision-making. 
The Executive Board members would notably have decision-making powers on certain non-
regulatory issues, either via participation on the Board of Supervisors or directly as a result of 
a transfer of  powers to the Executive Board (see above). 

The  number  of  Board  members  would  not  necessarily  have  to  correspond  to  the  current 
number of Management Board members (e.g., five besides the Chairperson) and may vary by 
ESA.  It  would  be  commensurate  to  the  respective  size  and  responsibilities  of  the  relevant 
ESA, also taking into account supervisory responsibilities not attributed by through the ESA 
regulations. The current role of the Executive Director could be assumed by a member of the 
Executive Board.  

Sub-option  2  proposes  appointing  the  Senior  Managers  (e.g.,  Directors,  Heads  of 
Department)  of  the  ESAs  as  Executive  Board  Members.  This  would  ensure  a  close  link 
between  the  Executive  Board  and  the  operational  role  of  the  ESAs.  This  Sub-option 
corresponds to the set-up of the SRB. The disadvantage of this Sub-option is that it may be 
difficult  for  Board  members  to  fulfil  both  their  managerial  and  operational  tasks  as  Senior 
Managers and their strategic tasks as Board Members. This may result in a lacking reporting 
line  between  staff  of  the  ESAs  and  the  Board.  In  addition,  there  is  a  risk  that  silo  effects 
emerge  following  the  attribution  of  portfolios  to  the  different  Board  Members.  This  Sub-
option  may  have  some  marginal  cost  implications,  notably  if  it  implies  an  upgrade  in  the 
positions of Senior Managers. 

Under Sub-option 3, the  Executive Board would be composed of independent  full-time 
members, preserving an exclusive operational role for ESA Senior Managers. This model 
corresponds  to  that  of  the  ECB  Executive  Board,  whereby  the  responsibilities  of  Board 
members are separate from those of senior management. The advantage of this Sub-option is 
that  it  clarifies  responsibilities  between  executive  and  strategic  tasks,  and  avoids  the 
development  of  a  silo  mentality.  While  the  number  of  Executive  Board  members  would  be 
relatively  limited,  this  solution  would  have  cost  implications,  as  these  additional  positions, 
together with possible associated support structures, would need to be financed.  

58 

 
 
Provided that the Executive Board members would also become actual decision-makers, Sub-
options 2 and 3 would warrant changes to the appointment procedure of the (future) Executive 
Board  members,  as  increased  responsibility  should  come  hand  in  hand  with  increased 
accountability. While Management Board members are currently appointed by and from the 
Board  of  Supervisors,  Executive  Board  members  with  decision-making  powers  should  be 
appointed externally along a similar process as that envisaged for the Chairperson (see Sub-
option  4  below),  to  ensure  sufficient  independence.  This  would  hold  regardless  of  whether 
Executive  Board  members  are  appointed  in  a  full-time  position  or  carry  out  tasks  as  senior 
managers of the ESAs (see Sub-option 2). 

The  main  advantages  of  introducing  permanent,  independent  members  under  Sub-options  2 
and  3  is  that  it  would  enhance  the  decision-making  process  and  in  particular  level  out  the 
perception  that  national  interest  sometimes  unduly  influence  decision-making  and  policy 
action or lead to inaction. These members would have an exclusive ESA mandate and should 
hence  never  find  themselves  in  a  position  where  they  may  have  to  arbitrate  between  their 
national and supranational mandates.  

In addition to decision-making powers on certain non-regulatory tasks, the Executive Board 
could  be  given  tasks  related  to  direct  supervision  (e.g.,  in  the  case  of  ESMA  this  would 
concern  existing  decisions  on  CRAs,  TRs  and  new  directly  supervised  entities).  Such  tasks 
could  for  example  include  the  preparation  of  decisions.  This  possibility  has  received  some 
degree of support in the public consultation. It would have the advantage of freeing up time 
for swifter procedures and more policy/strategic discussions within the Board of Supervisors.  

The  higher  costs  arising  under  Sub-option  2  and  Sub-option  3  in  particular,  relative  to  the 
baseline, are to some extent offset by lower costs for convening the Executive Board, which 
would be located within the relevant ESA. Furthermore, the proposed changes aim to unlock 
the  ESAs  decision-making  potential  in  certain  areas  which  should  ensure  faster  supervisory 
convergence,  i.e.,  benefits  that  would  justify  slightly  higher  organisational  costs.  It  should 
also  be  emphasised  that  the  organisational  models  proposed  are  applied  in  other  EU 
institutions (the ECB has an organisational model akin to Sub-option 3) or agencies (the SRB 
has an organisational model for Sub-option 2) dealing with financial issues.  

In the non-financial area, there exist EU agencies with potentially less costly set-ups, which 
are  more  akin  to  the  current  Management  Board  of  the  ESAs;  for  example,  the  European 
Environment  Agency  has  a  decision  making  body  ("Management  Board")  consisting  of 
representatives  of  its  member  countries  (broadly  comparable  to  the  ESA  Board  of 
Supervisors)  and  a  Bureau,  composed  of  six  national  representatives,  one  Commission 
representative and one member designated by the European Parliament (broadly comparable 
to  the  ESA  Management  Board).  The  Body  of  European  Regulators  for  Electronic 
Communications  has  a  Board  of  Regulators  (broadly  comparable  to  the  ESA  Board  of 
Supervisors),  a  Management  Committee  (broadly  comparable  to  the  ESA  Management 
Board)  composed  of  one  member  per  Member  State  and  the  Commission  and  an 
Administrative Manager heading the BEREC office.  

59 

 
 
While  these  organisational  models  are  arguably  less  costly  that  the  ones  proposed,  they  are 
characterised by a similar structure than the one that has been considered problematic for the 
ESAs  under  the  current  framework.  Using  them  as  a  model  for  the  ESAs  would  hence  not 
solve the identified problems. They were therefore discarded. 

Sub-option 4 proposes to enhance the standing of the Chairpersons by attributing them 
voting  rights  and  changing  their  appointment  procedure.  The  Chairperson  is  the  key 
representative of the ESA. In that sense, the Chairperson's statutory authority is crucial for the 
ability  of  the  ESAs  to  achieve  their  mandate.  Enhancing  the  powers  and  status  of  the 
Chairpersons would ensure that his/her standing and influence is maximised. The attribution 
of voting rights on all or some of the decisions would enhance the Chairperson's authority and 
contribute to balancing out the effect of national perspectives in the decision making process. 
In  line  with  this,  the  tasks  of  the  Chairperson  with  regard  to  convergence  and  enforcement 
would  also  be  increased  in  line  with  those  of  the  Executive  Board,  making  the  ESAs  more 
effective.  

Changes  to  appointment  procedure  would  raise  the  Chairperson's  input  legitimacy  and 
authority.  The  current  appointment  by  the  Board  of  Supervisors  may  constrain  the 
Chairperson's  inherent  authority,  even  though  the  appointment  is  confirmed  by  Parliament. 
This  selection  process  may  appear  non-transparent  and  render  the  appointment  of  someone 
with  new  or  diverging  views  more  difficult,  while  reinforcing  "club  thinking"  behaviour. 
While  overall,  the  Chairpersons  are  considered  to  have  executed  their  tasks  well,  concerns 
have been shared by stakeholders that their appointment procedure and their formal allocation 
of tasks do not provide formally them with the necessary authority or decision-making power 
which would enable them to intervene to better prioritize work and an EU orientation in the 
decision  making  processes.  An  external  appointment  procedure  would  strengthen  the 
Chairperson's  input  legitimacy  and  independence  and  would  ultimately  strengthen  the 
effectiveness of the ESAs.  

60 

 
 
7.6.2  Assessing  proposed  changes 

to 

the  Management  Board 

including 

the 

Chairperson 

Both Sub-options 2 and 3 would set up an independent body with permanent members. Under 
Sub-option 2, the Management Board would be replaced by an Executive Board composed of 
the  Senior  Managers  of  the  Agency.  This  Sub-option  would  guarantee  an  EU  rather  than  a 
national perspective on the Board and correct the current incentive misalignments. This Sub-
option may involve some additional costs, linked to the higher responsibilities of the Senior 
Managers. On the downside the direct association between a Senior Manager/Board member 
and a particular operational unit, may create the risk of a "silo"-perspective. 

Under Sub-option 3, the Executive Board would be composed of full-time members, while the 
Senior Managers of the ESAs would retain their current function, with a particular operational 
responsibility. Full-time independent Board members should have both a central and a holistic 
view of the Agency's work. This would remove the incentive misalignments existing within 
the  current  Management  Board  and  strengthen  the  Agency's  core.  This  Sub-option  would 
have stronger cost implications than Sub-option 2, as new positions (with the administrative 
support structure that is necessary) would need to be set-up. 

Sub-option 4 would enhance the authority of the Chairperson and corroborate other changes 
made  to  the  Boards.  The  Chairperson  is  responsible  for  the  leadership  of  the  Boards  and 
should  be  pivotal  in  creating  the  conditions  for  the  ESAs  to  attain  their  objectives  and 
rendering them more effective.  

Overall,  the  favoured  Sub-option  would  be  a  combination  of  Sub-option  3  and  4. 
However, a differentiation by ESA may be warranted. The case for an Executive Board (i.e. 
Options  2  and  3)  in  view  of  making  the  ESAs  more  effective  and  correcting  for  incentive 
misalignments is strong overall. While Sub-option 3 would be more efficient and should be 
superior to Sub-option 2 from the point of view of effectiveness, the implied additional cost of 
a full-time Executive Board should be justified by the workload, size and responsibilities of 
the  individual  ESA.  The  implementation  of  the  preferred  Sub-option  will  imply  some 
additional costs for the running of the ESAs. Assuming an average Executive Board size of 5 
members (which may differ across ESAs), one of which would assume the role of the current 
Executive  Director,  already  accounted  for,  the  salaries  and  overhead  expenses  of  the 
additional 4 full-time senior employees would need to be financed by ESAs annual budgets. 
Considering  the  large  population  of  entities  that  will  be  indirectly  supervised  (more  than 
20,000 for ESMA, 10,000 for EBA and 4,000 for EIOPA), this additional cost is considered 
relatively minor. 

61 

 
 
 
 
 
Table 7-1. Comparison of policy Sub-options against effectiveness and efficiency criteria 

Objectives 

EFFECTIVENESS 

EFFICIENCY 

Policy Sub-option 

(cost-effectiveness) 

1. No policy action 

0 

2. Set-up of Executive 
Board  with 
ESA 
Senior  Managers  as 
board members 

+ 

3. Set-up of Executive 
Board 
with 
independent  full-time 
board members 

++ 

the 
the 
(role, 
and 

4.  Enhancing 
standing 
of 
Chairpersons 
powers 
appointment 
procedure) 

++ 

0 

- 

-- 

0 

Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): 
++  strongly  positive;  +  positive;  –  –  strongly  negative;  –  negative;  ≈  marginal/neutral;  ? 
uncertain; n.a. not applicable 

7.6.3  Allocation of decision-making powers on certain non-regulatory issues 

Policy Sub-option 

Description 

1. No policy action 

2.  Decision-making  powers  on  certain 
non-regulatory 
to 
issues 
Board 
comprising 
independent members 

of  Supervisors 

attributed 

The  composition  and  voting  structure  remains  as 
currently with national CAs maintaining all voting 
rights  on  non-regulatory  issues  in  the  Board  of 
Supervisors. 

This  Sub-option  would  add  independent  members 
to  the  Board  of  Supervisors  who  would  be  given 
voting rights for non-regulatory issues only.  

3.  Decision-making  powers  on  certain  This  Sub-option  would  transfer  decision-making 

62 

 
 
 
 
non-regulatory  issues  attributed  to  a 
newly 
body 
(Executive Board) 

independent 

set-up 

powers  on  non-regulatory  issues  from  Board  of 
Supervisors  to  a  newly  set-up  independent  body 
(Executive Board). 

Decisions on non-regulatory issues (other than direct supervision) are particularly likely 
to be affected by the current decision-making structure. This is because decision-makers 
on  the  Board  of  Supervisors  have  two  mandates  –  the  national  CA  and  the  ESA  -  and  may 
find themselves in a position where they may have to arbitrate between national and European 
interests.  Thereby  it  does  not  matter  whether  the  representative's  own  Member  State/CA  or 
another Member State/CA is concerned, given the "repeated game" nature of decision-making 
(i.e.,  a  national  representative  is  unlikely  to  support  action  against  a  peer,  if  the  latter  can 
"retaliate" at a later stage). This is likely to result in an inaction bias that would likely persist 
absent any change (Sub-option 1). 

Involving  independent  decision-makers  (see  Sub-option  2  and  3)  would  ensure  that  the 
conflicts  of  interest  at  the  root  of  the  inaction  bias  would  be  attenuated.  These  decision-
makers would have a single mandate and could hence take an exclusive EU perspective when 
deciding.  Appointing  independent  decision-makers  on  a  permanent  basis  would  also  ensure 
more  continuity  and  a  longer-term  perspective  in  the  ESAs  decision-making  process, 
compared  to  the  relatively  high  turnover  on  the  Boards  of  Supervisors  and  Management 
Boards.  

Sub-option 2 would add permanent, independent members to the Board of Supervisors 
who would be given voting rights for non-regulatory issues only. Regulatory issues would 
continue to be decided on by the Board of Supervisors, using QMV, and with national CAs 
having  exclusive  voting  rights.  Independent  members  would  participate  as  non-voting 
members  on  these  issues.  This  setting  would  have  the  advantage  of  strengthening  the  EU 
orientation  of  decision-making  by  adding  the  voice  of  independent  members  to  the 
deliberations and better align incentives within the ESAs' decision making bodies. This Sub-
option would also address  the evaluation's finding that  misaligned incentives  predominantly 
affect  the  non-regulatory  decision  areas.  The  drawback  of  this  Sub-option  is  that  the 
independent members (under the assumption that their number would be limited) could still 
be outvoted by national CAs.  

This Sub-option would be in line with the setting in other EU agencies and institutions where 
it is customary to have both "core" members and national representatives. The ECB provides 
such  an  example,  where  the  six  independent  members  (including  President  and  Vice 
President)  of  its  Executive  Board  are  also  voting  members  of  the  ECB  Governing  Council. 
The  SRB  provides  another  such  example,  as  it  is  made  up  of  a  board  of  six  independent 
members  (including  Chair  and  Vice  Chair)  and  the  Member  States'  national  resolution 
authorities.  

Under  Sub-option  3,  decision-making  on  non-regulatory  issues  would  be  attributed 
exclusively  to  the  Executive  Board.  This  Sub-option  would  essentially  transfer  decision-

63 

 
 
 
making  powers  on  non-regulatory  issues  from  Board  of  Supervisors  to  the  newly  set-up 
Executive  Board  (as  proposed  above).  This  would  ensure  an  exclusive  EU  orientation  of 
decision-making and would eliminate conflicts of interest arising from double mandates. This 
Sub-option would rebalance the incentives in the decision-making process and steer decision-
making in an impartial and efficient manner. Such a reallocation of powers to the Executive 
Board, may however require some form of accountability to and involvement by the Board of 
Supervisors.  

The  disadvantage  of  this  Sub-option  would  be  that  the  expertise  of  national  CAs  may  be 
forgone in Executive Board decisions. Furthermore, it would represent a departure from the 
setting  in  other  EU  agencies  and  institutions  where  it  is  customary  to  have  both  "core" 
members and national representatives. 

7.6.4  Assessing  the  proposed  changes  to  the  allocation  of  decision-making  powers  on 

certain non-regulatory issues 

As outlined above, only Sub-option 2 and 3 both address the issues identified in the analysis, 
albeit with a different intensity. Sub-option 2 partly addresses the problem of misalignment of 
incentives in the area where it has proven to be more problematic, i.e., non-regulatory issues. 
Sub-option 3 corrects the problem of misalignment of incentives in a more authoritative way 
and  hence  appears  to  be  the  preferred  way  forward.  Both  Sub-option  2  and  3  could  be 
combined  with  the  transformation  of  the  Management  Board  into  an  Executive  Board  with 
independent members (see following section).  

Sub-option  2  would  constitute  a  targeted  adjustment  of  the  Board  of  Supervisors  to 
address  the  problem  identified.  Overall,  changing  the  composition  and  voting  structure 
within the Board of Supervisors would yield a more balanced decision-making process within 
the  ESAs  and  ensure  their  ability  to  take  decisions  and  apply  the  powers  at  their  disposal 
(effectiveness).  The  coherence  of  the  ESAs'  governance  would  also  be  improved  given  that 
the  decision-making  structure  of  the  ESAs  would  be  better  aligned  with  their  EU  mandate. 
Sub-option  2  is  targeted  in  that  it  partly  offsets  the  national  perspective,  where  the 
consultation and evaluation have proven that it is most crucial, i.e., regarding non-regulatory 
issues (rather than proposing voting powers on all decisions).  

Sub-option 3 would constitute an effective and targeted way to fully eliminate the causes 
for  possible  inaction  biases  on  the  Board  of  Supervisors.  In  particular,  transferring  non-
regulatory  decisions  to  an  independent  body  would  eliminate  conflicts  of  interest  that 
characterise  national  CAs  and  better  ensure  that  the  ESAs  would  effectively  take  decisions 
and  apply  the  powers  at  their  disposal.  In  particular,  it  would  eliminate  scenarios  where  a 
national CA could participate in decisions addressed to itself. Unlike Sub-option 2, it would 
rule out the possibility of the independent members being outvoted by national CAs. 

Both Sub-option 2 and 3 would require independent decision-makers, which are not foreseen 
in  the  ESA  Regulations.  This  would  necessarily  imply  higher  costs.  It  should  however  be 
pointed  out  that  the  costs  of  Sub-option  2  and  3  are  similar  as  they  are  both  based  on  the 
premise of an independent body. That said the cost of holding dedicated meetings of a (small) 

64 

 
 
Executive  Board  already  located  in  a  given  ESA  would  likely  be  lower  than  convening 
meetings of the Board of Supervisors. Independently of these considerations, the cost issue is 
dealt  with  elsewhere  (given  the  conditionality  on  the  Sub-option  retained,  the  cost-
effectiveness is not further discussed in this section (see  n.a. in comparisons table)). 

Table 7-2. Comparison of policy Sub-options against effectiveness and efficiency criteria 

OBJECTIVES 

POLICY OPTIONS 

EFFECTIVENESS 

EFFICIENCY 

(cost-effectiveness) 

1. No policy action 

0 

0 

2.  Decision-making 
powers  on 
certain 
non-regulatory  issues 
attributed  to  Board  of 
Supervisors 
comprising 
independent members 

3.  Decision-making 
powers  on 
certain 
non-regulatory  issues 
attributed  exclusively 
set-up 
newly 
to 
independent body  

+ 

n.a. 

++ 

n.a. 

Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): 
++  strongly  positive;  +  positive;  –  –  strongly  negative;  –  negative;  ≈  marginal/neutral;  ? 
uncertain; n.a. not applicable 

65 

 
 
 
8  Funding 

Any  extension  in  the  scope  of  ESA  powers  will  have  implications  for  their  governance  (as 
discussed in the previous section) but also for their funding arrangements, to the extent that 
those extended powers require an overall increase in resources.  The preferred Option for the 
extension  of  the  ESAs'  powers  implies  both  an  expansion  in  existing  activities  and  the 
addition  of  new  activities,  inevitably  there  would  be  a  corresponding  increase  in  resource 
requirements (even allowing for some reallocation of existing resources).   

It  is  important  to  note  however  that  an  increase  in  new  activities  in  relation  to  direct 
supervision would be financed via fees charged to the industry, which reflect the full cost of 
services  provided  to  the  supervised  entities.    This  is  already  the  case  for  CRAs  and  TRSs, 
which ESMA charges fees to cover the costs of implementing and supervising their respective 
regulations.  Fees from direct supervision cannot subsidise other ESAs activities.  To this end, 
insufficient  resources  to  cover  existing  ESAs  needs  (as  discussed  in  the  following  section) 
cannot be covered by fees generated by new direct powers given to the ESAs. 

This  section  will  discuss  in  detail  the  implications  of  additional  resources  needs  stemming 
from  an  expansion  in  activities,  other  than  direct  supervision,  on  the  ESAs  funding 
arrangements  as  well  as  the  fitness  and  adequacy  of  the  ESAs  current  funding  structure  to 
support new and existing business are discussed in detail in this section.  

8.1  State of play 

8.1.1  Funding basis and fees collection 

The ESA Regulations stipulate that the ESAs shall be funded by (a) obligatory contributions 
from the national CA, by (b) a subsidy (contribution) from the EU and by (c) any fees paid to 
the ESAs in the cases specified in the relevant instruments of EU law such as fees from direct 
supervision53.  Revenues  and  expenditures  of  the  ESAs  are  required  to  be  in  balance  on  an 
annual  basis,  any  surpluses  cannot  not  be  carried  forward  to  the  next  year  and  any  deficit 
should  be  addressed  within  the  financial  year  by  adjusting  expenditure.  Out  of  these  three 
available  sources  of  financing,  the  core  source  is  public  (EU/national  CAs)  funding,  while 
ESMA  receives  some  private  funding  in  respect  of  their  limited  responsibility  for  direct 
supervision.  

In  2016,  the  ESAs  total  budget  was  EUR  95.6  million,  from  which  approximately  EUR  33 
million  came  from  the  EU  budget  and  EUR  52  million  from  the  national  CAs  of  the  28 
Member  States  (Table  8.1).    As  indicated  in  the  Evaluation  (Annex  11.5),  the  ESAs'  total 
budget has more than doubled during the first years of their establishment (2011-2014) with 
an average growth rate of more than 25% per year.  This increase has reflected the fact that 
the ESAs were preparing to begin their operations and ensured a smooth transition from their 
previous status as Committees of Supervisors. Thereafter, growth in their budgets growth has 
moderated indicating that they have entered a more mature stage of development. 

53   Article 62 of the ESA Regulations. 

66 

 
 
                                                            
Table 8.1: ESAs funding 2016 (in million EUR) 

Total 
budget 

EU contribution 

National 
contribution 

CAs 

Income 
from 
direct supervision 

EBA 

37.1 

ESMA 

36.9 

EIOPA 

21.6 

14.7 

10.2 

8.3 

22.4 

16.2 

13.3 

0.0 

10.5 

0.0 

Note: ESMA's income from direct supervision corresponds to fees from CRAs and TRs 

The ESA Regulations stipulate that when the ESAs are granted direct supervisory powers, the 
cost for this activity is levied entirely on the supervised entities under its remit. ESMA is the 
only  ESA  that  has  been  granted  direct  supervisory  powers  to  date.  Since  2012,  ESMA  has 
been directly supervising CRAs and TRs. In this regard all costs from implementing the CRA 
and TR regulations are fully financed via fees and levies directly charged to CRAs and TRs.  
In  2016,  the  cost  of  directly  supervising  CRAs  and  TRs  amounted  to  EUR  10.5  million  or 
28% of ESMA's total funding. 

Excluding  any  funding  received  for  direct  supervision,  the  ESAs'  budget  comprises  a  60 
percent  contribution  from  the  Member  States  and  a  40  percent  contribution  from  the  EU 
Budget54.  Member  State  contributions  are  proportionate  to  their  share  of  votes  under  the 
Council  QMV  rule  and  not  necessarily  to  the  size  of  their  respective  financial  sectors. 
Receiving funding from the EU budget means that the ESAs have to respect the EU financial 
management  and  control  framework  as  set  in  the  Commission's  Framework  Financial 
Regulation55 ("FFR"), including rules on the establishment and approval of the budget as well 
as audit and control. 

8.1.2  Establishment and approval of the budget  

The ESAs use an activity-based budgeting approach for preparing their annual draft budgets.  
This  ensures  a  strong  link  between  their  annual  work  programs  and  the  estimation  of 
resources needed for all work streams to achieve their respective objectives. 

The  ESAs  annual  budgets  are  established  on  the  basis  of  instructions  provided  by  the 
Budgetary Circular56 and aligned with the provisions of the Commission's Communication on 
the  guidelines  for  programming  document  for  decentralised  agencies  as  well  as  on  the 
template  for  the  Consolidated  Annual  Activity  Report  for  decentralised  agencies  (based  on 

54   Recital 68 of ESA Regulations. 
55   Commission Delegated Regulation (EU) No 1271/2013 
56   Annual detailed instructions from DG BUDG to Directors-General and Heads of Service on preparation of 

draft budget requests  

67 

 
 
  
                                                            
article 32 of FFR).57 A Single Programming Document58 as well as a draft budget request are 
transmitted  by  the  ESAs  to  the  Commission  for  consolidation  and  adoption  by  the 
Commission. The draft budget is then transmitted by the Commission to the Parliament and to 
the Council (the Budgetary Authority), together with the draft EU Budget. 

On  the  basis  of  the  ESAs  budgetary  proposals,  the  Commission  enters  into  the  draft  EU 
Budget the estimates it deems necessary in respect of the establishment plan and the amount 
of  the  subsidy  to  be  charged  to  the  EU  Budget.  The  Budgetary  Authority  adopts  the 
establishment plan for each of the ESAs and authorises the amount of the EU contribution. 

The  amount  of  the  annual  EU  contribution  to  the  ESAs  is  decided  within  the  Multiannual 
Financial  Framework  ("MFF"),  and  more  specifically  in  line  with  the  Commission's 
Communication  on  the  programming  of  human  and  financial  resources  for  decentralised 
agencies 2014-202059.  The MFF lays down the maximum annual amounts ("ceilings") which 
the EU may spend in the main policy areas over a period of at least five years, whereas the 
Commission Communication sets out annual ceilings for the EU contribution and the precise 
figures for the establishment plan posts for each EU agency until 2020 (see details in Table 
8.2). A key assumption of the MFF is that the ESAs will keep growing until 2018. Thereafter 
they are expected to have reached a cruising speed mode. This essentially means that ESAs 
can continue benefiting from additional posts and from increases in EU funding until 2018 but 
no additional posts and almost stable EU funding in real terms (inflation corrected) is planned 
thereafter. Clearly, this assumption is not consistent with the preferred Option for expanding 
ESA powers (Section 6) in response to further integration of financial markets within the EU 
and between the EU and the rest of the world. 

The  final  step  in  the  budgetary  process  is  the  adoption  of  ESAs  budget  by  their  Board  of 
Supervisors.  The  adopted  budget  becomes  final  after  the  final  adoption  of  the  EU  Budget. 
During this process, the Parliament, the Council and the Commission can make adjustments to 
ESAs annual draft budgets60. 

8.1.3  Accountability and Audit 

Each ESA adopts its own financial rules after having consulted the Commission. Those rules 
(ESA  Financial  Regulation)  are  tightly  aligned  with  the  provisions  of  the  FFR  unless  the 
specific  operational  needs  for  the  functioning  of  the  ESA  require  a  derogation.  Any 
divergence from the FFR requires prior approval by the Commission61.  

57   Communication  from  the  Commission  on  the  guidelines  for  programming  document  for  decentralised 

agencies, COM(2014) 9641 of 16 December 2014. 

58   A document required by Framework Financial Regulation containing multiannual and annual programming 
of  an  agency,  which  has  to  be  submitted  annually  to  the  Commission,  the  European  Parliament  and  the 
Council 

59   Communication from the Commission to the European Parliament and the Council of 10 July 2013 on the 
programming of human and financial resources for decentralised agencies 2014-2020, COM(2013)519. 
60   Alignments in order to comply with the MFF requirements and the adopted General budget of the Union 
61   Art. 65 of ESA Regulations 

68 

 
 
                                                            
To  enhance  the  enforcement  of  these  rules,  the  ESAs  have  established  internal  control 
procedures  to  oversee  the  budget  execution  through  quarterly  reports  to  their  Management 
Boards on the progress of the execution of the budget. Since 2013, the ESAs have been using 
a  system  of  performance  indicators  to  monitor  progress  vis-a-vis  their  budget  execution.  In 
addition,  the  ESAs  have  internal  control  officers  and,  as  is  the  practice  for  many  other  EU 
agencies, an internal audit of the ESAs is carried out by the Commission. The ESAs have also 
established external control  procedures.  Their  accounts  and  the  use  of  resources  are  audited 
on an annual basis by the European Court of Auditors ("ECA")62.  

The  ESAs  transmit  their  final  accounts63,  accompanied  by  the  opinion  of  the  Management 
Board,  to  the  Board  of  Supervisors,  the  Parliament,  the  Council,  the  Commission  and  the 
ECA.  The annual budget cycle ends when the Parliament, following a recommendation from 
the  Council,  grants  discharge  to  each  ESA  for  the  implementation  of  the  budget.64  ESAs 
funding decisions and the implementing measures resulting from them are also subject to the 
European Anti-Fraud Office (OLAF) powers. 

The aforementioned checks and balances by various EU institutions during the establishment, 
approval and execution process of the ESAs budgets protect the ESAs funding providers from 
uncontrollable and unjustifiable funding requests while ensuring a sound budgetary execution 
on a continuous basis.  

8.2  Problem Definition 

An adequate funding system is one that enables the ESAs to achieve their objectives and is 
sufficiently flexible to respond to the changing needs of the ESAs in meeting those objectives. 
An adequate funding system should also link fees and contributions to ESAs' activities in  a 
proportionate way.  

The evaluation has identified problems in the core funding system of the ESAs in relation to 
two dimensions: (a) sufficiency in the perspective of further integration of financial markets 
within the EU and between the EU and the rest of the world; and (b) proportionality in so far 
as  funding  contributions  from  different  sources  should  be  better  aligned  to  the  scale  of 
activities carried out by the ESAs.   

These  problems  do  not  emerge  in  the  funding  for  areas  where  the  ESAs  (currently  only 
ESMA) have direct supervisory responsibilities. In other words, direct supervision is financed 
by  fees  charged  to  the  industry  that  reflect  the cost  of  the  service,  with  the  flexibility  to  be 
adjusted to reflect changes in such costs in a proportionate way across the supervised entities.  
This  is  therefore  not  part  of  the  scope  of  the  problem  related  to  funding  that  this  impact 
assessment is addressing. 

62   Art. 64 of ESA Regulations 
63   The final accounts comprise the ESA financial statements (consisting of the balance sheet and the statement 
of  financial  performance;  the  cash-flow  statement;  and  the  statement  of  changes  in  net  assets)  and  the 
reports on implementation of the ESA budget. 

64   Art. 64 of ESA Regulations 

69 

 
 
                                                            
8.2.1  Sufficiency 

The  tasks  already  entrusted  to  the  ESAs  as  well  as  future  tasks  envisaged  in  on-going 
legislative  work  require  an  adequate  level  of  staff  and  budget  to  allow  for  high-quality 
supervision. Sufficiency has both a static and dynamic dimension. In effect, the ESA budget 
must be adequate to the current tasks and mandates, prescribed by existing legislation, but it 
also needs to have the flexibility to adapt to the increased role for ESAs that can be expected 
as financial-market integration proceeds. 

8.2.1.1  The static perspective 

Over  the  past  years,  the  Commission  has  proposed  gradual  increases  of  the  annual  draft 
budget and staffing levels for the ESAs, against the background of EU budgetary constraints, 
such as a 5% staff reduction target applicable to all EU institutions, agencies and bodies. The 
Parliament  and  the  Council,  in  their  role  of  budgetary  authority,  adopted  the  establishment 
plan for each of the ESAs and authorised the amount of EU contribution, to be charged to the 
General  Budget  of  the  European  Union,  on  the  basis  of  the  draft  budget  proposed  by  the 
Commission. 

Since  2014,  the  Parliament's  Committee  on  Economic  and  Monetary  Affairs  in  its  annual 
Opinions prepared for the Parliament's Committee on Budgetary Control on the ESAs budget 
execution have repeatedly stressed that the ESAs current financing arrangement is inadequate, 
inflexible and burdensome and that it constitutes a potential threat to the independence of the 
ESAs.65  According  to  various  opinions66  and  reports  from  the  European  Parliament,  the 
Council  and  the  ECA,67  the  ESAs  funding  levels  are  already  insufficient.  Industry 
stakeholders  have  also  raised  concerns  that  the  ESAs  funding  arrangements  may  not  be 
commensurate  with  their  likely  increased  tasks  and  responsibilities.  Views  expressed  in  the 
2017 public consultation support the view that ESAs are under resource constraints, which are 
likely to constrain their ability to carry out their tasks. A number of respondents agreed that 
the ESAs will need adequate and sustainable funding in order to meet ambitious targets and 
enhance  their  operations  and  it  was  argued  that  the  level  of  funding  for  the  ESAs  should 
correspond closely to their responsibilities and entrusted tasks.  

The  lack  of  sufficient  resources  would  have  important  implications  for  the  ESAs  work, 
preventing  the  ESAs  from  addressing  their  increasing  workload  and  from  delivering  on  all 

65  ECON  2014/2122(DEC)  published  26.2.2015; 

  2014/2121(DEC)  published  26.2.2015;  ECON 

2016/2186(DEC) published 1.3.2017;  

66   Annual  Opinions  of  the  Committee  on  Economic  and  Monetary  Affairs  (ECON)  on  the  ESAs  budget 
execution:  ECON  2014/2122(DEC)  published  26.2.2015;    2014/2121(DEC)  published  26.2.2015;  ECON 
2016/2186(DEC) published 1.3.2017 

67   See stakeholder replies to the Commission's 2014 Review Report, the Parliament's 2013 Review Report of 
the ESFS, the IMF Country Report No 13/65 on the Financial Sector Assessment of the European Union – 
Issues  in  Transparency  and  Accountability;  the  Parliament's  2014  Resolution  on  the  European  System  of 
Financial  Supervision  Review;  the  2014  Council  conclusions  on  the  ESFS  Review,  the  2016  Parliament 
Resolution on the Stocktaking and challenges of the EU Financial Services Regulation, testimonies before 
national parliaments, and the ESAs during Parliamentary hearings. 

70 

 
 
                                                            
their  objectives  and  tasks.  Although  the  ESAs  budget  doubled  in  the  first  3  years  of  their 
operations  (see  evaluation  in  annex  5),  this  initial  budgetary  growth  reflected  the  need  to 
accommodate  the  ESAs  increasing  workload  to  fulfil  their  mandate,  i.e.,  to  achieve  a  more 
integrated  regulatory  framework  (the  Single  Rulebook).  In  effect,  even  this  growth  rate 
seemed insufficient,  as in its 2014/05 report, the ECA stated that "overall, EBA’s resources 
during its start‑up phase were insufficient to allow it to fulfil its mandate".68  

In  addition,  the  ECA  found  that  EBA  has  not  been  able  to  fulfil  its  consumer  protection 
mandate due to, among other things, a lack of resources. Likewise, the ECA found that EBA 
had insufficient staff to conduct the 2011 stress tests. Furthermore, it has been argued that the 
Commission may have underestimated in its legislative proposals the investment costs for IT 
systems to be developed and maintained (e.g., for ESMA the Commission proposed EUR 0.5 
million  compared  to  EUR  8  million  necessary  according  to  ESMA).  Further  illustrating  the 
ESAs'  budget  and  resource  constraints,  one  of  the  ESAs  had  to  reduce  and  temporarily 
suspend  their  financial  market  monitoring  activities.    In  addition,  opinions  expressed  in  the 
2017 public consultation confirm that due to limited resources the ESAs could not make full 
use of the abundant financial market data they have at their disposal. The ESAs' inability to 
deliver  on  their  objectives  and  tasks  on  time  due  to  resource  constraints  has  occasionally 
delayed  the  Commission's  decision  on  delegated  acts,  as  well  as  led  to  unwanted 
reprioritization  of  important  policy  initiatives/tasks.69  In  turn,  this  caused  delays  in 
implementation of both Level 2 and Level 1 legislation.70  

8.2.1.2  The dynamic perspective 

The funding arrangements for the ESAs should be commensurate with their tasks. To this end, 
these  arrangements  should  be  flexible  enough  to  adjust  sustainably  over  time  to  cover  any 
future additional tasks, resulting from further integration of financial markets within the EU. 
For instance, the additional workload for the ESAs linked to the objective of achieving greater 
regulatory and supervisory convergence, as announced by the CMU initiative in late 2015, is 
a clear example of an important project that was not known at the time when the Commission 
adopted  its  Communication  on  programming  of  human  and  financial  resources  for 
decentralized  agencies  2014-2020.  Moreover,  the  individual  Member  States'  share  in  the 
ESAs budget could be expected to increase further once the United Kingdom leaves the EU.71   

68   2014/05, Special Report European banking supervision taking shape — EBA and its changing context, p.8 

point IV. 

69   For  example  in  order  to  address  budget  constraints,  ESMA  deprioritised  (removed)  from  its  IT  Work 
Programme 2017-2019 the development of the European Electronic Access Point (EEAP) in favour of the 
implementation of the Prospectus Directive and Money Market Funds Regulation projects. 

70   For  example,  EBA's  advice  on  equivalence  of  third-country  regimes  and  the  technical  standards  on  anti-

money laundering 

71   While the ESAs will lose roughly 5% of their total budget (the result of 8.24% from QMV voting rule times 
60% of the total budget provided by national CAs), with the departure of the United Kingdom, there is no 
clear  evidence  suggesting  that  the  workload  of  the  ESAs  will  reduce  by  a  similar  amount.  In  fact,  the 
workload may actually increase, as the ESAs will have to deal with third country issues for several markets 
and  entities  that  are  operating  from  the  United  Kingdom  and  vice  versa.  Moreover,  at  least  initially,  the 

71 

 
 
                                                            
Evidence suggests that ESA funding is already stretched to the limit. Since their creation, the 
ESAs are subject to an increasing workload. As Table 8.2 illustrates, since 2010, the number 
of  level  1  text  which  tasks  foreseen  for  the  ESAs  has  almost  doubled  for  ESMA  (From  12 
level 1 texts in 2010 to 23 in 2017) and increased by 40% for EBA and EIOPA (from 5 to 7 
level  1  texts).    This  increase  in  secondary  law  is  also  accompanied  by  an  intensive  use  of 
more detailed and complex legislative measures which place more obligations on the ESAs. 
Moreover, the perimeter of banking, pensions, insurance and securities market regulation has 
considerably widened over time, surrounding a much broader set of market participants and 
activities,  tackling new weaknesses of the  financial system  and thus  conferring  new powers 
and  obligations  to  ESAs.  In  addition,  the  increasing  inclusion  of  "third  country  regimes"  in 
primary legislation (currently envisaged in 15 EU acts) also increases the ESAs workload, as 
the  assessments  of  equivalence  by  the  Commission  are  usually  performed  on  the  basis  of 
technical advice from ESAs. 

Table 8.2  
EU legislative acts within the scope of ESAs' remits72 

2010  
(under  Article    1(2)  of  their  Founding 
Regulations) 

2017 

ESMA 

  12 Level 1 texts 
  13  Level 2 texts 

EBA 

  5 Level 1 texts  
  No Level 2 texts 

EIOPA 

  5 Level 1 texts 
  No Level 2 texts 

Source: European Commission 

  23 Level 1 texts 
  303  Level 2 texts  
out of which: 

o 
 174 adopted,  
o  129 not yet adopted 

  7  Level 1 texts 
  116  Level 2 texts 
out of which: 

o  84 adopted  
o  32 not yet adopted 

  7  Level 1 texts 
  56 Level 2 texts 
Out of which: 

o  33 adopted  
o  23 not yet adopted 

Table 8.2 also illustrates that there has been an extensive use of Level 2 rules specifying the 
detailed application of the Level 1 acts. For example in the case of ESMA, there are currently 
303 level 2 acts (out of which almost half are to still to be prepared to be adopted), against 
only 13 level 2 texts in 2010. Similarly, there are 116 new level 2 texts for EBA (one third of 
which is pending preparation for adoption) and 56 new level 2 texts for EIOPA (almost half 
of which is pending preparation for adoption). Finally, ESAs will need to monitor and ensure 
the supervisory convergence of all the level 1 and level 2 measures under their remit.     

withdrawal of the United Kingdom from the EU and the resulting relocation of some businesses to the EU27 
will increase the ESAs work on convergence including preventing regulatory arbitrage.  

72   See Annex 11.4. 

72 

 
 
 
                                                                                                                                                                                          
The increasing constraints on public budgets both at EU and at Member State level and the 
increasing workload of the ESAs mean that the current funding arrangements may no longer 
be  affordable  over  time.  For  example,  a  number  of  national  CAs  have  raised  the  issue  of 
increasing  difficulties  contributing  to  ESA  budgets  due  to  budgetary  constraints73. 
Furthermore,  stakeholders  are  concerned  that  further  budgetary  increases  for  ESAs  risk 
translating  into  funding  reductions  for  supervisory  authorities  at  national  level.  A  further 
complication results from the fact that the MFF has capped the EU annual contribution to the 
ESAs budget to a maximum annual lump sum, which in 2020 reaches approximately EUR 16 
million for EBA, EUR 9.9 million for EIOPA and EUR 12.6 million for ESMA. Due to the 
fixed distribution of funding between the EU and the national CAs, the mentioned caps put a 
constraint  on  ESAs  overall  future  budget.  This  means  that  ESAs  cannot  easily  rely  on 
additional  resources.  According  to  the  establishment  plan,  which  needs  to  be  respected  by 
each ESA, the annual maximum number of posts, is capped for the period 2018-2020 and no 
growth is envisaged after 2018 (Table 8.3). 

73 For example, for many of the smaller regulators, the cost of an ESA is 20-30% of their budget. 

73 

 
 
                                                            
Table  8.3:  EU  programming  of  human  and  financial  resources  for  decentralized 
agencies - overview 2014-2020 

of 

Name 
decentralised 
agency 

the 

Budget 
line 

Cruising 
speed 
years  in 
period 
2014-
2020 

Total  EU  contribution  /  authorised  establishment 
plan 

2013  2014  2015  2016  2017  2018  2019 

2020 

Total  EU 
contributi
on  2014-
2020 

12  03 
02 

2019-
2020 

10,38
7 

11,30
4 

12,02
1 

13,10
4 

14,11
5 

15,12
3 

15,683  15,997 97,349 

(12  04 
02) 

93 

103 

111 

125 

134 

145 

145 

145 

and 

European 
Banking 
Authority (EBA) 
Authorised 
establishment plan 
European 
Insurance 
Occupational 
Pensions 
Authority 
(EIOPA) 
Authorised 
establishment plan 
European 
Securities 
Markets 
Authority 
(ESMA) 
Authorised 
establishment plan 

12  03 
03 

2019-
2020 

(12  04 
03) 

and 

12  03 
04 

2019-
2020 

7,507  7,514  7,763  8,134  8,676  9,365  9,734  9,929  61,117 

80 

84 

87 

92 

101 

112 

112 

112 

8,697  9,077  9,603 

10,09
9 

10,88
8 

11,87
6 

12,377  12,624 76,543 

(12  04 
04) 

121 

128 

133 

138 

150 

163 

163 

163 

Source: COM(2013)519 

Under  the  EU  MFF  2014-2020,  the  ESAs'  budgets  were  supposed  to  grow  at  8%  per  year 
until 2018. Thereafter, the MFF assumed that the ESAs would reach the cruising speed, which 
implies that their growth rate would be lower than in the period of the phasing-in of tasks.  At 
the same time, the EU is facing budget constraints and this trend is expected to continue or 
even intensify when the United Kingdom leaves the EU.74  Therefore, it may be reasonable to 
assume that the next MFF may envisage fewer resources from the EU Budget for the ESAs.  

Any  discrepancy  between  the  actual  needs  of  the  ESAs  and  the  means  available  by  the  EU 
Budget  makes  the  fixed  distribution  of  the  ESAs'  funding  between  EU  Budget  and  national 
CAs a "straight jacket", because it reduces the flexibility of the ESAs to adjust funding from 
sources other than the EU Budget and according to their needs (even if marginal). Under this 

74   See  EU  revenues  Policy  paper  183,  16  January  2017,  p.  6,  Jacques  Delors  Institute  "Brexit  and  the  EU 

budget: Threat or opportunity?" 

74 

 
 
 
 
 
 
 
 
                                                            
restriction, any extra resources needed to cope with increased workload can only be achieved 
by  reprioritising  the  current  work  programme,  reallocating  existing  resources  or  simply  not 
executing  certain  tasks.  The  feedback  received  in  the  2017  public  consultation  shows 
awareness among stakeholders that ESAs need a sustainable source of funding in order to be 
able to accomplish their goals. 

8.2.2  Proportionality  

The  use  of  the  QMV  weights  to  calculate  the  national  CAs  contributions  to  ESAs  does  not 
take  account  of  the  size  of  the  national  financial  sectors  across  Member  States.    This  is 
problematic  given  the  diverse  development  of  the  financial  sectors  in  the  various  Member 
States.  The  current  system  implies  that  national  CAs  from  Member  States  with  a  large 
financial market contribute less relative to their size, while national CAs from Member States 
with small financial markets may be due to pay more in relation to their size. To illustrate this 
problem, we compare national CAs contributions to the ESAs budget in a given year to the 
size of their respective financial market for the same year.  National CAs' contributions in a 
given  Member  State  are  summed  up  in  order  to  reflect  the  total  contribution  to  ESAs  by 
Member State. 

Figure 8.4: Current national CAs' contribution according to Council voting rule (EUR 
million) 

Source: ESAs annual reports and own calculations 

As  shown  in  Figure  8.4,  in  2016,  national  CAs'  total  contribution  per  Member  State  to  the 
ESAs'  budgets  ranged  approximately  between  EUR  0.5  and  4.2  million.    Germany,  France, 
Italy and the United Kingdom were the largest contributors to the ESAs budgets, with EUR 
4.25 million each, followed closely by Spain and Poland. Conversely, Malta was the smallest 
contributor  to  the  ESAs'  budgets  in  2016,  paying  EUR  440,000  in  2016,  followed  by 
Slovenia,  Luxembourg,  Latvia,  Cyprus  and  Estonia  that  contributed  approximately  EUR 
500,000 each to ESAs budget in 2016. 

75 

 
 
 
Figure 8.5:  Size of the financial sector, 2016 value added (EUR million) 

180.000

160.000

140.000

120.000

100.000

80.000

60.000

40.000

20.000

0

UK DE FR IT NL ES BE SE PL IE DK AT LU PT EL CZ RO FI HU SK BU HR CY SI LV LT EE MT

Source: Eurostat. 

In  contrast,  Figure  8.5  shows  that  the  United  Kingdom  had  in  2016  the  largest  financial 
market, totalling approximately to 24% of the total EU market share. The United Kingdom, 
Germany France and Italy constitute together more than 64% of the total value added of the 
EU  financial  sector,  but  they  only  contribute  roughly  one  third  of  the  ESAs'  budget.  In 
addition, the United Kingdom's contribution to ESAs budget is close to that of France or Italy, 
which have financial sectors that are about a half of the size of the of the United Kingdom. 
Poland,  belongs  to  the  group  of  six  largest  Member  States  that  are  contributing  to  almost  a 
half of the ESAs total annual budget (together with Germany, France, Italy, United Kingdom 
and Spain) but it has a financial sector substantially smaller than the other five contributors. 
The  financial  sector  in  the  Netherlands  is  larger  than  the  Spanish  one  but  Spain  contributes 
more to the ESAs budget. Notwithstanding the large size of its financial sector, Luxembourg's 
current contribution to the ESAs budget is the second lowest75, after Malta. 

Important differences across EU Member States also exist as regards the funding models of 
national  CAs.  Some  national  CAs  are  fully  funded  by  the  industry,  such  as  in  Belgium, 
France, Germany, the Netherlands, whereas others are partially or fully funded by the public 
budget,  such  as  in  the  Czech  Republic,  Cyprus,  Ireland,  Portugal.  Furthermore,  industry 
funded  national  CAs  use  different  models  and  methodologies  to  charge  fees  to  individual 
entities, which results in an uneven fee distribution among industry and taxpayers across the 
EU.  

The Problem Tree below illustrates problems, drivers and consequences.  

75 Together with Slovenia, Latvia, Cyprus and Estonia 

76 

 
 
                                                            
Figure 2.4 Specific problem tree  

8.3  Objectives 

The  general  objective  behind  a  potential  policy  action  is  to  ensure  that  the  ESAs  operate 
effectively  and  efficiently  in  carrying  out  their  objectives  and  tasks  as  stated  in  ESA 
Regulations76  and  sectoral  legislation.  Achieving  the  general  objective  will  also  enable  the 
ESAs to play a key role in the further integration of the EU financial markets and to promote 
the development of the CMU. 

From  the  perspective  of  the  ESAs'  funding  arrangements,  these  general  objectives  can  be 
translated into the following specific objectives: 

 

 

ensuring  that  the  ESAs'  annual  funding  is  sufficient  to  meet  the  mandates  and  tasks 
prescribed by EU legislation in a sustainable way (S-1); 

ensuring  that  the  way  that  the  ESAs  are  funded  is  proportionate  to  the  costs  that  all 
contributing parties generate (S-2). 

76   Regulation (EU) No1095/2010, [Insert ref to ESAs founding regulations] 

77 

                                         udget not sufficient to meet tasks and ob ectives in a sustainable way   unding is not sufficiently expanding when necessary  eneral budgetary constraints on public funding  EU and national  As  Inability to deliver tasks and mandate in full  incl. quality and timing   ational  As contributions unrelated to the si e of local financial sector Inability to cover urgent requests  such as sudden market crises Uneven funding contribution for some   As and taxpayers in some countries   vercharging national  As budget in some countries Taxpayers in some countries paying for users of financial services  ixed proportion between EU and national  As contributions and cap to EU contribution on a multi-annual basis   
 
 
                                                            
Table 8.3 Objectives 

Problems 

Problem drivers 

Specific 
objectives 

S-1 

S-2 

√ 

ESAs budget: 

is 

to  meet 

insufficient 

- 
the 
mandate  and  tasks  provided  by 
EU  legislation  in  a  sustainable 
way 

caps 

the  EU 

annual 
M   
contribution to the ESAs budget on 
a multi-annual basis.  

Budgetary  constraints  on  public 
funding (EU and national CAs) 

√ 

-  is  not  proportionate  for  some 
national CAs  and their  respective 
taxpayers in some countries 

The  current  system  for  calculating 
contributions  from  national  CA's 
does not reflect the size of domestic 
financial sectors 

√ 

8.4  Policy Options and Impact Analysis 

This section discusses the details and the impact of three alternative policy options to address 
the  problems  identified  in  section  8.2.  The  three  options  are  assessed  against  the  baseline 
scenario, i.e., that the current funding framework remains in place. The first option consists in 
adjusting the existing public funding model. The second and third option entail a change to 
the  three  key  features  of  the  current  funding  model  (outlined  in  section  8.4.1  below)  by 
introducing different degrees of industry funding contribution. 

Table 8.4 Policy Options 

Policy options 

Description 

1. No policy action 

The baseline scenario applies. 

2. Adjusted public funding 

to  define 

in  force  continues 

The  MFF 
the 
maximum EU contribution in a given year to ESAs 
budget  (set  in  EUR  million).  This  amount  would 
serve to cover up to 40% of ESAs' annual funding 
needs.  The residual funding needs would continue 
to  be covered by contributions from national CAs 
but these contributions would now be a function of 
the  size  of  the  Member  States'  domestic  financial 
sector. 

3. Mixed funding 

The same assumption for EU funding as in option 
2  applies,  but  the  residual  funding  needs  of  the 

78 

 
 
 
 
 
 
4. Fully private funding 

ESAs would be met by private sector contributions 
based  on  the  activities  carried  out  by  the  ESAs 
replacing contributions from the national CAs.  

Public  funding  is  fully  replaced  by  private  sector 
funding. 

The following sections describe the options and their potential positive and negative impact in 
reaching the objectives as outlined in section 8.3.   

8.4.1  Baseline scenario  

Option  1  - No  policy  action  –  The  baseline  scenario  applies.    No  modifications  to  the  key 
features of the current funding model. 

There are three key features of the current funding model: 

1. 

2. 

full public funding77;  

fixed  distribution  of  public  funding  between  EU  budget  (40%)  and  national  CAs 
budgets (60%);  

3. 

allocation of national CAs' contribution according to Article 16(4) TFEU. 

Under Option 1, all three key features of the funding structure remain in place. Most notably, 
the  ESAs'  budget  would  continue  being  financed  from  the  EU  Budget  (40%)  and  from 
contributions from national CAs (60%) made in accordance with the QMV weighting set out 
in Article 16(4) TFEU.  

The main advantage of this Option is its simplicity in calculation and collection. The Council 
voting  distribution  leaves  no  space  for  interpretations  and  legal  disputes.  In  addition, 
weighting is fixed and thus the national CA's contribution to the ESAs annual budgets evolves 
in  a  predictable  way  over  time.  Another  advantage  is  that  the  fee  collection  process  for  the 
ESAs  is  easy  (low  number  of  debit  notes  per  year)  and  there  would  be  no  need  for  new 
investments in IT, collection systems or additional human resources. Accountability and audit 
mechanisms  would  also  stay  intact.  However,  keeping  the  current  system  means  preserving 
existing  inefficiencies  and  leaves  many  challenges  unaddressed,  as  assessed  in  the  problem 
definition section.  For example:  

 

 

the  ESAs  would  continue  to  have  reduced  flexibility  to  cope  with  existing  and  new 
challenges since their EU funding growth is capped by the MFF at least until 2020; 

under the current funding mechanism any funding increase for the ESAs may translate 
into a funding reduction for the national CAs (in particular for those national CAs that 
are  integrated  supervisors  contributing  to  two  or  three  ESAs).  A  number  of  national 

77 With the exception of fees charged for directly supervised entities where applicable 

79 

 
 
                                                            
 

 

CAs have signalled increasing difficulties linked to their contribution to ESA budgets 
due to budgetary constraints or national austerity measures; 

the  proportionality  of  the  current  cost  allocation  among  national  CAs  remains 
problematic,  as  it  does  not  reflect  the  size  of  the  domestic  financial  sectors,  which 
ultimately determine the need for regulatory and supervisory action by the ESAs. This 
makes  the  allocation  of  contributions  among  national  CAs  uneven  and  potentially 
unfair,  with  taxpayers  in  some  countries  required  to  pay  more  than in  others. It  also 
makes  the  contribution  disproportionate  for  small  national  CAs,  which  may  become 
excessive relative to their annual budget; 

important  changes  are  expected  from  both  sectoral  legislations  and  external  factors, 
like  the  departure  of  the  United  Kingdom  from  the  EU,  which  may  exacerbate 
budgetary constraints and may require flexibility in the funding structure;  

The situation produces a misalignment between national CAs, which cannot contribute more 
to  ESAs  budgets,  and  the  ESAs,  which  want  to  be  able  to  deal  fully  with  their  current 
workload and future challenges. At the same time, budgetary constraints at the level of the EU 
Budget need to be taken into account as well. 

Based  on  the  above  argumentation,  it  seems  that  maintaining  the  baseline  scenario  is  not 
effective in ensuring that the ESAs' annual funding is: (a) commensurate to the mandates and 
tasks  given  by  EU  legislation;  and  (b)  sustainable  for  the  years  to  come.  Maintaining  the 
status quo may also not be efficient since the way that ESAs are funded would continue to be 
uneven across Member States and across financial entities.   

8.4.2  Adjusted public funding  

Option 2. Adjusted public funding This Option modifies two of the three key features of the 
baseline  scenario  (the  fixed  funding  distribution  and  the  national  CAs  contributions'  key).  
The MFF in force defines the maximum EU contribution in a given year to ESAs budget, as a 
fixed  upper  limit  in  EUR  million.  This  amount  would  serve  to  cover  up  to  40%  of  ESAs' 
annual budget. The residual funding needs of the ESAs annual budget would be covered by 
contributions  from  the  national  CAs,  with  no  longer  a  fixed  distribution  between  EU  and 
national CAs. Moreover, the current weights used to calculate contributions from the national 
CAs would be replaced by weights based on the size of the domestic financial sector.    

Option  2  would  replace  the  requirement  under  which  ESAs  should  be  financed  in  fixed 
proportions, i.e., 40% from the EU budget and 60% from the national CAs.78 Currently, the 
amounts foreseen in  the MFF for the ESAs funding during the period 2014-2020 determine 
the amounts provided by the national CAs during the same period, so de facto setting a cap on 

78   The Commission sets the threshold to the annual EU budget contribution to each ESA in its Communication 
to  the  European  Parliament  and  the  Council  on  programming  of  human  and  financial  resources  for 
decentralized agencies 2014-2020. According to this Communication, the annual EU budget contribution to 
ESAs budget is capped to a maximum annual lump sum, which in 2020 reaches 38.2 m. euros for the three 
ESAs. 

80 

 
 
                                                            
the total funding for the ESAs. Under the new arrangement, the 40% would instead be set as a 
maximum  amount  for  the  annual  EU  contribution  to  the  ESAs'  budget,  while  national  CAs' 
would meet the residual funding needs,. In addition to introducing flexibility into the ESAs' 
budgets,  the  described  change  would  better  reflect  the  presence  of  the  national  CAs  in  the 
Board of Supervisors of ESAs, which determines the budget, and it would accommodate the 
adjustments  needed  in  the  short-term  to  fulfil  the  regulatory  and  supervisory  objectives.  It 
would  also  reflect  the  increasing  role  that  the  ESAs  have  in  supporting  national  CAs  to 
achieve supervisory convergence, in line with the subsidiarity principle. 

Moreover,  national  CA  contributions  would  be  adjusted  in  accordance  to  the  size  of  the 
financial  markets  in  their  respective  Member  States.  To  this  end,  Member  States  with 
relatively  smaller  and  less  developed  financial  sectors  (like  all  or  most  Member  States  that 
joined the EU in 2004) would contribute to the ESAs budgets according to the actual size of 
their  sector  under  the  ESAs'  remit.  As  suggested  by  the  simulations  in  Annex  11.4.2,  if 
Member  State  contributions  are  calculated  using  weights  based  on  financial  sectors'  value 
added, this would result in a redistribution of funding among national CAs which is closer to 
the actual impact domestic financial sectors have on the activities of the ESAs.  

An advantage of using financial sectors' value added as a proxy for the financial sector size is 
that the indicator is publicly available, regularly updated, and, most importantly, validated by 
Eurostat.79  It  relies  on  the  "Statistical  classification  of  economic  activities  in  the  European 
Community", abbreviated as NACE. The quality of the data is assured by strict application of 
the  ESA  201080  concepts  by  Eurostat  and  by  thorough  validation  of  the  data  delivered  by 
countries.81  Given  the  above  reasons,  the  size  of  a  country's  financial  sector  is  often 
approximated by the valued added.82  

Respondents to  the  2017 public  consultation believed that taking into consideration the size 
and  the  complexity  of  the  financial  industry  relevant  for  financing  ESAs  would  result  in  a 
fairer  cost  distribution  across  Member  States.  Some  of  those  also  mentioned  that  the 
weighting of Member States' votes in ESAs' Boards of Supervisors would need to be adjusted 
accordingly.  Views  were  divided  among  stakeholders  as  to  the  exact  metrics  to  be  used  in 
determining  Member  States'  contributions.  Some  respondents  opted  for  using  as  a  proxy  of 

79   Eurostat  provides  breakdowns  of  GDP  aggregates  by  main  industries  and  asset  classes.  In  particular,  it 

provides yearly data capturing gross value added and income for financial and insurance activities. 

80   The  European  System  of  National  and  Regional  Accounts  (ESA  2010)  is  the  newest  internationally 

compatible EU accounting framework for a systematic and detailed description of an economy. 

81   An alternative indicator to proxy the size of the financial sector could be the total assets of the legal entity 
operating in the financial sector, as reported in balance sheets. However, this indicator would have multiple 
flaws. First,  it increases  the  risk  of  double-counting  financial  exposures,  as  highly  intermediated  financial 
markets mask double counting and requires major work to clean up numbers to take into account potential 
consolidation among firms. Second, this measure does not fairly represent the weight of entities that do not 
extensively use their balance sheet to operate in the financial sector, but produce a sizeable impact through 
their  activities.  This  is  the  case  for  CCPs,  asset  managers  (that  operate  with  matched  books)  and  other 
market  operators  (like  trading  venues  or  high-frequency  trading  firms).  For  those,  other  indicators  would 
need to be developed, requiring new statistics sufficiently sound for a legal use. 

82   See  for  example:  Mary  Everett,  Joe  McNeill  and  Gillian  Phelan,  Measuring  the  Value  Added  of  the 

Financial Sector in Ireland. 

81 

 
 
                                                            
the market size an aggregate of total assets, potentially risk-weighted. Others suggested using 
revenue, profit, or market capitalisation data. 

An additional advantage of pursuing Option 2 is that the system could continue to rely on the 
current  collection  mechanism  directly  from  national  CAs,  with  no  additional  operational 
costs.  Many  respondents  to  the  2017  public  consultation  highlighted  efficiency,  legal 
simplicity,  predictability  and  stability  of  fees  collection  as  the  main  arguments  in  favour  of 
Option 2.  

However, Option 2 does not help solve the sustainability issue, i.e., whether budgetary growth 
rates  of  national  CAs  can  support  the  ESAs'  in  the  years  to  come.  Although  adjusted 
contributions for Member States with relatively smaller and less developed financial markets 
become  smaller  (see  simulations  in  Annex  11.4.2),  this  Option  will  overall  increase  the 
relative  size  of  national  CAs  contribution  (as  the  EU  Budget  contribution  is  capped  in  the 
multi-annual framework). A related risk is that some national CAs  may  not  be able to  cope 
with the increase in their contributions in case this is required to address additional workload 
of  the  ESAs.  This  situation  may  also  exacerbate  when  national  CAs  will  have  to  fill  ESAs 
financing gap from the UK leaving the EU (see Figure 2 of Annex 11.4.2). In addition, Option 
2  may  create  a  discrepancy  between  the  voting  (Council's  QMV  voting  rule)  and  the 
contribution methodology (value added), which could put national CAs with larger financial 
sectors at a disadvantage compared to the baseline scenario.  

Finally, regarding the net impact to the industry, this will depend on the model used to finance 
national CAs within a Member State. For example, if national CAs are fully publicly funded 
Option  2  would  magnify  the  proportionality  problem,  as  it  would  increase  the  indirect 
taxpayers' subsidisation of services provided to the financial industry. On the other hand, if a 
national  CA  is  fully  industry  funded  then  the  resulting  burden/relief  would  probably  be 
transmitted to the supervised entities under the national  A’s remit.  

To conclude, notwithstanding the problems identified above, Option 2 is more effective than 
the baseline scenario in ensuring that ESAs annual funding remains commensurate with  the 
mandates  and  tasks  given  by  EU  legislation  (sufficiency);however  Option  2  does  not  help 
solve the sustainability issue although it addresses it better than the baseline scenario. In terms 
of efficiency, the implementation of Option 2 does not seem to create extra costs to the ESAs 
since the fee collection process would remain the same. 

8.4.3  Introducing private funding contribution  

In  order to deal with the abovementioned sufficiency and proportionality problems, most  of 
the  supervisory  authorities  around  the  world  have  complemented  or  even  replaced  public 
funding of financial supervision with direct contributions from the private sector. Supervisory 
authorities  in  the  United  States,  Hong  Kong,  United  Kingdom  and  Canada,  largely  rely  on 
funding raised from the private sector, more specifically from those entities or individuals that 
are directly or indirectly regulated and supervised by financial authorities. 

82 

 
 
Figure  8.1.  Funding  of  supervisory  authorities  in  the  EU83  and  selected  overseas 
jurisdictions84 

Source: own analysis, based on Mansciandaro et al. (2007).  

The key advantage of using private funding for supervisory authorities is that it increases the 
financial  autonomy  of  the  institution,  which  becomes  less  dependent  on  constrained  public 
budgets  and  therefore  can  adjust  their  funding  if  necessary,  subject  to  appropriate 
accountability  mechanisms  (e.g.,  review  or  authorisation  by  Commission,  Council  and 
Parliament).  In  this  regard,  the  effectiveness  of  the  governance,  control  and  accountability 
mechanisms over the budget determination and execution process would be crucial to avoid 
the  risk  that  the  ESAs  would  use  their  new  budget  flexibility  to  unjustifiably,  expand  their 
activities  and impose  an unnecessary burden on the industry.. Conversely,  in  order to  avoid 
any external interference with the independent work of the supervisory authority, it would be 
essential  that  the  contributing  private  sector  entities  would  not  have  any  formal  right  to 
intervene in the decision-making process, on top of what is already granted via standard tools, 
like consultations or stakeholder groups.  

The  2017  public  consultation  showed  limited  support  for  industry  contributions  across  the 
population of respondents, which was dominated by private organisations and companies. The 
majority of respondents opposed ESAs funding by the industry mainly because they feared a 
potential  negative impact  on  ESAs  accountability  to  EU  institutions  and  a  potential 
duplication  of  payments  for  the  industry  thus  creating  new  burdens  for  them.  Moreover, 
respondents  had  a  potential  difficulty  to  indicate  a  common  and  appropriate  basis  for  the 
determination of private sector contributions. Some respondents argued that ESAs work is a 

83    The list of countries is not exhaustive. 
84   The category of partial public/private funding may result from a situation where some financial sectors (e.g. 
capital  markets)  are  supervised  by  privately  funded  authorities  while  other  sectors  (e.g.  banks)  are 
supervised by publicly financed institutions including Central Banks. 

83 

 
 
  
                                                            
public  good  for  which  the  public  should  pay.  It  seems  that  respondent  reactions  could  be 
linked to a lack of clarity in the public consultation on how the new financial arrangements 
would  be  organised.  These  issues  are  elaborated  in  detail  in  the  present  impact  assessment. 
Some  respondents  to  the  2017  public  consultation  recognized  that  clear  and  harmonised 
rulesets  produced  by  ESAs  benefit  the  financial  industry  in  particular  as  they  reduce 
regulatory compliance costs. Moreover, respondents pointed to the fact that private funding of 
supervisory  authorities  was  a  practice  common  in  many  Member  States  and  that  private 
funding would enhance ESAs budgetary flexibility.  

As explained in Section 5 the legal basis of setting up the ESAs (Article 114 TFEU) allows 
amending the funding regime and collecting contributions from the industry. 

The  following  sections  discuss  two  options  involving  private  funding:  a  mixed  private 
funding system and a fully private funding system. 

8.4.3.1  A "mixed" solution 

Option  3.  Mixed  public-private  funding  –  This  option  modifies  one  key  feature  of  the 
baseline  (full  public  funding),  it  replaces  a  second  one  (national  CAs'  contributions)  and 
removes  a  third  key  feature  of  the  baseline  scenario  (fixed  distribution  between  EU  and 
national CAs' contributions). First, it complements the public funding currently provided by 
the  EU  with  private  sector  funding.  Second,  it  uses  the  contributions  from  domestic  private 
sectors  to  replace  contributions  from  the  national  CAs.  Third,  the  maximum  EU  annual 
contribution, as set in advance in the MFF, would cover up to 40% of ESAs' annual budget 
with the remaining part covered by the private sector. 

This  Option  involves  three  main  changes  to  the  key  features  of  the  current  funding  system 
(baseline). It removes the fixed distribution (40/60) between EU and national CAs' funding.  
The removal of the fixed distribution (also foreseen in Option 2)  prevents that multi-annual 
constraints  on  the  EU  Budget  spill  over  onto  other  forms  of  funding.  While  preserving  the 
accountability  and  auditing  over  ESAs'  annual  budgets  by  other  EU  institutions  (e.g. 
European Commission and European Parliament),85 it introduces more flexibility to deal with 
new ESAs' tasks and/or supervisory powers, ultimately linked to the objective of enhancing 
regulatory and supervisory convergence (as envisaged for the development of the CMU).   

This Option  replaces funding from the national CAs with private sector funding, to reflect the 
fact  that  the  regulatory  and  supervisory  activities  of  the  ESAs  are  linked  to  financial  sector 
activities. The replacement of national CAs funding with direct contribution from the private 
sector would have three main advantages. First, it would avoid duplications of fee collection 
from national  CAs that are already collecting fees  from the  industry and it would avoid  the 
need  to  harmonise  methodologies  used  by  national  CAs  for  fee  allocation  across  the  EU  to 
limit this duplication. Second, it would increase the funding independence and flexibility of 
the  ESAs  by  creating  a  funding  system  that  is  not  directly  or  indirectly  influenced  by  28 
different national budgetary constraints, as growth rates of national budgets may not increase 

85 For more details, please see section 8.1.3. 

84 

 
 
                                                            
as  fast as  growth  rates  of ESAs' activities, including  upcoming challenges.  86 Therefore,  the 
ESAs  would  be  able  to  perform  tasks  to  achieve  their  key  objectives  without  producing  a 
direct  impact  on  budgets  of  national  CAs.  Third,  it  would  introduce  a  uniform  fee  setting 
mechanism  among  financial entities, rather than less  accurate aggregate country  estimations 
of domestic financial sectors (as for Option 2).   

Preserving  EU  financing  implies  involvement  of  Parliament  and  Council  as  Budgetary 
Authority and discharge authority,87 as well as the application of the FFR, which ensures the 
transparency of the ESAs' internal financial procedures and supports their accountability and 
that  the  ESAs'  budget  grows  in  line  with  the  resources  needed  to  achieve  their  objectives. 
Under  Option  3,  the  ESAs  would  remain  subject  to  oversight  by  the  established  EU 
framework for financial audit and control mechanisms, which would also help to protect the 
ESAs from any kind of fraud and would enhance the ESA’s efficiency. The experience with 
existing EU agencies shows that EU financing guarantees the stability of revenues. Moreover, 
by  maintaining  EU  contributions  Option  3  prevents  excessive  reliance  on  private  sector's 
contributions, which could entail the risk of budgetary problems in case one or several entities 
for whatever reason would fail to contribute.  

The implementation of Option 3 also requires a methodology to allocate the contributions to 
the private sector (a) and a collection mechanism (b).  

The allocation of contributions across sectors (a) could be based on a so-called "activity-based 
key", which relates the amount of contributions to be paid for the activities carried out by the 
ESAs  to  financial  sectors  under  their  supervisory  remit.  The  key  advantage  of  using  an 
activity-based key is the compliance with the full-cost recovery principle.88 The ESAs could 
implement  this  allocation  methodology  relatively  easily,  since  their  annual  work  programs 
already state analytical objectives and the costs required delivering them. In particular, ESMA 
already  uses  a  similar  methodology  to  determine  fees  levied  on  credit  rating  agencies  and 
trade  repositories.  ESMA  has  also  developed  an  accounting  system  that  is  able  to  attribute 
every authority's task to the regulated financial sector that ultimately benefits from it. 

Once contributions are allocated across sectors, contributions per entity should be calculated 
and charged in a proportionate and transparent way, under the principle of equal treatment. To 
this  extent,  the  appropriate  distributional  key  per  sector  should  be  identified  following 
additional analysis in secondary legislation. A size indicator for each cluster of firm may be a 
simple  and  transparent  distribution  mechanism,  which  would  also  ensure  a  proportionate 
allocation of ESAs' costs on market participants corresponding to each participant's level  of 
activity within a given regulated sector. Moreover, size indicators ensure equal treatment, as 
the  measure  is  established  for  each  entity  in  the  sector,  thus  allowing  for  differentiating 

86  For  instance,  the  additional  activities  (such  as  greater  policing  of  equivalence  arrangements,  other  third 
country regimes, etc) and greater concentration of public funding that will derive from the departure of the 
United Kingdom from the European Union.  
87 As discussed more into detail in section 8.1.3. 
88   Full cost recovery means that the fees charged to the industry are reflecting the cost of services provided by 

ESAs to this industry. 

85 

 
 
                                                            
contributions  in  the  required  proportionate  manner.  As  a  result,  this  allocation  mechanism 
would  meet  multiple  objectives  at  the  same  time.  Illustrations  on  how  the  allocation 
methodology  could  work  in  practice  are  presented  in  Annex  11.4.3.a  preliminary  set  of 
indicators that could be considered for allocating fees to the entities within a given sector. In 
the economic literature, the size of an entity within a given sector is often assessed through 
well-known indicators. For example, the size of a credit institution is usually captured by the 
value of its total assets;89 the size of an investment management company is captured by the 
value of its assets under management;90 the size of an insurance undertaking is usually given 
by the value of its gross written premiums91  and so on. A number of national CAs are also 
using  such  indicators  (i.e.  total  assets  for  credit  institutions,  assets  under  management  for 
investment firms etc.) for allocating fees to entities under their remit.  

As for the collection mechanism (b), the ESAs would need an additional power vis-à-vis the 
baseline,  i.e.  the  ability  to  request  data  from  national  CAs  or  directly  from  entities  under 
ESAs' remit, which would be required to contribute financially to ESAs' budget. In addition, 
tapping funding from the private sector is likely to require additional resources (and thus extra 
cost vis-à-vis the baseline), whether contributions are collected by the ESAs themselves or via 
national CAs on behalf of the ESAs.92 As discussed extensively in section 8.4.3.3, depending 
on whether the collection mechanism is directly managed by the ESAs or via national CAs, 
these costs (per ESA) would range between EUR 1,000,000 and EUR 3,000,000 one-off costs 
and  between  EUR  600,000  and  EUR  1,400,000  recurring  costs  (yearly).  The  indirect 
collection  mechanism  via  national  CAs  might  in  the  end  provide  the  'least  cost'  and  most 
effective tool for fee/contribution collection.  

Based  on  the  existing  experience  with  other  partially  industry  funded  EU  decentralised 
agencies,93 the fee/contribution allocation and collection modalities may be set either entirely 
in the founding regulation of the agency or further details would be established in a separate 
delegated act. While both options are legally feasible, there seems to be more advantages to 
leave details in a separate delegated act to be adopted by the Commission. This would leave 
the  principles  of  the  budget  establishment,  implementation,  monitoring,  accountability  and 
collection system in the ESAs Regulation. All the technical modalities on the fees allocation 
and  collection  would  be  tackled  in  a  delegated  act.  This  would  avoid  charging  the  ESAs 
Regulation  with  excessive  details  on  the  fees/contributions  determination,  while  respecting 
general principles, including legal clarity.  

89   See  for  example:  (a)  Dirk  Schoenmaker;  Dewi  Werkhoven;  2012;  What  is  the  Appropriate  Size  of  the 
Banking  System?  DSF  Policy  Paper  Series,  Policy  Paper  No.  28;  (b)  ECB's  Banking  structures  Report 
(October 2014). 

90   See for example: Global Financial Stability Report: Navigating monetary policy challenges and managing 

risks, International Monetary Fund, April 2015. 

91   See for example: EIOPA, Financial Stability Report, December 2016 
92   See discussion in Section 8.4.3.3. 
93   See  for  instance  the  European  Medicine  Agency,  the  European  Chemical  Agency  and  the  European 

Aviation Safety Agency.  

86 

 
 
                                                            
8.4.3.2  A fully private funding system 

Option  4.  Fully  private  funding  –  It  removes  all  three  key  features  of  the  baseline  by 
replacing  public  funding  contribution  with  a  funding  system  fully  financed  by  the  private 
sector.  

The main advantage of this Option is that full funding from the industry would not entail any 
additional expense from the EU Budget and can be adapted autonomously by the ESAs.  In 
addition,  using  private  sector  funding  to  finance  supervision  draws  funding  sources  from 
those  subject  to  financial  supervision  (and  whose  activity  requires  such  supervision)  rather 
than  from  taxpayers.  At  the  same  time,  any  fees,  taxes  or  charges  imposed  on  financial 
institutions  may  affect/distort  their  functioning  and  operational  models.94  Moreover,  a 
significant  layer  of  complexity  would  be  lifted  if  the  ESAs  budget  was  not  subject  to  the 
adoption procedures of the EU Budget.95  

On the other hand, full industry funding would as a consequence mean that the control by EU 
institutions  and  the  accountability  requirements  vis-à-vis  the  Budgetary  Authority  would  be 
significantly weaker than if there is EU funding involved.  This could be perceived as reduced 
control  and  increased  risk.  This  was  specifically  raised  as  a  concern  among  stakeholders 
responding to the 2017 ESA public consultation.  Another common argument raised in favour 
of  fully  private  financing  is  the  need  to  ensure  independence  of  the  ESA  from  excessive 
influence  of  both  Member  States  and  the  European  institutions.    However,  experience  with 
existing  EU  agencies  and  the  ESAs  suggests  that  they  enjoy  an  appropriate  degree  of 
autonomy to be set out in the ESA Regulations.   

Private  funding  is  usually  perceived  as  a  pro-cyclical  funding  source  for  financial 
supervision96.  This  could  be  particularly  problematic  in  times  of  financial  crises  when 
financial  supervision  is  especially  needed  but  supervised  entities  do  not  have  the  necessary 
financial  means  to  support  it.  In  addition  excluding  EU  financing  completely  to  rely  on 
private funding would entail the risk of budgetary problems in case of several private entities 
for  whatever  reason  fail  to  contribute.  Finally,  risks  that  need  to  be  managed  when  using 
private  funding  are  potential  conflicts  of  interest  arising  between  the  supervisor  and 
supervised entities.  Economic theory points out that an implicit contract may exist between 
the financial industry, as a vested interest group, or between individual financial institutions 
and the supervisor.97 This implicit contract could serve the specific interests of the regulated 
firms,  for  example  by  softer  regulatory  requirements,  special  accounting  rules,  and 
forbearance in general. 

94   Alan Deardorff. "Distortion", Deardorff's Glossary of International Economics. 
95   Articles 36-52 of Regulation (EU, Euratom) No 966/2012 (Financial Regulation) 
96   In  business  cycle  theory  and  finance,  any  economic  quantity  that  is  positively  correlated  with  the  overall 
state of the economy is said to be pro-cyclical. That is, any quantity that tends to increase in expansion and 
tend to decrease in recession (e.g. during financial crises) is classified as pro-cyclical 

97   G.  J.  Stigler  (1971).  The  Theory  of  Economic  Regulation,  Bell  Journal  of  Economics  and  Management 

Science, 6(2), pp. 114-141. 

87 

 
 
                                                            
For the implementation of this Option, the same elements as in Option 3 would apply, with 
regards to funding allocation to entities and fee-collection mechanisms (see Annex 11.4.3 and 
Section 8.4.3.3).  

Regarding  the  net  impact  to  the  stakeholders,  under  Options  3  and  4,  the  allocation 
methodology would replace contributions from national CAs for industry funding under ESAs 
remit.  In  this  regard,  the  net  impact  to  national  CAs  should  be  neutral  as  on  the  one  hand 
national  CAs  would  stop  contributing  to  ESAs  funding  and  on  the  other  hand  they  should 
reduce (in a proportionate way) their needs for revenues to cover this expenditure.  

Under  these  Options,  the  net  impact  to  the  market  participants  would  depend  on  the  model 
national  CAs  currently  use  to  finance  themselves.  For  example,  if  market  participants  in  a 
given  Member  State  do  not  currently  pay  for  their  supervision  (i.e.,  as  the  case  of  fully 
publicly funded national CAs) then, by definition, the allocation methodology under Options 
3 and 4 would result in increased cost for these market participants at the benefit of taxpayers 
and national budgets in those Member States.  

However, if market participants  already pay for the ESAs via contributions to their national 
CAs'  budgets  then  the  net  impact  (incremental  cost/benefit)  of  the  allocation  methodology 
under Options 3 and 4 would depend on the various methodologies that national CAs use to 
charge  fees  to  individual  entities  as  well  as  the  weights  they  apply  to  entities  for  ESAs 
funding, if any.  To this extent, in order to come up with a reliable estimate of the incremental 
cost/benefit across the EU, a thorough comparative analysis is needed. This would require the 
involvement of those national CAs applying own methodologies on fees allocation in order to 
provide  the  Commission  with  their  respective  baselines  for  conducting  the  comparative 
assessment.   

In any case though, it could be reasonably argued that establishing a level playing field across 
the  Single  market  with  a  uniform  fee  setting  mechanism  among  financial  entities  would 
ultimately  benefit  all  market  participants.  In  addition,  it  should  be  noted  that  the  amounts 
required to fund ESAs (even in the extreme case of fully funding by the industry) should not, 
in principle  pose a threat to individual entities’ operational models  see simulations in Annex 
11.4.3). 

8.4.3.3  Collection Mechanism 

The following section discusses the potential costs involved with the creation of a collection 
mechanism to enforce the mixed or fully privately funded solution. 

EBA and EIOPA currently receive contributions only from the EU (40% of their budget) and 
national CAs (60%).  ESMA, instead, receives contributions from the EU, national CAs and 
from directly supervised entities, i.e. Credit Rating Agencies (CRAs) and Trade Repositories 
(TRs).  Costs  related  to  the  collection  of  funds  from  the  EU,  national  CAs  and  the  private 
sector  (in  the  case  of  ESMA's  directly  supervised  entities)  is  today  rather  limited  (see  first 

88 

 
 
column in the table below).98  The costs related to collecting the contributions from national 
CAs can  be estimated at  around EUR 45,00099 per year per ESA. In  the case of ESMA, an 
additional  EUR  45,000100  is  foreseen  for  the  fee  collection  and  invoicing  of  directly 
supervised entities (for a total of EUR 90,000).  

Table 8.5 Costs of current collection mechanism 

EIOPA 

EBA 

Contributions 

EU, national CAs  

EU, national CAs  

ESMA 
EU,  national  CAs, 
plus  TRs  and  CRAs' 
fees 
0.8 

Number of FTEs101 
Estimation of 
IT costs 
Source: ESAs 

0.4 

0.4 

EUR 5,000 

EUR 5,000 

EUR 10,000 

A funding model based on mixed (private-public) or fully private financing, as in the case of 
Options  3  &  4  respectively,  requires  a  review  on  how  fees  and  contributions  are  currently 
collected.  In  particular,  it  needs  to  be  determined  how  industry  fees/contributions  will  be 
collected,  safe-kept  and  transferred  to  the  ESAs.  Notably,  the  collection  mechanism  will 
require  to:  (i)  ask  information  from  market  participants  and  financial  institutions  and  verify 
them; (ii) calculate the contribution/fee; (iii) prepare the invoice to be sent; and (iv) collect the 
annual contributions from the entities. 

Two options for collection mechanism could be envisaged:   

a.  A  collection  of  contributions/fees  via  the  national  CAs  (or  public  authority 

appointed by the Member State); or  

b.  A collection of fees by the ESAs directly from entities.  

Under option (a), the delegation of the collection of fees from ESAs to national CAs would 
generate some new costs for ESAs, estimated around EUR 1,000,000 one-off costs and EUR 
600,000 recurring costs per ESA. These costs would relate mainly to IT and human resources. 
In  terms  of  IT  resources,  these  costs  are  estimated  at  EUR  200,000102  per  year  and  roughly 

98   Those  costs  include  mainly  IT  and  human  resources.  As  regards  IT  resources,  for  the  collection  of 
contributions  from  the  EU  and  national  CAs,  the  ESAs  send  so-called  recovery  orders  to  national  CAs, 
whose number depends on the number of national CAs and the number of instalments per year. The annual 
maintenance cost of the needed IT infrastructure are estimated at around EUR 100,000 per year. As regards 
human resources, the number of FTEs needed oscillate around 0.5, needed mainly for the management of 
the budget and accounts. 

99   Approximately 0.5 FTE a year (~ 40,000 EUR) + indirect IT costs (EUR 5,000).  
100 Approximately 0.5 FTE a year (~ 40,000 EUR) + indirect IT costs (EUR 5,000). 
101   Stands for full-time equivalent, which is the number of hours worked by one employee on a full-time basis. 
The concept is used to convert the hours worked by several part-time employees into the hours worked by 
full-time employees. 
102   Estimations by EIOPA. 

89 

 
 
 
                                                            
EUR 1,000,000 of upfront IT costs. As to human resources, additional resources (5 FTEs per 
ESA)  are  expected  to  be  required  given  a  more  complex  budget  planning  process,  the 
calculation and verification of the amounts to be received, as well as budget monitoring and 
additional reporting.  

On the one hand, the delegation of fee/contribution collection from the ESAs to national CAs 
would avoid duplication with national collection mechanisms and would rely on the systems 
and enforcement mechanisms used by most of the competent authorities. The costs of such a 
system  would  be  more  easily  internalised  by  national  CAs'  accounting  and  finance 
departments,  due  to  their  current  knowledge  of  the  market  and  infrastructure.  The  system 
would be also easier to understand and more accessible for market participants, as they would 
deal with one public institution.103 On the other hand, some national CAs are fully funded by 
public budgets, so they would need to set up a system for the determination and collection of 
the fee/contribution (as above), which may delay the implementation process. In addition, this 
collection mechanism may complicate the information to be processed by national CAs that 
already tap private funding, as they would need to keep two separate systems to distinguish 
between  the  two  payments.  Finally,  there  might  be  differences  in  values  to  be  reconciled 
between  the  total  aggregate  amount  per  national  CAs  expected  by  the  ESAs  (according  to 
entity-level  data  to  be  previously  provided  by  the  national  CAs)  and  the  actual  amount 
transferred by the national CA.  

Table 8.6 Setting-up costs for a collection mechanism (cost per ESA) 

Status  quo 
situation) 

(current 

Indirect  collection  of 
industry  contributions 
via national CAs 

Direct 
industry contributions  

collection 

of 

costs 

Number  of 
FTEs 
IT 
(one off) 
costs 
IT 
(recurring) 

0.4 

- 

5 

Up to 15 

EUR 1,000,000 

Up to EUR 3,000,000 

EUR 5,000 

EUR 200,000 

EUR 200,000 

Under the alternative option (b), i.e. a direct  collection  mechanism  managed  directly by the 
ESAs, total costs (per ESA) may range between EUR 1,000,000 and EUR 3,000,000 (one-off) 
and between EUR 680,000 and EUR 1,400,000 (recurring), as summarised in the table above. 
Given  the  substantial  number  of  entities  falling  under  their  remit  (i.e.  20,000  entities  for 
ESMA,  10,000  for  EBA,  4,240  for  EIOPA),  the  collection  of  fees  would  require  a  much 
higher  amount  of  IT  and  human  resources,  compared  to  what  is  needed  today  or  in  the 
alternative option. A new IT system would be needed to process invoices sent to the entities, 

103 In the 2017 public consultation, many respondents favoured a fee/contribution collection by national CAs due 
to its legal simplicity, greater efficiency and predictability. There were views among respondents that ESAs 
fees should be deductible from contributions to national  A and that it was key to ensure that the ‘basis’ for 
fee calculation covers all financial institutions present in the jurisdiction concerned. 

90 

 
 
 
                                                            
which may require an initial investment estimated between EUR 1 and 3 million104, as well as 
ongoing maintenance costs of EUR 200,000 a year.105 This option will also have an impact in 
terms  of  FTEs,  due  to  the  planning,  monitoring  and  management  of  the  budget,  as  well  as 
handling  of  complaints  and  other.  The  exact  number  of  additional  resources  is  difficult  to 
estimate, but a comparison with other EU agencies that levy fees on the industry suggests that 
6 to 12 FTEs could be necessary.106 Based on the assumption that around 5,000 entities would 
be invoiced, EBA estimates the number of required additional resources at 9 to 15 FTEs. 

On the impact of such option, on the one hand, the direct collection mechanism by the ESAs 
would ensure full independence from national CAs and their ability to collect fees from the 
private  sector,  as  well  as  limit  the  legal  and  operational  risks  of  diverging  estimation  or 
required coordination with national CAs invoicing systems. Cross-border entities would also 
benefit  from  one  single  interaction  with  the  ESAs,  instead  of  multiple  interactions  with 
national  CAs.  There  may  be  also  synergies  with  the  information  system  for  the  direct 
collection  mechanism  already  established  for  directly  supervised  entities  (in  the  case  of 
ESMA).  Moreover,  Member  States  that  finance  their  national  CAs  through  government 
budget would not be obliged to put in place a system of collection from the industry. On the 
other hand, there are multiple challenges with this option. There might be operational risks, as 
the  ability  of  the  ESAs  to  invoice  a  large  number  of  market  participants  (more  than  20,000 
entities for ESMA, 10,000 for EBA, and 4,000 for EIOPA) has not been tested yet. The direct 
collection  mechanism  would  also  require  additional  IT  staff  and  facilities,  thus  increasing 
ESAs  costs,  and  potentially  creating  redundancies  with  national  CAs  already  collecting 
contributions from the industry (including the enforcement mechanism). The system would be 
also potentially more complex, as  market participants would receive invoices  both from the 
ESAs and from the national CAs.  

Table 8.7 Benefits and drawbacks  

Indirect collection 

Direct collection 

Benefits 

Drawbacks 

Benefits  

Drawbacks 

- 'Least cost' solution 
-  Easy  to  implement 
and understand 

-  Set-up  costs  for 
national CAs 
-  Coordination  risk 
with national CAs 

funding 

- 
Full 
independence 
- Beneficial for cross-
border entities 

- High cost 
- Operational risks 
-  Duplications  with 
national 
CAs 
collection 

While  both  options  for  fee/contribution  collection  determine  an  increased  in  costs  vis-à-vis 
the  baseline  scenario,  the  costs  incurred  with  option  (a)  are  cumulatively  lower  than  option 
(b).  As  a  result,  at  least  until  the  ESAs  would  have  not  sufficiently  developed  their 

104   EIOPA  estimates  this  initial  investment  at  EUR  1  million  at  least.  ESMA  considers  that  this  initial 

investment should be in the range of EUR 2-3 million at least.  

105   Estimations by EIOPA 
106   Estimations by ESMA. 

91 

 
 
                                                            
infrastructure  and  expertise  at  entity  level,  option  (a)  would  be  more  cost  effective  and 
efficient  to  implement  the  preferred  funding  option  (mixed  funding).  Also  stakeholders, 
including Member States, have expressed support for this option. 

92 

 
 
 
 
8.5  Comparing the Options 

This  section  examines  the  effectiveness  of  the  identified  options  in  achieving  the  set 
objectives.  We  are  looking  in  particular  at  the  specific  objectives  which  have  been  set  in 
section  8.3.  The  options  will  also  be  compared  with  regard  to  the  criteria  of  efficiency  and 
coherence, according to the following definitions: 

 

 

 

effectiveness: The extent to which options achieve the objectives of the proposal with 
sufficient legal certainty; 

efficiency:  The  extent  to  which  objectives  can  be  achieved  for  a  given  level  of 
resources/at least cost (cost-effectiveness); 

coherence: The extent to which options are coherent with the overarching objectives 
of EU policy. 

Table 8.8 Comparison of policy options against effectiveness and efficiency criteria 

EFFECTIVENESS 

EFFICIENCY 

Objectives 

Policy option  

Sufficiency 
Sustainability 

(Objective S-1) 

& 

Proportionality 

 (cost-
effectiveness) 

(Objective S-2) 

1:  
Option 
"No policy change" 

0 

2: 
Option 
“Adjusted  Public 
Funding” 

+ 

Option  3:  "Mixed 
Funding” 

++ 

Option  4:  “Full 
Private Funding” 

+ 

  0 

  + 

  ++ 

  ++ 

0 

0 

0 

– 

Magnitude  of  impact  as  compared  with  the  baseline  scenario  (the  baseline  or  no  net 
impact  is  indicated  as  0):  ++  strongly  positive;  +  positive;  –  –  strongly  negative;  – 
negative; n.a. not applicable. 

For  what  concerns  effectiveness,  Option  3  is  the  preferred  option.  Option  3  is  preferable  to 
Option  1  (baseline)  and  Option  2  as  it  better  achieves  a  sufficient,  sustainable  and 
proportionate funding.  

In terms of sufficiency (and sustainability), in its static and dynamic perspective, Option 3 
provides more funding sufficiency going forward for several reasons. First, it combines public 
funding  (EU  budget)  with  private  funding  contributions,  so  offering  a  certain  degree  of 

93 

 
 
 
 
diversification  to  reduce  risk  of  constraints  on  public  budgets  spilling  over  onto  ESAs' 
activities and vice versa. Second, Option 3 also offers additional protection against the impact 
of the potential departure of the United Kingdom from the European Union. According to the 
simulation in Annex 11.4.2, a reduction equivalent to the contribution attributed to the United 
Kingdom, combined with the more proportionate allocation among national CAs suggested in 
Option 2, would determine an increase in contribution for top 5 countries by financial sector 
(Germany, France, Luxembourg, Netherlands and Italy) between roughly 100% and 150% of 
current  contribution.  This  increase  materialises  in  an  environment  of  budget  cuts  or  limited 
growth even for national CAs fully funded by the private sector. Third, with the removal of 
the fixed proportion between EU and national CAs' funding, national CAs' contribution could 
be  a  potentially  sizeable  contribution  compared  to  the  contribution  from  the  EU  budget, 
somehow conflicting with a key objective of the review, i.e. to increase the independence and 
self-standing capabilities of the ESAs. If one particular source of funding were to be overly 
dominant  (as  in  the  case  of  Option  2  and  4),  the  implications  for  the  functioning  or 
independence  of  the  ESAs'  governance  may  undermine  their  efforts  to  safeguard  financial 
stability and protect investors.  

In  terms  of  proportionality,  Option  3  is  preferable  to  Option  2  as  it  draws  funding 
contributions  from  those  whose  activity  requires  supervisory  or  regulatory  actions  by  the 
ESAs  and  not  from  taxpayers.  In  addition,  Option  3  also  strengthens,  in  comparison  to 
Options 1 and 2, convergence at a European dimension by ensuring an even contribution for 
financial  sectors  across  the  EU,  as  they  will  be  subject  to  one  calculation  methodology 
(potentially  to  become  a  reference  point  also  for  national  collection  systems).  Option  3  is 
equally  efficient  to  Option  1  (baseline)  and  Option  2  in  terms  of  accountability  and  audit 
mechanisms to which the budgetary processes are subject, as they will remain equally in place 
under  these  different  options,  ensuring  high  efficiency  and  transparency.  This  would  not  be 
the case for Option 4, which with less public scrutiny, could provide less incentives to reach 
similar efficiency level in the use of private sector resources.  Option 3 is also preferable to 
Option  4,  as  full  private  funding  may  create  an  insufficient  level  of  budgetary  control  and 
accountability at EU level and may not be able to provide sufficient counter-cyclical buffer, if 
a major systemic event occurs. In terms of efficiency (cost effectiveness), it should be noted 
that the objectives set out by the review cannot be achieved at zero cost and the net costs (net 
of  savings)  cannot  be  fully  determined.  Therefore,  implementing  Option  3  operationally  is 
more costly than Option 1 (baseline) and Option 2 in terms of human resources needed for the 
calculation and invoicing of fees to private entities. Under the chosen collection mechanism 
(via  national  CAs),  the  actual  cost  (per  ESA),  provided  in  Section  8.4.3.3,  may  be  around 
EUR  1,000,000  for  IT  systems  (one-off),  plus  EUR  600,000  of  recurring  costs  (including  5 
FTEs).  Option  2,  instead  may  run  recurring  costs  just  slightly  higher  than  the  baseline 
(roughly EUR 45,000 recurring costs per ESA) to ensure that the national CAs' contribution is 
regularly  reviewed  and  enforced.  Yet,  despite  Option  3  determines  higher  direct  costs  for 
setting up the system, it is still considered  to be equally cost effective (efficient) than Option 
2,  as  it  delivers  more  objectives  than  Option  2  with  a  solution  that  is  marginally  more 
expensive  and  certainly  cheaper  than  Option  4.  Moreover,  the  operational  costs  might  be 

94 

 
 
partially  offset  over  time  by  the  synergies  that  a  common  collection  methodology  would 
create by spilling over onto national collection systems. 

In  terms  of  coherence, Option  3  (mixed  funding)  is  coherent  with  EU objectives  to  deepen 
financial  integration,  as  announced  in  key  European  policies,  like  CMU.  Option  3  is  also 
coherent with the appropriations planned in the 2014-2020 MFF.  

As  a  result  of  the  above  mentioned  assessment  of  the  impact  on  sufficiency  (and 
sustainability),  efficiency  and  coherence,  Option  3  (mixed  funding),  with  an  indirect 
collection  mechanism  (via  national  CAs)  and  separate  charging  for  supervisory  fees  on 
directly supervised entities, is the preferred option. 

95 

 
 
9  Cumulative impact of the chosen options 

This  section  reviews  the  cumulative  impact  of  preferred  options  identified  for  the  powers, 
governance  and  funding  of  the  ESAs,  against  the  general  baseline  scenario  as  discussed  in 
section 4.2.  No policy action means that the ESAs will not be able to fully perform in their 
role to foster convergence of supervision, which can be exploited by national CAs and private 
sector.  These  negative  implications  of  the  baseline  scenario  are  further  accentuated  by  the 
consequences of the decision of the United Kingdom to leave the EU. A specific concern in 
this  context  results  from  the  relocation  of  market  participants  currently  established  in  the 
United Kingdom to establish a presence in the EU to ensure they will be able to continue to 
provide services also after the United Kingdom has left the EU.107 As such market participants 
request authorisation for potentially significant operations in the EU, it is important that their 
choices  of  places  of  establishment  are  not  guided  by  possibilities  of  regulatory  and 
supervisory arbitrage. In particular, it is important that supervisory convergence ensures that 
EU law's requirements for authorisations apply in a uniform manner and that outsourcing and 
delegations  of  functions  back  to  the  third  country  parent  entity  are  subject  to  rigorous 
supervisory review  so  that  the  activities  of  these  firms  can  be  effectively  supervised  by  EU 
competent authorities on an ongoing basis. 

The  baseline  scenario  would  also  need  to  consider  further  reprioritisation  and  stringent 
decision  making  of  the  tasks  to  be  taken  on  board  in  order  to  meet  mandates  to  the  extent 
possible  (deliverables)  with  current  resources.  The  ESAs  may  also  be  unable  to  stretch  the 
current powers further, in case sectoral legislation will confer them direct supervision of other 
cross-border actors. 

The preferred options in the three key areas of the ESAs framework are mostly focusing on 
targeted changes to the current baseline scenario, rather than a complete overhaul. This is in 
line with the conclusion in the evaluation that the ESAs' framework has been working well in 
relation  to  the  significant  challenges  that  they  had  to  face  and  despite  the  fact  that  the 
available means did not always allow them to meet their mandates in full. To ensure that the 
ESAs  are  able  to  cope  with  the  growing  workload  and  anticipate  the  changes  to  the 
supervisory framework coming from sectoral legislation, the changes include: 

1. 

powers (targeted changes to clarify some powers, such as giving a formal role to the 
ESAs in the ex-post monitoring of the equivalence process, improving the ability for 
the  ESAs  to  ensure  the  correct  application  of  Union  law,  transfer  of  supervisory 
powers to the ESAs in targeted areas with predominantly third country or cross-border 
relevance); 

107   These are recent developments that can be evidenced by press reports: Politico Pro Morning Exchange of 
29/6/17,  7:10  AM  CET  for  instance  reports  "  London-based  insurer  MS  Amlin  will  re-domicile  its  EU 
business   russels.  The  company  is  the  third   after  Q E  and  Lloyd’s   to  announce  it  will  strengthen  its 
presence in the Belgian capital." Similarly, "Up to 1,000 bankers working for JPMorgan in the City of 
London are to be relocated to Dublin, Frankfurt and Luxembourg as a result of Brexit" according to 
The Guardian of 4/5/17. 

96 

 
 
                                                            
2. 

3. 

governance  (targeted  changes  include  the  expansion  of  the  decision-making  process, 
now  restricted  to  national  CAs,  to  independent  members  with  voting  powers,  a  new 
appointment process and role for the Chairperson that includes voting powers108 and 
an  independent  Executive  Board  composed  of  members  that  are  EU  officials, 
replacing the Management Board); and 

funding (targeted changes include removal of fixed proportions between EU funding 
and other funding, as well as replacement of national CAs funding with private sector 
funding). 

As  presented  in  the  overview  cost  table  (annex  11.4.4),  the  cumulative  impact  of  preferred 
options would generate a funding gap (per ESA), i.e. an upper bound cost estimation over the 
baseline costs, quantifiable for the additional regular activities (excluding direct supervisory 
powers  activities)  around  EUR  1,400,000  in  one-off  costs  and  EUR  3,520,000  in  recurring 
costs  (including  34  additional  FTEs109  and  translation  costs,  but  excluding  overhead 
resources).  Nonetheless,  these  costs  are  merely  indicative,  as  the  amount  to  be  paid  by 
individual entities will be calculated according to size indicators via secondary legislation. For 
the  additional  direct  supervisory  powers  given  to  ESMA,  the  funding  gap  is  estimated  at 
around EUR 3,000,000 in one off costs and EUR 7,440,000 in recurring costs (including 73 
additional FTEs, but excluding overhead resources). 

Under  the  2016  ESAs  budget  and  assuming  partial  funding  (at  least  60%)  by  the  private 
sector, the total cost for businesses (excluding costs for direct powers) can be estimated per 
head count at around EUR 1,301 per firm as weighted average (with a minimum of EUR 338 
and  a  maximum  of  EUR  16,457).  Assuming  that  businesses  are  either  directly  or  indirectly 
paying (via national CAs) for the activities of the ESAs, this the baseline cost for businesses. 
With the changes to the current framework, these values (per head count) would increase to 
EUR 1,528 (with a minimum of EUR 383 and a maximum of EUR 19,549). In the scenario of 
a 100% funding by the private sector, the weighted average can be estimated at EUR 2,168 
(with a minimum of EUR 563 and a maximum of EUR 27,429). Costs for direct powers will 
be charged directly to the supervised entities and will replace fees currently paid for national 
supervisors,  for  those  entities  that  are  not  newly  created.  Due  to  a  lack  of  data  on  the 
population of entities covered by the new direct powers, it is not possible to make an estimate 
of costs of new direct powers for businesses.  

As  a  result,  while  the  review  may  result  in  a  significant  increase  of  budget  compared  to 
current levels, the net impact on the private sector would be limited, while neutral on the EU 
budget (as it is in line with the current MFF).  

No impact, in terms of costs, is expected on consumers. 

108   Voting  powers  for  Independent  Members  and  the  Chairperson  would  only  be  limited  to  non-regulatory 

issues 

109 We assume 1 FTE is equivalent to EUR 80,000 per year. 

97 

 
 
                                                            
As a result of the cumulative impact of the preferred options, the ESAs will be better able to 
fulfil  their  existing  mandates  and  ensure  greater  supervisory  convergence  in  addition  to  the 
preparation  of  regulatory  products.    Enhanced  supervisory  convergence  has  the  potential  to 
reduce administrative burdens for all supervised entities and additional synergies in reducing 
compliance  costs  for  cross-border  ones,  while  preserving  the  system  from  supervisory 
arbitrage  by  market  participants.    There  are  three  reasons  for  the  ESAs'  expected  better 
performance: First, the incentive structure in the governance of the ESAs will be improved by 
balancing out incentives to protect national interests in the decision-making process so that, in 
particular,  powers  to  promote  regulatory  and  supervisory  convergence  can  be  used  more 
effectively. Second, the decision to reduce the reliance on public funding from national CAs, 
to be complemented with private sector money, can ensure that the ESAs will be adequately 
resourced to perform their existing tasks and to adapt more easily to future changes.  Notably, 
convergence  powers  can  be  used  more  widely  and  effectively  if  resources  are  readily 
available to carry out reviews of national practices.  Finally, targeted amendments to certain 
parts  of  the  ESAs'  powers  can  ensure  that  the  ESAs  can  perform  their  tasks  efficiently  and 
effectively  in the light  of the experience  gathered during the six  years of their existence,  as 
well  as  developments  in  the  various  financial  markets  and  in  EU  level  legislation.    These 
targeted changes are also aligned with the stakeholders' view that a greater coordination role 
by the ESAs is warranted and that ESAs should make better use of their existing powers;  

The ESAs will be in a position to better coordinate national authorities and to exercise, where 
appropriate,  direct  supervision.    This  enhanced  role  of  the  ESAs  can  further  market 
integration by facilitating cross-border business.  This will be possible for three reasons: First, 
the ESAs will be equipped with improved and, where appropriate, new powers. Second, more 
flexibility of funding over time provides a solid basis for the supervisory system to cope with 
the  increased  workload  and  potential  upcoming  changes  in  the  powers  provided  by  sectoral 
legislation.  Thirdly,  the  renewed  internal  governance  is  conducive  to  quicker  and  more 
independent decision making, which is important for direct supervision and the coordination 
of  national  authorities.  Stakeholders  have  generally  supported  direct  supervisory  powers  in 
limited areas.  

Enhancing  supervisory  convergence  and  establishing  a  level  playing  field  across  the  Single 
market with a uniform fee setting mechanism would enable ESAs to raise funds (under a clear 
and transparent mechanism respecting the principle of equal treatment in order to meet their 
current  and  future  tasks  and  mandates  in  full.  Such  outcome  would  ultimately  benefit  all 
market participants.  The implications to financial resources from the implementation of the 
preferred  options  are  discussed  in  section  9.1.    It  is  worth  noting  that  the  net  impact  of  the 
preferred options on the national CAs budgets would be neutral.  This is because, on the one 
hand,  national  CAs  would  stop  contributing  to  ESAs  funding  and,  on  the  other  hand,  they 
would reduce (in a proportionate way) their funding needs to cover for the additional duties 
that ESAs are increasingly taking on. The net impact on the market participants would depend 
on  the  model  that  national  CAs  currently  use  to  fund  themselves.  For  example,  if  market 
participants in a given Member State do not currently pay for their supervision (i.e., as in the 
case of fully publicly funded national CAs) then the implementation of the preferred options 

98 

 
 
would  result  in  increased  cost  for  these  market  participants  at  the  benefit  of  taxpayers  and 
national budgets in those Member States.  Finally, in the case that market participants already 
pay  for  the  ESAs  via  contributions  to  their  national  CAs'  budgets  then  the  net  impact 
(incremental cost/benefit) of the implementation of the preferred options would depend on the 
various  methodologies  that  national  CAs  use  to  charge  fees  to  individual  entities.    To  this 
extent,  in  order  to  come  up  with  an  accurate estimate  of  the  incremental  cost/benefit  across 
the EU, a thorough comparative analysis would require the involvement of those national CAs 
applying  own  methodologies  on  fees  allocation.  In  any  case,  the  amounts  required  to  fund 
ESAs,  according  to  the  simulation  in  Annex  11.4.3,  would  not  pose  a  threat  to  individual 
entities’ operational models. 

More  discussion  on  the  impact  to  the  various  other  categories  of  stakeholders  from 
implementing the preferred options is presented in Annex 11.2. 

9.1 

Impact on EU budget 

The  introduction  of  the  preferred  options  under  powers,  governance  and  funding  are  not 
expected  to  adversely  impact  the  EU  budget.  This  is  because  the  proposed  funding 
methodology respects the ceilings provided by the MFF in force while allowing the ESAs to 
tap the additional funding they need from the private sector.  

The current MFF defines the maximum ceilings for the EU contribution to the ESAs budget 
until 2020. In this regard, for the period 2018-2020 the preferred options could only have a 
limited impact on the EU Budget. 

For  the  next  MFF  preparations,  the  ESAs  should  provide  the  Commission  with  a  medium-
term projection (covering at least 5 years) of their anticipated budgetary needs according to 
the  methodologies  they  apply  for  preparing  their  annual  budgetary  proposals.    In  turn,  the 
Commission  will  assess  these  requests  against  the  background  of  policy  objectives  and 
budgetary constraints.   

In the immediate future, with the exception of granting direct powers to an ESA110, a sizeable 
increase in the ESAs budget may not be necessary. As indicated in section 8.2.1.2, the ESAs 
pending regulatory work and subsequent supervisory work is mostly taken into consideration 
in each of the ESA's latest (multiannual) Single Programming Documents. In addition, in light 
of the Commission's commitment to regulate less but better, a dramatic increase in the level of 
regulatory  acts  that  could  justify  an  immediate  sizeable  increase  in  the  ESAs'  budgetary 
demands would not be expected.   

Although,  the  preferred  option  under  governance  of  setting  up  of  a  body  with  independent 
members will increase the costs of running the ESAs, the extent of the impact on their budget 
will depend on: (i) the number of posts to be created (it could differ between the ESAs given 
the  extent  of  their  respective  responsibilities);  and  (ii)  the  level  (grade)  of  these  posts.  This 
impact  assessment  also  envisages  the  option  of  having  ESA  Senior  Managers  as  Board 

110   In the case of granting direct powers, there is a separate assessment of staffing and resources needs arising 

from the assumption of such powers and duties. 

99 

 
 
                                                            
members,  which  would be  less  costly  and  could  be  done  for  some  of  the  ESAs  where  their 
tasks and mandate would not justify the creation of entirely new positions. In the latter case, 
no impact to the ESAs (and thus EU) budget is expected. All other proposed changes in the 
governance structure should not impact on the EU Budget 

Last but  not least, it should  be noted that  any budgetary demands  will still be subject to all 
accountability  and  audit  mechanisms  put  in  place  in  ESA  Regulations,  for  the  preparation, 
adoption and execution of their annual budgets.  Moreover, the EU contributions to the ESAs 
and their establishment plans would still be authorised by the Parliament and the Council, and 
subject to discharge from the Parliament on a recommendation from the Council. 

An  overview  of  the  indicative  costs  of  the  preferred  options  resulting  from  this  report  is 
presented in Appendix 11.4.5. 

9.2  Overall coherence 

With regards  to  overall coherence,  the preferred options in the area of powers,  governance 
and funding of the ESAs are coherent with the existing models of EU decentralised agencies 
while taking into account the specificities of the ESAs.  Attributing the supervision of certain 
actors of systemic nature or activities of a primarily or almost exclusively cross-border nature 
to the ESAs is coherent with the general trend of transferring specific tasks to a decentralised 
EU agency when the cross-border component triggers the needs for an EU measure aiming at 
higher convergence within the EU.  Inevitably, the attribution of more powers to the ESAs is 
subject  to  the  limits  imposed  by  treaties,  as  interpreted  by  the  Court  of  Justice,  on  the 
delegation of powers to Union bodies.111 

The targeted changes in the current governance model are also in line with the Commission's 
efforts to make decision making fora in the EU decentralised agencies more operational and 
independent. In the area of financial services other European agencies or institutions, such as 
the  European  Central  Bank,  which  has  an  Executive  Board  or  the  Single  Resolution  Board 
have stable independent preparatory body, which has own powers and tasks, and can decide 
on certain issues or participate in the decision-making process. The establishment of an ESAs' 
Executive Board with permanent members and with an Exclusive ESA mandate is in line with 
the  existing  safeguards  for  enhancing  the  EU  dimension  in  the  agencies  decision-making 
process.   Moreover,  the  preferred  option  for  the  external  appointment  of  the  Chairperson  to 
enhance  his/her  standing  and  role  is  also  in  line  with  the  current  practice  as  regards 
appointment of EU agencies' heads which aim higher legitimacy and accountability standards, 
as well as strong safeguards for the Heads' independence.  

Finally, with regards to funding, the majority of the EU decentralised agencies are funded by 
the  EU  Budget.    Still,  there  are  several  EU  agencies  which  receive  mixed  of  fully  private 
funding.  In that respect, the shift to industry contribution for the ESAs' budget is in line with 
existing  EU  practice.  In  addition,  under  the  preferred  option,  the  amount  of  the  annual  EU 
contribution  to  the  ESAs  will  still  be  decided  within  the  MFF  in  force.    Moreover,  the 

111   Cf. Cases 9/56, Meroni, 98/80, Romano, and C-270/12, United Kingdom v Parliament and Council. 

100 

 
 
                                                            
currently  applicable  legal  framework  for  the  EU  decentralised  agencies  (the  FFR)  will 
continue to apply to the ESAs thus ensuring consistency with existing standards for budgetary 
process and control.  

101 

 
 
 
 
10  Monitoring and Evaluation 

The ESA Regulations provide for evaluation of the ESAs every three years, starting from the 
effective start of its operation. As mentioned in Section 2.4., the Commission has issued an 
Evaluation  report  on  the  functioning  of  the  ESAs.112  Going  forward,  the  Commission  will 
continue to monitor the functioning of the ESFS and to report accordingly. The Commission's 
systematic  evaluation  of  the  ESAs  will  include  extensive  consultation,  in  particular  of  the 
Financial Services Stakeholder Group. 

The specific indicators identified  in the impact assessment accompanying  the Commission's 
proposal for setting up the ESAs match with the ESFS specific objectives and remain valid for 
the  current  and  future  evaluations.  These  indicators  serve  to  assess  the  performance  of  the 
ESAs  in  fulfilling  their  tasks  and  they  also  depict  the  ESAs'  specific  powers  governance 
structure and funding sufficiency.  The following table presents the main areas of activity of 
the ESAs and matches them with some relevant indicators: 

Objective 

Proposed indicator 

Implementing/regulatory 
technical 
standards, 
guidelines, 
recommendations 

  Number  of  adopted  technical  standards  relative  to  those 

required to be developed 

  Number  of  draft  technical  standards  submitted  to  the 

Commission for endorsement within the deadlines  

  Number  of  technical  standards  proposed  but  rejected  by  the 

Commission 

  Number of adopted non-binding recommendations relative to 

those required to be developed 

  Number of requests for explanation by CAs 

Consistent application of 
EU rules 

  Number  of  investigations  of  breach  of  EU  law  successfully 

closed 

  Average duration of an investigation of breach of EU law 

  Number of warnings on manifest breach of the EU law 

Mediation 

  Number of successful mediations without binding settlement 

Common 
culture  

supervisory 

  Number of colleges with EBA / EIOPA / ESMA participation 

  Number of bilateral meetings with CAs 

112 Add reference. 

102 

 
 
 
 
                                                            
  Number of joint on-site inspections 

  Number of hours training for supervisors 

  Number of staff participating in exchanges / secondments 
  Number of peer reviews conducted 

  Number of obstacles to convergence identified and removed 
  New practical tools and instruments to promote convergence  

Consumer protection 

  Number of initiatives on financial literacy and education 

  Number of analytical studies published 

supervision  of 
Direct 
pan-European  financial 
institutions  

  Number of on-site inspections and dedicated investigations 
  Number of meetings with supervised entities 
  Number of complaints / appeals from supervised companies 

Management 
emergencies  

Micro-prudential 
information 
management 

of 

  Number  of  formal  decisions  adopted  addressing  emergency 

situations 

  Number of populated databases 

Stress testing 

  Number of stress tests or equivalent exercises carried out 

Funding sufficiency 

  Ratio of proposed versus adopted final budget (per annum) 

The  ESAs  should  collect  data  on  these  indicators  on  an  annual  basis.  In  addition  at  the 
beginning  of  each  year  ESAs  should  (where  applicable)  set  targets  vis-à-vis  indicators. 
Targets  can  be  of  either  numeric  (e.g.  %  increase/decrease)  or  of  qualitative  nature  (e.g. 
positive/negative trend) compared to the previous year. 

The final set of indicators is decided by the Commission in sufficient time in advance to allow 
ESAs  to  collect  annual  data  prior  to  an  evaluation.      The  evaluation  should  seek  to  collect 
input  from  all  relevant  stakeholders,  but  in  particular  national  CAs,  EU  institutions  and  fee 
paying sectors and entities under the remit of ESAs. Input will also be required by ESAs.   

The evaluation will be repeated every 3 years after the application of these amendments. 

103 

 
 
 
 
11  Annexes 

11.1  Procedural Information 

Lead  Directorate-General:  Directorate-General  for  Financial  Stability,  Financial  Services 
and Capital Markets Union (FISMA). 

The  initiative  is  included  in  the  Commission  Work  Programme  2017  as  agenda  planning 
item 2016/FISMA/009.  

 rganisation and timing of   nter  ervice   teering Group’s  meetings: three meetings on 
25  April,  2  May,  31  May  and  12  June  2017.  The  Inter  Service  Steering  Group  included 
representatives  of  the  Economic  and  Financial  Affairs  (ECFIN),  Internal  Market,  Industry, 
Entrepreneurship and SMEs (GROW), Justice and Consumers (JUST), Budget (BUDG), the 
Legal Service (LS), Task Force 50 (TF 50) and the Secretariat General (SG). 

Evidence used in the impact assessment 

Following  the  First  Commission's  report  on  the  ESAs  (2014),  in  the  first  half  of  2015  the 
Commission  Services  conducted  a  fact-finding  exercise,  to  map  the  variety  of  funding 
models in place across the EU with respect (mainly) to national authorities. The divergence of 
models in place across Member States today is significant.  Some Member States fully fund their 
authorities  through  public  monies;  others  are  funded  wholly  by  the  private  sector;  while  other 
Member  States  have  a  hybrid  system.    These  models  may  also  vary  for  different  supervisors 
(where Member States have a number of competent authorities responsible for different aspects of 
financial  services  regulation).  Different  approaches  may  also  be  taken  to  calculating  the 
contributions from different types of market participants within the financial sector (where private 
funding is in place).  In addition, some national competent authorities already pass on their share 
of the cost of funding the ESAs to the firms they supervise.   

Understanding the plethora of existing arrangements in place today is critical to the development 
of  the  Commission's  thinking  with  respect  to  ESA  financing,  and  in  putting  into  practice  our 
strong commitment to Better Regulation and evidence-based policymaking.  

In  September  2015  the  Commission  launched  a  call  for  evidence  to  consult  all  interested 
stakeholders  on  the  benefits,  unintended  effects,  consistency,  gaps  in  and  coherence  of  the  EU 
regulatory  framework  for  financial  services.    The  ESAs  were  included  within  the  remit  of  this 
exercise.    A  number  of  respondents  highlighted  amongst  other  things  the  need  to  consider  the 
scope of ESA guidelines, the ESAs role in strengthening supervisory convergence, the ESAs role 
in pursuing breach of EU law cases and how to increase their focus on enforcement. 

On 21 March 2017 the consultation is designed to gather evidence on the operations of the ESAs 
focusing  on  a  number  of  issues  in  the  following  broad  areas:  (1)  tasks  and  powers;  (2) 
governance; (3) supervisory architecture; and (4) funding.  The aim is to identify areas where the 

104 

 
 
effectiveness and efficiency of the ESAs can be strengthened and improved, while respecting the 
legal limitations imposed by the EU Treaties.  The results should provide a basis for concrete and 
coherent action by way of a legislative initiative if required.  This consultation responds to the 
requirements for evaluation set out in Article 81 of the ESA Regulations.113  It complements the 
public  consultation  carried  out  in  late  2016  to  review  the  EU's  macro-prudential  framework 
including the European Systemic Risk Board ("ESRB").114   

Consultation of the RSB  

Main considerations 
Board's recommendation 
(1) 
The  analysis  of  challenges  for  the 
supervisory  systems  related  to  the  likely 
and 
insurance 
evolution  of  banking, 
securities  markets  over 
the  next  years 
remains  incomplete.  It  also  fails  to  address 
sufficiently the various impacts of the United 
Kingdom's  withdrawal  from  the  EU  on  the 
core activities of the ESAs. 

(2) 
The  evaluation  does  not  provide  a 
solid basis for policy development. It appears 
to  be  based  on  selective  reporting  of 
stakeholders'  views  and  unreferenced  and 

on 

and 

follows 

integration 

Response to Board's recommendation 
The  impact  assessment  has  been  revised  to 
more clearly explain that the policy initiative 
is  for  the  sake  of  the  EU  Single  Market  and 
its 
the 
commitment  announced  in  the  5  Presidents 
the  subsequent  commitment 
Report  and 
expressed in the various Commission follow-
up  Communications  (most  recently  in  the 
Reflection  paper  on  the  deepening  of  the 
EMU,  to  move  towards  a  genuine  Financial 
Union, 
for 
capital markets.  The departure of the United 
Kingdom  and  its  consequences  has  been 
more  accentuated  where  and  to  the  extent 
appropriate  throughout  the  main  chapters  of 
the  Impact  Assessment.  For  example,  there 
are  now  more  than  20  sentences  mentioning 
impacts of the United Kingdom's withdrawal 
from  the  EU  on  the  core  activities  of  the 
ESAs.  

including  single  supervisors 

Revised chapters: Throughout the IA  

The  evaluation  has  been  revised  to  better  
and 
distinguish 
argumentation  related  to  desktop  work  from 
stakeholders 
opinions 

assessment 

resulting 

between 

from 

113   Regulation  (EU)  No  1093/2010  of  the  European  Parliament  and  of  the  Council  of  24  November  2010 
establishing  a  European  Supervisory  Authority  (European  Banking  Authority)  amending  Decision  No 
716/2009/EC  and  repealing  Commission  Decision  2009/78/EC  ,  OJ  L  331,  15.12.2010,  p.  12;  Regulation 
(EU)  No  1094/2010  of  the  European  Parliament  and  of  the  Council  of  24  November  2010  establishing  a 
European  Supervisory  Authority  (European  Insurance  and  Occupational  Pensions  Authority)  amending 
Decision No 716/2009/EC and repealing Commission Decision 2009/78/EC, OJ L 331, 15.12.2010, 48; and 
Regulation  (EU)  No  1095/2010  of  the  European  Parliament  and  of  the  Council  of  24  November  2010 
establishing  a  European  Supervisory  Authority  (European  Securities  and  Markets  Authority)  amending 
Decision No 716/2009/EC and repealing Commission Decision 2009/78/EC, OJ L 331, 15.12.2010, p. 84. 
114   For the macro-prudential leg of the ESFS, see the consultation that was published in august 2016 and the 

following summary report published in December 2016.  

105 

 
 
 
 
                                                            
unsubstantiated desk work. 

The  assessment  of  costs  and  funding 
(3) 
gaps of ESAs implied by the baseline and the 
various options remains incomplete. 

and 

evidence 

consultations.    Some  more  discussion  has 
been  added  and  where  feasible  evidence  has 
been added to improve the evaluation.  There 
are  limitations  to  the  type  of  evidence  used; 
some  parts  of  the  evaluation  rely  heavily  on 
anecdotal 
stakeholder 
experiences  with  the  ESAs.    To  compensate 
for that there has been an attempt to provide 
many  examples 
from  various  different 
information  sources,  e.g.,  the  governance.  
Other  parts,  such  as  funding,  rely  on  more 
references and substantiated arguments. 
retrospective 
The  evaluation 
exercise  which 
looking 
exercise  comparing  the  past  years  with  the 
baseline  scenario  which  is  one  in  which  the 
ESAs do not exist.  The evaluation therefore 
by its very nature focuses less on the need for 
new,  additional  direct  supervisory  powers 
necessary for ESMA.   

is  also  a 
is  a  backward 

Revised  chapters:  Chapter  11.5  (Evaluation 
Annex) 

More  discussion  and  quantification  has  been 
provided  of  the  resources  needed  for  the 
ESAs  to  take  on  additional  tasks  (direct  and 
indirect  powers);  the  impact  on  resources 
resulting from governance modifications and 
the  impact on  resources  from  changes  in  the 
funding 
indirect 
supervision.   

methodology 

for 

Costs between direct and indirect supervision 
and  other  activities  have  been  differentiated 
and  who  is  bearing  the  cost  of  preferred 
options has been better explained.   

The  discussion  on  net  impacts  (in  terms  of 
costs) of preferred options have been further 
developed  to  better  address  the  issue  of 
funding  gaps  and 
impact  of  overall 
supervisory costs for the sector.  

In particular,  

1.  The  overview  cost  table  has  been 
updated  in  line  with  the  legislative 
financial  fiche.  We  now  have  a  very 
detailed  estimation  of  costs  and 

106 

 
 
 
 
 
 
 
 
impact of both changes to the current 
ESAs  framework  and  for  the  new 
direct powers. 

has 

been 

2.  The  comparing  options  section  in 
completely 
funding 
redrafted,  as  requested,  to  reflect  the 
full  costs  and  benefits  of  option  3 
compared to the baseline and option 2 
in particular.  

3.  The collection mechanism section has 
been completely redrafted to meet IA 
standards  and  added  to  the  main  text 
as  this  is  part  of  the  legislative 
proposal. 

by 

the 

this 

definition, 

could  not  be 

Regarding  the  net  impact  to  the  individual 
sectors, 
assessed 
exhaustively at this stage as it depends on the 
model used to finance national CAs within a 
Member  State.  For  example, 
if  market 
participants  in  a  given  Member  State  do  not 
currently pay for their supervision (i.e., as the 
case  of  fully  publicly  funded  national  CAs) 
then, 
allocation 
methodology  of  the  preferred  option  would 
result  in  increased  cost  for  these  market 
participants  at  the  benefit  of  taxpayers  and 
national budgets in  those Member States. At 
the same time, if market participants already 
pay  for  the  ESAs  via  contributions  to  their 
national  CAs'  budgets  then  the  net  impact 
(incremental  cost/benefit)  would  depend  on 
the  various  methodologies  that  national  CAs 
use  to  charge  fees  to  individual  entities  as 
well as the weights they apply to entities for 
ESAs funding.  In this case, in order to come 
up  with  a  precise,  reliable  estimate  of  the 
incremental  cost/benefit  across  the  EU,  a 
thorough  comparative  analysis  is  needed, 
which  would  require  the  involvement  of 
own 
those 
methodologies  on  fees  allocation.    In  any 
case  though,  it  could  be  reasonably  argued 
that  establishing  a  level  playing  field  across 
the  Single market  with  a  uniform  fee  setting 
mechanism  among  financial  entities  would 
ultimately  benefit  all  market  participants.  In 
addition, it should be noted that the amounts 
required 
in 
principle  pose a threat to individual entities’ 

to  fund  ESAs  should  not, 

national  CAs 

applying 

107 

 
 
 
operational models. 

Revised  chapters:  Chapter  8  (Funding)  and 
11.4.4  (Annexes  –  Overview  of  costs  of 
preferred options) 

(4) 
The  comparison  of  options  remains 
unconvincing and the choice of the preferred 
option 
is  not  sufficiently  supported  by 
available evidence and analysis. 

More  detailed  descriptions  and 
further 
additions  to  the  options  description  and 
analysis  has  been  made 
the  extent 
available.  

to 

The discussion on powers is substantiated by 
further information and argumentation in the 
annex to the impact assessment.  The lack of 
evidence  to  support  the  preferred  option  in 
the  power  section  can  in  some  instances  be 
explained by the fact that the policy direction 
is  some  cases  have  been  motivated  by  a 
political decision.   

The discussion on options in the governance 
section  has  been  extensively  explained  and 
substantiated  with  examples  and  anecdotal 
evidence  as  well  as  underpinned  by  the 
results  of  evaluations  made  both  by  the 
European  Parliament  and  the  Commission.  
The  nature  of 
in 
governance  makes  it  very  difficult  to  obtain 
hard core verifiable data.  

the  defined  problem 

In  relation  to  funding,  the  section  on  the 
preferred  option  has  been  improved  to  add 
additional  assessment  elements  and  to  better 
clarify existing argumentation. 

Revised  chapters:  Chapter  8  (Funding), 
Chapter  9  (Cumulative impact  of  the  chosen 
options), Chapter 6 (Powers) 

Response to other considerations & adjustment requirements 

Board's recommendation 
Clarify the baseline 
I. 

Response to Board's recommendation 
The  consideration  has  been  addressed  by 
slightly  accentuating  the  departure  of  the 
United Kingdom and its consequences where 
and  to  the  extent  appropriate  throughout  the 
main chapters of the Impact Assessment.  As 
negotiations  with  the  United  Kingdom  are 
ongoing  there  are  limitations  to  how  much 

108 

 
 
 
 
 
 
 
 
 
 
 
Increase 

II. 
evaluation 
transparently. 

the  objectivity  of 

the 
limitations 

and  present 

its 

Improve the analysis of costs and the 

III. 
funding gap. 

Complete  the  range  of  options  and 

IV. 
better justify the final policy choices.   

the 
could  and  should  be  said  about 
hypothetical future once the United Kingdom 
has  left  the  EU.    See  also  DG  FISMA 
response on point 1 of main considerations in 
the previous section. 

The  consideration  has  been  addressed  to  the 
extent  possible;  please  see  DG  FISMA;s 
response 
the  main 
to  point  2  of 
considerations in the previous section. 

Chapters  8  and  11.4.4  have  been  revised 
accordingly  in  order  to  improve  the  analysis 
of costs and provide further quantification on 
the funding gap. 

to 

  point  4  of 

In  the  areas  where  this  was  requested  – 
especially in relation to powers and funding, 
the  choice  of  the  preferred  options  has  been 
better justified to the extent that evidence has 
been  available;  please  see  DG  FISMA's 
response 
the  main 
considerations in the previous section.  
Regarding  the  completion  of  the  range  of 
options  based  on  the  evaluation  discussion, 
the  current  range  of  options  provided  in  the 
respective sections115 could only be expanded 
in  the  case  where  additional  items  are 
genuine alternative options. 

It  was  difficult  to  argue  that  a  hypothetical 
scenario where the ESAs are sharing some of 
their  activities  (e.g.  economic  analysis,  data 
is  a 
management,  HR,  fees  collection) 
genuine  option.  This  is  because  in  the 
evaluation  section,  the  impact  assessment 
concludes  that  "Overall,  it  seems  that  in  the 
European  supervisory  context  the  potential 
benefits  from  merging  a  number  of  more 
administrative  activities  and  processes 
across ESAs would be limited, with uncertain 
efficiency gains116".  
Moreover, introducing "full EU funding" or a 
"triple  source  funding  model  (EU,  NCA  and 
funding)" 
direct  private 
as 
genuine 
are 
additional 

scenarios 
not 

options 

115 Sections 6 (Powers), 7 (Governance) and 8 (Funding) 
116 See Chapter 11.5, section " Evaluating the effectiveness and efficiency of the supervisory architecture", on p. 

172 of the IA 

109 

 
 
 
 
 
 
                                                            
if  not  exacerbates,  all 

alternatives  to  the  baseline  scenario  mainly 
because  the  first  scenario  (full  EU  funding) 
maintains, 
the 
inefficiencies of the baseline discussed in the 
public funding section (see section 8.4.1) and 
the second scenario (triple source of funding) 
is the actually the existing baseline. 

V. 

Better present the stakeholders' views.  All  efforts  have  been  made  to  better  present 
stakeholders' views in the impact assessment 
and  in  particular  in  the  Evaluation  (Chapter 
11.5)  as  stated  on  point  2  of  main 
considerations  in  the  previous  section.    It 
should be considered that some of the issues 
relating  especially  to  the  new  powers  of 
ESMA  were  added  to  the  policy  discussion 
after  the  launch  of  the  public  consultation.  
This  explains  the  absence  of  stakeholder 
views  on  some  of  the  issues  relating  to  the 
transfer of powers to ESMA. 

110 

 
 
 
 
 
 
11.2  Stakeholder consultation – Synopsis report 

1. INTRODUCTION  

In 2014 the Commission adopted a review report ("2014 Review Report") on ESFS covering 
the  operations  of  the  ESAs  and  the  ESRB.    With  respect  to  the  ESAs,  the  Review  Report 
concluded that a number of issues could be considered for improvement in the following four 
categories: funding, governance, tasks and powers, and the institutional structure of the ESAs.   

The  Parliament's  2014  resolution  on  the  ESFS  review,  requested  that  the  Commission 
submit new legislative proposals for the revision of the ESAs in the same areas identified in 
2014 Review Report.  To this can be added that in its 2013 review of the ESAs, Parliament 
pointed out that one of the key matters for a future review of the ESAs is to  assess whether 
sectoral supervision is still appropriate. 

The  Council  conclusions  from  November  2014  that  targeted  adaptations  should  be 
considered to improve, in particular, the ESA's performance, governance and financing. 

In September 2015 the Commission launched a call for evidence to consult stakeholders on 
the  benefits,  unintended  effects,  consistency,  gaps  in  and  coherence  of  the  EU  regulatory 
framework for financial services.  A number of respondents highlighted amongst other things 
the need to consider the scope of ESA guidelines, the ESAs role in strengthening supervisory 
convergence,  the  ESAs  role  in  pursuing  breach  of  EU  law  cases  and  how  to  increase  their 
focus on enforcement. 

The intention to strengthen the effectiveness and efficiency of supervision at micro-prudential 
and macro-prudential level was also confirmed in the 2017 Commission work programme.  
This  coincides  with  the  fact  that  the  ESAs  founding  Regulations  also  mandate  a  general 
review of the operation of the ESAs this year.  

A 3-month open public consultation was launched on 21 March 2017.  Views, evidence and 
other  information  gathered  through  this  public  consultation  assisted  the  Commission  in 
identifying  weaknesses,  strengths,  gaps  and  overlaps  that  different  stakeholders  are  facing 
under the current framework.   

2. Public consultation on the ESAs Review 2017 

In total 227 respondents participated in this consultation: 161 (71%) are private organisations 
or companies half of which were industry associations, 59 (26%) are public authorities many 
of which are regulatory authorities and ministries and 7 (3%) are private individuals. In terms 
of  location  of  the  activities,  most  of  the  respondents  are  from  Belgium  (18%),  Germany 
(18%), the United Kingdom (11%), France (10%) and Italy (6%). No replies have been sent 
from  participants  located  in  Latvia and  Romania.  The  fields  of  activities  of  the  respondents 

111 

 
 
are  almost  equally  spread  between  various  activities,  from  which  insurance  (24%),  banking 
(23%) and investment management (20%) are the most represented.117     

TASKS AND POWERS OF THE ESAS 

A. 

Optimising existing powers  

The  vast  majority  of  the  respondents  strongly  support  ESAs'  mandate  on  supervisory 
convergence and positively assess the results while recognising the scarce resources and the 
short time of the ESAs' existence. However, many industry representatives recall the need for 
ESAs,  especially  EIOPA,  to  respect  the  limits  of  their  mandate.  While  many  respondents 
object to significantly increasing ESAs' powers at this stage, some recognise their limitations 
and  would  like  to  see  targeted  improvements.  Most  respondents  argue  the  available  tools 
broadly suffice and should be more fully used.  

Many respondents find ESAs' involvement in cross-border cases positive. Many private sector 
respondents feel that ESAs should get involved more frequently while a few others, primarily 
from the public sector, argue ESAs should only be entrusted with new powers in cross-border 
or systemically relevant cases. Some also recognise that the underlying legislation in this area 
is not sufficiently solid.  

Stakeholders point to some weaknesses e.g. little, if any use of binding mediation, breach of 
union  law,  emergency  procedures  and  insufficient  transparency  in  ESAs'  activities.  Several 
industry representatives suggest changes to ESAs' governance and decision-making process to 
facilitate greater use of existing tools. Some respondents, mostly from the private sector, cite 
cases where ESAs had not acted at all, very late, or not communicated actions publicly. Some 
stakeholders also reckon that the ESAs have developed a culture of compromise which is not 
compatible with ESAs' supervisory convergence activities.  

The  vast  majority  of  respondents  identify  weaknesses  in  the  definition  and  application  of 
ESAs'  tasks  and  powers  on  guidelines  and  recommendations.    Recommendations  include 
the introduction of scrutiny by legislators, adopting guidelines only when strictly necessary, 
increased  openness  and  transparency  by  consulting  stakeholders  or  conducting  impact 
analyses (especially for costs of compliance). While many stakeholders welcome them, some 
industry representatives feel guidelines and Questions & Answers are used too extensively by 
ESAs. 

Some  stakeholders  consider  peer  reviews  a  useful  instrument  and  ask  the  Commission  to 
encourage ESAs to devote more resources. Some stakeholders see room for improvement by 
increasing  transparency,  taking  into  account  the  views  of  the  industry  in  the  peer  review 

117   The percentages given in this factual summary correspond to the responses submitted by stakeholders to 
the open public consultation. Beyond a statistical analysis of the data, the summary also provides a 
qualitative assessment of the valued opinions and input received to the functional mail box or to the 
Commission's officials without using the EU survey.  

112 

 
 
                                                            
 
process, conducting more focused  peer reviews, and emphasising "best practices" in terms of 
supervisory practices and application of EU laws. Some stakeholders also underline that more 
attention  should  be  paid  to  the  follow-up  of  peer  reviews,  in  order  to  guarantee  the 
implementation  of  recommended  measures.  EBA  suggests  adding  the  possibility  of  focused 
reviews on a limited number of competent authorities. 

Only few stakeholders comment on binding mediation, as the ESAs have not issued binding 
mediation  so far. Several  stakeholders  underline that binding mediation  should be explicitly 
mandated in Level I legislation, especially where there is a clear consensus on the need for a 
high level of regulatory and supervisory harmonisation across the EU.   

colleges 

consider 

respondents 

Many 
of 
supervision/supervisory convergence which allow for sharing information among regulators. 
However, several stakeholders argue the high number of representatives in college meetings 
makes efficient supervision difficult. Therefore, it would be important to clarify the working 
methods and the role of each participant, as well as the lead supervisor's responsibilities.  

supervisors 

instrument 

useful 

of 

In terms of new tools, many stakeholders, primarily from industry but also including ESMA, 
suggest exploring the possibility for ESAs to issue documents similar to no-action letters used 
by  other  supervisors  (e.g.  in  the  US)  to  remove  or  temporarily  suspend  certain  obligations. 
This,  they  argue,  could  provide  the  necessary  flexibility  in  the  process  of  applying  new 
regulations in certain cases or may be needed to ensure orderly markets and financial stability. 

Other  respondents,  including  EBA  and  ESMA,  suggest  to  more  systematically  involve  the 
ESAs  in  the  discussions  on  Level  I  legislation.  The  ESAs  should  notably  be  allowed  to:  1) 
Advise on the substance of the legislation as it is developed and identify areas where Level I 
measures  are  needed  to  foster  supervisory  convergence  or  might  inhibit  it,  and  2)  Provide 
input into the feasibility and appropriateness of Level II mandates.  

Many  public  authorities  and  industry  associations  found  that  the  scope  of  ESAs'  tasks  and 
powers on consumer protection is adequate and should not be extended. Instead, they should 
use their existing powers more efficiently. However, some other public authorities see room 
for  extending  ESAs'  powers,  e.g.  by  giving  ESAs  the  right  to  prohibit  or  restrict  certain 
products  for  investor  protection  purposes,  and  want  to  see  more  work  in  the  financial 
innovation space, including on virtual currencies and innovative uses of consumer data. Some 
industry  organisations  want  ESAs  to  do  more  e.g.  on  financial  education,  cross-border 
protection, big data etc.  

All  three  consumer  organisations  see  significant  shortcomings  with  enforcement,  either 
viewed as inefficient or detached from most detrimental problems at national level. They also 
see  a  need  for  extending  the  ESA's  fields  of  activity.  Some  of  them  advocate  a  twin  peak 
model  of  supervision  i.e.  separating  market  conduct  from  prudential  supervision.  A  few 
organisations found that the ESAs' powers to ban products should be extended to those that 
are prone to consumer detriment. 

113 

 
 
A  few  public  authorities  argue  the  Joint  Committee  (JC)  should  have  a  stronger  role  and 
cross-sectoral  issues  should  be  dealt  with  by  it.  EBA  calls  for  clarifications  in  its  founding 
regulation to keep pace with the range of consumer protection legislation. 

Only  half  of  the  respondents  express  a  view  on  the  need  for  adjusting  the  ESAs'  tasks  and 
powers  on  breach  of  EU  law  investigations.    The  majority  of  those,  predominately  public 
authorities, do not see the need to adjust the ESAs' tasks and powers in order to facilitate their 
actions on breach of Union law. Respondents recognise that such powers have not been fully 
tested yet, and it would therefore be difficult to assess the existing mechanism's full potential.  

Other  stakeholders  believe  that  the  breach  of  Union  law  procedure  should  be  modified. 
Specific  suggestions  for  reform  include  an  obligation  for  the  ESAs  to  duly  motivate  and 
publish  any  decision  not  to  launch  a  breach  of  Union  law  investigation,  or  allowing  on-site 
inspections  to  national  CAs  in  the  context  of  breach  of  Union  law  investigations.  Others 
propose  that  breach  of  Union  law  decisions  could  be  taken  by  a  modified  executive  board 
with a Commission representative with veto powers. ESMA argues for a clarification in the 
ESMA  Regulation  that  Article  17(6)  powers  also  relate  to  provisions  of  Directives  that 
establish  unconditional  obligations  that  are  sufficiently  clear  and  precise  to  be  directly 
effective. ESMA also suggests adding financial reporting, corporate governance and auditing 
to the scope of breach of Union law procedures.  

With regards to the international aspects of the ESAs' work half of the respondents give a 
clear answer in relation to extending ESAs tasks in the area of monitoring and implementing 
equivalence and increasing the role in co-ordinating national  As’ dealings with third country 
authorities. A clear ma ority  including all ESAs  support increasing ESAs’ responsibilities in 
ex post monitoring and implementing equivalence decisions. Nearly a third of respondents to 
this  question  would  also  welcome  more  general  changes  to  the  EU  equivalence  framework 
(e.g. introducing a more horizontal approach, increasing transparency, predictability, ensuring 
reciprocal  treatment  of  EU  firms  and  overall  increasing  robustness  and  adequacy  of  the 
framework in view of the UK's decision to leave the EU). 

the 

About  a  quarter  of  respondents,  including  EBA  and  EIOPA,  see  a  role  for  the  ESAs  in 
preparing  initial  equivalence  assessments.  A  comprehensive  equivalence  assessment  should 
frameworks' 
include 
implementation  and  monitoring  upcoming  changes.  Few  suggest that  ESAs  should have  the 
final  say  on  that  matter,  while  a  much  greater  number  of  replies  supported  a  continued 
Commission role in adopting those decisions. 

initial  equivalence  assessment, 

to  assess 

follow-up 

the 

ESMA also argues for the supervisory and enforcement powers at EU level to be conducted 
by  it  for  third  country  entities  such  as:  Credit  Rating  Agencies  (CRAs),  Trade  Repositories 
(TRs), CCPs, benchmarks and data providers. 

The  vast  majority  of  respondents,  both  public  institutions  and  private  entities,  consider  that 
the current ESAs' power of access to information is sufficient to enable them to fulfil their 
mandate.  The  industry  mainly  points  to  risks  of  duplication  and  costs  linked  to  answering 

114 

 
 
more  direct  requests.  Many  public  authorities  highlight  the  underuse  of  the  information 
received by the ESAs already now.  

Few  stakeholders,  mainly  industry  associations,  recognise  some  deficiencies  as  regards  the 
handling of data. They point to fragmentation of and lack of consistency in data collection in 
the  Union  and  duplications  of  data  requests.  Exactly  in  these  areas  they  see  a  role  for  the 
ESAs,  e.g.  to  streamline  the  data  collection  by  identifying  overlaps  and  gaps.  A  stronger 
coordination with the national CAs could also bring benefits in that respect. Few stakeholders 
suggest  ESAs  establish  a  central  information  hub  which  could  overcome  many  of  the 
shortcomings in this area.      

Most  respondents  favour  a  greater  coordinating  role  for  ESAs  in  the  field  of  reporting  – 
while acknowledging the complexity of the task and welcoming ESAs' efforts to date. Some 
favour  ESAs  as  the  only  collection  point,  others  a  centralised  hub  (with  a  few  pointing  out 
that  existing  hubs  deliver  the  desired  results).  Some  public  authorities  warn  about  the  high 
costs of such hubs. However, many other respondents, primarily public authorities, feel data 
should  be  collected  by  national  CAs.  Whether  gathered  by  ESAs  or  national  CAs,  many 
respondents argue data should be available to both. ESMA also calls for a legal basis so it can 
use all data collected for all of its objectives (subject to anonymisation). 

Many  respondents,  mostly  from  the  private  sector,  bemoan  duplication  or  differences  in 
reporting  requirements.  Most  suggest  better  coordination  between  national  CAs  and  ESAs, 
but  also  with  other  relevant  organisations.    The  vast  majority  of  respondents  favour  ESAs' 
efforts to streamline (and reduce) reporting requirements. 

Many public and private sector respondents support the idea of a simpler adoption process for 
implementing technical standards on reporting. Some respondents favour ESAs adopting own 
implementing technical standards with the Commission maintaining the right of scrutiny. 

An overwhelming majority of respondents argue there is no need to strengthen enforcement 
and supervisory convergence in the field of financial reporting. Enforcement should remain 
a national responsibility. Some of the respondents acknowledge that there is room for further 
convergence.  Some  banks,  banking  associations  and  securities  markets  regulators  are  of  the 
view that ESMA should be able to launch a breach of EU law process concerning substantive 
financial reporting requirements. Most investors' associations are of the view that supervisory 
convergence  should  be  improved  in  both  financial  and  non-financial  reporting  by 
strengthening ESMA's role.    

Regarding  possible  synergies  between  enforcement  of  accounting  and  auditing  standards,  a 
vast majority of stakeholders express doubts. Some stakeholders see benefits in strengthening 
cooperation and sharing information between securities markets and audit regulators.  

Regarding the supervisory framework in the field of auditing almost all respondents consider 
that the current configuration should not be changed. In particular, they oppose integrating the 
into  ESMA.  The 
Committee  of  European  Auditing  Oversight  Bodies  (CEAOB) 
overwhelming  majority  of  industry  associations,  companies  and  public  authorities  were  in 

115 

 
 
favour  of  specialised  bodies  and  did  not  see  evidence  for  benefits  resulting  from  a 
strengthened role of ESMA in the field of audit oversight. Many stakeholders were in favour 
of  keeping  enforcement  powers  at  the  national  level  and  highlighted  the  importance  of  the 
independence of standard setters. ESMA raised the possibility to add auditing to Article 1(2) 
of the ESMA Regulation to enable it to use breach of Union law procedures as an instrument 
to enhance supervisory convergence in this area. 

All  public  authorities  in  charge  of  audit  oversight  were  strongly  against  giving  ESMA  a 
greater  role  in  audit  oversight.  Instead  they  favoured  giving  the  CEAOB  more  time  for 
consolidating since it has only been established one year ago.  

The vast majority of respondents are of the view that there is no reason to change the current 
endorsement process or the role of European Financial Reporting Advisory Group (EFRAG). 
EFRAG has been operating successfully under the new governance structure since November 
2014  following  the  implementation  of  the  Maystadt  recommendations.  These  stakeholders 
believe  that  strengthening  the  role  of  ESMA  could  be  counterproductive  as  ESMA  would 
consider  the  standards  only  from  the  perspective  of  investors.  A  clear  separation  of  powers 
between standard setting and enforcement should be maintained to avoid conflict of interest.  

B. 

New powers for specific prudential tasks in relation to insurers and banks 

The consultation set out remaining  inconsistencies  in the requirements for  internal models, 
leading  to  a  lack  of  supervisory  convergence.  Some  respondents  acknowledge  that  the 
approval of internal models raises issues, e.g. inconsistencies in terms of what national CAs 
require and approve, the evidence they accept, their approach to expert judgment and the time 
they take to decide on the application.  

National CAs sitting on EIOPA's Board of Supervisors as well as some ministries of finance, 
were of the view that granting EIOPA powers to approve and monitor internal models of 
cross-border  groups  could  lead  to  more  consistent  decisions  and  supervisory  approaches, 
would  make  the  decision  process  more  effective,  reduce  administrative  burden  and  avoid 
supervisory  arbitrage.  By  knowing  industry-wide  good  practices,  EIOPA  could  also 
effectively  challenge  the  modelling  techniques  and  develop  an  early  warning  system  to 
indicate potential threats to the appropriateness of the internal model.  

Some  other  respondents,  on  the  other  hand,  emphasise  that  for  the  approval  of  an  internal 
model, knowledge of the specificities of the insurer and the group, the risk factors and profile, 
as  well as  the  local market, are required and that national  supervisor are best placed in  that 
respect.  The  vast  majority  of  the  insurance  organisations  argued  that  the  division  between 
national CAs and EIOPA should remain as it is, with a focus on supervisory convergence for 
example by improving EIOPA's participation in colleges of supervisors' internal model work, 
benchmark studies or peer reviews on internal model approval processes.  

Only  few  stakeholders  express  a  position  on  ESAs'  powers  on  mitigating  disagreement 
regarding  own  funds  requirements  for  banks  and  most  of  them,  mainly  supervisory 
authorities/central banks support the status quo due to the need of specific knowledge of local 

116 

 
 
market  or  national  legislative  framework.  On  the  other  hand,  EBA  calls  for  clarifying,  and 
providing explicit grounds, for its role in ensuring the consistency of own funds instruments 
across the EU with the Capital Requirements Regulation.  

Few respondents suggest  new powers or tasks in or related to banking, i.e. EBA to have 
powers  to  suspend  the  application  of  regulatory  requirements  to  firms  (the  so-called  'no-
action'  letters);  a  power  to  review  ESAs'  own  level  II  measures;  supervisory  powers  on 
shadow banking entities; powers in the area of payments supervision.  

As  regards  possible  new  powers  for  EIOPA,  very  few  respondents  suggest  EIOPA  could 
develop an internal database for exchange of supervisory information, according to standards 
already  in  place  for  banking.  Others  propose  that,  in  light  of  the  large  diversity  of  national 
guarantee schemes, EIOPA could develop a network of national insurance guarantee schemes 
in order to, for instance, assess their adequate funding.  

C.  

Direct supervisory powers in certain segments of capital markets 

With regards to a possible extension of ESMA's direct supervisory powers in the context 
of  the  CMU,  the  vast  majority  of  the  respondents  (of  whom  the  majority  are  stakeholders 
representing  an  organisation  or  a  company)  support  direct  ESMA  supervision  of  CCPs  and 
centralising ESMA's powers (via supervisory colleges) to overcome the current fragmentation 
and  inefficiency.  The  key  reasons  to  support  this  position  are  the  increased  cross-border 
activity, systemic importance of CCPs and access to liquidity in the Euro area. The decision 
of UK to leave the Union is also named by some respondents as a reason why ESMA should 
be  given  direct  supervisory  powers,  considering  the  large  share  of  EU  clearing  market 
currently  based  in  the  UK.  The  following  advantages  of  granting  ESMA  direct  supervisory 
powers over CCPs have been outlined: uniform application of the regulation throughout EU, 
avoidance  of  regulatory  arbitrage,  avoiding  complexities  in  the  event  of  a  CCP  resolution 
when several national CAs with conflicting priorities might be involved. 

A  few  of  the  respondents,  predominantly  public  authorities,  that  generally  approved  the 
extension of the supervision powers of ESMA argued that the current regime of the colleges 
of supervisors is working well and should be maintained as the principal way of supervision 
of the CCPs. The arguments given by these respondents include a lack of financial resources 
ESMA  might  need  in  cases  of  failing  CCPs,  the  fact  that  CCPs  are  posing  a  systemic  risk 
within their home  country,  which is  why  the  supervision  should  be  kept  at  a  national  level, 
increased costs and over-complicated procedures for smaller CCPs that operate at national or 
regional level only.  

Only few stakeholders, mostly from industry, addressed the question of  data providers. Of 
those,  a  majority,  including  ESMA,  fully  supported  the  idea  of  direct  supervision  of  data 
providers by ESMA – while many other respondents gave qualified support to the idea.  Some 
respondents distinguish between consolidated tape providers (support for direct supervision) 
and ARMs and APAs, arguing that the latter should only be directly supervised by ESMA if 
including  market 
they  provide  cross-border  services.  However,  some  respondents, 

117 

 
 
 
 
 
infrastructure companies, argue that with MiFID II only entering into application in 2018 and 
in  the  absence  of  an  extensive  impact  assessment  it  would  be  premature  to  consider  giving 
ESMA direct supervisory powers of data providers. 

Among those stakeholders replying on direct supervision of the asset management industry 
a  number  of  responses  do  not  see  this  as  desirable  because  ESMA  is  not  in  a  position  to 
adequately  address  national  markets’  needs.   ther  replies  –  particularly  of  parts  of  the 
industry  which  are  active  across  borders  -  recognise  potential  merits  in  ESMA’s  direct 
supervision of EU regulated investment funds or those which conduct cross-border activities 
and highlight the usefulness of the creation of a knowledge hub at ESMA level and potential 
direct responsibility for passporting tasks. 

GOVERNANCE  

Only half of the participants to the public consultation assess the current governance set-up of 
the  ESAs.  Views  on  the  ESAs  governance  structure  diverge:  about  a  third  of  respondents 
provided a broadly favourable opinion of the ESAs' governance structure. These respondents 
were  mainly  public  authorities,  notably  central  banks  and  supervisors,  as  well  as  some 
industry associations. For them the current allocation of decision-making to national CAs was 
appropriate  and  efficient  given  their  acquaintance  with  national  markets  and  their 
competence.  EBA  believes  that  the  current  governance  structure  has  performed  well. 
However, if changes are introduced EBA favours limiting such adjustments to areas in which 
the  decision  making  process  could  turn  out  to  be  excessively  complex  or  insufficiently 
independent, such as mediation or breach of Union law. 

Many other stakeholders took a more critical view of the ESAs governance. The arguments 
put  forward  varied  and  related  to  issues  such  as  composition  and  structure  of  the  decision-
making bodies, voting powers or ESAs' ability to use their powers.  

Regarding  the  possibility  of  introducing  independent  board  members  to  the  ESAs'  Boards, 
almost all respondents from the public sector (governments and regulators/supervisors) either 
do  not  respond  to  the  question  (about  half  of  them)  or  oppose  the  idea.  The  key  arguments 
against include the perception that the current governance structure has allowed the ESAs to 
fulfil their mandate, as well as implied costs and the risk of a disconnect between the ESAs 
and  the  national  CAs,  who  are  ultimately  responsible  for  implementing  the  rules,  going 
against the reliance on national expertise and preventing the buy-in from these authorities. 

There  is  no  one  industry-wide  preference.  Those  supporting  the  change  highlight  enhanced 
stability  and  continuity  within  the  Boards,  efficiency  of  decision-making  as  independent 
members would be better able to take decisions with an EU perspective. It is argued that this 
should  help  contribute  to  the  consistent  application  of  legally  binding  acts  and  prevent 
regulatory arbitrage, in line with the tasks and powers of the ESAs.  

118 

 
 
 
 
 
 
 
Several stakeholders point to conflicts of interest inherent to the current governance structure, 
citing national biases (preventing binding mediation and breach of EU law procedure). Few 
comment  on  the  allocation  of  tasks  between  the  two  Boards,  but  many  of  those  suggest 
shifting  enforcement  powers  to  a  Management  Board  (or  Executive  Board),  for  instance 
breach  of  union  law,  binding  mediation  procedures,  peer  reviews,  as  those  tools  are 
considered to have been underused.  

Some  respondents  also  suggested  adjusting  national  CAs'  voting  share  to  the  size  of  their 
sector.  Many 
respondents  commented  on  EBA's  double-majority  decision-making. 
Respondents from Banking Union countries argue for its removal, given the UK's decision to 
leave the EU, while respondents from non-Banking Union countries favour its maintenance. 
EBA suggests reconsidering these arrangements and also the status of the SSM and SRB on 
its  board,  as  the  current  situation  generated  an  artificial  disconnect  between  regulatory  and 
supervisory functions. 

With regards to the Management Board almost all respondents from the public sector (notably 
supervisory authorities sitting on ESAs' Boards) support the current role and composition of 
the Management Board. They consider the governance structure appropriate and sufficient in 
order for the ESAs to deliver on their mandate.  

Two  representatives  of  national  public  authorities,  however  support  enhancing  the 
Management  Board  by  granting  direct  powers  and  tasks  to  it  and  by  creating  permanent 
members, which would strengthen the EU perspective in decision-making. The large majority 
of respondents from the industry and academia share this view.  

Furthermore,  some  respondents  also  suggest  that  binding  mediation,  breach  of  union  law 
procedures and peer reviews could be delegated to the Management Board so as to achieve a 
more efficient decision-making processes.  

A majority of respondents, mainly regulatory authorities, supervisory authorities and central 
banks do not support extending the role and mandate of the Chairperson as they consider the 
current  system to  be efficient.  However, the majority of industry associations agree that the 
mandate of the Chairperson needs improvement, for instance by giving them a casting vote in 
the executive board or by foreseeing formally delegating more powers to them and allowing 
them to take decisions without the approval of the Board. 

Most  respondents  agree  that  it  is  difficult  to  ensure  a  proper  balance  in  the  stakeholder 
groups  together  with  the  geographical  balance.  Representatives  of  consumers  and  users 
complain  that  they  are  outnumbered  by  the  representatives of  financial institutions  and  thus 
the  opinions  of  stakeholder  groups  are  not  balanced.  Financial  institutions  complain  that 
representatives of consumers do not have sufficient technical knowledge and that their input is 
sometimes general and off-target.  

119 

 
 
 
 
ADAPTING THE SUPERVISORY ARCHITECTURE  

Almost half of the respondents do not reply to the questions while a few of them explain there 
is  no  optimal  architecture  of  financial  supervision  and  it  is  difficult  to  choose  a  model  in 
abstract terms.  

The vast majority of the given replies (which includes EBA and EIOPA) find that the current 
sectoral  supervision  functions  well  and  satisfactorily  and  do  not  support  any  significant 
changes  to  the  current  supervisory  architecture,  such  as  shifting  to  the  twin  peaks  model. 
According  to  many  stakeholders, the  current  sectoral  supervision  allowed  developing  sector 
specific  expertise  which  is  needed  in  view  of  the  increasing  complexity  of  the  legal 
framework.  Representatives  of  the  insurance  sector  are  particularly  opposed  to  change, 
highlighting important differences between the features of the banking and insurance sectors.  
Moreover,  a  number  of  stakeholders  note  that  the  current  model  allows  for  ensuring 
consistency  between  prudential  supervision  and  conduct  of  business  supervision,  leading  to 
the  needed  legal  certainty.  Many  stakeholders  question  the  real  synergies  coming  from  the 
possible  merger  of  EBA  and  EIOPA  since  the  hierarchy  for  the  two  sectors  should  be 
separate.  Furthermore,  they  argue  that  two  different  boards  of  supervisors,  one  for  banking 
and one for insurance, would be needed to ensure that there is sufficient competence to take 
decision  on  very  complex  issues.  A  few  stakeholders  express  concerns  that  a  merged 
banking/insurance authority would be dominated by banking regulatory approaches.   

Some stakeholders argue that it is too early to reform the ESFS because it has not had the time 
to demonstrate its full potential, in particular in the area of supervisory convergence.  

Some stakeholders, mainly industry representatives and academia, are critical of the sectoral 
supervision model for various reasons. Many of them highlight that the model is outdated and 
ignores the reality of the retail financial markets in Europe.  

FUNDING  

While  a  majority  of  the  respondents  answer  whether  the  ESAs  should  be  fully  or  partly 
funded by the industry, less than a sixth replied on what would be the most efficient system 
for allocating the costs of ESAs' activities. Less than a quarter answered the question on fee 
collection. 

The majority of respondents, including almost all industry, oppose ESAs fully funded by the 
industry. They argued such a shift risks ESAs' accountability towards the Parliament. Others 
justify EU/public funding with the argument that the whole economy and society benefit from 
effective supervision. 

A majority of respondents, including industry association and public authorities, also oppose a 
system partly funded by the industry. Many of them put forward the same arguments as on 
the question of a fully industry-funded system. EBA would strongly welcome a change to its 
funding.  A  few  stakeholders, including  few  industry representatives,  some  companies  and  a 
few public authorities, favour a system partly funded by the industry.  

120 

 
 
Views  are  fairly  balanced  on  the  question  of  the  funding  allocation  methodology.  The 
majority of respondents favour a contribution to the cost of ESAs' activities based on the size 
of  each  sector  and  of  the  entities  operating  within  each  sector  because  this  would  be  fair 
distribution  of  costs.  On  the  other  hand,  many  stakeholders  supported  a  contribution  which 
reflects the size of each Member State's financial industry, mainly because in a single market 
there is no rationale to adopt allocation methodology based on QMV rules.  Some think tanks 
point out that such finding methodology is the only possible way to take into account market 
specificities of each country. 

The arguments  used  to  support  allocation  methodology  based on QMV  rules  are efficiency, 
legal  simplicity,  predictability  and  stability  of  fee  collection.    A  few  respondents  point  the 
need of adapting the voting weight of the Member to ESAs funding allocation methodology.  

Views  are  divided  as  to  the  exact  metrics  to  be  used  in  determining  Member  States' 
contributions.  Bank  representatives  favour  using  total  assets  under  the  scope  of  the  ESAs, 
combined  with  some  kind  of  risk  measurement,  as  a  proxy  of  the  market  share.  Audit  and 
accounting  representatives  support  the  use  of  risk  related  indicators  only.  Market 
infrastructure representatives favour a revenue-based or a total assets approach.  

Most  industry  stakeholders  argue  that  the  respective  national  CA  should  collect  the 
contribution on behalf of the ESA in order to use existing funding models and avoid a new 
direct collecting relationship of ESAs with industry. Some recall that almost all national CAs 
have appropriate mechanisms in place to pass on this cost to the industry. Many stakeholders 
warn  that  a  double  charge  for  the  industry  should  be  avoided.  Several  public  and  private 
sector  stakeholders  underline  the  need  to  respect  the  proportionality  principle.  Several 
stakeholders  underline  the  particular  case  of  Institutions  for  Occupational  Retirement 
Provision  (IORPs)  which  are  not-profit  organisations,  which  is  why  they  should  not 
contribute or contribute to a lesser extent. 

The  degree  of  harmonisation  of  the  collection  methodology  is  considered  potentially 
problematic due to differences between existing national structures or because harmonised fee 
collection  would  exacerbate  distortions  of  competition.  Several  industry  representatives  call 
for a thorough coordination with the industry. Non-governmental organisations argue that the 
sources  and  channels  of  funding  should  not  influence  the  ESAs’  independence  and 
supranational orientation.  

121 

 
 
 
 
 
11.3  Who is affected by the initiative and how 

The  present  Impact  Assessment  considers  more  specific  impacts  on  various  entities  more 
directly concerned by the review of the ESAs. These impacts are linked with the changes in 
the funding mechanism, the specific powers and the governance structures of the ESAs. The 
concerned  institutions  include  the  national  CAs  and  the  ESAs.  The  impact  on  supervised 
entities  is  also  worth  to  be  mentioned.  Finally,  the  amendments  in  the  funding  regime,  the 
powers and the governance structure of the ESAs will also involve other stakeholders, such as 
consumers and employees of companies in the financial services sector. 

The national competent authorities (national CAs) 

The ESFS has been designed to ensure effective harmonisation of financial supervision in the 
EU.  Moreover,  the  ESAs  activities  contribute  to  achieving  supervisory  level  playing  field 
across the Single Market. 

While  the  national  CAs  will  continue  to  be  present  at  the  Board  of  Supervisors  which  will 
remain  the  ultimate  decision  making  forum  on  strategic  matters,  the  preferred  options  for 
funding  mechanism  and  governance  of  the  ESAs  will  have  an  impact  on  the  national  CAs 
standing vis-à-vis the ESAs. First, the national CAs will be released from their obligation to 
contribute  to  the  ESAs  budget.  Instead  they  will  have  a  new  obligation  to  collect  the 
contributions  from  the  supervised  entities  under  their  jurisdictions.  Second,  some  of  the 
changes  in  the  governance  structure  and  setting  up  of  the  executive  board  with  decision 
making powers in specific areas of supervisory convergence will limit the role of the national 
CAs in areas where genuine European interests emerge. 

The ESAs 

The preferred options in the present IA in all sections concern directly the ESAs, the way they 
are funded, their governance model and their powers.  

The changes in the funding model of the ESAs will also have a direct impact on them. The 
shift to a funding model which combines contributions from the EU budget and the industry 
will  keep  the  existent  level  of  accountability  and  budget  control  while  bringing  more 
flexibility  of  the  ESAs  to  fully  meet  their  needs.  Market  participants  in  each  Member  State 
will contribute based on the size of the relevant sectors in their Member State.  

With  regards  to  the  governance  model  will  gain  more  independence  and  enhance  the 
protection  of  the  European  interests,  inter  alia  by  introducing  permanent  members  in  the 
Boards. The preferred option will increase and improve supervisory convergence  work and it 
should  lead  to  a  swifter  and  more  EU  oriented  decision  making  in  line  with  the  ESAs;' 
mandate.   

The  targeted  amendments  of  powers  will  improve  the  supervisory  convergence  work  (peer 
reviews, mediation panels,  and supervisory colleges).  The ESAs will have  power to access 

122 

 
 
 
data  directly  from  market  participants  and  enforcement  powers  to  ensure  compliance. 
Furthermore,  the  ESAs  will  have  a  more  clearly  delineated  role  in  the  equivalence  ex-post- 
monitoring and compliance work. 

Market participants 

The  reform  of  the  ESAs  will  have  twofold  impact  on  the  market  participants.  First,  the 
reformed ESAs will be able to perform more effectively on their mandates which will bring 
additional  benefits  for  these  stakeholders.  For  large  financial  groups,  the  improved  cross-
border  and  cross-sector  supervision  will  reduce  compliance  costs  thanks  to  harmonised 
standards  and  supervisory  practices  and  will  also  potentially  prevent  failures  and 
bankruptcies.  

Introducing  the  mixt  model  of  funding  will  create  obligation  for  those  that  financially 
contribute  to  the  ESAs  budget.  This  is  based  on  the  logic  that  budget  contributions  from 
undertakings concerned to the ESAs are justified by the consideration that those undertakings 
should bear the cost arising out of the nature of their activities. Besides, some administrative 
burden may be caused to companies by possible adaptations of national systems on collecting 
the  industry  contributions.  On  the  other  hand,  companies  may  be  subject  to  additional 
reporting requirements, linked with the ESAs' direct power to access data.  

Other stakeholders 

The review of the ESAs will bring general benefits to various stakeholder groups in Europe, 
in  particular  the  users  of  financial  services.  A  better  organised  and  functioning  supervision 
will help the EU financial sector regain its role in the economy: to channel savings into most 
productive investments, and thus support the economic growth. More specifically, the benefits 
will  above  all  be  linked  with  the  increased  confidence  of  consumers,  investors  and 
entrepreneurs  resulting  from  the  enhanced  financial  stability  in  the  Internal  Market.  The 
reviewed supervisory system will also provide better protection to users of financial services, 
including  through  greater  convergence  of  conduct-of-business  supervision.  It  will  also 
facilitate access to finance by strengthening the resilience and preventing failure of individual 
financial institutions. The role of the stakeholders groups into the decision making process of 
the ESAs will be enhanced, in particular in the area of budget determination. 

123 

 
 
11.4  Funding 

11.4.1  Comparison  of  EU  texts  within  the  scope  of  the  ESA's  remits  (2010  versus 

2017)118 

ESMA 

Core 
texts 

EU texts within the scope of ESMA's 
remits  under  Article    1(2)  of  the 
Founding Regulations (2009) 
  Directive  97/9/EC  on  Investor-

Compensation Schemes 

EU  texts  within  the  scope  of  the 
ESMA's remits in 2017 

  Directive  97/9/EC  on 
Compensation Schemes 

Investor-

  Directive  98/26/EC  on  settlement 
finality  in  payment  and  securities 
settlement systems 

  Directive  98/26/EC  on  settlement 
finality  in  payment  and  securities 
settlement systems 

  Directive  2001/34/EC  on 

the 
admission  of  securities  to  official 
stock exchange 

  Directive  2001/34/EC  on 

the 
admission  of  securities  to  official 
stock exchange 

  Directive  2002/47/EC  on  financial 

  Directive  2002/47/EC  on  financial 

collateral arrangements 
  Directive  2003/6/EC  on 

insider 
dealing  and  market  manipulation 
(market  abuse)  ,  as  amended  by 
Directive  2008/26/EC,  as  regards 
the implementing powers conferred 
on  the  Commission  (4  level  2 
measures including 4 IA) 
  Directive  2003/71/EC  on 

the 
implementing 

prospectus 
Regulation 809/2004)  

(with 

financial 

instruments 

  Directive  2004/39/EC  on  markets 
in 
(MiF) 
(with  2  implementing  measures: 
Implementing 
Directive 
2006/73/EC2  and  Implementing 
Regulation 1287/2006) 

  Directive 

2004/109/EC 

on 
transparency 
requirements 
(amending  Directive  2001/34/EC 
and  as  amended  by  Directive 

collateral arrangements 

(MAR), 

  Regulation No 596/2014 on market 
abuse 
2 
measures, including 3 DA, 6 RTS, 
1  IA  and  8  ITS);  13  adopted;  6 
non adopted 

level 

(19 

  Directive  2014/57/EU  on  criminal 
sanctions  for  market  abuse  (CS 
MAD)  

(as 

  Directive  2003/71/EC  on 
amended 

the 
by 
prospectus 
Directive  2010/73/EU,  as  amended 
by Directive 2013/50/EU, (12 level 
2 texts, including 5 DA, 5 IA and 
2 RTS) 12 adopted 

  Directive  2014/65/EU  on  markets 
in financial instruments (MiFID II), 
(31  level  2  measures,  including  2 
DA,  18  IA  and  11  ITS)  ;  21 
adopted, 10 non adopted 

  Regulation 

600/2014/EU 

on 

118   or  the  level  1  legislation   the  Table  did  not  take  into  account  some  texts  that  partly  fall  under  ESAs’ 
competence,  insofar  as  the  provisions  concerned  apply  to  entities  falling  under  their  scope  of  action.  In 
addition, for the level 1 legislation, some texts can fall into the scope action of two ESAs. In such a case, 
those texts are sometimes mentioned only for the ESA which plays the greater role according to this text. 
For the level 2 legislation, the tables give a picture of the number of texts adopted and to be adopted in May 
2017. The number of texts adopted or to be adopted do not necessarily correspond to the number of ESAs 
empowerments under the level 1 legislation. In some occurrences, the number of level 2 texts adopted or to 
be  adopted  is  higher  than  the  number  of  empowerments  because  some  modifying  level  2  texts  are  under 
consideration. In some occurrences, the number of level 2 texts is lower than the number of empowerments 
because some adopted level 2 measures bundled different empowerments.    

124 

 
 
                                                            
the 
investment 

2008/22/EC), 
(Commission 
Directive 
2007/14/EC 
down  detailed  rules 
implementation 
of 
provisions of 2004/109/EC)  

including  1  DA 
Implementing 
laying 
the 
certain 

for 

  Directive 2009/65/EC – UCITS IV 
(with 5 implementing measure) 

  Directive  2006/49/EC  on 

  Alternative 

capital  adequacy  of 
firms and credit institutions 
Investment 

Fund 
Managers  Directive  (Not  adopted 
at  the  time  where  the  Funding 
Regulation was adopted)  

  Regulation 1060/2009/EC on credit 

rating agencies  

125 

markets  in  financial  instruments 
(MIFIR)  (35  level  2  measures, 
including  2  DA,  16  RTS  and  17 
IA) ; 14 adopted, 21 non adopted 

  Directive 

2004/109/EC 
"transparency"  as  amended  by 
Directive  2013/50/EU  (33  level  2 
including  18  DA,  3 
measures 
RTS, 8 IA and 4 ITS); 9 adopted; 
24 non adopted 

  Directive  2009/65/EU  (as  amended 
by Directive 2014/91/EU UCITS V 
amended  by  as  regards  depositary 
remuneration  policies 
functions, 
and  sanctions)  (7  level  2  texts, 
including  5  DA  and  2  ITS)  ;  6 
adopted, 1 non adopted 

  Directive 2006/49/EC on the capital 
adequacy  of  investment  firms  and 
credit institutions 

  Alternative 

amended 

Investment 

Fund 
Managers  Directive  2011/61/EU, 
(as 
by  Directive 
2013.14/EU), (11 level 2 measures, 
including 5 DA, 3 RTS and 3 IA), 
5 adopted, 6 non adopted 

amended 

  Regulation 1060/2009/EC on credit 
rating  agencies  (as  modified  by 
Regulation  462/2013  and  Directive 
as 
2013/14/EU) 
by 
and 
513/2011 
Regulation 
Regulation  462/2013)  (21  level  2 
measures, including 4 DA, 7 RTS, 
10 IA), 19 adopted, 2 non adopted 
  Regulation  909/2014  on  central 
(CSDR), 
securities  depositories 
including  9 
level  2  measures 
(including 2 DA, 4 RTS, 2 IA and 
1 RTS)  6 adopted, 3 non adopted 
  Regulation  (EU)  No  648/2012  on 
central 
derivatives, 
OTC 
counterparties 
trade 
repositories    (EMIR)(73  level  2 
measures,  including  7  DA,  20 
RTS,  41  IA,  5  ITS);  47  adopted, 
26 non adopted 

and 

 
 
  Regulation 

346/2013/EU 

on 
European  social  entrepreneurship 
funds, 
level  2  measures 
including  1  ITS  and  1  DA);  1 
adopted, 1 non adopted 

(2 

  Regulation  (EU)  No  345/2013  on 
European venture capital funds,  (2 
level  2  measure,  including  1  ITS 
and  1  DA);  1  adopted,  1  non 
adopted 

documents 

  Regulation  1286/2014/EU  on  key 
information 
for 
packaged retail and insurance-based 
investment  products  (PRIIPs),  (  3 
level  2  measures  including  2  DA 
and  1  RTS);  2  adopted,  1  non 
adopted 
  Regulation 
on 
European 
investment 
long-term 
funds,(  2  level  2  measures,  i.e.  2 
RTS); 2 non adopted 

2015/760/EU 

  Regulation 

(EU)  2016/1011  on 
indices  used  as  benchmarks 
in 
financial  instruments  and  financial 
contracts  or 
the 
performance  of  investment  funds,( 
25  level  2  measures,  including  4 
IA,  8  DA,  10  RTS,  3  ITS);  1 
adopted, 24 non adopted 

to  measure 

  Regulation  (EU)  N 236/2012  on 
Short Selling and certain aspects of 
credit  default  swaps  (5  level  2 
measures, including 1 DA, 2 RTS, 
1  IA,  1  ITS);  4  adopted,  1  non 
adopted 
  Regulation 

(EU)  2015/2365  on 
transparency of securities financing 
transactions  and  of  reuse,  (13  level 
2  measures,  including  2  DA,  6 
RTS, 2 IA and 3 ITS), 13 adopted 

  23 'level 1' texts 
  303  'level  2'  texts:  174  adopted, 

129 non adopted 

Total:  

  12 'level 1' texts 
  13 'level 2 texts' 

126 

 
 
 
 
 
EBA 

Core 
texts 

EU  texts  within  the  scope  of  EBA's 
remits  under  Article    1(2)  of  the 
Founding Regulations (2009) 
  Directive  2006/48/EC  relating  to 
the  taking  up  and  pursuit  of  the 
business of credit institutions  
  Directive  2006/49/EC  on 

the 
capital  adequacy  of  investment 
firms and credit institutions 

  Directive 

supervision 
conglomerates 

2002/87/EC  — 
financial 

of 

the 

  Regulation (EC) No 1781/2006 on 
payer 

on 
information 
accompanying transfers of funds 
  Directive  94/19/EC  on  deposit-
guarantee schemes, as amended by 
Directive 2009/14/EC 

EU texts within the scope of the EBA's 
remits in 2017 

  Regulation  (EU)  No  575/2013   - 
or  Capital  Requirements 
CRR 
Regulation 
its Corrigendum 
1, and Corrigendum  2),  (80  level  2 
measures including 4 DA, 42 RTS, 
11 IA, 23 ITS); 56 adopted, 24 non 
adopted 

(with 

  Directive  2013/36/EU,  CRD  IV  or 
Capital  Requirements  Directive  IV 
(with  its Corrigendum  1),  (20  level 
2measures, including 11 RTS and 9 
ITS),  17  adopted  and  3  non 
adopted 

  Directive 2002/87/EC — supervision 
of  financial  conglomerates  (notably 
amended by Directive 2011/89/EU) 
  Regulation  (EC)  No  1781/2006  on 
payer 
on 

information 
accompanying transfers of funds 
  Directive  94/19/EC  on  deposit-
guarantee  schemes,  as  amended  by 
Directive 2009/14/EC 

the 

  Directive  2014/49/EU  on  deposit 
guarantee schemes, including 1 level 
2 measure, i.e. 1 DA, 1 non adopted 
  Directive  2014/59/EU (BRRD  or  the 
Bank  Recovery  and  Resolution 
Directive),  (15  level  2  measures 
including 4 DA, 7 RTS and 4 ITS), 
11 adopted, 4 non adopted 

  7 'level 1 texts' 
  116 'level 2' texts : 84 adopted, 32 

non adopted 

Total 

  5 'level 1 texts'  
  0 'level 2' text 

127 

 
 
 
 
 
 
 
EIOPA 

Core 
texts 

EU texts within the scope of EIOPA's 
remits  under  Article    1(2)  of  the 
Founding Regulations (2009) 
  Solvency II Directive 2009/138/EC 
  Directive 2002/92/EC on insurance 

mediation 
  Occupational 

Pension 

Funds 

Directive 2003/41/EC  

EU  texts  within  the  scope  of  the 
EIOPA's remits in 2017 

  Solvency 

II 
(47 

Directive 
2009/138/EC, 
2 
level 
measures,  including  15  DA,  5 
RTS,  6  IA  and  21  ITS),  31 
adopted, 16 non adopted 

  Directive  2002/87/EC  on  financial 

  Directive 2002/92/EC on insurance 

conglomerates 

  Solvency  I  package  (Directives 
73/239/EEC, 
64/225/EEC, 
76/580/EEC, 
73/240/EEC, 
84/641/EEC, 
78/473/EEC, 
87/344/EEC, 
88/357/EEC, 
92/49/EEC, 98/78/EC, 2001/17/EC, 
2002/83/EC and 2005/68/EC)119 

mediation  
  Occupational 

Pension 

Funds 

Directive 2003/41/EC (IORP I) 

  Directive 

2016/2341 
EU 
for  Occupational 
Institutions 
Retirement  Provision  Directive 
(IORP II) 

  Directive  2002/87/EC  on  financial 

 

conglomerates 
Insurance  distribution  -  Directive 
2016/97/EU,  (6  level  2  measure 
including 4 DA, 1 RTS, 1 ITS), 6 
non adopted 

documents 

  Regulation  1286/2014/EU  on  key 
for 
information 
insurance-
packaged 
based 
products 
(PRIIPs),  (  3  level  2  measures 
including  2  DA  and  1  RTS),  2 
adopted, 1 non adopted 

retail  and 
investment 

Total 

5 'level 1 texts' and 0 'level 2' text 

  7 'level 1 texts' 
  56  'level  2'  texts:  33  adopted, 

23 non adopted 

11.4.2   Simulations for Option 2 

Adjusting  the  MS  contributions  according  to  the  size  of  their  respective  financial  market 
(measured by a measure of value added by the financial sector; produced by Eurostat), would 
result to the following (adjusted) allocations:   

119 The Solvency I 'Package' is considered as a unique legislative framework for this Table.  

128 

 
 
 
 
 
 
 
 
 
                                                            
Table 1 

Country 

Adjusted MS key (%) 

Baseline (%) 

UK 
Germany  
France 
Italy 
Netherlands 
Spain 
Belgium 
Sweden 
Poland 
Ireland 
Denmark 
Austria 
Luxembourg 
Portugal 
Greece 
Czech 
Republic 
Romania 
Finland 
Hungary 
Slovakia 
Bulgaria 
Croatia 
Cyprus 
Slovenia 
Latvia 
Lithuania 
Estonia 
Malta 

23.95 
15.94 
12.56 
12.11 
6.46 
5.50 
3.32 
2.63 
2.23 
2.15 
2.09 
1.84 
1.81 
1.22 
1.07 

0.90 

0.88 
0.74 
0.49 
0.44 
0.39 
0.35 
0.27 
0.20 
0.15 
0.10 
0.10 
0.08 

 Source: Eurostat 

8.24 
8.24 
8.24 
8.24 
3.69 
7.67 
3.41 
2.84 
7.67 
1.99 
1.99 
2.84 
1.14 
3.41 
3.41 

3.41 

3.98 
1.99 
3.41 
1.99 
2.84 
1.99 
1.14 
1.14 
1.14 
1.99 
1.14 
0.85 

Figure 1 illustrates the difference in MS contributions to ESAs funding between the Baseline 
and Option 2. 

Figure 1 

129 

 
 
MS contribution to ESAs funding: difference between Baseline and Option 2 

200%

150%

100%

50%

0%

-50%

-100%

UK DE NL LU FR IT

IE DK BE SE ES AT

FI PT EL PL CZ CY SK RO SI HR HU BG LV MT EE LT

Source: Eurostat and European Commission 

130 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Figure 2 shows the difference in MS contributions to ESAs funding under the EU28 and the 
EU27 scenarios. 

Baseline vs Adjusted Public Funding 

EU27

EU28

Figure 2 

200%

150%

100%

50%

0%

-50%

-100%

DE NL LU FR IT IE DK BE SE ES AT FI PT EL PL CZ CY SK RO SI HR HU BG LV MT EE LT

Source: Eurostat and European Commission 

11.4.3  Simulations for the allocation of private sector contributions across the financial 

industry (Options 3 & 4) 

Options 3 & 4 would involve implementing a methodology for the calculation of fees based 
on services provided by ESAs to each financial sector under their supervisory remit. 

For  the  purpose  of  these  simulations,  sectors  may  be  defined  according  to  types  of 
constituents  covered  in  the  sectoral  legislation  under  each  ESAs  remit.    For  example,  for 
EBA,  the  main  constituents  are  (a)  credit  institutions,  (b)  investment  firms,  (c)  payment 
institutions  and  (d)  electronic  money  institutions.  Other  entities  are  also  covered  by  EBA 
activities such as mortgage creditors which are not credit institutions, payment card schemes, 
processing  entities  or  ‘bureaux  de  change’.  There  are  other  constituents  in  the  scope  of  the 
EBA  such  as  public  bodies,  BRRD  holding  companies,  insurance  intermediaries,  ECAIs, 
CRAs or financial holding companies but they are only incidental to the core business of the 
EBA. 

In  the  case  of  ESMA,  the  main  constituents  are  (a)  Investment  Management  Companies 
(covering  Alternative  Investment  Fund  Managers,  European  Social  Entrepreneurship  Funds, 
European  Venture  Capital  Funds,  European  Long-term  Investment  Funds  (ELTIFs), 
Undertakings  for  Collective  Investment  in  Transferable  Securities  Directive  (UCITS)),  (b) 
investment  firms,  (c)  Markets  Infrastructures  (such  as  MTF,  Regulated  Markets,  Systematic 
Internalisers, CCPs, CSDs, Benchmark administrators) and (d) issuers.  

131 

 
 
 
 
For  EIOPA,  the  main  constituents  are  (a)  Insurance  undertakings  and  (b)  Institutions  for 
Occupational Retirement Funds (IOPRS). 

According to ESAs, there are currently 2,666 insurance undertakings and 1,573 IORPS under 
EIOPA's  remit;  2,500  Investment  management  companies,  8,250  Investment  firms,  350 
Market  infrastructures  (such  as  CCPs,  stock  exchanges,  systemic  internalisers,  trade 
repositories and MTFs), 45 CRAs and 10000 issuers under ESMA's remit; and 5,665 Credit 
institutions, 5,934 Investment firms and 2,500 Authorised payment institutions and electronic 
money institutions under EBA's remit. 

Methodology 

Based  on  their  Annual  Work  Program,  ESAs  can  identify  those  products  and  services 
specifically allocated to their sectoral work (e.g. Level 2 measures preparation, peer reviews, 
consumer protection, financial innovation, risk monitoring etc.).  Based on this identification 
ESAs  can  determine  the  cost  per  activity  in  terms  of  specific  staffing  costs120,  fixed  and 
operational121  costs.  Using  their  existing  Budgeting  IT  systems,  ESAs  could  allocate  these 
resources  to  sectors.  In  a  subsequent  stage,  fee  allocation  to  entities  could  be  further 
elaborated using appropriate distributional keys. 

The following simulations show how this methodology could be applied. The percentage of 
activity  to  a  given  sector  has  been  provided  as  a  preliminary  estimation  by  ESAs  based  on 
their latest annual work programmes. 

Simulation  1:  Percentage  of  activity  allocated  to  sectors  based  on  their  2018  estimated 
budget  –  an  EIOPA  example  assuming  full  private  funding  (i.e.  maximum  possible 
contribution from private sector) 

 ector 
    As remit 

within 

% 
activity 
in  year 
2017 

Estimated 
Budget 
allocation   

Estimated 
No. 
entities  

Average 
fee 
per 
entity  

Indicative 
Distribution key 

Insurance 
undertakings  

85%  

21 6M€  

2,666 

8 102€  

Gross 
premiums 

written 

120   Specific staffing costs involved data to the level of the proportion of each member of staff who it is planned 
will  work  on  the  activity.  By  using  averages  based  on  contract,  training  and  other  staffing  costs  it  was 
possible to establish reasonably accurately the staffing costs for the activity. A similar principle was applied 
to fixed costs such as rent. 

121   According to EIOPA, each activity may also have operational costs assigned, which are allocated based on 
pre-defined  and  agreed  need.  For  example,  if  an  activity  requires  the  procurement  of  a  new  software 
package, a request is defined within their initial plans. Once approved, it is included in the budget and plan, 
with records maintained on where the demand originates so that it is possible, for management purposes, to 
keep track and report on the data. 

132 

 
 
 
                                                            
15%  

3.8M€  

1,573122 

2 415€  

Total assets 

for 

Institutions 
Occupational 
Retirement  Funds 
(Pension Funds)* 

*According to EIOPA's register 

Simulation  2:  Percentage  of  activity  allocated  to  sectors  based  on  their  2018  estimated 
budget – an ESMA example assuming full private funding 

 ector  within 
   As remit 

% 
activity 
in 
year2018 

Estimated 
Budget 
allocation  

Estimated 
No. 
entities  

Average 
fee 
per 
entity  

Indicative 
Distribution key  

Investment 
management 
companies  

Investment 
firms  

Market 
infrastructures  

5%  

2.1M€  

2,500  

840€  

Assets 
management 

under 

21%  

8.7M€  

8,250  

1 050€  

Turnover 

24%  

10M€  

350  

28 600€  

Turnover 

CRAs  

33%  

13.7M€  

45  

304 000€   Turnover 

Issuers  

17%  

7.2M€  

10,000  

720€  

Market 
Capitalisation 

122   Data for 19 EU countries as GR, IE, RO and UK haven't provide relative info on EIOPA's register 

133 

 
 
 
 
 
 
 
 
                                                            
Simulation  3:  Percentage  of  activity  allocated  to  sectors  based  on  their  2018  estimated 
budget – an EBA example assuming full private funding 

 ector  within 
  As remit 

% 
activity 
in  year 
2017 

Estimated 
Budget 
allocation  

Estimated 
No. 
entities  

Average 
fee 
per 
entity  

Indicative 
Distribution key  

83%  

34 8M€  

5,665  

6 778€  

Total assets 

9%  

3 8M€  

5,934  

640€  

Turnover 

8%  

3 3M€  

2,500 

1 320€  

Turnover 

Credit 
institutions 

Investment 
firms 
EBA's remit  

under 

Authorised 
payment 
institutions  and 
electronic 
money 
institutions 

11.4.4  Overview of costs of preferred options 

Overview of costs (overheads excluded)– Preferred options 
Indicative costs of indirect supervision (ESAs core financing) and new direct supervisory powers for ESMA 

Citizens/Cons
umers  

One-
off 

Recurre
nt 

Businesses 

Administration (ESAs) 

One-off 

Recurrent 

One-off 

Recurrent 

costs 
for 

No 
involved 
citizens/consu
mers 

ITcost    estimated  at 
EUR  500,000 
for 
ESMA. 

Entities indirectly supervised by 
the ESAs will pay a contribution 
which  should  be  waived  from 
their 
national  CA 
contribution  Entities  will  not  be 
charged  twice  for  ESAs  indirect 
supervision. 

current 

Considering  the  high  population 
of  entities  that  will  be  indirectly 
supervised (more than 20,000 for 
ESMA,  10,000  for  EBA  and 
4,000  for  EIOPA), 
total 
amount  to  be  distributed  will 

the 

134 

in 

See  estimations  below 
on 
contributions 
collection 
the 
The  changes 
structure 
governance 
and 
indirect 
supervisory  powers  of 
the  ESAs  could  imply 
additional 
human 
resources  estimated  at 
9 
and 
FTEs 
for 
respectively 
EIOPA,  ESMA  and 
EBA,  19,  25  and  15 

of 

Costs 
indirect 
supervision 
(ESAs  core 
financing  – 
per ESA)   

 
 
 
 
Collection  of 
contribution
s 
the 
by 
industry  (via 
NCAs) 

New  direct 
supervisory 
powers 
for 
ESMA  and 
resulting 
costs  

FTEs. 

Translation  costs  at 
for 
200,000 
EUR 
EIOPA and EBA, EUR 
1,000,000  for  ESMA. 
IT 
at  EUR 
100,000 for ESMA. 

cost 

2016 

result  in  individual  contributions 
(per  head  count)  ranging  (under 
the 
between 
EUR338  and  EUR16,457  (value 
at 60% coverage of total budget). 
Weighted average = EUR1,301  

budget) 

on 
simulations 
Indicative 
contributions 
to  entities  are 
provided in Annex 11.4. 3. under 
the  extreme  scenario  of  100% 
industry funding or total share to 
be  funded  by  the  industry  at 
approximately 100m euros. 

impact 

The  net 
stakeholders 
sections 8.4.2 and 8.4.3.2.   

is  discussed 

to  various 
in 

 No direct costs involved. 

costs 
for 

No 
involved 
citizens/consu
mers 

costs: 

IT 
1,000,000 
costs  

EUR 
one-off 

EUR  200,000  euros  and 
5 FTEs  

Collection  systems  will 
be  further  assessed  in  
the  delegated  act  as 
discussed  in  p.[78]  of 
the IA 

be 

Collection  systems 
will 
further 
impact  assessed  in  
the  delegated  act, 
mentioned on p.[78] 
of the IA 

costs 
for 

No 
involved 
citizens/consu
mers 

For existing entities,  any shift  of 
direct  supervisory  powers  for 
ESMA  will  generate  recurring 
fees for doing business similar to 
those  paid  to  national  CAs.  The 
net  impact  should  be  therefore 
neutral.  In  areas  where  direct 
powers  do  not  exist  at  national 
level  (e.g.  benchmarks)  entities 
under direct supervision will bear 
a  new  cost  to  be  established 
according  to  the  population  of 
entities  (for  which  we  do  not 
have data). 

IT  costs  for  EUR 
3,000,000 
(EUR 
2,000,000  for  data 
management  in  the 
supervision  of  data 
service 
providers 
and  EUR  500,000 
EU-
for 
each 
labelled  funds  data 
and 
management 
prospectuses 
data 
management) 

direct 

supervision, 

For 
fee 
allocation, fee levels and relevant 
modalities  have  been  always 
defined in a delegated regulation. 
This  was  the  case  for  Credit 
(see  COM 
rating 

agencies 

135 

Based  on  experience  of 
national  CAs,  it  can  be 
estimated that  
about  32  FTEs  are 
needed  for  prospectus 
approval.  
6 
be 
FTE  would 
necessary  to  supervise 
about  120  European 
funds. 
investment 
Resources 
for 
benchmark  supervision 
can  be  estimated  at  6 
FTEs.  Supervision  of 
data  reporting  services 
providers  may  require 
22 additional FTEs. 
4 
the 
collection  mechanism 
and funding. 

FTEs 

for 

 
 
 
 
 
 
 
 
 
 
 
 
delegated  regulation  272/2012) 
and  Trade  repositories  (COM 
delegated  regulation  1003/2013). 
supervised 
Current 
entities  pay  depending  on  the 
size of their activities. 

directly 

these 

estimates, 
To 
overheads  need  to  be 
added  (typically  in  the 
range  of  10%  to  20%), 
in  the  form  of  lawyers, 
accountants  and  other 
specialist  support.  Such 
in  head 
an 
counts  may  also  require 
a considerable extension 
of  ESMA's  office  space 
IT 
office 
and 
equipment.  

increase 

and 

11.5  Evaluation of the ESAs operations 

Section 1 Executive Summary 

With  a  view  to  safeguarding,  financial  stability,  adequate  investor/consumer  protection  and 
market  integrity,  the  EU  internal  market  for  financial  services  requires  common  rules  and 
strong  regulatory  and  supervisory  convergence  among  the  Member  States.  When  the  EU 
overhauled the regulatory and supervisory framework for its financial system in response to 
the financial crisis of 2008/9, in line with global efforts, it introduced a Single Rulebook for 
financial regulation in Europe and created the European Supervisory Authorities ("ESAs") as 
part  of  the  European  System  of  Financial  Supervision  ("EFSF")  to  help  in  developing  and 
implementing  those  single  rules.  To  this  end,  the  ESAs'  must  also  address  potential  cross-
border  frictions  within  the  internal  market  by  promoting  regulatory  and  supervisory 
convergence.  In  meeting  these  various  objectives,  the  ESAs  constitute  an  "institutional 
cornerstone" of the comprehensive EU financial-sector reform package put in place in recent 
years. 

This report evaluates the functioning of the ESAs in the context of the Commission's review 
of the EFSF and also responds to the requirements for an evaluation report set out in Article 
81 of the ESAs' founding regulations. The evaluation focuses on the effectiveness, efficiency, 
relevance,  coherence  and  added  value  of  the  ESAs  in  pursuing  their  objectives,  and  to 
recommend  ways  to  improve  the  framework  within  the  ESAs  operate  in  light  of  future 
challenges.  The  scope  of  the  report  is  limited  to  EU  framework  for  micro-prudential 
supervision (and so does not cover the EU framework for macro-prudential supervision and 
the functioning of the European Systemic Risk Board). 

The  evaluation  finds  that  the  ESAs  have  broadly  delivered  on  their  objectives.  They  have 
contributed  significantly  to  development  and  implementation  of  the  Single  Rulebook  by 
(a) providing essential technical advice to the Commission in the preparation of its proposals 
for primary legislation and (b) making an important technical contribution in the adoption of 
secondary legislation. In this context, they have managed a very heavy regulatory workload 

136 

 
 
 
 
identifying  and  addressing  potential  cross-border  friction 

(e.g.  preparation  of  more  than  40  pieces  of  primary  legislation  and  hundreds  of  regulatory 
technical standards), delivering high-quality output generally within tight specified deadlines. 
The ESAs have also contributed to advancing regulatory and supervisory convergence among 
in 
the  Member  States, 
implementation  of  the  single  rules.  However,  progress  in  the  area  of  convergence  has  been 
constrained by limitations in the powers of the ESA to resolve differences in implementation 
of rules among national authorities (e.g. reliance on non-binding guidelines). Furthermore, the 
ESAs'  powers  have  been  rendered  less  effective  by  challenges  related  to  their  governance 
structure,  whereby  the  absence  of  a  more  centralised  decision-making  process  has  made  it 
more  difficult  to  manage  conflicts  of  interest  within  the  ESA  Boards.  These  governance 
challenges  have  been  reflected  in  significant  delays  in  making  decisions  and  sometimes  no 
decisions at all. In terms of funding arrangements for the ESAs, the evaluation reveals that the 
current framework is unlikely to ensure, in a sustainable way, sufficient financial resources to 
enable  the  ESAs  to  operate  effectively  and  carry  out  the  tasks  that  they  will  be  required  to 
fulfil  as  financial  markets  –  notably  in  the  context  of  Capital  Markets  Union  (CMU)  -  
become progressively more integrated both within the EU and between the EU and the rest of 
the  world.  Finally,  the  evaluation  shows  that  the  current  sector-based  architecture  for  the 
ESAs has worked well and remains appropriate. Other potential architectures are conceivable 
(e.g. a so-called twin-peaks model in which supervision of banking and insurance is merged 
into one institution) and have been analysed extensively in academic literature. However, this 
analysis is inconclusive and there is no evidence arising from the evaluation to indicate that a 
change in the existing ESAs architecture would yield significant benefits in terms of meeting 
their objectives. 

On the above basis, the evaluation concludes that, while the functioning of the ESAs has been 
coherent, relevant and has delivered added value, there is scope for improvement with a view 
to  increasing  the  effectiveness,  efficiency  and  sustainability  of  the  ESA  framework  in  the 
context of more integrated financial markets within the EU and between the EU and the rest 
of the world. Such improvements relate to (a) powers, which could be enhanced in targeted 
ways  to  enable  them  to  better  perform  their  tasks  in  assuring  necessary  regulatory  and 
supervisory  convergence  among  the  Member  States;  (b)  governance,  which    could  be 
improved  to  facilitate  decision-making  by  better  managing  conflicts  of  interests  within  the 
Boards of Supervisors; and (c) funding arrangements, which need to be made consistent with 
the enhanced role envisaged for the ESAs in future years. These conclusions form the basis 
for  this  impact  assessment,  which  accompanies  the  Commission  proposal  to  reinforce  the 
ESAs framework. 

Section 2 Introduction 

In  response  to  the  financial  crisis  of  2008/9,  and  in  line  with  global  efforts,  the  EU  has 
overhauled  the  framework  for  financial  regulation  and  supervision.  This  comprehensive 
package  of  reforms  included  the  establishment  of  the  European  Supervisory  Authorities 
("ESAs"), which have played a key role in ensuring that the financial markets across the EU 
are functioning in an orderly manner and are well regulated and supervised.    

137 

 
 
Article  81  of  the  ESA  Regulations  mandates  the  European  Commission  ("Commission")  to 
carry  out  a  review  of  the  operations  of  the  ESAs  in  2017  and  to  draft  a  review  report 
accompanied by legislative proposals, if appropriate.123 Additionally, the Commission's Work 
Programme  for  2017  announces  a  review  of  the  European  System  of  Financial  Supervision 
(ESFS)  i.e.  the  system  comprising  the  ESAs  which  are  responsible  for  EU-level  micro-
prudential  supervision and the European  Systemic Risk Board (ESRB)  which is  responsible 
for  EU-level  macro-prudential  supervision.  In  the  context  of  these  reviews,  a  stakeholder 
consultation on the functioning of the ESAs was undertaken during the spring of 2017.124 

The Commission already carried out a first evaluation of the ESAs functioning in 2014. That 
evaluation  concluded  that  the  ESAs  had  performed  well,  but  nonetheless  the  Commission 
identified a number of issues that could be considered for improvement. These improvements  
related  broadly  to  (1)  powers  (e.g.,  an  increased  focus  on  supervisory  convergence,  more 
effective  use  of  existing  powers,  and  clarifications  of  and  possible  extensions  to  current 
mandates);  (2)  governance  (e.g.,  enhanced  internal  governance  to  ensure  that  decisions  are 
taken  in  the  interest  of  the  EU  as  a  whole);  (3)  funding  framework  (replacing  the  current 
framework);  and  (4)  supervisory  architecture  (assessment  of  structural  changes  such  as 
merging the authorities into a single body and seat or introducing a twin-peaks approach).125   
These  four  categories  broadly  correspond  to  the  areas  listed  for  review  in  Article  81  of  the 
ESA  Regulations.  However,  because  the  2014  evaluation  took  place  after  a  very  short 
observation period (after less than three years of operation)126 and because the regulatory and 
supervisory  environment  was  still  uncertain,127  the  Commission  considered  it  premature  to 
propose legislative changes at that point in time. 

In  October  2013,  the  European  Parliament  ("Parliament")  had  conducted  a  review  of  the 
ESAs.128  Some of the conclusions were similar to those of the Commission in terms of the 

123   Regulation  (EU)  No  1093/2010  of  the  European  Parliament  and  of  the  Council  of  24  November  2010 
establishing  a  European  Supervisory  Authority  (European  Banking  Authority)  amending  Decision  No 
716/2009/EC and repealing Commission Decision 2009/78/EC , OJ L 331, 15.12.2010, page 12; Regulation 
(EU)  No  1094/2010  of  the  European  Parliament  and  of  the  Council  of  24  November  2010  establishing  a 
European  Supervisory  Authority  (European  Insurance  and  Occupational  Pensions  Authority)  amending 
Decision No 716/2009/EC and repealing Commission Decision 2009/78/EC, OJ L 331, 15.12.2010, 48; and 
Regulation  (EU)  No  1095/2010  of  the  European  Parliament  and  of  the  Council  of  24  November  2010 
establishing  a  European  Supervisory  Authority  (European  Securities  and  Markets  Authority)  amending 
Decision  No  716/2009/EC  and  repealing  Commission  Decision  2009/78/EC,  OJ  L  331,  15.12.2010,  page 
84. 

124   For the macro-prudential leg of the ESFS, see the consultation that was published in August 2016 and the 

following summary report published in December 2016. 

125   Other  recommendation  include:  direct  access  to  data  when  necessary;  possible  strengthening  of  dispute 
settlement powers and further assessment of possible structural changes including a single location for the 
ESAs and extended direct supervision powers. 

126   Recognised by virtually all stakeholders, including the Commission and Parliament. 
127    The evaluation was carried out pending negotiations and the entry into force of revised sectoral legislation 
and of the establishment of the Single Supervisory Mechanism, the Single Resolution Mechanism and the 
Single Resolution Board. 

128   See the report published in October 2013 by the Parliament on the ESAs and the ESFS: Review of the New 

European System of Financial Supervision (ESFS), IP/A/ECON/ST/2012-23, October 2013. 

138 

 
 
                                                            
performance  of  the  ESAs,  notably  including  the  fact  that  the  observation  period  was  very 
short.    The  Parliament  report  contained  a  detailed  list  of  items  for  improvement,  some  of 
which  would  require  legislative  changes.   Additionally,  in its  March  2014  resolution  on  the 
ESFS review, the Parliament requested the Commission to submit new legislative proposals 
for  the  revision  of  the  ESAs  in  areas  including  governance,  representation,  supervisory 
cooperation and convergence, and the enhancement of powers.129   

The Council concluded in November 2014 that targeted adaptations should be considered in 
order to improve the ESAs performance, governance and financing. 

 While the broader scope for this second Commission evaluation is defined by Article 81 of 
the  ESA  Regulations,  particular  consideration  has  been  given  to  issues  raised  in  previous 
evaluations. Stakeholder claims (including those made in the context of the Commission's call 
for evidence and of the Capital Markets Union as well as in the 2017 stakeholder consultation 
dedicated  to  the  operations  of  the  ESAs130  )  are  also  taken  into  account.  The  scope  of  the 
evaluation does not cover macro-prudential oversight.  This is because the review of the EU 
macro-prudential framework started much earlier than the review of the ESFS was announced 
in the Commission's work programme and also before work on the ESA framework started.  
The  review  of  the  macro-prudential  framework  is,  therefore,  developed  separately  but  is 
nevertheless related to the ESAs review. Accordingly, due account has been taken of the work 
carried out within the context of the EU's macro-prudential framework, especially in relation 
to  the  coordination  of  micro-  and  macro-prudential  policy.  Any  legislative  proposals  on  the 
ESAs will be put forward together with proposals that follow on the review of the European 
Systemic Risk Board ("ESRB"). 

The functioning of the ESAs has  been  evaluated against  their  general objectives to enhance 
consumer and investor protection and sustainably reinforce the stability and effectiveness of 
the  financial  system  throughout  the  EU.131    In  line  with  Better  Regulation  principles,  the 
effectiveness,  efficiency,  coherence,  relevance  and  EU  added  value  of  the  ESAs'  operations 
have been assessed.132  As a result of the conclusions made in this evaluation, the Commission 
will put forward a proposal for legislative amendments to the ESA Regulations.  The results 
of  this  evaluation  have  consequently  also  informed  the  problem  definition  of  the  impact 
assessment to which this evaluation is annexed. 

Section 3 Background to the initiative 

Description of the situation before the creation of the ESAs  

129   European  Parliament  resolution  of  11  March  2014  with  recommendations  to  the  Commission  on  the 

European System of Financial Supervision (ESFS) Review (2013/2166(INL)). 

130   For a synopsis report on the latter, see Annex11.2 
131   See Article 1(5) of the ESA Regulations. 
132   See chapter VI (page 56) of the Better Regulation Guidelines. 

139 

 
 
                                                            
Before  the  creation  of  the  ESAs,  the  system  of  micro-prudential  supervision  in  the  EU  was 
predominantly  nationally  based;  i.e.  it  was  based  on  the  principle  of  home-country  control 
combined  with  minimum  prudential  standards  and  mutual  recognition.  Under  this  system  a 
financial  institution  was  authorised  and  supervised  in  its  home-country  and  could  expand 
throughout the EU either by: 

(a) offering cross-border services in other EU Member States or establishing branches in those 
States  without  additional  supervision  (i.e.  the  host  country  was  required  to  recognise 
supervision from the home-country authorities on most prudential issues); or 

(b) more typically, financial institutions have chosen to operate through subsidiaries (separate 
legal  entities)  in  the  host  countries.    Those  subsidiaries  have  to  be  separately  licensed  and 
supervised by the host country authorities.  However, in practice the scope for control by host 
countries  of  these  subsidiaries  is  limited  as  key  decisions  are  often  taken  by  the  parent 
company in the home country and the financial health of the subsidiary is closely linked to the 
well-being of the financial group as a whole. The primary effective control of large financial 
groups  as  a  whole  was  (and  is)  therefore  essentially  in  the  hands  of  the  group  consolidated 
supervisor in the home country. 

Irrespective  of  how  cross-border  banking  is  provided,  there  is  a  need  for  close  cooperation 
among  national  supervisors.  Before  the  ESAs,  cooperation  among  national  supervisory 
authorities took place mainly through the following framework: 

 

 

 

 

the  three  “Level  3  Lamfalussy   ommittees  of  Supervisors"  (i.e.  the  Committee  of 
European Banking Supervisors ("CEBS"), Committee of Insurance and Occupational 
Pension  Supervisors  ("CEIOPS")  and  the  Committee  of  European  Securities 
Regulators  ("CESR"))  that  were  established  between  2001  and  2004.  Those 
Committees  had  been  established  to  ensure  supervisory  convergence,  to  facilitate 
agreement on common application of EU rules and to help build mutual trust among 
supervisors.    Those  Committees  were  from  an  institutional  perspective  part  of  the 
Commission,  but  had  no  regulatory  or  executive  powers  and  acted  on  the  basis  of 
consensus or in some cases qualified majority voting.  They were originally funded by 
the Member States as members of the Committees and contributions were based on the 
number  of  votes  held  in  Council.    At  one  point,  they  began  to  receive  contributions 
from the EU Budget; 

via meetings of national authorities within the Council;  

colleges of supervisors that at the time were just in their infancy and focused on the 
larger financial institutions in the EU; and 

ad  hoc  bilateral  Memoranda  of  Understanding  between  national  supervisory 
authorities. 

Experience  of  the  financial  crisis  exposed  important  failings  in  the  existing  framework  for 
financial  supervision,  both  in  particular  cases  (micro-prudential)  and  in  relation  to  the 
financial  system  as  a  whole  (macro-prudential).  The  predominantly  nationally-based 

140 

 
 
supervisory  arrangements  proved  inadequate  to  manage  a  crisis  in  the  by-then  highly 
integrated  and  interconnected  financial  markets  within  the  EU.    In  particular,  the  crisis 
exposed  important  divergences  among  Member  States  in  implementing  the  existing  rules. 
Thus, in addition to overhauling the pre-crisis EU regulatory framework, there was an urgent 
need  to  address  serious  failings  in  the  cooperation,  coordination and  consistency  of  national 
supervisors in implementing the new post-crisis regulatory framework. These problems were 
not  confined  to  the  EU  and,  at  the  same  time,  there  were  calls  to  build  a  stronger,  more 
consistent, regulatory and supervisory system for the global financial system within the G20 
framework.133 

In November 2008, the Commission mandated a High Level Group chaired by Mr Jacques de 
Larosière  to  propose  recommendations  to  the  Commission  on  how  to  strengthen  European 
supervisory  arrangements.  The  de  Larosière  group  presented  its  vision  for  a  new  system  of 
European financial supervision in February 2009.  At the core of this vision was a proposal to 
create the ESAs, so as to strengthen coordination and cooperation among national supervisors.  
The  group  considered  that  the  then  existing  co-operation  mechanisms  did  not  have  the 
potential  to  correct  the most  serious  inefficiencies  in  cross-border  supervision.  In  particular, 
the de Laroisiere Group highlighted the fact that supervisors could not take binding decisions 
at  the  EU  level.    This  meant  that  national  supervisors  were  taking  decisions  on  the  basis  of 
domestic considerations, even when the problems at hand had a significant EU dimension and 
would require coordinated decisions and actions in order to achieve the best possible outcome 
for all.   

Building on the recommendations made by the de Larosière group, the Commission issued a 
Communication in May 2009 setting out the basic architecture for a new European financial 
supervisory  framework.134    The  Commission  proposed  that  the  new  financial  supervisory 
system (EFSF) be composed of two pillars.  The first pillar would consist of a body that would 
monitor  and  assess  potential  threats  to  financial  stability  that  arise  from  macro-economic 
developments and from developments within the financial system as a whole (which is now 
the  ESRB).    The  second  pillar  would  consist  of  a  network  of  national  financial  supervisors 
working  in  tandem  with  EU  level  supervisory  authorities  (now  the  ESAs)  to  safeguard 
financial soundness  at the  level  of  individual  financial  institutions  and protect  consumers  of 
financial  services  (micro-prudential  supervision).    On  micro-prudential  supervision  it  was 
more specifically proposed that the ESAs take over the role of the Committees of Supervisors 
but with a broadened remit including a range of responsibilities of a regulatory as well as of a 
supervisory nature.  The Communication was accompanied by an impact assessment. 

The  legislative  proposals  for  creating  the  ESAs  were  also  accompanied  by  an  impact 
assessment, which identified several problems relating to the existing supervisory system: (I) 
an  imbalance  of  interests  of  the  home  and  host  countries  (resulting  in  a  misalignment  of 
incentives in particular in cross-border crisis management); (2) risks of competitive distortions 

133   See the London Summit Statement of April 2 2009. 
134   See  the  Communication  from  the  Commission  European  financial  supervision,  Brussels  27.5.2009, 

COM(2009) 252 final. 

141 

 
 
                                                            
in the internal market and of regulatory arbitrage by financial institutions (arising in part from 
differing  supervisory  rules  and  practices);  (3)  insufficient  co-operation  and  information 
exchange between national supervisors; and (4) excessive costs and administrative burden to 
cross-border companies due to fragmented and inconsistent financial supervision. 

The  European  Banking  Authority  ("EBA"),  the  European  Insurance  and  Occupational 
Pensions Authority ("EIOPA") and the European Securities and Markets Authority ("ESMA") 
– collectively the ESAs - were established early 2011 to address these problems.  Compared to 
the Committees of Supervisors they were granted additional powers to ensure a more effective 
and  coherent  supervision  across  the  EU,  their  organization  and  structure  was  modified  to 
incentivize  that  powers  be  used  in  an  appropriate  manner,  and  a  funding  framework  was 
developed  to  ensure  that  the  ESAs’  resources  would  be  stable  and  allow  them  to  operate 
effectively and efficiently and with independence. 

Description of the ESAs 

The ESAs began operating as independent EU agencies in January 2011. The regulatory tasks 
of the ESAs relate to the development of the Single Rulebook and include providing technical 
advice to the Commission on Level 1 and Level 2 rules and, in the case of Level 2 rules in the 
form  of  Binding  Technical  Standards,  providing  the  Commission  with  proposals  for  such 
rules.  The ESAs also adopt guidelines and recommendations addressed to national competent 
authorities (NCAs) or financial institutions.   

Broadly  speaking,  the  ESAs  supervisory  powers  are  intended  to  support  the  pan-EU 
supervisory  convergence  and  co-ordination.  These  include  peer  review  powers  as  well  as 
powers  to  mediate  between  NCAs  where  conflicts  arise.    When  an  emergency  situation  is 
declared  by  the  Council,  the  ESAs  have  enhanced  powers  to  coordinate  Member  States' 
responses  and,  if  necessary,  make  binding  decisions  on  CAs  or  on  individual  financial 
institutions.  ESMA also has direct supervisory powers over credit-rating agencies and trade 
repositories.135 

The decision-making bodies of the ESAs are their respective Boards of Supervisors, chaired 
in  each case by a  permanent  ESA chairperson. The voting members of the ESAs Boards  of 
Supervisors  are  the  heads  (or  alternates)  of  the  relevant  NCAs.    The  permanent  ESA 
Chairperson and Executive Director do not have voting rights. 

The ESAs are funded by contributions from NCAs and the EU Budget in a ratio of 60:40. In 
accordance with sectoral legislation, ESMA receives fees directly from credit rating agencies 
and trade repositories as a result of its direct supervisory responsibilities.  

It  is  important  to  note  that  while  the  ESAs  have  responsibilities  for  micro-prudential 
supervision at  EU  level,  day-to-day supervision is  still conducted  at  national  level  (with  the 

135   In accordance with the European Market Infrastructure Regulation (EMIR, Regulation (EU) No 648/2012), 
ESMA is responsible for the   registration, withdrawal of registration and supervision of trade repositories; 
Regulation  (EU) No 462/2013 of  the  European Parliament  and  of  the Council  of 21 May 2013  amending 
Regulation (EC) No 1060/2009 on credit rating agencies, OJ L 146, 31.5.2013, p. 1–33 

142 

 
 
                                                            
notable exception of the SSM for significant institutions and ESMA in relation to credit rating 
agencies and trade repositories). 

The objectives of the ESAs 

The overall objective of the ESAs is to protect the public interest by contributing to the short, 
medium and long-term stability and effectiveness of the financial system for the EU economy, 
its citizens and businesses.  More specifically they should contribute to: 

a) 

b) 

c) 

d) 

e) 

improving  the  functioning  of  the  internal  market,  including,  in  particular,  a  sound, 
effective and consistent level of regulation and supervision; 

ensuring  the  integrity,  transparency,  efficiency  and  orderly  functioning  of  financial 
markets;  

strengthening international supervisory coordination; 

preventing regulatory arbitrage and promoting equal conditions of competition; 

ensuring  that  risks  in  their  respective  sectors  are  appropriately  regulated  and 
supervised; and 

f) 

enhancing consumer protection. 

The  intervention  logic  below  provides  an  illustration  of  the  creation  of  the  ESAs,  their 
objectives,  how  they  were  expected  to  work  and  what  they  were  intended  to  achieve.

143 

 
 
A coherent, efficient and effective EU level supervisory system that sustainably contributes to reinforcing the stability and effectiveness of the financial system throughout the 
EU. 

Need
s 

Specific  
Objectives 

Enhancing 
consumer 
and 
investor 
protection 

Promoting the integrity, 
transparency, efficiency and well-
functioning of financial markets, 
and the robustness of market 
participants and infrastructures. 

Improving the functioning of 
the internal market, including 
in particular a sound, 
effective and consistent level 
of regulation and supervision 

Strengthening 
international 
supervisory 
coordination 

Preventing 
regulatory arbitrage 
and promoting 
equal conditions of 
competition 

Ensuring that risks in 
the respective sectors 
are appropriately 
regulated and 
supervised 

Inputs  

Output
s  

Results  

Impacts  

Powers to contribute coherent, consistent 
and effective supervision across all EU 
Member States via all of the ESAs 
interventions, both legally binding and 
non-legally binding ones 

A governance structure which ensures that 
powers are used in an appropriate manner 

Funding levels that are sustainable and 
commensurate to what is necessary, operating 
efficiently, to effectively fulfil the ESAs objectives 
and tasks  

The ESFS and ESA Regulations 

Greater oversight of risk to 
consumers, investors, 
markets and of financial 
stability 

Completion of the Single 
Rulebook 

Supervisory convergence 

Closer cooperation and 
exchange of information 
among national 
supervisors 

EU solutions to cross-border 
problems 

Increased financial integration 

Greater financial stability 

More consumer and investor protection 

144 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The baseline (before the adoption of the ESA Regulations) 

The 2010 ESA Regulations were fundamental to the improved organization of the supervision 
of  financial institutions  and  markets  in  the  EU  after  the  2008/9  crisis.   In  their  absence,  the 
baseline scenario is one in which the EU would have continued to build on nationally based 
supervisory  arrangements  where  the  principle  of  home  country  control  combined  with 
minimum  prudential  standards  and  mutual  recognition  would  prevail.    In  the  baseline 
scenario,  it  would  have  been  possible  to  continue  relying  on  the  existing  Committees  of 
Supervisors,  which  were  merely  advisory  bodies  to  the  Commission,  and  the  colleges  of 
supervisors.  Decisions by the Committees of Supervisors were generally taken by consensus 
or qualified majority voting. Qualified majority voting for decision making would have helped 
to  accelerate  the  process  of  convergence  in  the  implementation  of  EU  law.  Moreover,  if 
colleges of supervisors were up and running, co-operation and information exchange between 
national supervisory authorities should be functional.   

The  baseline  would  nevertheless  have  remained  sub-optimal.  The  existing  co-operation 
mechanisms would have been weak and would not have allowed supervisors to take binding 
decisions  at  EU  level.    National  supervisors  would  have  continued  to  take  decisions 
predominantly on the basis of domestic considerations, even when the problems at hand had a 
European  dimension  and  required  coordinated  decisions  and  actions  in  order  to  achieve  the 
best possible outcome for all.  The fact that many decisions would have required  consensus 
would  imply  inaction  biases,  with  home  country  authorities  and  host  country  authorities 
unable to agree. As national authorities would have a fiduciary responsibility to their national 
Parliaments/taxpayers, there would be no incentive for either home or host authorities to make 
decisions  in  the  common  interest  of  the  EU.  Such  inaction  bias  at  EU  level  –  could  easily 
result in conflicting actions at national level – and would be a very serious problem in the case 
of  a  banking  group  or  bank  that  is  systemically  relevant  in  a  host  country.  There  could  be 
spill-over effects across the EU financial system if that banking group is sufficiently large and 
interconnected. Such shortcomings in the supervisory framework would reflect problems both 
with the extent of EU-level supervisory powers and with the governance in decision-making 
linked to those powers. 

Problems with supervisory powers and governance would also be reflected in the day-to-day 
functioning  of  the  internal  market.  There  would  be  a  lack  of  consistent  rules,  powers  and 
sanctions  across  Member  States,  mainly  due  to  a  lack  of  harmonisation  in  certain  areas.  
Differences in supervisory practices, e.g., in areas where the host supervisor of a branch has 
supervisory  discretion,  or  in  cases  where  supervisors  take  different  perspectives  would  also 
remain. As a consequence there not be a level playing field across the EU and financial actors 
could  exploit  loopholes  and  arbitrage  opportunities,  undermining  the  overall  quality  of 
prudential risk management.  

The  establishment  of  the  ESAs  was  a  major  step  forward  in  the  formulation  and 
implementation  of  the  EU-level  regulatory  framework.  The  ESAs  were  provided  with 
expanded  powers,  improved  governance  and  increased  funding  relative  to  their  predecessor 
Committees. These enhancements allowed the ESAs to provide the necessary support to the 

145 

 
 
Commission in undertaken an extensive reform of the EU financial sector following the crisis. 
The reform of the financial sector has implied more than 40 pieces of primary legislation and 
more  than  40o  pieces  of  secondary  legislation  – all  of  which  have  been  put  in  place  within 
tight  deadlines.  The  ESAs  have  played  a  key  role  in  providing  technical  advice  to  the 
Commission in primary legislation and in formulating technical standards at secondary level, 
all,  of  which  required  the  ESAs  to  work  in  new  areas  and  reach  agreement  on  frequently 
difficult  compromises.  None  of  this  would  have  been  possible  without the  upgrading  of  the 
Supervisory Committees to the ESAs. Moreover, in the baseline scenario, it would have been 
difficult to even envisage the Banking Union or the CMU, which require a high degree of EU-
level harmonization in regulatory requirements as well as in supervisory practices. 

With the prospect of further financial integration within the EU (notably with the creation of 
the  CMU)  and  between  the  EU  and  the  rest  of  the  world  (both  organically  and  in  more 
discrete terms with BREXIT), the ESAs will face new challenges. Despite the improvements 
in EU level supervision implied by the establishment of the ESAs, it cannot be assumed that 
the  current  framework  in  which  they  function  will  be  adequate  to  the  task  in  the  years  to 
come.  Hence,  a  comprehensive  review  of  the  ESAs  framework  is  not  only  necessary  under 
Article 81 of the founding regulations but is also timely in the context of likely developments 
in the EU and global financial systems.  

Section 4 Methodology 

This evaluation has been carried out in-house by the Commission services and covers the time 
period  2014  to  2016.  No  analytical  models  have  been  applied.  It  is  based  on  desk  research 
(document and literature review), and draws support from the stakeholder consultation on the 
ESAs' operations, as well as  stakeholder consultations held within the context of the call for 
evidence and the CMU. Moreover, the evaluation builds on interviews and discussions  with 
ESA  staff,  on  written  information  provided  by  ESA  staff,  and  on  exchanges  with  Member 
States.    The  present  evaluation  also  builds  on  the  previous  evaluations  made  by  the 
Commission  and  the  Parliament,  on  Parliament  resolutions  and  on  Council  conclusions.    It 
also takes into consideration Parliament discharge hearings during the relevant time period. 

Limitations – robustness of findings 

The present evaluation was conducted on a back-to-back basis with the impact assessment on 
the ESA Regulations and has been carried out under a significant time constraint. It is based 
primarily on information provided by ESA staff, information from ESA published documents 
and informal evidence in relation to areas such as the ESAs' governance and powers. The level 
of quantification in the analysis is substantially constrained by the availability of relevant data.  
With the exception of the analysis of the ESAs' funding framework, the evaluation is therefore 
chiefly  based  on  a  qualitative  analysis,  cross-checking  information  from  different  sources. 
Support  for  analysis  in  the  evaluation  has  been  sought  in  the  various  stakeholder 
consultations. 

146 

 
 
Section 5 Implementation state of play  

The  ESAs  became  operational  on  January  1  2011  when  the  ESA  Regulations  became 
applicable.  This section focuses on the state of play in the following four main areas under 
evaluation:  (1)  powers;  (2)  governance;  (3)  funding  framework;  and  (4)  supervisory 
architecture and seat. 

Powers 

The  ESAs  derive  their  powers  from  the  ESA  Regulations.    Sectoral  legislation  further 
develops  when  these  powers  can  be  used.136    In  case  of  direct  supervisory  responsibilities 
(CRAs and trade repositories), ESMA derive its powers directly from sectoral legislation. 

The ESAs are tasked with a range of supervisory co-ordination and convergence tasks as well 
as with responsibilities of a regulatory nature.  The latter mainly relate to development of the 
Single  Rulebook  and include  providing  technical  advice  to  the  Commission  on  Level  1  and 
Level 2 rules  and,  in  the case of Level 2 rules  in the form  of Binding  Technical Standards, 
providing the Commission with drafts of such rules.  The ESAs’ responsibilities also include 
the adoption of guidance in relation to NCAs. The ESAs are also conferred with a range of 
supervisory  powers,  to  support  convergence  in  pan-EU  supervisory  practice  ("supervisory 
convergence").  These  supervisory  powers  include  developing  draft  technical  standards  (for 
adoption  by  the  Commission)  and  issuing  guidelines  and  recommendations.    They  also 
include the power to initiate peer reviews as well as powers to mediate between NCAs where 
conflicts arise. They also have certain product intervention powers. 

When an emergency situation is declared by the Council the ESAs have enhanced powers to 
coordinate Member States' responses and, if necessary, make binding decisions on NCAs or 
on individual financial institutions.  Similarly, the ESAs have a limited set of decision making 
powers in case of CAs incorrectly applying EU law. They also have a coordination function in 
this respect, which is exercised in the context of supervisory colleges.   

Beyond  their  coordination  role  in  emergency  situations  the ESAs  are  required  to  promote  a 
coordinated  Union  response,  particularly  in  adverse  market  conditions,  by  facilitating 
information  exchange  among  authorities,  determining  the  scope/reliability  of  information  to 
be made available by national authorities and centralizing information received, notifying to 
the  ESRB  potential  emergency  situations,  and  by  taking  all  appropriate  action  to  facilitate 
action by national authorities.  Finally, ESMA also has direct supervisory powers over credit 
rating agencies and trade repositories. 

136   The  term  "sectoral  legislation"  is  used  in  this  report  for  regulations  and  directives  regulating  financial 
services and banking in the Union and to separate this body of legislation from the ESA Regulations which 
do not deal with the substance of financial services and banking.   

147 

 
 
 
 
                                                            
Governance 

The Board of Supervisors, which is the main decision-making body of the ESA, consists of 
the  Chairperson  (appointed  by  the  Board  of  Supervisors),  the  head  of  the  national  NCA  in 
each Member State, and one representative each from the Commission, the ESRB, the other 
two  ESAs,  the  EEA-EFTA  States  and  the  EFTA  Surveillance  Authority.  The  Boards  of 
Supervisors give guidance to the work of the ESAs and are in charge of taking decisions in 
relation to all tasks and powers of the ESAs except in respect of internal staff policy, access to 
ESA internal documents and with regard to the appointment of Board of Appeal members.    

The  ESAs  are  to  serve  the  common  interests  of  the  EU  as  a  whole  and  decisions  are  to  be 
taken in that spirit. As a general rule, the Board of Supervisors should take its decisions by 
simple majority in accordance with the principle where each member has one vote.  However, 
for  regulatory  and  implementing  technical  standards,  guidelines  and  recommendations,  for 
budgetary matters as well as in respect of requests by a Member State to reconsider a decision 
by  the  ESAs  to  temporarily  prohibit  or  restrict  certain  financial  activities,  the  rules  of 
qualified majority voting apply as in the Council.  Only the representatives of the 28 national 
NCAs can vote.  

The  Management  Board  is  composed  of  the  Chairperson  and  six  members  of  the  Board  of 
Supervisors  (i.e.  NCAs).    An  Executive  Director  and  a  representative  of  the  Commission 
participate as observers (except on budget matters where the Commission has a right to vote).  
The only formal tasks of the Management Board relate to internal administrative issues and 
making  proposals  in  relation  to  the  ESA's  work  programme  and  budget.    There  is  great 
disparity  in  the  task  distribution  between  the  Management  Board  and  the  Board  of 
Supervisors. 

The  Chairpersons  of  the  ESAs'  Boards  of  Supervisors  are  appointed  by  the  Board  of 
Supervisors  following  an  open  selection  process  and  a  hearing  before  the  Parliament.    The 
Chairpersons'  only  formal  tasks  comprise  the  preparation  of  the  work  of  the  Boards  and 
chairing the Board meetings.  They do not have voting rights. 

In  order  to  ensure  cross-sectoral  consistency  in  their  activities  the  ESAs  coordinate  closely 
through  a  Joint  Committee  and  reach  common  positions  where  appropriate.    More 
specifically, the Joint Committee coordinates the functions of the ESAs in relation to financial 
conglomerates and other cross-sectoral matters. 

Stakeholder groups 

To ensure a structured dialogue with stakeholders, the ESA Regulations establish specialised 
stakeholder  groups  for  each  ESA.    They  are  supposed  to  facilitate  consultation  with 
consumers, users and providers of financial services.  Each stakeholder group is composed of 
experts  on  the  sector  in  question,  representing  a  broad  scope  of  stakeholders  including 
financial  institutions,  employees'  representatives,  consumers  and  users  of  financial  services, 
representatives  of  SMEs  and  academics.    Stakeholder  group  members  are  appointed  by  the 
ESAs Boards of Supervisors.   

148 

 
 
The  stakeholder  groups  are  consulted  when  developing  draft  technical  standards,  guidelines 
and recommendations and may also submit opinions and advice on their own initiative. 

Funding framework 

As  the  ESAs  were  granted  additional  powers  compared  to  the  Committees  of  Supervisor  it 
was recognized that they would require additional staff and hence that the budgetary needs of 
the ESAs would be greater than for the Committees.  However, the mix of member and EU 
Budget contributions were maintained. 

The ESA Regulations stipulate that the ESAs can be funded by obligatory contributions from 
the  NCAs,  by  a  subsidy  from  the  Union  and  by  any  fees  paid  to  the  ESAs  in  the  cases 
specified  in  the  relevant  instruments  of  Union  law.137     urrently   the  ESAs’  revenues  are 
based on contributions from national NCAs (60 percent) and from the General EU Budget (40 
percent).  In addition, ESMA receives some of its funding from the private entities it directly 
supervises i.e., credit rating agencies and trade repositories.   

The  annual  EU  contribution  to  the  ESAs'  funding  is  decided  within  the  framework  of  the 
Multiannual  Financial  Framework  ("MFF"),  and  more  specifically  within  that  of  a 
Commission  Communication  of  10  July  2013  on  the  programming  of  human  and  financial 
resources for decentralised agencies 2014-2020.138  The MFF lays down the maximum annual 
amounts ("ceilings") which the EU may spend in different political fields over a period of at 
least  five  years.    The  Communication  sets  out  precise  figures  for  number  of  staff  members 
and  budgets  for  each  EU  agency  for  each  year  up  to  2020.    In  principles,  the  ceilings  set 
cannot be surpassed which means that there is no room for allocating funding for growth or to 
insufficiencies if that means the ceiling would have to be surpassed.139 

The Member States' contributions are proportionate to their shares of votes under the Council 
qualified majority voting rule.   

The ESAs use activity based budgeting for developing their annual draft budgets which means 
that  there is  a  strong  connection  between  their annual  work  programs  and  the  estimation  of 
resources.    As  the  ESAs  are  recipients  of  EU  Budget  contributions,  the  EU's  Framework 
Financial  Regulation  ("FFR")140  is  their  main  point  of  reference  for  the  principles  and 
procedures governing the establishment, implementation and control of their budgets.  To that 
end they have adopted their own internal financial regulations that mirror the provisions of the 
FFR. 

137   See Aricle.62 of the ESA Regulations. 
138   Communication from the Commission to the European Parliament and the Council of 10 July 2013 on the 
programming of human and financial resources for decentralised agencies 2014 2020, COM(2013)519 
139   In practice, however, adjustments may take place in emergency situations, e.g., in recent years for agencies 

working on migration and security. 

140   Commission Delegated Regulation (EU) No 1271/2013 of 30 September 2013 on the framework financial 
regulation  for  the  bodies  referred  to  in  Article  208  of  Regulation  (EU,  Euratom)  No  966/2012  of  the 
European Parliament and of the Council, OJ L 328, 7.12.2013, p. 42–68. 

149 

 
 
                                                            
Supervisory architecture and seat 

The  architecture  of  the  ESAs  mirrors  the  traditional  sectoral  breakdown  of  the  financial 
industry (banking, insurance/pensions and securities). It is also a legacy inherited from their 
predecessors,  the  Committees  of  Supervisors  which  were  also  organized  in  a  sectoral  way.  
The  current  seat  of  each  of  the  three  ESAs  is  also  a  legacy  of  their  predecessors  that  were 
already seated in London (banking), Paris (securities) and Frankfurt (insurance and pensions). 

Section 6 Evaluation analysis 

The analysis in this section will address the effectiveness, the efficiency, the coherence, the 
relevance and the EU-added value of the ESAs, broadly corresponding to the criteria listed for 
review  in  Article  81  of  the  ESA  Regulations.    These  evaluation  criteria  will  be  applied  in 
analysing  four  aspects  of  the  existing  ESA  framework:  (1)  powers;  (2)  governance;  (3) 
funding framework; and (4) supervisory architecture and seat and based on the following sets 
of questions   

Powers 

Effectiveness and efficiency: 

 

 

 

 

Have  the  powers  available  to  the  ESAs  allowed  them  to  improve  regulatory  and 
supervisory convergence?,  

Has the composition of the Boards and the role of the Chairpersons impacted on the 
ability of the ESAs to use their powers effectively?  

Have  the  ESAs'  powers  allowed  them  to  promote  consumer  and  investor  protection, 
ensure the proper application of EU law and more generally allowed them to ensure an 
effective EU level supervision? 

Have  the  powers  available  to  the  ESAs  allowed  them  to  deliver  on  their  tasks  and 
objectives in an efficient way? 

Governance 

Effectiveness and efficiency: 

 

 

 

Has  the  current  governance  structure  impacted  on  the  incentives  of  the  ESAs  to  use 
their powers in a manner that allows the ESAs to improve supervisory convergence? 

Has the composition of the Boards and the role of the Chairpersons impacted on the 
effectiveness of the ESAs work, and more generally allowed them to take decisions in 
the interest of the EU as a whole? 

Has the current governance structure allowed the ESAs to take swift decisions in the 
interest of the EU as a whole? 

150 

 
 
 
Funding framework 

Effectiveness and efficiency 

 

 

Has  the  current  funding  framework  and  funding  levels  been  effective  to  what  is 
necessary for the ESAs to fulfil their objectives and tasks? 

Has  the  current  funding  framework  been  efficient  (in  terms  of  sufficiency  and 
sustainability)  in  ensuring  that  ESAs  fulfil  their  objectives  and  tasks  in  the  most 
effective way? 

Supervisory architecture and seat 

Effectiveness and efficiency 

 

 

Has  the  current  sectoral  model  of  supervision  ensured  the  greatest  possible 
effectiveness of supervision and thereby guaranteed adequate protection of depositors, 
policy-holders and investors and of financial stability within the EU? 

Has the current sectoral model of supervision with separate seats been able to ensure 
the greatest possible effectiveness of supervision in an efficient way, i.e. at least cost to 
supervised companies, supervisors and tax payers?  

In addition, the analysis will address the following overarching questions 

 

 

 

To what extent has the ESAs' framework been coherent with other EU measures taken 
in  response  to  the  financial  crisis  to  increase  the  financial  integration  process  within 
the EU by improving both regulation and supervision of financial institutions and other 
market participants in the EU? 

Is the ESAs framework still relevant?  

What is the added value resulting from the ESAs' framework compared to what could 
be  achieved  by  the  Committees  of  Supervisors?    To  what  extent  do  the  issues 
addressed  by  the  establishment  of  the  ESAs  continue  to  require  action  at  EU  level?  
What  would  be  the  most  likely  consequences  of  removing  the  ESAs  and  the 
framework within which they operate? 

Evaluation of the effectiveness and efficiency of ESAs in using their powers  

Regulatory tasks 

In  relation  to  their  regulatory  tasks,  the  ESAs  have  experienced  a  significant  increase  in 
responsibilities  and  workload.    For  example,  in  2009  there  were  15  pieces  of  primary 
legislation  adopted  by  the  Council  and  the  Parliament  with  tasks  foreseen  for  the  ESAs  (9 
allocating  tasks  to  ESMA  and  EBA  and  7  allocating  tasks  to  EIOPA).    Today,  the 

151 

 
 
 
 
corresponding numbers are 29 for ESMA, 16 for EBA and 9 for EIOPA.141  This increase in 
tasks  has  also  brought  a  significant  number  of  additional  empowerments  for  delegated  and 
implementing acts which impact directly on ESAs annual work programmes.  

Monitoring indicators provided by the ESAs confirm that  they have  been confronted with a 
very intensive workload both before and during the evaluation period.142  Since 2009??, EBA 
has delivered a total of 144 technical standards, which represents 85% of those required to be 
developed.  It has delivered a total of 71 non-binding guidelines recommendations supporting 
the  implementation  of  the  regulatory  framework.    The  Commission  has  only  rejected  one 
technical  standard  from  those  submitted  and  intends  to  amend  eight.  With  the  exception  of 
one technical standard, all of EIOPA's XX proposed technical standards have been adopted by 
the Commission.  In addition, it has adopted 39 non-binding guidelines.  Out of 152 required 
technical  standards,  ESMA  has  put  forward  145  for  adoption  by  the  Commission.  Out  of 
those,  nine  technical  standards  (6%)  were  not  endorsed,  endorsed  in  part  or  endorsed  with 
amendments by the Commission.  In addition, ESMA has adopted more than 38 non-binding 
recommendations with several under consultation or in draft. 

This clearly illustrates that over the past years the ESAs have been effective in accomplishing 
their regulatory tasks - both in terms of the number and the quality of deliverables - and have 
made  a  powerful  contribution  to  the  development  of  a  Single  Rulebook.    This  evaluation 
based  on  deliverables  is  consistent  with  publicly  available  reports  about  the  ESA,  with 
previous evaluations made by the Commission and Parliament and is supported by responses 
received in stakeholder consultations. 

Convergence of supervisory actions and the consistent application of EU law 

In relation to the powers to support pan-EU supervisory convergence and  co-ordination, the 
Commission  has  assessed  the  work programs  and  the  annual  reports  of  the  ESAs  and  notes 
that since 2015 supervisory convergence has been a key objective for the ESAs.143  The ESAs 
have  been  actively  engaged  in  developing  supervisory  handbooks,  conducting  peer reviews, 
participating  in  supervisory  colleges,  conducting  thematic  reviews,  trainings,  workshops, 
etc.144.   

In relation to the use of practical tools, such as those mentioned above, the Commission notes 
an increase in effectiveness relative to the Commission's 2014 evaluation report.  Monitoring 

141   See Annex 11.4 
142   E.g., Single Rule Book of prudential requirements for banks capital, liquidity & leverage and stricter rules 
on remuneration and improved transparency ('CRD IV / CRR'), effective since December 2013 and January 
2014, respectively; New European supervisory framework for insurers  ‘ mnibus II’  effective  since March 
2015;  Directive  2014/49/EU  on  Deposit  Guarantee  Schemes,  effective  since  July  2015;  Mortgage  Credit 
Directive 2014/17/EU, effective since March 2016. 

143   ESMA/2015/935,  15.06.2015;  EIOPA  Multi-annual  work  programme  2015-2017,  EIOPA-BoS-14/109, 
29.09.2014;  The  EBA  Multi-annual  work  programme  2016-2018,  30.09.2015.  Information  from  staff  of 
each of the ESAs on monitoring indicators, obtained during the spring of 2017 

144 On occasion the ESAs' staff indicates that resource constraints have influenced the number of trainings and 
workshops carried out. 

152 

 
 
                                                            
indicators  submitted by ESA staff  confirm this. Specific examples demonstrating the use  of 
the practical convergence tools include: ESMA published its first annual work programme on 
supervisory  convergence  in  February  2016  and  has  recently  adopted  a  second  annual  work 
programme on supervisory convergence.  ESMA has established a Supervisory Convergence 
Standing Committee ("SCSC") and has committed, in its Strategic Orientation 2016-2020, to 
deploy  a  wider  range  of  supervisory  tools.    To  ensure  common  understanding  of  effective 
supervision  EIOPA  regularly  engages  bilaterally  with  national  supervisory  authorities.    It 
provides balance sheet reviews and technical assistance.  EIOPA further promotes the creation 
of cooperation platforms in situations where a college of supervisors is not formed but where 
cross-border risks are identified.  It has created a Colleges Action Plan.  Upon request, EIOPA 
assesses  the  risks  posed  by  specific  undertakings,  including  cross-border  issues  and 
recommends  remedial  actions.    EIOPA  has  pointed  out  though  that  in  the  area  of  insurance 
and  internal  models  efforts  to  ensure  consistency  through  participation  in  the  colleges  and 
targeted  exercises  has  not  been  sufficient  and  inconsistencies  between  internal  models  have 
been  observed  across  the  EU.    EIOPA  explains  that  this  is  partly  because  EIOPA  lacks 
sufficient powers to ensure consistency in the approval of group internal models.145  The EBA 
has contributed to significant progress in supervisory engagement, assessment and articulation 
of additional capital requirements through the implementation of the EBA guidelines on the 
supervisory review and evaluation process ("SREP"). 

This  evaluation  is  broadly  supported  by  a  majority  of  stakeholders  responding  to  the  ESA 
public  consultation,  who  also  indicate  that  in  recent  years  progress  has  been  achieved  in 
promoting  a  common  EU  supervisory  culture  and  increasing  convergent  supervisory 
practices.  Some  point  to  this  as  an  achievement  especially  given  scarce  resources  and  since 
the ESAs became operational only in 2011.   

On the other hand, the ESAs have not used all their available powers to ensure regulatory and 
supervisory  convergence.  The  ESAs  were  also  granted  powers  to  settle  disputes  between 
NCAs and to pursue breaches of EU law.  They were also granted powers to carry out peer 
reviews and to follow up with recommendations and guidelines to NCAs. As regards the use 
of these powers, there seems to have been little (if any) noticeable use by the ESAs in relation 
to  mediation  and  breach  of  EU  law  investigations,  in  particular,  but  also  in  relation  to  peer 
reviews.  This  is  to  some  extent  corroborated  by  information  provided  by  ESA  staff.  For 
example, ESA staff has submitted information on the number of peer reviews conducted, the 
number of mediation cases (including requests for mediation) they have been involved in and 
the number of warnings  issued in  relation to an alleged breach of EU law.  On that basis it 
emerges that: 

 

EBA and ESMA have carried about one peer review per year on average.  EIOPA has 
carried out between 2 and 6 peer reviews per year between 2014 and 2016.  

145   Some respondents to the public consultation acknowledge that the approval of internal models raises issues, 
e.g.,  inconsistencies  in  terms  of  what  national  CAs  require  and  approve,  the  evidence  they  accept,  their 
approach to expert judgment and the time they take to decide on the application. 

153 

 
 
                                                            
 

 

EBA  has  received  a  total  of  nine  requests  for  mediation  (three  binding  and  6  non-
binding)  in  the  last  three  years.    One  was  withdrawn,  one  is  on-going  and  the 
remaining  seven  resulted  in  a  settlement  agreement.    Since  its  inception,  ESMA  has 
never  received  a  request  for  non-binding  mediation.    It  has  received  one  request  for 
binding mediation, which resulted in a settlement agreement.  EIOPA has never been 
involved  in  a  case  involving  binding  mediation  but  has  been  involved  in  three 
conciliation cases per year on average since 2014.  

EBA has issued one warning in 2014 for a manifest breach of EU law.  It has on three 
occasions informally raised concerns with NCAs that has resulted in the CAs changing 
their behaviour.  ESMA has issued one single recommendation to adopt a warning on 
a  manifest  breach  of  EU  law,  which  however  was  not  adopted  by  the  Board  of 
Supervisors.  Finally, EIOPA has never issued a warning on a manifest breach of EU 
law.   

Establishing quantitative benchmarks or targets on ESA activity in these areas would require 
establishing  an  accepted  counterfactual  scenario.  This  is  inherently  complex,  given  the 
discretionary  nature  of  these  powers.    It  would  require  identifying  all  cases  where  an  ESA 
should have come to a specific decision and contrasting it with the decisions actually taken. 
Establishing  such  a  counterfactual  would  require  having  the  same  information  set  and 
resources as the ESAs over the entire evaluation period and is hence beyond the scope of this 
evaluation.  That said, the low number of non-regulatory decisions (mediation, breach of EU 
law  procedures),  including  peer  reviews,  over  a  period  of  six  years,  is  taken  as  a  first 
indication of insufficient action in these areas.  This is corroborated by qualitative information 
and informal information about existing, yet unsettled, cross-border disputes.   

Several factors  are likely to influence  the use of these tools and the lack of progress in this 
area.  From the Commission's own experience participating in Board meetings and discussing 
with  ESA  staff,  from  the  previous  evaluation  made  in  2014  and  from  reviewing  the 
monitoring  indicators  it  seems  that  the  relevant,  existing  powers  granted  by  the  ESA 
Regulations are not always sufficiently clear and/or too narrow or simply constructed in a way 
that  does  not  incentivize  their  use.    This  makes  it  more  difficult  for  the  ESAs  to  make 
effective use of them.  This is especially so with respect to peer reviews, the follow-up of peer 
reviews, dispute settlement and breach of Union law investigations.  

For  example,  peer  reviews  could  be  subject  to  independent  assessments.  The  ESAs  could 
solicit  comments  from  stakeholders  during  peer  reviews  and  the  results  of  the  peer  reviews 
should be published.  In relation to dispute settlement, the powers could be strengthened by 
extending the number of cases where the ESAs can initiate dispute settlements.  The current 
text  of  the  ESA  regulations  limits  the  ESAs  involvement  to  situations  where  sectoral 
legislation  provides  for  it.    Sectoral  legislation  essentially  only  foresees  that  the  process  is 
initiated by competent authorities.  ESA staff has also highlighted diverging interpretations of 
the  provision  in  relation  to  whether  the  ESAs  can  intervene  to  settle  disputes  by  way  of  a 
binding  decision  in  situations  involving  supervisory  judgment.    In  relation  to  dispute 
settlements,  EBA  specifically  explained  that  in  cases  where  parties  would  not  settle 
disagreements  during  the  conciliation  phase  it  could  be  challenging  for  EBA  to  settle 

154 

 
 
disagreements  with  a  binding  outcome.  This  is  because  the  current  provisions  in  the  EBA 
Regulation  are  not  sufficiently  clear  on  when  EBA  can  take  a  decision  that  resolves  the 
dispute, as the set-up of the mediation panels is not always conducive to mediation especially 
within tight deadlines.  EBA also pointed out that it does not have a mandate under the BRRD 
to trigger binding or non-binding mediation on its own.  ESMA pointed out that it has no right 
of initiative at all to trigger binding mediation.  This suggests that there is merit in clarifying 
the use of the dispute settlement process to incentivise a more effective use of these powers. 
The ability of the ESAs to start an investigation and the quality of the investigation depends 
on information available to the ESAs.  Right now the information only comes from the party 
being investigated which does not seem to contribute to an effective use of that provision.  In 
this  context  it  should  also  be  noted  that  the  ESAs  currently  lack  the  ability  to  enforce  their 
requests for information in a simple and swift manner. 

In sum, the evaluation of the effectiveness and efficiency in the use of ESA powers in respect 
of  regulatory  and  supervisory  convergence  are  mixed.    Convergence  in  certain  areas  is  still 
insufficient to ensure consistent application of EU law, either because available tools have not 
been used to their full extent (e.g., dispute settlements, breach of Union law proceedings and 
peer reviews) or because ESAs' mandate was insufficient to overcome national fragmentation. 
These shortcomings in the effectiveness of the ESAs are already a source of concern, but will 
become  increasingly  problematic  in  the  context  of  renewed  efforts  to  integrate  the  EU 
financial markets in the post-crisis era. In particular, the role of the ESMA in both promoting 
and facilitating the creation of a CMU via greater supervisory convergence will be crucial and 
it would seem that enhanced powers will be required.  

This  evaluation  of  the  ESAs'  use  of  powers  in  respect  of  regulatory  and  supervisory 
converged is mirrored in responses to stakeholder consultations. Stakeholders have noted that,  
in relation to supervisory convergence work, this apparent under use of powers has partly to 
do  with  the  fact  that  significant  resources  within  the  ESAs  have  been  allocated  to  the 
preparation  of  technical  standards  to  the  Commission  and  that  this  has  impacted  on  the 
amount  of  resources  the  ESAs  can  devote  to  other  policy  areas  including  supervisory 
convergence work.  In relation to breach of Union law procedures, stakeholders often mention 
that they should be simplified and faster, that the ESAs should motivate and make public any 
decision not to launch an investigation, or that the ESAs should be allowed to conduct on-site 
inspections  at  NCAs  in  the  context  of  investigations.  Stakeholders  also  suggest  that  lack  of 
effective use of powers is related the current governance set-up of the ESAs which may deter 
the use of powers in certain situations or taking decisions in the interest of the EU as a whole 
(e.g., in relation to follow-up recommendations from peer reviews, binding mediation or the 
initiation of breach of Union law procedures).  This is because ESA decisions are taken by the 
very  same  parties  (i.e.,  NCAs)  to  which  the  decisions  apply  and  this  inherent  conflict  of 
interest objectively puts all parties in a difficult position (for more on the governance structure 
and any impact on the use of powers, see the following section on governance). 

Cross-border situations 

155 

 
 
On  a  broader  level,  the  ESAs  work  should  also  deliver  more  effective  oversight  of  the 
financial institutions and markets and provide EU solutions to cross-border issues both within 
the  EU  and  beyond.    Compared  to  the  baseline,  it  is  evident  that  in  terms  of  powers  and 
engagement in supervisory colleges, the ESA are much better equipped than the Committees 
of Supervisors to contribute to the strengthening of the Single Market in financial services, to 
ensure  EU  level  regulatory  and  supervisory  convergence  and  to  minimize  regulatory 
arbitrage. 

However,  the  ESAs  are  increasingly  operating  in  an  environment  which  is  substantially 
different to when they were established.  There has been a significant growth in cross-border 
financial services146 and an increase in EU financial service legislation the last years.147  This 
has significantly added to the responsibilities of the ESAs since legislative acts increasingly 
foresee a role for the ESAs.  There has also been the development of the Banking Union and 
now the need to develop a well-functioning CMU.  As a consequence of increased integration 
of  financial  markets  and  services  this  has  created  increasing  imbalances  of  supervisory 
competences  between  the  national  and  EU  level.  With  the  exception  of  the  SSM  in  the 
banking sector there is no other EU level supervisory authority to deal with increased pressure 
to  ensure  EU  level  harmonization  of  regulatory  requirements  as  well  as  of  supervisory 
responsibilities.  This  may  raise effectiveness issues  going  forward, especially in relation to 
the development of a CMU.  Considering therefore the acceleration towards more integrated 
capital markets and the increased pressure that the United Kingdom's decision to leave the EU 
will put on capital markets supervisors it seems that especially ESMA's current powers may 
not be sufficient to ensure an effective level of supervision going forward.   

For  example,  certain  funds  such  as  EuVECA,148  EuSEF149  and  ELTIF,150  are  highly 
concentrated  in  few  countries.    In  the  current  EuVECA/EuSEF  frameworks,  there  are  only 
limited  powers  attributed  to  ESMA.    For  example,  ESMA  maintains  a  central  database, 
publicly  accessible  on  the  internet, listing  all  EuVECA/EuSEF  managers  and  the funds  that 
they  market,  as  well  as  the  countries  in  which  those  funds  are  marketed.    Moreover,  in  the 
event  of  disagreement  between  NCAs  on  an  assessment,  action  or  omission  where  it  is 
required cooperation or coordination between NCAs, they may refer to ESMA, which may act 
in accordance with the ESMA Regulation.  While the experience with the databases has seen 
a  slow  start,  due  to  some  initial  technical  difficulties,  compared  to  the  past,  ESMA  is  now 
providing  for  a  central  point  gathering  information  on  such  funds  and  is  fostering  effective 
regulatory cooperation among the entities tasked with supervising compliance of such funds.  

146   See  the  European  Commission  (2017),  Staff  Working  Document,  Economic  Analysis  accompanying  the 
Communication  on  Capital  Markets  Union  Mid-Term  Review,  Chapter  1,  page  11;  and  European 
Commission (2017), European Financial Integration and Stability Review, May, page 18. 
147  See Annex 11.4 for a comparison of legislative texts when the ESAs were created and now. 
148 Regulation (EU) No 345/2013 of the European Parliament and of the Council of 17 April 2013 on European 

venture capital funds. 

149 Regulation (EU) No 346/2013 of the European Parliament and of the Council of 17 April 2013 on European 

social entrepreneurship funds 

150  Regulation  (EU)  2015/760  of  the  European  Parliament  and  of  the  Council  of  29  April  2015  on  European 

long-term investment funds 

156 

 
 
                                                            
With the recent EuVECA and EuSEF review, ESMA's role will now be enhanced through the 
collection of data on funds registration for the purposes of peer reviews performed by ESMA.  

However, it is clear that the functioning of effective supervision in relation to these funds is 
increasingly impaired by national approaches to registration and supervision due to their small 
size (on average).  Current ESMA powers therefore seem too limited to ensure regulatory and 
supervisory  convergence  for  these  standardised  funds,  which  are  operating  in  a  highly 
concentrated  and  integrated  market.    The  initial  administrative  requirements  at  the  point  of 
registration or on-going supervision remain to vary considerably across Member States, being 
thus  prohibitive  per  se  and  creating  an  unlevelled  playing  field.  While  the  majority  of  the 
limited  number  of  stakeholders  replying  on  direct  supervision  of  the  asset  management 
industry  see  NCAs'  better  placed  to  perform  this  function,  a  significant  part  –  mainly  the 
industry  which  is  active  across  borders  –  recognises  potential  merits  in  ESMA’s  direct 
supervision of EU regulated investment funds or those conducting cross-border activities.  

Another example where ESMA has limited tools set out in legislation, but where it has gained 
extensive expertise over the years, is in relation to prospectus approvals.  Since 2011, ESMA 
has  invested  significant  time  and  effort  to  foster  regulatory  convergence  amongst  national 
CAs with regard to the scrutiny and approval of prospectuses.  This has led to the creation of a 
"Supervisory Briefing", including commonly-agreed principles which national CAs.  ESMA 
has  also  carried  out  two  peer  reviews  on  the  prospectus  approval  process,  as  evidence 
emerged  of  diverging  practices  among  Member  States.151    Nonetheless,  those  actions  have 
been  unable  to  promote  supervisory  convergence  and  the  landscape  of  prospectus  approval 
requirements remains fairly fragmented across the EU. 

A final example concerns ESMAs role in managing data created as a result of EU legislation, 
like  data  reporting  in  MiFID  and  with  the  direct  supervision  of  trade  repositories  collecting 
OTC  derivatives  data.  Financial  markets  rely  on  sound  and  reliable  information.    The 
fragmentation  of  supervision  on  data  has  led  over  the  years  to  the  proliferation  of  different 
standards and commercial practices, which have also contributed to divergent implementation 
of EU law or non-application (as in the case of the consolidated tape provider under MiFID). 
ESMA has tried to achieve more consistency and coherence by centralising data through the 
use of voluntary delegations of powers.  Delegations however are difficult to put in place and 
remain vulnerable.  In view of the necessary increasing role that ESMA will have to play as a 
financial market data supervisor and in anticipation of new legislation coming into force, the 
current system where registration and supervision of data reporting service providers (whose 
business  is  predominantly  of  a  cross-border  nature)  by  national  CAs  risks  being  not  fully 
effective.  In effect, national CAs might not have the necessary capacity to detect, assess and 
monitor potential problems emerging from the cross-border nature of the activities that such 
data service providers offer. Few stakeholders, mostly from industry, responded specifically 
to the question on data providers.  Of those, a majority, including ESMA, fully supported the 
idea  of  ESMA  directly  supervising  data  providers  –  while  many  other  respondents  gave 
qualified support to the idea. 

151 See ESMA/2012/300 and ESMA/2016/1055. 

157 

 
 
                                                            
In addition to the examples above, there are a few areas where the existing powers in relation 
to  international  relationships  could  have  been  better  defined  and  therefore  have  not  been  as 
effective as they could have been, even though the ESAs clearly have had more impact in this 
area  compared  to  the  baseline  scenario  where  there  was  no  such  role  foreseen  for  the 
Committees of Supervisors.  In view of increased interconnectedness between the EU and the 
rest of the world and the increased need to monitor and manage cross-border risks effectively, 
this puts into question the effectiveness of the current framework also going forward. 

For  example,  the  ESAs'  role  in  the  equivalence  processes  is  not  always  made  explicit  in 
financial  legislation,  which  has  created  substantial  uncertainty  in  terms  of  planning  and 
resource allocation (for both the ESAs and the Commission).  Sometimes the ESAs opinions 
or  initial  assessments  are  mandatory;  in  other  cases,  the  legislation  is  simply  silent  on  how 
they  should  be  involved  because  the  type  of  equivalence  sought  is  more  appropriately 
addressed  by  the  Commission.    Sometimes,  ESAs  may  be  providing  technical  assistance  in 
response  to  ad-hoc  requests  from  the  Commission  without  a  specific  mandate  in  the 
legislation.  It has also happened that the ESAs declined152 requests from the Commission to 
support equivalence assessments absent an explicit legal mandate.  Had the role of the ESAs 
been  more  explicit  in  sector  legislation  it  would  have  been  easier  for  the  Commission  to 
involve the ESAs and for the ESAs to justify the necessary resources and prioritization of that 
type of work.  

Consumer oversight 

The  ESAs  work  is  also  supposed  to  result  in  greater  oversight  of  risk  to  consumers  and 
investors.  While the relevant scope for action laid down in the ESA Regulations is broad, the 
ESAs work programs suggest a relatively conservative use of resources in this area. A  more 
proactive  approach  would  seem  necessary  based  on  a  clarification  and  enhancement  in  the 
ESAs'  powers  in  the  consumer  protection  area,  including  in  sectoral  legislation.    The  ESAs 
themselves have acknowledged that the consumer protection work needs to the strengthened 
and  that  the  Joint  Committee  of  the  ESAs  should  be  more  effective  in  ensuring  proper 
consumer and investor protection in its joint work.   

This evaluation is only partly supported in in stakeholder consultations, with mixed views on 
the ESAs work and available tools and powers in relation to consumer protection.  One set of 
stakeholders believes that current tools and powers are adequate and that the ESAs are doing a 
good  job  even  though  more  could  be  done.  Others  take  the  view  that  there  is  room  for 
extending/enhancing  the  powers  of  ESAs,  referring  to,  for  example,  the  need  to  clarify  the 
ESA's consumer protection objective and scope of this work, and to clearly give the ESA's the 
right  to  prohibit  or  restrict  certain  products  for  investor  protection  purposes,  and  include 
consumer  credit  in  the  scope  of  EBA.    There  are  also  stakeholders  that  note  that  the  ESAs 

152   Article 34 of each ESA regulation provides that ESAs may provide an opinion on all issues related to their 
respective area of competence either on their own initiative or upon a request from the European Parliament, 
the Council or the Commission. Explicit rules on the contribution by the ESAs to the Commission's activity 
regarding equivalence decisions, including ex post monitoring, would help clarifying the ESAs' obligations 
in the matter. 

158 

 
 
                                                            
 
Joint  Committee  could  take  on  a  greater  role  and  that  cross-sectoral  issues  should  be  dealt 
with there. There are also stakeholders that argue that consumer protection should be mainly 
the  responsibility  of  national  competent  authorities  and  ESAs  should  focus  only  on  co-
ordination.   

Coordination micro- and macro-prudential policies 

The ESRB and the ESAs are required to cooperate with each other and share information of 
importance  to  systemic  risk  across  sectors.    To  date,  the  EBA  has  had  the  most  active 
relationship with the ESRB, reflecting the role of both bodies in managing the banking crisis.   
As members of the ESRB General Board and Steering Committee, the ESA Chairpersons are 
actively involved in ESRB meetings and decision making.  The Chair of the Joint Committee 
of  the  ESAs  is  also  Vice-Chair  of  the  ESRB.  In  addition,  ESA  staff  participates  in  various 
ESRB  Committees  and  working  groups  at  times  taking  a  leading  role  of  specialist  subjects. 
The  ESRB  Secretariat  also  participates  in  the  ESA  Board  of  Supervisors  meetings  and  in 
Standing Committees and Sub-Groups as well as the Joint Committee.  

In  the  context  of  the  ongoing  review  of  the  ESRB,  the  Commission  is  reflecting,  among 
others,  on  enhanced  ESRB  governance.    As  the  Steering  Committee  of  the  ESRB  notably 
comprises  the  3  chairpersons  of  the  ESAs,  this  would  contribute  to  the  reinforcement  and 
better coordination of the overall ESFS.  An effective cooperation between the ESRB and the 
ESAs  has  also  been  mentioned  as  a  necessity  at  the  public  hearing  on the  macro-prudential 
framework.    In  this  respect,  the  Commission  will  continue  to  closely  look  at  the  overall 
coherence of the ESFS. 

This  enhanced  cooperation  would  also  mirror,  to  some  extent,  the  global  cooperation 
mechanisms  in  the  field  of  financial  stability,  with  the  Financial  Stability  Board  bringing 
together  not  only  national  and  regional  authorities  of  G20  countries  and  other  key  financial 
centres, but also global standard-setters, amongst others in the field of banking, insurance and 
financial market infrastructures.  The Financial Stability Board mainly acts as a coordinating 
body,  operating  by  moral  suasion and  peer  pressure, to  set  policies and minimum  standards 
that its members commit to implement at national level. The ESRB has a key role in ensuring 
a consistent approach across the EU and examining cross-border effects of the use of macro-
prudential  instruments  at  the  country  level.    Both  share  the  will  and  mandate  to  have  a 
holistic, "systemic" and macro-financial view on financial stability risks, with important input 
from sectoral authorities or standard setters. 

Supervision of some entities and activities within the EU financial system, e.g. EU label funds 
and data reporting services providers, have a clear EU dimension. Spreading responsibility for 
supervision in these fields across many national authorities may be inefficient and so result in 
sub-optimal  outcomes  in  terms  of  financial  stability,  market  integrity,  administrative  burden 
etc. From this perspective, granting supervisory power to an EU body in these fields would be 
more efficient as it would concentrate the costs of supervision in only one authority avoiding 
any  overlaps.  In  particular,  granting  of  new  direct  supervisory  powers  would  be  both 
beneficial  with  regard  to  the  coherence  of  the  assessment  of  the  relevant  activity  across  EU 

159 

 
 
and raise efficiency of the supervisory process by smoothening decision-making process and 
reducing administrative burden for the supervised entities.  

The  use  of  supervisory  resources  allocated  to  supervision  of  entities  under  new  direct 
supervisory  powers  should  be  optimised.  In  addition,  the  ease  of  interaction  with  entities 
subject  to  ESMA's  direct  supervision  (one-stop  shop)  would  be  enhanced.    Moreover,  one 
would  expect  a  further  reduction  in  overall  cost  of  supervision  since  centralising  the 
supervisory activities in ESMA creates economies of scale which imply an overall  reduction 
of  costs  in  an  aggregated  level  within  the  EU.  Furthermore,  the  more  efficient  supervisory 
structure also means that decisions in individual cases would be taken in a timely manner; the 
risks  of  incoherent  application  or  conflicting  competences  would  be  eliminated.  Finally, 
regarding  administrative  burden  reduction,  the  decrease  in  overall  cost  for  the  new  direct 
supervisory powers would also be due to the fact that there will be less coordination costs in 
the sense that ESMA will not any longer have to transmit back and forward several documents 
to  the  competent  authorities  which  in  turn  creates  an  excessive  administrative  burden  and 
lengthens  the  whole  supervisory  process.  Overall,  in  terms  of  efficiency  one  should  expect 
clear  efficiency  gains  based  on  the  fact  that  heavy  coordination  procedures  will  be  avoided 
and resources and expertise will be pooled in one organisation. 

Evaluating the effectiveness and efficiency of ESAs' governance  

Compared  to  the  previous  Committees  of  Supervisors  (baseline),  the  ESAs'  governance 
structure features a number of notable enhancements.  In the Committees of Supervisors, for 
example,  decisions  were  taken  by  Member  States  representatives  without  the  presence  of 
independent  members.  This  is  no  longer  the  case  as  both  the  Commission  and  other  EU 
bodies are present at Board of Supervisor meetings, and the Commission is also participating 
in  Management  Board  meetings  where  it  can  vote  on  issues  relating  to  the  budget  of  the 
ESAs. Although only the representatives of the NCAs have a right to vote, decision-making  
has  been  facilitated  by  the  general  use  of  simple-majority  voting  with  qualified-majority 
voting on specific topics. Consensus or qualified majority voting was the rule in the case of 
the Committees of Supervisors. 

Despite  the  improved  governance  arrangements  within  the  ESAs,  there  remains  scope  for 
further action. This view is based on informal evidence provided by EBA staff, the outcome 
of previous evaluations made by the Parliament and the Commission, as well as Commission 
staff experience working with the ESAs and participating in their Board meetings. The main 
area  of  concern  with  the  current  governance  arrangements  relates  to  the  composition  of  the 
Board  of  Supervisors  and  the  Management  Board  which  remains  dominated  by  national 
authorities  and  so  does  not  foster  effective  and  efficient  decision  making  on  matters  where 
there  is  a  strong  EU  interest.  The  potential  for  incentive  misalignment  -  between  EU  and 
national  interest  –  clearly  exists  and  must  be  managed  appropriately  if  the  ESAs  are  to  
deliver on their mandates in full.   

From a purely conceptual point of view, the current government set-up has considerable flaws, 
as it allows for conflicts of interests that are likely to produce an inaction bias, and prevent the 
ESAs from acting in the interest of the EU as a whole. This is essentially because decision-

160 

 
 
makers  have  two  mandates  –  a  national  and  European  one  -  and  may  find  themselves  in  a 
position  where  they  may  have  to  arbitrate  between  national  and  European  interests.  The 
quantitative  and  qualitative  evidence  provided  in  relation  to  use  of  powers  illustrates  this 
inherent  challenge.  In  particular,  non-regulatory  decisions  (breach  of  EU  law  decision,  peer 
reviews, binding mediations) have been used very sparsely. While the limited activity in the 
supervisory area may in parts be due to a number of compounding factors (also highlighted in 
this evaluation, such as an unclear definition of powers), there are indications that confirm that 
an unwillingness to take actions vis-à-vis individual national CAs has been present since the 
set-up  of  the  ESA.  While  it  is  impossible  to  provide  an  uncontroversial  counterfactual 
estimate  of  the  number  of  actions  and  decisions  that  should  have  been  taken  under  an 
"optimal" governance structure, this apparent inaction bias strongly suggests that the number 
of non-regulatory decisions has fallen short of what would have been observed under a better 
incentive-structure. 

While  the  Management  Board  –  which  comprises  the  Chair,  the  Executive  Director  and 
representatives  of  selected  NCAs  –  could  help  to  ensure  more  effective  decision-making 
within the ESAs no formal role in this regard is foreseen in the ESA Regulations.  In fact, the 
formal role foreseen for the Management Board and its tasks are very limited. Moreover, the  
formal  role  and  powers  provided  to  the  chairpersons  in  the  ESA  Regulations  is  also  very 
limited  and  the  fact  that  they  are  appointed  by  the  Boards  of  Supervisors  may  reduce  their 
authority and independence.  The unclear allocation of tasks between the Board of Supervisors 
and the Management Board and the lack of formal powers attributed to the latter, has impeded 
swift decision-making.  This notably concerns the Management Board's lack of formal powers 
to examine, prepare and propose decisions notably in the non-regulatory areas, to the extent 
that such  decisions would not be impeded by conflicts of interest in the first place.  Similar 
views were brought forward in the ESA public consultation.  

The  impact  of  the  ESA's  current  governance  arrangement  on  the  use  of  powers  impacts 
predominantly on supervisory convergence.  Information on the use of peer reviews, dispute 
settlements and breach of Union law investigations provided in the section on powers above 
indicates that the ESAs may be underusing their powers in this area.  It is precisely in these 
areas that conflicts of EU and national interests tend to arise , leading to inaction bias under 
current  governance  arrangements  .153    The  "repeated  game"  nature    of  decision-making  in 
these areas may also deter NCAs from supporting ESA action against peers, if there is a risk 
that they may find themselves in a similar situation in the future. 

The concerns about ESA governance arrangements are not new and there have been calls for 
changes to the governance structure in the past.  The Parliament for instance recommended in 
its  2013  review  of  the  ESAs154  that  operational  improvements  in  the  governance  structure 

153   This conflict is apparent also in relation to the SSM as it is not uncomplicated for the EBA to ensure that the 
SSM  is  compliant  with  the  Single  Rulebook,  and  to  ensure  SSM  alignment  of  supervisory  practices  and 
supervisory outputs, including compliance with EU law, as procedures against the SSM require a majority 
of the national CAs in the EBA Board of Supervisors to take a stance different from the one adopted by the 
same national CAs in the SSM Supervisory Board. 

154   http://www.europarl.europa.eu/RegData/etudes/etudes/join/2013/507446/IPOL-

ECON_ET(2013)507446_EN.pdf  

161 

 
 
                                                            
should be introduced (i.e., creating an Executive Board with more operational tasks) and the 
statutory  profile  of  the  Chairpersons  should  be  raised  (i.e.,  granting  the  Chairperson  voting 
rights  or  changing  the  appointment  procedure).    The  IMF155  also  called  for  changes  in  the 
governance  arrangements  for  the  ESAs,  with  the  aim  of  strengthening  their  operational 
independence and effective accountability, which would help to overcome the domination of 
national  interests  in  decisions  of  the  Boards  of  Supervisors,  and  facilitate  rapid  decision-
making.    This  was  also  recognised  in  the  November  2014  ECOFIN  conclusions  on  the 
ESFS156 where it was noted that considerations should  be given as to "  how to  improve the 
governance of the ESAs to ensure that decisions are taken in the best interest of the EU as a 
whole while preserving the careful balance reached in the context of the establishment of the 
SSM, having regard to the expertise provided by the national competent authorities".  

Changes  in  the  governance  arrangements  were  not  considered  on  the  basis  of  the  previous 
Commission review of the ESAs in 2013. This was because it was not deemed appropriate to 
make such a fundamental reform of the Authorities after only three years of operation. Now, 
however,  it  would  seem  necessary  to  consider  a  reform  of  the  governance  arrangements, 
based  on  experience  with  a  longer  period  of  operation  and  in  the  perspective  of  renewed 
efforts to foster the integration of EU financial markets, The objective would be to use such a 
governance reform to achieve an improved balance between EU and national interests in the 
decision-making process. A possible reform in this direction would be to strengthen the EU 
interest  within  the  governance  arrangements,  perhaps  by  strengthening  the  role  of  the 
chairman and/or by having more voting members who are independent of national interests  

ESA's  governance  was  also  a  topic  in  the  stakeholder  consultation.  About  one  third  of 
respondents  -  mainly  public  authorities,  notably  central  banks  and  supervisors,  as  well  as 
some industry associations - provided a broadly favourable opinion of the ESAs' governance.    
Many of these respondents rejected the suggestion of inherent conflicts of interest within  the 
ESAs.    However,  even  among  those  that  consider  the  governance  to  have  worked  broadly 
well  recognize  the  potential  utility  of  having  a  separate  group  looking  at  supervisory 
convergence issues.  On occasion it is mentioned that this should also incentivize the ESAs to 
make more use of certain powers. 

Other respondent offered a more critical assessment of governance arrangements, focusing on 
composition  of  the  Boards  and  the  structure  of  the  decision-making  bodies,  voting  powers, 
etc. and with suggestions on how to mitigate shortcomings varying both in terms of content 
and level of precision. For example, some stakeholders call for an independent oversight body 
to look over the operations of the ESAs.  Several others rather comment on the fact that the 
composition  of  the  ESAs'  Boards  is  dominated  by  NCAs.      Others  voiced  concerns  that 
processes  and  decisions  are  approached  with  the  national  perspectives  rather  from  an  EU-
wide perspective.  Some stakeholders note that changing the composition of the Management 
Boards  by  introducing  independent  members  could  introduce  more  neutrality  in  discussions 
and decisions. A few respondents refer explicitly to the ECB, SSM and SRB governance as 
possible governance models.   

155   IMF Country Report No. 13/65, March 2013.  
156   http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/145696.pdf  

162 

 
 
                                                            
Views on the need to strengthen the role and mandate of the Chairperson are split.  A small 
number of respondents comment on the dual role of the Chairperson sitting on both the Board 
of Supervisors and the Management Board, which in the view of those respondents makes it 
more  difficult  for  the  Board  of  Supervisors  to  exercise  effective  oversight  over  the 
Management  Board.    The  fact  that  the  Chairperson  chairs  both  Boards  places  him/her  in  a 
position where he/she can exercise a very high degree of influence on the decision-making of 
the  Management  Board.    This,  in  combination with  the  lack  of  any  external  or  independent 
members  on  the  Board  of  Supervisors,  implies  that  power  in  decision-making  is  heavily 
concentrated  and  not  subject  to  sufficient  oversight.    Conversely  most  other  respondents 
emphasize  the  importance  of  strengthening  the  Chairpersons  by  granting  them  more  formal 
powers and a voting right to strengthen accountability and the decision-making process in the 
Board of Supervisors. 

A  very  small  number  of  respondents  mention  that  the  capacity  and  the  role  of  the  Joint 
Committee  should  be  developed  taking  into  consideration  that  there  will  be  more  and  more 
issues with a cross-border and cross-sector dimension in the future.  To this end, the decision 
making procedures of the Joint Committee should be developed to allow a less bureaucratic 
decision  making  and  still  raising  openness  and  publicity  of  the  decisions  of  the  ESAs  in 
general. 

Finally,  respondents  to  the  public  consultation  note  that  the  role  of  stakeholder  groups  is 
valued  but  that  their  impact  is  limited.    Reasons  mentioned  include  an  unbalanced 
composition which also leads to coordination problems, lack of information and lack of time 
for proper consultations.   

In sum, the ESA governance has implied an increase in effectiveness relative to the baseline.  
However, the failure of the ESAs to use certain powers  – notably in the area of supervisory 
convergence  –  seems  attributable  to  conflicts  between  EU  and  national  interests  within  the 
decision-making process. These conflicts could be managed in a more balanced way through 
changes  in  governance  framework  that  would  be  designed  to  ensure  more  balance  between 
EU  and  national  interests  in  the  composition  and  voting  rights  of  the  ESA  Boards  of 
Supervisors  

Evaluating the effectiveness and efficiency of the ESAs' funding arrangements 

ESAs  funding  arrangements  under  the  ESFS  regulation  involve  contributions  from  the  EU 
budget and from NCAs in a ratio of 40:60. These arrangements have been more effective than 
the arrangements for the predecessor Committees of Supervisors, which were based solely  on 
funding by NCAs. The new arrangements have enabled the ESAs to expand both in budgetary 
terms and in terms of staff numbers so as to meet the objectives prescribed in their founding 
Regulations. The following graphs denote the evolution of the combined budgetary means and 
human resources levels.  

163 

 
 
Figure 1: ESAs budget 2011-2017  

100.000.000

90.000.000

80.000.000

70.000.000

60.000.000

50.000.000

40.000.000

30.000.000

20.000.000

10.000.000

0

2011

2012

2013

2014

2015

2016

2017

Total EU & NCA contribution

NCAs contribution for 3 ESAs

EU contribution for 3 ESAs

Name 
of 
decentralised 
agency 

the 

Locatio
n 

Year 
of 
creatio
n 

Total  number  of  posts 
(authorised by EU budget)  

201
2 

201
3 

201
4 

201
5 

201
6 

2017 

European  Banking 
Authority (EBA) 

London 2010  68  93  103 111 125 134 

and 

European 
Insurance 
Occupational 
Pensions  Authority 
(EIOPA) 

Frankfu
rt 

European 
and 
Securities 
Markets  Authority 
(ESMA) 

Paris 

Source: European Commission 

2010  69  80  84  87  92  101 

2010  75  121 128 133 138 150 

The ESAs total budget has more than doubled during the first years of their operations, with 
an  average  growth  rate  of  more  than  25%  per  year  (Figure  1).    This  budgetary  expansion 
during  the  start-up  phase  reflects  ESAs  increasing  workload  in  order  to  fulfil  their  mandate 
with  particular  emphasis  to  build  single  regulatory  and  supervisory  frameworks  (single 
rulebooks) for their respective areas of competence. Thereafter, the EU MFF 2014-2020 set 
ESAs  budget  growth  to  approximately  8%  per  year  until  2018.  From  2019  on,  ESAs  were 
assumed  to  reach  cruising  speed  implying  a  lower  growth  rate  in  budgetary  resources.  This 

164 

 
 
 
 
limitation to ESAs budgetary expansion is due to the fact that the 2014-2020 MFF introduced 
general budget cuts relative to the 2007-2013 period.   

A  limitation  on  the  ESAs  financial  resources,  in  particular  in  times  of  sudden  changes  to 
budget  needs,  comes  from  the  fact  that  the  ESAs  are  not  allowed  to  keep  budget  surpluses.  
The  mentioned  limitation  results  from  the  FFR.    According  to  current  financial  rules,  the 
ESAs return any financial surpluses to the EU on an annual basis.  Subsequently, i.e., in the 
following year, ESAs are entitled to claim back 60% of the past surplus amount, which is then 
redistributed  across  NCAs.  Usually,  the  amount  is  deduced  from  their  contribution 
obligations.  The  absence  of  the  ability  by  ESAs  to  retain  budget  surpluses  may  reduce  the 
smoothness  of  the  ESAs  budgets  in  certain  situations.    For  example,  in  case  an  unexpected 
financial need would arise in an ESA linked to increased financial market risks or a financial 
crisis, tapping on budget surpluses could be an easy solution to cover temporary budget gaps.  
Member  States,  companies,  financial  and  other organisations  often  use  reserves  to  level  out 
their budget fluctuations. 

The existing fixed distribution of funding between the EU and the national CAs puts further 
constraints on the ESAs budget and reduces the ESAs' capability of dealing with unforeseen 
and  unforeseeable  circumstances.    Illustrating  the  mentioned  challenge,  a  number  of  NCAs 
have  raised  the  issue  of  increasing  difficulties  in  contributing  to  the  ESAs'  budgets  due  to 
budgetary constraints.  The MFF has capped the EU annual contribution to the ESAs budget 
to a maximum annual lump sum, which in 2020 reaches approximately EUR 16 million for 
EBA, EUR 9.9 million for EIOPA and EUR 12.3 million for ESMA.  The listed figures mean 
that the ESAs cannot grow by more than planned under current financial arrangements. 

Discussions  with  ESA  staff  and  testimonies  provided  before  Parliament  confirm  that  due to 
insufficient funding levels the ESAs have experienced difficulty in meeting their objectives in 
a number of areas such as assessments of third country equivalence and consumer protection, 
and  have  not  progressed  sufficiently  on  supervisory  convergence.  For  example,  the 
Commission's decision on delegated acts were occasionally delayed, leading to delays in the 
implementation  of  Level  1  and  Level  2  legislation,157  and  some  initiatives  and  tasks  got 
deprioritised.158    In  addition,  one  of  the  ESAs  had  to  reduce  and  temporarily  suspend  its 
financial market monitoring activities.  In addition, due to limited resources, the ESAs could 
not  make  full  use  of  the  abundant  financial  market  data  they  have  at  their  disposal. 
Information  provided  by  the  ESAs  on  monitoring  indicators  also  illustrates  that  because  of 
budgetary  constraints  supervisory  activities  such  as,  for  example,  training  has  had  to  be 
reprioritized.159   

157   For  example,  EBA's  advice  on  equivalence  of  third  country  regimes  and  the  technical  standards  on  anti-

money laundering 

158   For  example  in  order  to  address  budget  constraints,  ESMA  deprioritised  (removed)  from  its  IT  Work 
Programme 2017-2019 the development of the European Electronic Access Point (EEAP) in favour of the 
implementation of the Prospectus Directive and Money Market Funds Regulation projects. 

159   Staff of each of the ESAs provided monitoring indicators to the Commission during the spring 2017 for the 

purposes of the evaluation. 

165 

 
 
                                                            
Linked to the mentioned problems, several reports from the Parliament, from the Council and 
from  the  ECA160  noted  that  the  ESAs  funding  levels  are  insufficient.  In  particular,  the 
Committee  on  Economic  and  Monetary  Affairs  in  their  annual  Opinions  prepared  for  the 
Committee on Budgetary Control on the ESAs budget execution has repeatedly stressed that 
the ESAs current financing arrangement was inadequate, inflexible and burdensome.161  In its 
2014/05 report, the ECA stated that "overall, EBA’s resources during its start‑up phase were 
insufficient to allow it to fulfil its mandate".162  In particular, the ECA also found that the EBA 
lacked resources to fulfil its consumer protection mandate and to conduct the 2011 stress tests. 

On  the  other  hand,  the  ESAs  have  used  their  available  resources  efficiently.  The  current 
funding framework requires the ESA financial rules to be tightly aligned with the provisions 
of  the  Commission's  FFR.    Any  divergence  from  the  FFR  requires  prior  approval  by  the 
Commission.  The  ESAs  have  established  internal  control  procedures  to  oversee  the  budget 
execution  through  quarterly  reports  to  their  Management  Boards  on  the  progress  of  the 
execution  of  the  budget.    Since  2013,  the  ESAs  have  been  using  a  system  of  performance 
indicators to monitor progress vis-a-vis their budget execution.  Their accounts and the use of 
resources  are audited on an annual basis by the ECA.  In  addition,  every financial  year, the 
Parliament, following a recommendation from the Council, grants discharge to each ESA for 
the 
their  budget.  This  process  ensures  maximum  scrutiny  and 
accountability  of  ESAs  budget  execution  and  has  resulted  to  keeping  the  cost  down  and 
increase operational efficiency. Due to such operational efficiency, the ESAs could still meet 
its  objectives  to    a  large  extent,  even  though  since  2015  they  were  receiving  approximately 
10%  less  of  what  they  actually  had  estimated  for  operating  effectively  (annual  budget 
requests).  However,  it  would  seem  that  the  limits  of  efficiency  in  allocating  budgetary 
resources have been reached and will not help the ESAs to meet their objectives in the context 
of  expanding  responsibilities  within  a  more  integrated  EU  financial  system  in  the  coming 
years.163 

implementation  of 

Figure 2 - Difference between ESAs budget request and adopted budget (2012-2017) 

160   See stakeholder replies to the Commission's 2014 Review Report, the Parliament's 2013 Review Report of 
the ESFS, the IMF Country Report No 13/65 on the Financial Sector Assessment of the European Union – 
Issues  in  Transparency  and  Accountability;  the  Parliament's  2014  Resolution  on  the  European  System  of 
Financial  Supervision  Review;  the  2014  Council  conclusions  on  the  ESFS  Review,  the  2016  Parliament 
Resolution on the Stocktaking and challenges of the EU Financial Services Regulation, testimonies before 
national parliaments, and the ESAs during Parliamentary hearings. 

161   ECON  2014/2122(DEC)  published  26.2.2015; 

  2014/2121(DEC)  published  26.2.2015;  ECON 

2016/2186(DEC) published 1.3.2017;  

162   014/05,  Special  Report  European  banking supervision  taking  shape  — EBA  and  its  changing  context, p.8 

point IV. 

163  The  problem  of  the  sustainability  of  the  ESAs  budget  is  further  elaborated  in  section  8.2  of  the  Impact 

Assessment 

166 

 
 
                                                            
2012

2013

2014

2015

2016

2017

2%

0%

-2%

-4%

-6%

-8%

-10%

-12%

2013 

2014 

2012 
  A budget request € 
59,373,000  72,755,000  87,426,800  98,148,500 
  As adopted budget €  
56,681,200  72,923,579  88,386,458  87,642,555 

2015 

2016 

2017 

105,572,036  113,173,000 

95,590,174 

103,013,253 

Source: European Commission 

In the stakeholder consultations on the ESAs, only a few respondents (from the full range of  
categories) referred to the current funding framework and whether funding levels have been 
commensurate  to  what  is  necessary  for  the  ESAs  to  fulfil  their  objectives  and  tasks.   
However, those respondents pointed to the fact that the ESAs struggle to find ways of making 
their available funding meet their requirements.  A few stakeholder groups or representatives 
of  consumers  also  pointed  to  the  fact  that  a  limited  budget  has  several  drawbacks  both  in 
terms of securing adequate staff and managing consultation with all stakeholders.  

From the Commission's point of view it is understandable that among the general public very 
few address the issue of sufficiency as it is difficult for external stakeholders to have that type 
of  detailed  insight  into  the  administration  of  the  ESAs.    This  should  be  contrasted  by  the 
views  of  the  EU  Budgetary  Authority  which  at  each  discharge  of  the  ESAs'  budget  has 
concluded that the ESAs' budget levels have been insufficient and should be changed164. 

Views  expressed  in  the  2017  public  consultation  confirm  that  the  ESAs  are  under  resource 
constraints, negatively affecting their ability to carry out their tasks.  

Regarding  possible  solutions,  stakeholder  views  diverge  significantly  with  respect  to  where 
the contributions to the ESAs activities should come from.  With the exception of just a few, 
virtually  all  industry  respondents  do  not  support  moving  to  a  system  where  the  ESAs  are 
funded  fully  or  partially  by 
  Also  a  small  number  of  national 
institutions/authorities  do  not  support  industry  contributions.    Broadly  the  reasons  provided 
for  not  charging  the  industry  include  that:  charging  fees  is  only  justified  where  entities  are 

industry. 

the 

164   For more information see discussion in section 8.2 

167 

 
 
 
                                                            
directly supervised; that there should be no duplication of payments for the industry; that the 
ESAs  work  is  a  public  good  for  which  the  public  should  be  pay;  and  that  supervisory 
convergence  work  should  be  funded  by  national  CAs  because  they  benefit  directly  from 
convergence  work.    Most  of  all  there  are  strong  concerns  that  industry  funding  would 
influence the independence of the ESAs and that there would not be a sufficient level of EU 
control and accountability towards the EU involved in the budgetary process.  Contributions 
from the EU Budget and the application of the EU FFR would secure that. 

a 

stakeholders, 

accompanied  by 

  This  group  of 

Consumer organizations and stakeholder groups see merit in industry contributing  – both to 
ensure sufficiency but also to ensure more independence vis-a-vis national CAs and the EU 
few  national 
institutions. 
institutions/authorities, are either open to industry contributions (partly not fully) or neutral. 
However,  respondents  emphasize  that  a  shift  should  be  accompanied  by  a  thorough 
assessment  on:  how  to  strike  the  right  balance  between  entities  that  are  subject  to  direct 
supervision;  pan-European  entities  not  subject  to  direct  supervision;  and  entities  that  are 
active  mostly  at  national  level;  the  impact  UK's  decision  to  leave  the  EU  will  have  on  the 
ESA’s supervisory workload; and the population of firms that would be required to provide 
funding.  Any additional industry funding for the ESAs must also be provided to the ESAs on 
the  basis  that  the  ESAs  are  transparent  about  how  the  funding  is  used,  and  that  the  ESAs 
ensure the additional funding is used to improve their operations in measurable ways. Finally 
a number of national institutions/authorities argue that the ESAs should be fully funded by the 
EU  Budget  as  they  consider  that  the  ESAs  have  been  created  to  assist  the  Commission  in 
performing technical and expert tasks in the financial field and constitute "extensions" of the 
Commission.  

Overall  for  the  period  2011-2017  and  in  comparison  with  the  baseline,  the  new  financial 
means provided the ESAs with the ability to perform, to a certain extent, the tasks assigned in 
the ESA Regulations.  However, these means were  not sufficient  to  enable them addressing 
their mandate in full.  This was acknowledged, by the European Court of Auditors ("ECA"), 
which  in  its  2014/15  report  stated  for  EBA  that  "overall,  […] resources  during  its  start‑up 
phase were insufficient to allow it to fulfil its mandate"165.  

Evaluating the effectiveness and efficiency of the supervisory architecture  

The  issue  of  sectoral  versus  cross-sectoral  supervision  has  been  analysed  extensively  in 
economic  literature.  In  addition  to  academic  papers  looking  into  the  relationship  of  the 
supervisory system with  central banks166,167 and  into the issue  of centralising supervision at 

165 2014/05, Special Report European banking supervision taking shape  — EBA and  its changing context, p.8 

point IV. 

166   A  tendency  can  be  observed  across  EU  Member  States  towards  enhancing  the  role  of  central  banks  in 

supervisory activities following the financial crisis. 

167   See  e.g.  T.  Padoa-Schioppa   ‘EU  structures  for  financial  regulation   supervision  and  stability’  and  for  a 
broader  literature  review  E.  Wymeersch,  The  Structure  of  Financial  Supervision  in  Europe:  About  Single 
Financial  Supervisors,  Twin  Peaks  and  Multiple  Financial  Supervisors,  2007  European  Business 
Organization Law Review 8: 237-306. 

168 

 
 
                                                            
national and European level168, there is an abundant literature169 on a partial or full integration 
of supervision of the three classical financial sectors – banks, insurance and securities markets 
– and the separation of prudential supervision from the supervision of market conduct. . 

Analysis  is  the  literature  is  rather  mixed  on  the  relative  merits  of  different  supervisory 
architectures  and  shows  that  in  general,  no  one  financial  supervision  model  proves 
unambiguously  superior  in  achieving  all  the  objectives  of  regulation.    Empirical  evidence, 
which exists as to the different supervisory models, is inconclusive and is in any case drawn 
from different regulatory environments around the world, as noted by the G30.170  The main 
tasks  of  the  ESAs  (i.e.  co-ordination,  harmonisation  of  rules  etc.)  are  not  related  to  direct 
supervision  and  evidence  related  to  national  supervisors,  whose  main  task  is  day-to-day 
supervision of individual entities, cannot be directly applied. Even looking at national models, 
it  is  clear  that  the  supervisory  architecture  varies  among  Member  States.    Some  Member 
States have a unitary structure  others have a “twin-peaks” model  and others the sector-based 
model that is reflected in the current configuration of the ESAs.  Therefore, whichever model 
is  pursued  for  the  ESAs,  they  argue  that  there  will  not  be  perfect  alignment  in  supervisory 
architecture between the EU-level and national levels.   

Various  approaches  for  the  institutional  structure  of  the  European  supervisory  system  were 
discussed  in  the  Commission  Staff  Working  Document  accompanying  the  Communication 
from  the  Commission  'European  financial  supervision',  which  for  this  particular  problem 
refers to  an  extensive analytical study by G30171.   The G30 review  - while  demonstrating  a 
commonality of challenges faced by supervisors around the globe - shows that many different  
approaches to supervisory architecture have been chosen to address these common challenges, 
in alignment with a particular economic, political, and cultural context. 

All  approaches  to  financial  supervision  employed  across  the  globe  (i.e.,  institutional172, 
functional173,  integrated174,  or  twin  peaks175)  are  shown  to  have  both  strengths  and 

168   This literature flourished in the context of the Commission proposals for reform of the EU framework for 
financial  supervision  in  2009   see  e.g.  M.  Andenas   ‘Who  is   oing  to  Supervise  Europe’s   inancial 
Markets’   X.  Vivès   ‘Restructuring   inancial  Regulation  in  the  European  Monetary  Union’   19  Journal  of 
Financial Services Research (2001) pp. 57-82. 

169   See e.g.  .  riault  ‘The Rationale for a Single  ational  inancial Regulator’   SA  ccasional Paper  o. 2 
(1999),  or  M.  Taylor  and  A.   leming   ‘Integrated   inancial  Supervision:  Lessons  from  the   orthern 
European Experience’  World  ank Policy Research Paper  1999  or D. T. Llewellyn  2006   Institutional 
Structure of Financial Regulation and Supervision: The Basic Issues, presented at a World Bank seminar on 
Aligning  Supervisory  Structures  with  Country  Needs  in  Washington  DC  in  June,  2006.  For  a  broader 
literature review E. Wymeersch, The Structure of Financial Supervision in Europe: About Single Financial 
Supervisors,  Twin  Peaks  and  Multiple  Financial  Supervisors,  2007  European  Business  Organization  Law 
Review 8: 237-306. 

170   See the G30 report, "The Structure of Financial Supervision – approaches and challenges in a global 

marketplace" G30, 9/10/2008, which states "In general, no one model has proven unambiguously superior 
in achieving all the objectives of regulation." 

171   Idem 

172   The  Institutional  Approach  is  one  in  which  a  firm’s  legal  status   for  example   a  bank   broker-dealer,  or 
insurance company) determines which regulator is tasked with overseeing its activity from both a safety and 
soundness and a business conduct perspective. 

169 

 
 
                                                            
weaknesses.  In particular, the functional approach to supervision, applied at EU level in the 
current  configuration  of  the  ESAs  and  at  national  level  in  a  number  of  EU  Member  States 
such  as  France  and  Spain,  remains  quite  common  and  appears  to  work  well,  as  long  as 
coordination among agencies is maintained.176  

The  integrated  approach,  applied  inter  alia  in  Germany,  Japan,  and  the  United  Kingdom, 
proves  effective  and  efficient  in  smaller  markets,  where  oversight  of  a  broad  spectrum  of 
financial  services  can  be  successfully  conducted  by  one  regulator.    The  model  also  has 
advantages in complex markets where it is viewed as flexible and having a unified focus on 
regulation and supervision beyond jurisdictional lines. However, while potentially eliminating 
certain redundancies, an integrated model may create the risk of a single point of regulatory 
failure.  Finally, the twin peaks approach, used inter alia in Australia and in the Netherlands 
to mention a few examples, is designed to reconcile the objective of market conduct integrity 
and  consumer  protection  with  the  objective  of  achieving  safe  and  sound  regulation  and 
financial system stability. 

In times of increasingly integrated markets within the EU and between the EU and the rest of 
the  world,  discussions  arise  on  the  possibility  to  merge  certain  supervisory  agencies,  or  at 
least  centralising  some  of  their  activities,  in  order  to  achieve  greater  effectiveness  and 
efficiency of financial supervision. The economic  theory177 provides  a rationale for mergers 
across entities in specific economic contexts.  The theory of economies of scale stipulates that 
cost advantages arise for organisations due to size, output, or scale of operation, with cost per 
unit  of  output  generally  decreasing  with  increasing  scale  as  fixed  costs  are  spread  out  over 
more  units  of  output.    Economies  of  scale  apply  to  organizational  and  business  situations, 
such as manufacturing. Thanks to economies of scale, the fixed cost to produce units of output 
may be lowered. 

However,  the  above  reasoning  holds  only  for  specific  circumstances.    There  are  numerous 
sectors  of  economic  activity  that  do  not  exert  economies  of  scale  or  are  even  be  subject  to 
diseconomies  of  scale.178    As  to  the  latter,  diseconomies  of  scale  can  be  defined  as  cost 
disadvantages that firms or organisations accrue due to an increase in size, resulting in higher 
pro-unit, or average, output costs.  Typical situations where diseconomies of scale emerge are 

173   The Functional Approach is one in which supervisory oversight is determined by the business that is being 
transacted by the entity, without regard to its legal status. Each type of business may have its own functional 
regulator. 

174   The Integrated Approach  is one  in which a  single universal  regulator  conducts  both  safety  and  soundness 

oversight and conduct-of-business regulation for all the sectors of financial services business.  

175   The  Twin  Peaks  approach,  a  form  of  regulation  by  objective,  is  one  in  which  there  is  a  separation  of 
regulatory  functions  between  two  regulators:  one  that  performs  the  safety  and  soundness  supervision 
function and the other that focuses on conduct-of-business regulation. 

176   See the G30 report 
177   See  e.g.  Hanoch   .  1975  “The  elasticity  of  scale  and  the  shape of  average  costs ” American  Economic 
Review  65,  pp.  492–497  or  Pan ar   J. .  and  R.D.  Willig   1977   “Economies  of  scale  in  multi-output 
production, Quarterly Journal of Economics 91, 481-493. 

178   See e.g. Hsiehchen D, Espinoza M, Hsieh A. Multinational teams and diseconomies of scale in collaborative 

research. Science Advances. 2015;1(8). 

170 

 
 
                                                                                                                                                                                          
large  organisations  with  complex  structures,  with  several  layers  of  management  and  with  a 
high  degree  of  bureaucracy.    In  such  cases,  the  risk  of  effort  duplication  becomes  high, 
increasing  unit  operational  costs.    In  addition,  high  communication  costs  result  in 
inefficiencies and further increase operational costs. Finally, any merger of the ESAs would 
reinforce the need for a review of governance arrangements in order to ensure an effective and 
efficient  balance  between  benefiting  from  the  input  of  supervisors  in  different  sectors  and 
achieving  the  benefits  of  a  cross-sectoral  approach.  A  new  governance  structure  to 
accommodate the different sectors could be very costly.   

Currently, the EU regulatory framework is organised by sector as evidenced by the different 
directives  and  regulations  defining  the  scope  of  action  of  each  ESA.  With  the  notable 
exceptions  of  the  Financial  Conglomerates  Directive  ("FICOD")  and  PRIIPs,  there  is  little 
legislation  generally  applicable  to  the  three  sectors  (banking,  insurance  &  pensions  and 
securities  markets).  In  addition  the  technicality  and  specifications  of  the  three  sectors  have 
increased  over  the  past  decade  and  this  calls  therefore  for  a  specific  regulatory  and 
supervisory approach rather than a holistic one leading to the creation of the single authority. 
Reflecting  this  organisation  of  the  regulatory  framework,  sectoral  supervision  by  the  ESAs 
allows  for  tailored  supervisory  approaches  to  particular  business  models  and  specificities  of 
each financial sector.  In areas as complex and important as financial services, sector specific 
expertise  should  not  be  underestimated  and  is  absolutely  core  for  effective  and  efficient 
supervision. The industry benefits from sector-specific expertise present at each ESA, which 
is  available  also  for  regulatory  purposes  when  developing  technical  regulatory  advice  or 
technical  standards.  Such  sector-specific  expertise  minimises  the  risk  of  inappropriate 
application of "one-size-fits all" solutions to regulation and supervision of many very different 
financial entities and activities. 

The  potential  offsetting  effects  of  economies  and  diseconomies  of  scale  in  merging 
supervisory  entities,  coupled  with  the  generally  accepted  finding  that  no  single  financial 
supervision  model  is  unambiguously  superior  in  achieving  all  the  objectives  of  regulation, 
weaken  the  case  for  introducing  significant  changes  to  the  architecture  of  the  European 
financial  supervisory  system.  Moreover,  the  merger  of  two  or  all  three  ESAs  could  create  a 
number  of  uncertainties  (legal  framework,  hesitation  in  the  recruited  staff  and  so  on)  and 
possible inefficiencies in terms of restructuring costs. In addition, the location of the ESAs in 
different  EU  capitals  has  not  been  an  obstacle to  their  successful  establishment  nor  to  close 
cooperation between ESAs.  

One  area  in  which  efficiency  gains  could  be  made  via  a  merger  of  the  ESAs  might  be  
administrative costs, although the scope for major savings would  be limited:   

Centralising  economic  analysis  would  be  possible,  but  it  should  be  noted  that  each  of  the 
ESAs conducts research in different market segments. In consequence, centralising economic 
research  might  bring  few  material  savings.  Moreover,  there  is  a  risk  of  losing  the  current 
diversity 
instead  of  ESAs  conducting  research 
independently,  research  by  all  ESAs  would  be  managed  and  coordinated  centrally.  In 

in  viewpoints  and  assessments  as 

171 

 
 
addition,  centralising  economic  research  may  come  at  the  expense  of  in-depth  analysis  in 
specialised areas that are within the remit or the interest of only one ESA. 

Similar  challenges  apply  to  a  potential  merger  of  statistical  and  data  management  activities.  
Each of the ESAs has a different degree of data dependency and accesses and uses different 
sets of data.  Moreover, the current system where data is managed separately by each of the 
ESAs  offers  a  possibility  for  comparisons  and  cross-checks  on  certain  financial  aggregates 
and statistics. Such controls would not be possible if data processing is run centrally. 

For  human  resources,  procurement  and  other  administrative  activities,  while  a  number  of 
processes  and  activities  could  be  centralised,  an  important  challenge  and  argument  against 
centralisation is the geographical dispersion of the ESAs.  Despite the technological progress 
in  terms  of  communication  and  digitalisation,  there  remain  notable  benefits  for  human 
resources and other administrative units to be located in close proximity to ESAs. Finally, a 
significant  number  of  human  resources,  procurement  and  other  administrative  activities  are 
ESA-specific which makes them not suitable for centralisation. 

For  fee  collection  in  a  future  partly  industry-financed  framework,  the  population  of  entities 
supervised and subject to fees will be different for each of the ESAs  and could well rely on 
existing,  well-functioning  national  systems  already  in  place.179    Notwithstanding,  the  fee 
calculation process is specific to the type of company, the ESAs  could even find synergies to 
develop  a  common  fee  calculation  and  collection  mechanism.  In  view  of  the  described 
sectoral specificities, potential benefits resulting from a possible merger of accounting or fee 
collection departments therefore seem limited.    

Overall, it seems that in the European supervisory context the potential benefits from merging 
a number of more administrative activities and processes across ESAs would be limited, with 
uncertain efficiency gains.  

In  sum,  the  current  sectoral  model  of  supervision  seems  to  ensure  the  greatest  possible 
effectiveness  of  supervision  at  EU  level  while  the  analysis  above  indicates  that  there  is  no 
decisive  evidence  that  singles  out  a  model  of  supervisory  architecture  as  the  most  effective 
one with regards to the tasks carried out by ESAs. In this context, it should be mentioned that 
the  vast  majority  of  respondents  to  the  public  consultation  express  a  clear  support  for  the 
current, sectoral model of supervision as having been effective and are against any merging of 
the  ESAs.  Several  respondents  emphasize  that  now  is  not  the  time  to  consider  fundamental 
changes in the EU supervisory architecture, as the current model has been in place for only six 
years,  significant  regulatory  changes  in  all  areas  are  still  being  implemented  (which  means 
that  expertise  is  still  building  up)  and  the  EU  is  facing  extraordinary  challenges  with  the 
United Kingdom leaving the EU.  Given the ESAs crucial role in ensuring financial stability, 
it is essential that stakeholders are fully familiar with how the regime operates. Accordingly, 
the  majority  view  is  that  there  is  a  need  for  stability  in  the  supervisory  architecture  and 
changing the current architecture is not a good idea at this juncture. A minority of respondents 
was  of  the  view  that  the  existing  overall  structure  has  become  cumbersome  on  the  banking 

179   The vast majority of EU Member State competent authorities receive some type of industry funding today. 

172 

 
 
                                                            
side  with  "confusion"  created  by  interaction  of  the  EBA  and  the  Single  Supervisory 
Mechanism. In addition, there was a view that consumer and investor protection is currently 
dissipated  between  the  individual  ESAs,  and  having  one  conduct  authority  should  facilitate 
the coherence of a pan-European policy.  

Evaluating the coherence of the ESAs framework 

Since  the  start  of  the  financial  crisis,  the  EU  and  its  Member  States  have  engaged  in  a 
fundamental overhaul of financial regulation and supervision.  The EU has initiated a number 
of reforms to create a safer, sounder, more transparent and responsible financial system that 
works for the economy and society as a whole.  This has included the creation of the SSM and 
the  SRM/SRB  created  for  specific  and  discreet  responsibilities.    The  ESAs  Regulations  are 
coherent with and complementary to those bodies.   

On the regulatory  side, the Single Rulebook was introduced and stakeholders have reported 
on the important role the ESAs have had in contributing to this work and the importance the 
ESAs will have also in the future to finalize the Single Rulebook. However,  to fully benefit 
from  the  Single  Rulebook,  legal  acts  must  be  interpreted  and  applied  in  a  convergent  and 
consistent manner and compliance must be supervised in a consistent way.  This is achieved 
through work on supervisory convergence across the EU.  This is an area where stakeholder 
views converge strongly around the fact that notwithstanding efforts made by the ESAs in this 
area, much more can be done to improve supervisory convergence in the EU 28.  Especially 
to  promote  the  CMU  and  to  provide  a  coordinated  response  to  the  shock  of  having  the  UK 
leave  the  EU  which  will  test  the  ESAs  ability  to  contribute  to  ensuring  financial  stability 
within the remaining Member States. 

Overall, the ESAs framework is also coherent with the existing models of EU decentralised 
agencies while taking into account the specificities of the ESAs.   

Evaluating the relevance of the ESAs framework  

The  ESAs  constitute  a  functional  cornerstone  of  the  comprehensive  reform  package  put  in 
place in  recent years and they have played a key role in  ensuring that the financial markets 
across the EU are well regulated, strong and stable.   

Significant  changes  in  furthering  the  EU's  integrated  financial  framework  have  been  made 
since  the  ESA's  were  last  evaluated  in  2014.    The  new  capital  requirements  and  resolution 
frameworks  for  banks180  (2014)  and  the  solvency  framework  for  insurers181  (2016)  have 
entered into effect and contributed to  a reinforcement of the Single Rule Book for financial 

180   Directive  2013/36/EU  of  the  European  Parliament  and  of  the  Council  of  26  June  2013  on  access  to  the 
activity of credit institutions and the prudential supervision of credit institutions and investment firms (OJ L 
176, 27.6.2013, page 338); Regulation (EU) No 575/2013 of the European Parliament and of the Council of 
26 June 2013 on prudential requirements for credit institutions and investment firms (OJ L 176, 27.6.2013, 
page  1);  and  Directive  2014/59/EU  of  the  European  Parliament  and  of  the  Council  of  15  May  2014 
establishing a framework for the recovery and resolution of credit institutions and investment firms (OJ L 
173, 12.6.2014. page 190). 

181   Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-
up and pursuit of the business of Insurance and Reinsurance (Solvency II) (OJ L 335, 17.12.2009, page 1). 

173 

 
 
                                                            
services.  The framework  for banks in  Member States  participating in the Banking Union  – 
currently the euro area but open to all Member States - has been reinforced with the creation 
of  the  Single  Supervisory  Mechanism  ("SSM")  and  the  Single  Resolution  Mechanism 
("SRM").  The development of the CMU has also taken off to complete the single financial 
market  and  boost  EU’s  capital  markets  in  all  EU  Member  States.    More  recently  new 
challenges  to  financial  integration  have  arisen  as  the  United  Kingdom  has  notified  its 
intention  to  leave  the  EU.    It  is  inevitable  that  these  changes  impact  on  the  way  the  ESAs 
operate, including in a way that could not necessarily have been foreseen at the time when the 
ESAs were created. 

Feedback  from  stakeholders  confirm  that  the  ESAs  have  carried  out  remarkable  work 
contributing  to  the  building  of  the Single  Rulebook,  to  ensure  a  robust  financial  framework 
for the Single Market and to underpin the building of the Banking Union as part of the EMU. 
However,  stakeholders  responding  to  the  CMU  public  consultation  and  to  the  ESA  review 
consultation  point  to  the  fact  that  further  progress  in  relation  to  especially  supervisory 
convergence is needed to promote the CMU, integration within the EU's internal market for 
financial services and to safeguard financial stability.   

The  Commission  also  notes  that  in  the  area  of  capital  markets  in  particular,  the  Five 
Presidents' Report of June 2015182 outlined the need for further supervisory responsibilities in 
the  area  of  capital  markets  as  a  vision  for  a  well-functioning  CMU,  and  the  2016  CMU 
Communication  emphasised  that  further  work  will  be  needed  to  reinforce  the  European 
dimension of supervision.  This was reemphasized in the Commission's Reflection paper on 
the deepening of the EMU.183 

Evaluating the added value of the ESAs 

In terms of EU added value, the ESAs covered a significant gap in the supervisory framework 
in  the  EU  Single  Market  as  before  the  creation of  the  ESAs  the  system  of  micro-prudential 
supervision in the EU was nationally based; i.e., it was based on the principle of home country 
control combined with minimum prudential standards and mutual recognition.  A  nationally 
based  supervisory  system  does  not  match  the  integrated  and  interconnected  reality  of  the 
European financial markets in which many financial entities operate across borders.   

With  the  creation  of  the  ESAs  it  was  acknowledged  that  there  was  a  need  for  an  EU-level 
supervisory system to enhance consumer and investor protection and sustainably reinforce the 
stability  and  effectiveness  of  the  financial  system  throughout  the  EU.    These  objectives  are 
better achieved at Union level. 

As presented both in the Commission's 2014 evaluation and as evidenced by the responses to 
the  public  consultation  on  the  ESA  review,  stakeholders  agree  that  the  ESAs  have 
significantly  contributed  to  strengthen  coordination  and  cooperation  among  national 
supervisions  and  played  a  key  role  in  ensuring  that  the  financial  markets  across  the  EU  are 

182   https://ec.europa.eu/commission/publications/five-presidents-report-completing-europes-economic-and-

monetary-union_en 

183   COM(2017) 291 of 31 May 2017 

174 

 
 
                                                            
functioning  in  an  orderly  manner,  are  well  regulated  and  supervised  and  consumers' 
protection is enhanced.   

The need for the ESAs and their contributions to effective supervision across the EU will be 
even  more  important  in  light  of  the  increasing  interconnectedness  of  financial  markets,  EU 
and globally.  The ESA will be at the heart of efforts to build CMU given the central role that 
they  plays  in  promoting  market  integration  and  creating  single  market  opportunities  for 
financial entities and investors. 

Going  back  to  a  nationally  based  supervisory  framework  based  on  the  principle  of  home 
country control combined with minimum prudential standards and mutual recognition would 
simply not be able to deliver on the urgent needs to further integrate the EU financial markets 
and especially  the capital  markets framework.   This  would have  a negative consequence on 
the  EU's  ability  to  strengthen  long  term  investments  and  create  funding  sources  for  EU 
businesses  which  are  necessary  elements  to  strengthen  the  EU  economy  and  stimulate 
investment to create jobs. 

Section 7 Conclusions 

The overall objective of the ESAs is to sustainably reinforce the stability and effectiveness of 
the  financial  system  throughout  the  EU  while  enhancing  consumer  and  investor  protection.   
This evaluation shows that based on available evidence, the ESAs are broadly delivering on 
their objectives but that there are targeted areas where improvements may be needed. 

On the effectiveness and efficiency of the ESAs, the evaluation indicates that: 

 

 

 

in certain areas, the ESAs' powers could be enhanced to ensure that tasks can be better 
performed.  As  a  result,  better  regulatory  and  supervisory  outcomes  for  market 
participants  and  consumers  across  the  EU,  and  effective  and  efficient  handling  of 
cross border risks could be expected; 

the current governance framework makes it difficult to manage conflicts between EU 
and  national  interests,  implying  the  risk  that  ESA  decisions  are  not  taken  in  the 
common  interest  of  the  EU,  that  decision-making  is  delayed  or  that  there  is  an 
inaction bias, notably as regards non-regulatory activities (binding mediation, breach 
of EU law procedures, initiation of peer reviews), the decision making process could 
be more swift, and the perceived bias against using certain tools and powers should be 
eliminated;   

the  current  funding  framework  is  more  effective  vis-à-vis  the  baseline,  but  it  is  not 
commensurate  to  the  tasks  the  ESAs  perform  and  even  less  so  going  forward  and 
considering  the  tasks  the  ESAs  will  shoulder  in  the  future;  it  also  seems  to  lead  to 
uneven contributions by national competent authorities which are not easy to justify; 

 

the current sectoral supervisory architecture of the ESAs has been appropriate.  

175 

 
 
In terms of coherence, the ESAs work on regulatory issues is fully coherent with the building 
up of the broader EU supervisory framework.  It is also coherent with the building up of the 
Single  Rulebook.    However,  constraints  coming  from  governance  structure  and  the 
effectiveness  of  the  ESAs  powers  have  has  as  a  consequences  that  they  the  ESAs  have  not 
been able to sufficiently focus on work that ensures that all the financial legislation adopted 
by  the  EU  is  interpreted  and  applied  in  a  convergent  and  consistent  manner  across  all  EU 
Member States.   

In terms of relevance, the analysis concluded that the ESAs framework is relevant.   

Finally, the ESAs' framework has clearly created added value for the EU because their work 
is indispensable for promoting the Single Market for financial services. 

176 

 
 
 
 
11.6  Background on the elements of direct supervision in Option 3 of chapter 6 

1. 

Certain  wholesale  non-equity  prospectuses,  prospectuses  for  asset-backed 
securities and specialist issuers 

The  Prospectus  Directive  and  the  recently  published  Prospectus  Regulation  specify  that 
prospectuses  are  approved  by  the  national  competent  authority  (CA)  of  the  Home  Member 
State  of  the  issuer.184  On  the  basis  of  a  simple  notification  (passport)  to  the  national  CA  of 
another Member State the securities can also be offered to the public or admitted to trading on 
a regulated market in that host Member State.  

For a vast majority of the securities for which a prospectus is prepared there is a strong 'home 
bias'  in  the  investors,  i.e.  a  disproportionate  share  of  them  are  offered  exclusively  in  the 
Member  State  in  which  the  prospectus  is  approved  (no  passport  is  requested  by  the  issuer). 
This is particularly true for equity securities. However, there are prospectuses for certain types 
of non-equity securities and issuances where this does not hold, because the offer of securities 
is  addressed  to  professional  investors  across  the  Union.  This  is  the  case  for  non-equity 
securities, of which some can be of a highly specialised nature: 

1.  Prospectuses  for  asset-backed  securities  (ABS).  Despite  being  mainly  concentrated  in  9 
countries  within  the  EEA  (with  a  prominent  position  of  Ireland),  the  share  of  approved 
prospectuses  for  ABS  is  quite  significant,  accounting  for  about  12%  of  approved 
prospectuses for all types of securities.  

2.  Prospectuses  by  so-called  specialist  issuers  (companies  active  in  the  exploration, 
processing and distribution of oil, gas or minerals, property companies): These companies 
often  require  idiosyncratic  disclosures  (e.g.  available  reserves,  political  context,  etc.) 
where relevant sector expertise is required.  

3.  Prospectuses for wholesale non-equity which are typically prepared for the listing of debt 
securities on regulated markets or their segments, dedicated only to qualified investors185, 
following a private placement. Private placements are an important source of capital for 
issuers and are cross-border by nature. While a private placement with qualified investors 
does not require a prospectus, the subsequent admission to trading of the securities on a 
regulated market is subject to the publication of a prospectus. 

Assessment 

Prospectuses falling in the above three categories are normally used to raise capital in several 
Member States,  not only locally. In the first  two cases  because of the specific nature of the 
offers  and  in  the  third  case  because  it  is  often the  bigger  companies  using  this  technique  in 

184   As defined in Article 2(m) of Regulation (EU) 2017/1129  
185   While  currently  such  regulated  markets  or  their  segments  only  for  professional  investors  are  not  well-
developed, they are expected to grow in the future, potentially amounting for a considerable share of non-
equity prospectuses for professional investors. 

177 

 
 
 
                                                            
order  to  allow  institutional  investors  like  insurances  and  pension  funds  to  invest  in  these 
products.  In  all  cases  there  is  a  certain  risk  of  regulatory  arbitrage  as  the  Prospectus 
Directive/Regulation  provides  certain  flexibility  in  the  choice  as  to  where  to  get  these 
prospectuses approved. The third criterion of a small scale would only apply to the specialist 
issuers. The other types are rather major or potentially major categories of issuers. The fourth 
criterion  would  not  be  fulfilled  as  all  types  already  exist  under  the  current  Prospectus 
Directive,  while  the  fifth  criterion  of  limited  retail  exposure  would  apply  fully  to  the 
wholesale non-equity prospectuses and broadly speaking also to the other types as the offers 
are directed to institutional investors and bigger investors. 

2. 

Prospectuses  drawn  up  by  non-EU  entities  in  accordance  with  Regulation  (EU) 
2017/1129 

Issuers  from  non-EU  countries  can  offer  their  securities  in  the  EU  either  using  an  EU 
prospectus  in  accordance  with  Regulation  (EU)  2017/1129,  which  must  be  approved  by  a 
national  CA  in  the  EU  (the  CA  of  the  home  Member  State  of  the  non-EU  issuer  for  the 
particular  offer  or  admission),  or  by  using  a  prospectus  drawn  up  according  to  the  national 
law of the third country provided that the supervisory and regulatory regime of that country 
has  been  considered  equivalent  by  the  European  Commission  in  an  implementing  decision. 
The latter case, however, has not occurred yet. According to an ad-hoc survey in 2015, only 3 
national CAs approved a total of 117 prospectuses from third country issuers in 2013 and 5 
national CAs approved 119 such prospectuses in 2014; Luxemburg approving the lion share 
with 112 and 109 prospectuses, respectively. 

Assessment 

As prospectuses of third country issuers are usually used for fundraising in several Member 
States, there is therefore a clear EU dimension. As the vast majority is currently approved in 
Luxemburg,  centralisation  at  ESMA  will  most  likely  not  lead  to  efficiency  gains.  It  would, 
however,  eliminate  the  risk  of  forum-shopping.  In  view  of  the  current  practice  and  United 
Kingdom's exit from the Union, Luxemburg might be faced with a disproportionate workload 
and responsibility in the approval of third country prospectuses if there was no change in the 
system.  

3. 

Critical benchmarks and benchmarks provided in a third country but used in the 
Union under the 'Benchmark Regulation'186 

The Benchmark Regulation (BMR) regulates the provision and the use of benchmarks in the 
Union. A benchmark is an index by reference to which the amount payable under a financial 
instrument or a financial contract, or the value of a financial instrument, is determined, or an 
index that is used to measure the performance of an investment fund. As there are probably 
tens  of  thousands  of  benchmarks  in  the  Union,  the  BMR  differentiates  between  non-
significant, significant and critical benchmarks.  

186   Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 on indices used 
as benchmarks in financial instruments and financial contracts or to measure the performance of investment 
funds and amending Directives 2008/48/EC and 2014/17/EU and Regulation (EU) No 596/2014 

178 

 
 
                                                            
A  critical  benchmark  is  a  benchmark  which  is  referenced  in  financial  instruments,  financial 
contracts or investment funds in the Union with a total value of more than EUR 500 bn or a 
benchmark which has no or very few market-led substitutes and the existence and accuracy of 
which  are  relevant  for  market  integrity,  financial  stability  or  consumer  protection  in  one  or 
more Member States.  

In addition to the general requirements of the BMR a number of specific requirements apply 
to  critical  benchmarks.  If  they  are  of  importance  in  several  Member  States,  they  are  not 
supervised by the national CA alone but by a college of supervisors. This college comprises at 
least  the  national  CA  of  the  administrator  of  the  benchmark,  the  national  CAs  of  the 
supervised  contributors  to  the  benchmark  and  ESMA.  Other  national  CAs  might  request  to 
become a member. As a college member, ESMA is considered to be a competent authority. 
The competent authority of an administrator chairs the meetings of the college, coordinates its 
actions and has to ensure an efficient exchange of information among members. Before taking 
any  measures  regarding  mandatory  contributions,  authorisation  or  registration  or  the 
withdrawal  thereof  or  administrative  sanctions  or  measures  the  competent  authority  of  an 
administrator  has  to  consult  the  members  of  the  college  and  has  to  take  into  account  the 
impact  on  the  other  Member  States.  It  can,  however,  decide  on  its  own.  If  other  college 
members disagree they can refer the question to ESMA and ESMA can give advice. Only in 
the case where there is disagreement about the application of mandatory contributions to the 
benchmark  ESMA  can  make  use  of  its  mediation  powers  under  Article  19  of  the  ESMA 
Regulation.  

The  BMR  provides  three  alternative  scenarios  in  which  benchmarks  provided  by  an 
administrator in a third country may be made accessible to supervised users in the EU:187  

1.  the Commission has adopted an equivalence decision regarding the legal framework and 
supervisory  practice  of  that  country,  the  administrator  is  subject  to  supervision  in  that 
country  and  has  agreed  that  its  benchmarks  may  be  used  by  supervised  entities  in  the 
Union   and  ESMA  has  established  a  cooperation  arrangement  with  the  country’s 
competent authority; 

2.  if equivalence has not been established, a benchmark provided by the administrator in the 
non-EU  country  can  be  used  by  supervised  entities  in  the  Union,  provided  that  the 
administrator  has  obtained  prior  recognition  by  the  competent  authority  of  its  Member 
State  of  reference.  The  latter  requires  that  the  administrator  complies  with  the 
requirements of the BMR188 and has a legal representative established in its Member State 
of reference; or 

3.  a benchmark or a family of benchmarks provided in a non-EU country can be endorsed 
by a national competent authority for use in the Union. In such cases a supervised entity in 
the EU with a clear and well-defined role within the control or accountability framework 
of  a  non-EU  country’s  administrator  must  apply  to  its   A  for  this  endorsement  and 

187   Articles 30-33 BMR 
188 With the exception of provisions which refer to administrators or supervised contributors in the Union. 

179 

 
 
                                                            
demonstrate on an ongoing basis that the provision of that benchmark fulfils requirements 
at least as stringent as those in the BMR. The supervised entity must have the necessary 
expertise to monitor effectively the activity of the providing a benchmark, and there has to 
be an objective reason to provide the benchmark in a non-EU country and to use it in the 
EU. 

ESMA has different roles under the three scenarios outlined above:  

Under  the  equivalence  regime,  ESMA  is  the  point  of  contact  in  the  EU.  It  establishes 
cooperation  arrangements  with  the  competent  authorities  of  third  countries,  covering  a 
mechanism  for  the  exchange  of  information  and  for  prompt  notification  procedures  and  the 
coordination  of  supervisory  activities.  Benchmark  administrators  from  equivalent  third 
countries have to inform ESMA of their consent of the use of their benchmarks in the Union. 

Under the recognition regime, ESMA has only an advisory function relating to a minor aspect 
regarding the type of the benchmark and the requirements applicable to its provision.  If the 
national CA does not follow this advice, ESMA has to publish this fact.  ESMA also has to be 
notified of the recognition of the benchmark. In addition, ESAM may develop draft regulatory 
technical standards on the form and content of application for recognition of a benchmark and 
submit these for adoption to the Commission. 

ESMA  has  no  specific  role  in  the  endorsement  of  third  country  benchmarks  except  being 
notified by the CA of the endorsement (or its withdrawal) of the benchmark. 

However,  ESMA  has  to  review  all  recognitions  and  endorsements  every  two  years.  ESMA 
will  issue  an  opinion  to  each  competent  authority  that  has  recognised  a  third  country 
administrator or endorsed a third country benchmark assessing how that competent authority 
applies  the  relevant  requirements.  ESMA  also  runs  a  public  register  of  benchmark 
administrators and third country benchmarks the use of which is permitted in the Union.  

ESMA  can  withdraw  the  registration  of  a  third  country  administrator  by  removing  that 
administrator  from  the  register  where  it  has  well-founded  reasons,  based  on  documented 
evidence,  that  acts  by  the  administrator  are  prejudicial  to  the  interests  of  the  users  of  its 
benchmarks  or  the  orderly  functioning  of  markets  or  has  seriously  infringed  the  national 
legislation or other relevant provisions in the third country. It can take such decision only if 
the third country supervisor has not taken the necessary action and after having informed that 
supervisor of its intention.  

Assessment 

Direct  supervision  of  Union-wide  critical  benchmarks  by  ESMA  would  meet  most  of  the 
criteria  established  above:  Currently  there  are  only  two  critical  benchmarks  in  the  Union: 
EURIBOR  and  EONIA. Both are of greatest importance for financial markets and financial 
stability in the  entire Union.  As it is unlikely that  there will be more than about a dozen  of 
critical  benchmarks,  supervision  of  critical  benchmarks  by  ESMA  would  not  require  many 
resources.  

180 

 
 
While  both  critical  benchmarks  are  administered  in  Belgium,  they  use  input  data  from 
contributing  banks  in  around  ten  Member  States  and  they  are  used  in  all  Member  States. 
Although the benchmarks are used in financial products which are used by retail investors and 
consumers, for example derivatives and mortgages, retail investors do not have direct dealings 
with the administrator.  

Furthermore, the BMR will only be applicable as of January 2018. Currently, only the specific 
provisions  for  critical  benchmarks  are  applicable.  Therefore,  national  CAs,  with  the 
exemption of the UK FCA and, as supervisor of EONIA and EURIBOR, the Belgian FSMA, 
do not have any experience in supervising benchmarks.  

Only the criterion regarding regulatory arbitrage would not fully apply as the administrators 
of such big benchmarks are long established and would be unlikely to move their business for 
that purpose only.  

As regards third country benchmarks, their provision/use will by definition be across borders 
and the determination of the relevant supervisor is to some extent both arbitrary and prone to 
manipulation,  i.e.  there  is  a  considerable  risk  of  regulatory  arbitrage.  The  number  of  third 
country benchmarks will most likely be very large, especially after the United Kingdom has 
left the EU.  Supervision of these benchmarks by ESMA would therefore require considerable 
resources but would nevertheless be efficient as only one CA would have to deal with foreign 
regulatory  regimes,  supervisors  and  entities  in  foreign  languages.  In  addition,  ESMA  has 
already  a  number  of  functions  with  regard  to  the  supervision  of  third  country  benchmark 
administrators and has established contacts with many third country supervisors.  

As explained above the BMR is still not applicable and retail investors or consumers do not 
have much direct contact with benchmark administrators.  

4. 

Direct  supervision  of  certain  types  of  Data  Reporting  Service  provider  under 
MiFID II and enhanced data gathering powers.  

Effective supervision of investment firms by the national competent authorities in cooperation 
with ESMA depends on the level of information they have on what happens in the markets. 
Supervisors get information from market participants on the basis of reporting requirements 
set  out  in  various  pieces  of  legislation.  Notably,  trade  reports  are  submitted  by  market 
participants on daily basis, which serve as input into national surveillance systems for analysis 
and  exchanges  between  competent  authorities.  The  information  on  transaction  reports 
submitted by investment firms to the competent authorities is the essential core data used for 
market abuse surveillance. Hence, standardised high-quality trading data is required. 

In this regard, one of the aims pursued in the first iteration of MiFID189 was to increase choice 
in executing trades in financial instruments and reduce the cost for doing so. One of the issues 
not addressed in MiFID I was the monitoring and reconstruction of trading data. This led to 

189 Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial 
instruments  amending  Council  Directives  85/611/EEC  and  93/6/EEC  and  Directive  2000/12/EC  of  the 
European Parliament and of the Council and repealing Council Directive 93/22/EEC 

181 

 
 
                                                            
EU trading data that was neither consistent nor of adequate quality to monitor whether the aim 
of MiFID has been met. In addition, trading data was not made available at reasonable cost 
throughout  the  EU  by  the  relevant  trading  venues.  Inconsistencies  in  quality,  formatting, 
reliability and cost can have a detrimental effect on data transparency, investor protection and 
market efficiency. 

The revised MiFID text, MiFID II190, will be applicable as of 3 January 2018. It is intended to 
resolve these issues by improving the quality and accessibility of trading data. It will do so by: 

  setting  a  standard  format  for  trading  data  that  will  be  easy  to  consolidate,  readily 

understood and available at a reasonable cost; 

 

requiring data providers to be authorised by their national CAs and imposing formal 
organisational requirements on them; and 

  seeking  to  encourage  private  sector  providers  to  offer  consolidated  trading  data  that 

covers all trades in equities or non-equities throughout the entire EU. 

MiFID II therefore creates a new regulatory framework for data reporting services providers 
(DRSPs): 

  post-trade data reporting services  will need  to be authorised as  approved publication 

arrangements (APAs); 

  a firm that provides a consolidated tape  will need  to be authorised as a consolidated 

tape provider (CTP); 

  MiFID  II  will  formalise  transaction  reporting  channels  to  the  national  CAs  by 
requiring  third  parties  that  report  on  behalf  of  firms  to  be  authorised  as  approved 
reporting mechanisms (ARMs). 

These entities will be supervised for these purposed for the first time as these activities were 
mostly unregulated at national level.  

A closely associated issue to the authorisation and supervision of DRSPs is the collection of 
trading data. Under the current system foreseen under MIFID II, for this purpose, there is an 
obligation for the designated NCAs to collect data from trading venues on a high number of 
financial  instruments  throughout  the  EU.  Under  the  current  system  each  NCA  must  gather 
data from multiple operators throughout the EU and then transmit it to ESMA for compilation 
and analysis. In  turn ESMA then provides compiled data back  to  the competent authorities; 
data  which  serve  as  a  basis  for  transaction  reports  (reference  data).  Furthermore,  based  on 
trading volumes provided by NCAs ESMA also sets various thresholds used in the application 
of trade transparency requirements.  

190 Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial 

instruments and amending Directive 2002/92/EC and Directive 2011/61/EU 

182 

 
 
                                                            
The current proposal consists of conferring the powers to gather the above data directly from 
market  operators  from  competent  authorities  to  ESMA.  This  would  end  the  current  sub-
optimal (at legal) situation of multiple-to-multiple points of data distribution. This would help 
achieve  the very  purpose  for  which  ESMA  has  been  established,  i.e.  to  ensure  that  national 
supervisors perform their day-to-day supervisory tasks effectively and in a consistent manner 
across  the  EU,  that  they  give  convergent  interpretations  of  the  same  EU  rules,  and  that 
supervisors arrive at the best possible supervisory decisions for cross-border financial market 
participants to ensure orderly markets, financial stability and investor protection. Information-
sharing  is  a  necessary  precondition  for  effective  supervisory  action.  It  would  also  make  it 
easier and more efficient for market participants to fulfil their reporting obligations.  The need 
for more centralisation of data gathering was already acknowledged by competent authorities, 
the majority of which therefore delegated these tasks to ESMA in accordance with the ESMA 
regulation (Financial Instruments Reference Data project (FIRDS)).   

Assessment 

As  the  above  rules  have  not  yet  entered  into  application,  no  concrete  problem  can  be 
identified at this stage. However, most national CAs have delegated to ESMA the significant 
essential data handling to fulfil requirements and set thresholds in relation to MIFID trade and 
transaction  data.  This  fact  shows  that  there  is  room  for  achieving  economies  of  scale. 
Enhancing ESMA's supervisory powers would be an extension and consolidation of the trend 
of pooling "data" matters with ESMA.  

Given the cross border dimension of data handling, transferring supervisory powers to ESMA 
in  this  connection  could  prove  beneficial.  Trading  data  is  an  increasingly  essential  tool  for 
effective  enforcement  which  means  that  the  more  data  savvy  an  authority  is  the  better 
equipped it is for also taking on supervisory responsibilities in different areas. 

Assessing the supervision of data providers against the above criteria confirms that view: The 
data handled by these data providers is extremely important and used by market participants 
and CAs across the Union. It is not expected that there will be a very great number of these 
entities, and it is expected that they will not evenly spread among Member States. The entities 
come under supervision for that purpose for the first time and their data is not mainly being 
used directly by retail investors or consumers.  

Finally, by making the data gathering an ESMA responsibility (and not only a delegated task 
from  the  NCAs  as  is  currently  the case),  there will  be  legal  certainty  as  ESMA  will  have  a 
clear  mandate  to  be  the  EU  central  hub  for  data  gathering.  This  will  enable  it  to  build  and 
further adapt the system in view of changing market conditions and ensure high data quality. 
NCAs  will  be  able  to  focus  on  enforcement  and  market  participants  would  benefit  from  a 
streamlined one-stop-shop data collection system.  

5. 

Direct supervision of EU standardised EuVECA/EuSEF and ELTIF funds 

Whilst  the  UCITS  and  AIFMD  Directives  comprise  minimum  harmonisation  requirements 
and allow for several national discretions, the EuVECA/EuSEF and ELTIF (and most recently 

183 

 
 
MMF191)  Regulations  provide  for  a  standardisation  of  product/fund  rules.  However,  the 
interpretation  and  application  of  the  EuVECA/EuSEF  and  ELTIF  Regulations  as  well  as 
supervisory  responsibility  remain  at  national  level:  irrespective  of  the  level  of  achieved 
harmonization through standardisation, ESMA merely exercises a coordinating and advisory 
role,  and  seeks  to  promote  convergence  of  supervisory  practices  and  transparency  through 
existing powers conferred to it.  

Assessment 

The  UCITS  and  AIFMD  Directives  build  on  the  supervisory  structures    developed  with  an 
established  ongoing  supervisory  convergence.  The  Directives  allow  for  several  national 
discretions, in particular with respect to the investor protection.  

In the absence of detailed standardised product/fund rules for UCITS and AIFs at EU level, it 
appears as practically very difficult to confer the powers of direct supervision to ESMA in this 
regard. As MMFs take form of either AIFs or UCITS, thus in the latter group UCITS product 
rules  apply,  the  supervisor  needs  to  apply  national  UCITS  implementing  rules.  In  addition, 
according to ESMA data, there are, around 1400 UCITS and 2400 AIF managers, therefore, 
transferring  supervisory  tasks  to  ESMA  over  all  managers  would  require  considerable 
resources  and  might  disrupt  the  proper  supervision  and  enforcement  during  at  least  a 
transitional period. 

The  situation  of  EuVECA/EuSEF  and  ELTIF  funds  differs.  Their  fund  rules  are  fully 
standardised. They have been created especially to promote cross-border fund raising. As the 
EUVECA  and  EUSEF  Regulations  and  the  ELTIF  Regulation  apply  since  2013  and  2015 
respectively, the total number of funds is still relatively small (around 120 EuVECAs, up to 
10  EuSEFs  and  ELTIFs).  Furthermore,  EuVECAs  and  EuSEFs  are  only  available  to 
professional  investors  and  high  net  worth  individuals.192  ELTIFs  are  also  available  to  non-
professionals, however, with some sizable restrictions.  

191 Regulation (EU) 2017/1131 of the European Parliament and of the Council of 14 June 2017 on money market 

funds, OJ L 169, 30.6.2017, p. 8–45. 

192 Non-professional investors investing at least €100.000. 

184