european parliament

EU financial watchdog ESMA will get less bite than planned

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Grand but empty. Source: Bloomberg

The European Parliament wants to thwart plans by the European Commission to give more powers to the European Securities and Markets Authority, or ESMA.

Leading lawmakers this week presented their long-awaited statement on the reform of the EU’s stock market watchdog and voiced opposition to plans to give ESMA direct supervision over investment funds with an EU label. This stance was agreed upon by German CDU politician Burkhard Balz and French Socialist Pervenche Berès, who have leading roles in the powerful Committee on Economic and Monetary Affairs.

Mr. Balz also opposes giving ESMA a direct watchdog role over reference rates like the Euro Interbank Offered Rate (Euribor) and over certain financial prospectuses, where he wants supervision to stay with national bodies such as the German Federal Financial Supervisory Authority (Bafin).

But Ms. Berès disagreed on that point, and the two also failed to agree on a further important issue — the commission had proposed that ESMA be given power to lay down strategic supervisory plans that national authorities would have to adhere to. Ms. Berès is in favor while Mr. Balz is opposed.

Pay more attention to small financial firms

The two lawmakers also disagree on the management of the three big EU supervisory authorities ESMA (stock exchange), the European Banking Authority (banks), and the European Insurance and Occupational Pensions Authority (insurance). Mr. Balz wants the authorities to be run by a management board that would contain representatives from national watchdogs. Ms. Berès favors a smaller executive board which wouldn’t include national supervisors.

The committee will have to decide on the contentious issues with a vote that will likely take place Nov. 5.

However, the two lawmakers agreed that the three EU agencies need to take greater account of the interests of smaller financial firms by paying more attention to the size, business model and risk approach of financial institutions. Mr. Balz said that would benefit savings banks, cooperative banks and medium-sized insurers.

He also reached an agreement with Ms. Berès to alter the tenure of agency chiefs. At present, the leader of an EU supervisory agency serves a five-year term that can be renewed for subsequent five years. In the future there will be just one eight-year term that cannot be extended. The lawmakers also want the leaders to be confirmed by the economic and monetary affairs committee hereafter.

The commission wants to strengthen Europe’s financial supervisory authorities to remove regulatory hurdles in the EU’s capital market. But national authorities don’t want to cede power, which is why EU finance ministers haven’t even discussed the reform plans yet.

Ruth Berschens is a Brussels correspondent for Handelsblatt. David Crossland adapted this text into English. To contact the authors: berschens@handelsblatt.com and david.crossland@gmx.net

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