Draft plans by the European Union to give increased powers to a European financial market regulator by taking those powers from national regulators is running into increased opposition, especially from Germany.
“It is unfortunate that the concrete proposal only aims to increase staffing levels and shift more responsibilities to Europe,’ said Ralph Brinkhaus, deputy leader of Chancellor Angela Merkel’s Christian Democratic Union faction in the German parliament. “We refuse to create a bureaucratic monstrosity.”
The Paris-based European Securities and Markets Authority (ESMA) “should not become a super-coordinator” of the European financial markets,” said Burkhard Balz, a CDU member of the European parliament who is responsible for the legislation now being considered.
“We need more consistency to effectively address risk and ensure that there is no regulatory competition.”
A plan to beef up ESMA was unveiled with great fanfare by the European Commission in September, saying it was a necessary step on the road to capital markets union. The idea is to essentially achieve for stock markets the kind of EU-wide supervision now taking place for banks.
“A unified European capital market can only work if there is a harmonization of supervisory practices,” said Valdis Dombrovskis, vice president of the European Commission. He argues that the EU “needs to act as one player” to build consumer trust and enable companies to operate across borders.
The problem is that Germany has a national regulator, the Federal Financial Supervisory Authority, known as BaFin, which most German companies like dealing with and whose powers politicians don’t wish to see eroded any further.
Up until now, ESMA’s role has been pretty limited, supervising rating agencies and trade repositories. It was created in the wake of the 2008 financial crisis over concerns that financial market panics can easily spread to neighboring countries.
The EU commission proposal suggests ESMA take over supervision of data reporting service providers, critical benchmarks, authorization of prospectuses for some debt and asset-backed securities, authorization and supervision of some EU fund managers, and strengthening ESMA’s role in supervising the EU’s six clearing houses, which facilitate exchange of securities, derivatives and payments.
Some experts believe that increased powers for ESMA is the wrong way to go.
“There are still big differences in supervision at the national level,” said Steven Maijoor, the Dutch civil servant who has been director of ESMA since its founding. “We need more consistency to effectively address risk and ensure that there is no regulatory competition.”
He added that there need to be regulatory convergence “to create a truly European market.” Mr. Maijoor noted that because Britain is leaving the EU in March, 2019, “it is more important than ever that before that happens, the remaining 27 countries strengthen their capital markets.”
Some financial market experts believe that increased powers for ESMA is the wrong way to go because the sale of financial products is often governed by national laws that are not uniform.
“In many areas there are different rules within the EU and even within individual countries,” said Arno Walter, who is head of the German online bank Comdirect. In Germany, he said that individual states, not the federal government, are responsible for data protection.
Most of the German criticism has focused on the proposed doubling of ESMA’s staff in Paris to meet the expanded role. “Every person for whom and new position is created in the supervisory body in turn needs someone in the bank who handles the requirements,” complained Iris Bethge, CEO of the Federal Association of Public Banks in Germany.
Andreas Kröner, a financial correspondent for Handelsblatt in Frankfurt, Daniel Schäfer, head of Handelsblatt’s finance pages, Martin Greive, a correspondent for Handelsblatt based in Berlin, and Ruth Berschens, Handelsblatt’s bureau chief in Brussels, contributed to this report. It was adapted into English by Charles Wallace, an editor for Handelsblatt Global in New York. To contact the authors: firstname.lastname@example.org, email@example.com, firstname.lastname@example.org, and email@example.com