The European Securities and Markets Authority and institutional design for the EU financial market – a tale of two competences: Part (2) rules in action

The purpose of this article, and of its earlier companion article (Part (1) Rule-making, 12 European Business Organization Law Review (2011) p. 41), is to examine the implications of the new European Securities and Markets Authority which was established in January 2011. In the wake of the financial crisis, the case for institutional reform and for conferring regulatory and supervisory powers on a central EU authority became compelling. But any institutional design would have struggled given the necessity for compromise. The central difficulty is one of nuance. Where on the spectrum from national powers to EU powers, and with respect to regulation and supervision, should any new body's powers be placed if optimum outcomes are to be achieved? The question is further complicated by the different dynamics and risks of centralising rule-making and of centralising supervision, even if there is considerable symbiosis between these activities. This article considers ESMA's supervisory powers. It argues that, by contrast with its rule-making powers, the current and potential extent of ESMA's supervisory powers has pushed ESMA too high up the spectrum towards EU intervention. Local supervision of the EU rule-book represents an important safety valve for the EU financial market but this safety valve may be obstructed by ESMA's undue standardisation of supervisory practices. ESMA's extensive direct supervisory powers are also troubling given concerns as to their effectiveness. It was always going to be a challenge to draw the dividing line between ESMA's supervisory powers and those of national competent authorities. But the line may have been drawn too far on the side of operational centralisation.