New EU Regulation Enhances European Supervisory Authorities' Powers

An EU Regulation has been published amending the European Supervisory Authorities' powers under various pieces of EU legislation. The Regulation grants ESMA additional powers to monitor market data and authorize benchmark administrators under the Markets in Financial Instruments Regulation and the Benchmarks Regulation, respectively. It also amends the legislation founding the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority, granting them additional powers to facilitate their supervisory duties. The Regulation will enter into force on December 30, 2019. The provisions regarding ESMA's enhanced supervisory powers over market data and benchmarks will apply from January 1, 2022. All other provisions regarding the European Supervisory Authorities' enhanced powers will apply from January 1, 2020.

The changes to the legislation founding the three ESAs have been introduced to enable the Authorities to meet their objectives and coordinate their supervisory activities. They include the introduction of "coordination groups" which will promote convergence in the supervisory practices undertaken by national regulators. Participation by national regulators in coordination groups will be mandatory. The tasks of each of the ESAs have also been updated, for example to specify that the ESAs should issue guidelines and recommendations for national regulators to strengthen consistency in supervisory outcomes and should undertake market analyses to inform the discharge of their functions. The ESAs are also expected to play an important role in identifying and reporting environmental, social and governance-related risks to financial stability and to provide guidance on how sustainability considerations can be introduced into EU financial legislation.

The EBA will assume an enhanced role in relation to the countering of money laundering and terrorism financing, including through developing regulatory and technical standards and other guidelines and recommendations for preventing AML/CTF risks and collecting information on breaches of AML/CTF rules.

Certain amendments to MiFIR will enhance ESMA's authority to monitor and supervise data reporting services providers. Authorization of, and supervisory powers over, such entities will be transferred from national regulators to ESMA, other than for those that benefit from a derogation. ESMA will also be given powers to undertake direct data gathering from market participants in relation to pre- and post-trade transparency requirements.

The amendments to the Benchmarks Regulation transfer responsibility for the authorization of critical and third-country benchmark administrators to ESMA. ESMA's appointment as the competent authority for recognized third-country benchmark administrators follows concerns that benchmark administrators in third countries may apply for recognition in Member States where they consider supervision to be less strict. Benchmark administrators located in countries that are listed as having strategic deficiencies on their AML/CTF regimes will not be granted equivalence. National regulators will also be obliged to cooperate and assist each other where necessary to detect risks related to the unreliability or non-representativeness of benchmarks that may be used as reference rates in financial products. The amendments to the Benchmarks Regulation are due to take effect on January 1, 2022, after the anticipated end of the Brexit implementation period (which, under the European Union (Withdrawal Agreement) Act 2020, is expected to occur on December 31, 2020), so these changes are not expected to apply directly in the U.K.

View the amending Regulation.

Return to main website.