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European Supervisor outlines its strategy to 2020

The European Securities and Markets Authority (ESMA) has published its strategy for 2016-2020. As ESMA evolves from its formative years to its next phase, a strategic review was conducted to set the new direction and priorities of the Supervisor. This strategic review also took into account various external considerations.

Under its new strategy, launched on Monday, ESMA’s focus will now shift from rulemaking towards the implementation of rules and ensuring, where possible, the convergence of supervisory practices. ESMA also expects that new regulatory work may follow from current initiatives such as the Capital Markets Union. In order to streamline its activities, ESMA’s new strategy focuses on three key objectives:

1. Investor protection: to have the needs of financial consumers better served and to reinforce their rights as investors while acknowledging their responsibilities;

2. Orderly markets: to promote the integrity, transparency, efficiency, and well-functioning of financial markets and robust market infrastructures; and 

3. Financial stability: to strengthen the financial system in order to be capable of withstanding shocks and the unravelling of financial imbalances while fostering economic growth. 

The three objectives are inter-linked and contribute to well-founded investor confidence. Investor protection and orderly markets feed into overall market stability. At the same time increased financial stability supports orderly markets and investor protection.

Steven Maijoor, ESMA Chair, stated in Mondays Press Statement:

As the bulk of post-crisis rulemaking is now lying behind us, it is natural that the focus of ESMA’s works will change too. In the coming years, ESMA’s work will be a lot more about implementing rules and about convergence of supervisory practices. Ensuring that EU rules are implemented in a harmonised manner is the logical next step towards achieving a truly single market for financial services that serves investors, market participants and the economy at large.”

ESMA’s three objectives will be achieved through four key activities, in the coming years:

  • Assessing risks to investors and financial stability: ESMA will increase its resources to strengthen its capabilities to identify and assess risks to investors, and financial stability in the EU. 
  • Promoting supervisory convergence: ESMA will commit more resources to promote supervisory convergence and target a number of specific areas where convergence is to be promoted. To achieve convergence, a broad range of instruments will be used.
  • Direct supervision of specific financial entities: ESMA will continue to strengthen its role as a direct supervisor, whilst intensifying its risk-based approach in order to achieve lasting impact. Overall, the enforcement process is to become more effective and efficient. 
  • Completing a single rulebook for EU financial markets: Given ESMA’s shift in focus, it will decrease its resources committed to completing the single rule book compared to its first years of existence.

The new ESMA strategy will also be accompanied by some organisational changes. These include merging of all supervisory activities in one Department, bringing together most of ESMA’s data and risk analysis capacity, and streamlining its cooperation and stakeholder functions.

The nature of the challenges and the financial markets uncertainty requires ESMA to plan ahead carefully should the financial landscape evolve unexpectedly. Given the challenges and uncertainties that exist, they acknowledge that they need to be “vigilant” and to monitor developments carefully. Additionally, as an organisation they need to be “flexible” and adapt to changing economic and regulatory circumstances. Whilst in their obligations as a European Supervisor, ESMA needs to be “Skilful” in order to remain effective in fulfilling their public mandate.

Both the European Commission and European Parliament suggested increasing the focus on supervisory convergence, and a higher profile for investor protection. ESMA’s mission is to: “Enhance investor protection and promote stable and orderly financial markets.” Whilst economies continue to be fragile and sustained by monetary policy, ESMA certainly has a full agenda.

The ESMA Strategic Orientation 2016-2020 is available here.

In addition, on Monday ESMA published its annual report for 2014, reporting on the achievements of its third year in existence, which is available here.

For further information, please contact us.

 

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