In its efforts to strengthen its supervisory capabilities in the sphere of the financial services sector, the EU framework has seen the realisation of the European system of financial supervision (ESFS) consisting of three European Supervisory Authorities (ESAs):
The EU Financial Services Law European System of Financial Supervision (EIOPA) – with a supervisory role in the insurance and pensions sectors;
The European Banking Authority (EBA) – with a supervisory role in the banking sector; and
The European Security and Markets Authorities (ESMA) – with a supervisory role in the financial markets sector.
These three supervisory authorities work hand-in-hand with the European Systemic Risk Board (ESRB) which oversees the financial system; and together they seek to improve the operation of the internal market, and harmonising supervisory practices across EU Member States, thereby providing a level playfield for all key players. In attaining this goal, the ESAs have worked for a number of years towards creating a single rulebook governing financial services, covering the banking, insurance, and the capital markets industries.
The changes brought about in 2019 to the ESFS consisted of two regulations and a directive[1]. Of particular importance in this context is the Omnibus Regulation ((EU) 2019/2175), amending the regulation establishing the ESAs with the aim of reviewing the powers, governance, and funding thereof. With the 2019 amendments, ESMA became the legal successor of the Committee of European Securities Regulators (CESR); the EBA became the legal successor of the Committee of European Banking Supervisors (CEBS); and EIOPA became the legal successor of the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS).[2] Additionally, the ESAs’ structure saw the introduction of a committee on consumer protection and financial innovation aimed at centralising all competent authorities responsible for consumer protection with the aim of enhancing the regulation thereof and ensuring a common approach in the regulation and supervision of innovative financial activities.[3] The ESAs committees are also required to cooperate with the European Data Protection Board to ensure legal harmony in the context of data protection.[4] The ESAs are accountable to the European Parliament and to the Council.[5]
The 2019 amendments required both ESMA and EIOPA to operate in such a manner that they use their full powers and ensure the safety and soundness of financial market participants; and additionally, the ESAs must take into account technological innovation, innovative and sustainable business models, and the integration of environmental, social, and governance-related factors.[6]
The EBA was given a special task to lead the coordination and monitoring of the financial system for the purposes of ensuring its integrity, transparency, and security and this through the adoption of measures aimed at preventing and counter-acting money laundering and terrorist financing.[7] Such measures include the gathering of information on weaknesses identified in the processes and procedures, governance arrangements and fitness and propriety measures by competent authorities.[8] Additionally, the EBA was entrusted with providing assistance to competent authorities and helping in the coordination and exchange of information with competent authorities including the ECB.[9] An additional measure involved the development and consistent implementation of guidance notes and standards of practice, including technical standards, for the prevention and counter-action of money laundering and terrorist financing in the financial services sphere.[10] Finally, the EBA was also tasked with monitoring market developments for the purposes of assessing any risks and vulnerabilities existing in the financial sector in particular when it comes to fighting money laundering and terrorist financing.[11] In this respect, on the 20th of December 2021, the EBA published its final report on draft regulatory technical standards setting up an AML/CFT central database and specifying the materiality of weaknesses, the type of information collected, the practical implementation of the information collection and the analysis and dissemination of the information contained therein.
The 2019 amendments granted the EBA the power to request competent authorities to investigate any possible breaches of EU law or otherwise national law in relation to the prevention and countering of money laundering and of terrorist financing and to also impose sanctions on any operators found in breach.[12]
The 2019 amendments brought about additional changes to the competencies of the ESAs. In exceptional circumstances and where the ESAs consider that the application of certain legislative acts[13] or of any delegated or implementing acts based on those legislative acts, is liable to raise significant issues, the ESAs were granted the power to send a written detailed account to the competent authorities and the Commission detailing the said issues and providing the Commission with an opinion on actions considered appropriate.[14] Additionally, the ESAs were granted the power to receive any questions and provide answers to admissible questions in relation to the application and implementation of the said legislative acts and associated delegated and implementing acts, and guidelines and recommendations that may have been adopted in relation thereto, from any natural or legal person including competent authorities and Union institutions and bodies.[15] The ESAs were granted the power to, either on request (which may include public consultation or technical analysis) or out of their own initiative, provide their opinion to the European Parliament, Council and to the Commission, on issues identified in relation to its area of competence.[16]
Moreover, in instances where a competent authority has failed to apply the said legislative acts or there appears to be a breach of Union law, the ESAs now have the power to address a recommendation to the competent authority setting out the action necessary to comply with Union law. [17] The ESAs are further authorised to attempt to reach an agreement on actions necessary by engaging with the competent authority.[18] In instances where any such competent authority fails to comply with any ESAs formal opinion issued, the ESAs are further granted the power to adopt individual decisions requiring the necessary action to comply with its obligations under Union law including the cessation of any practice.[19]
The ESAs were granted the power to have in place reporting channels to receive and handle information reported by natural or legal persons on breaches, abuse of the law, or non-application of EU law whether actual or potential.[20] The ESAs are required to ensure that information may be submitted anonymously or confidentially and safely and any such persons reporting shall be protected against retaliation.[21] The ESAs are required to provide feedback to any report when the information contains evidence or significant indications of a material breach.[22]
Every three years the ESAs now have the obligation to identify up to two strategic supervisory priorities of EU-wide relevance which shall reflect future developments and trends and this taking into account discussions with the Board of Supervisions, contributions from competent authorities, existing EU institutions work and analysis, warnings and recommendations published by the ESRB.[23] Additionally, the ESAs must also follow-up with competent authorities to discuss relevant activities and propose guidelines, recommendations, and peer reviews as necessary.[24]
The 2019 amendments also require the ESAs to conduct peer reviews of competent authorities,[25] and to work together and exchange information relevant to the assessment of the fitness and propriety of holders of qualifying holdings, directors, and key function holders of financial institutions by competent authorities in accordance with the legislative acts referred to above.[26] The amendments saw the Management Boards of the ESAs being given increased powers including the power to set up internal committees and coordination groups, and give opinions and proposals on matters to be decided by the Board of Supervisors.[27]
The 2019 amendments also obliged the ESAs to monitor and assess market developments in which financial institutions operate and the impact thereon, and exchange information between them as well as with the European Parliament, the Council and the Commission about the relevant micro-prudential trends, potential risks and vulnerabilities existing in their area of competence.[28] The ESAs also have new tasks in the context of international relations including equivalence assessments.[29] Further amendments were introduced in relation to the budget, revenues, and financial rules of the ESAs.[30]
Following the public consultation launched in 2021, on the 23rd of May 2022, the Commission published its report on the operation of the European Supervisory Authorities, assessing their tasks and activities. This review was conducted with two key elements in mind, the effects COVID-19 has had on the financial system as well as Russia’s war against Ukraine and the relative sanction implementation by EU financial Market operators.[31] The report focuses on whether the amendments to the ESA Regulations discussed above (hereinafter referred to as the ‘2019 ESA review’) were indeed beneficial to the EU’s financial supervision. The report’s conclusion was that the 2019 ESA review was received positively however it was still too early to assess in great depth the effects it had. In the said report, the Commission stressed the importance of improving the governance arrangements of the ESAs in view of the fact that having twenty-seven national supervisors gives prominence to national interests thereby producing sub-optimal results.[32] However, the Commission also deemed any amendments to the ESA Regulations at this stage to be premature, such that focus should be had on the implementation of non-legislative measures with the aim of promoting supervisory convergence and consistent supervision.[33]
[1] The Omnibus Regulation ((EU) 2019/2175), the Regulation amending the ESRB Regulation ((EU) 2019/2176), and the Omnibus Directive ((EU) 2019/2177) – which regulations and directives entered into force on 30/12/2019.
[2] The Omnibus Regulation ((EU) 2019/2175), Articles 1, 2 and 3 introducing new Article 76 to Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010 of the European Parliament and of the Council.
[3] The Omnibus Regulation ((EU) 2019/2175), Articles 1, 2 and 3 amending Article 9 of Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010 of the European Parliament and of the Council.
[4] The Omnibus Regulation ((EU) 2019/2175), Articles 1, 2 and 3 amending Article 9 of Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010 of the European Parliament and of the Council.
[5] The Omnibus Regulation ((EU) 2019/2175), Articles 1, 2 and 3 introducing new Article 3 to Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010 of the European Parliament and of the Council.
[6] The Omnibus Regulation ((EU) 2019/2175), Articles 1, 2 and 3 amending Article 8 of Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010 of the European Parliament and of the Council.
[7] The Omnibus Regulation ((EU) 2019/2175), Article 1 amending Article 9a of Regulation (EU) No 1093/2010 of the European Parliament and of the Council.
[8] The Omnibus Regulation ((EU) 2019/2175), Article 1 amending Article 9a of Regulation (EU) No 1093/2010 of the European Parliament and of the Council.
[9] The Omnibus Regulation ((EU) 2019/2175), Article 1 amending Article 9a of Regulation (EU) No 1093/2010 of the European Parliament and of the Council.
[10] The Omnibus Regulation ((EU) 2019/2175), Article 1 amending Article 9a of Regulation (EU) No 1093/2010 of the European Parliament and of the Council.
[11] The Omnibus Regulation ((EU) 2019/2175), Article 1 amending Article 9a of Regulation (EU) No 1093/2010 of the European Parliament and of the Council.
[12] The Omnibus Regulation ((EU) 2019/2175), Article 1 amending Article 9b of Regulation (EU) No 1093/2010 of the European Parliament and of the Council.
[13] Specifically, the legislative acts referred to in Article 1(2) of Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010 of the European Parliament and of the Council which include:
▪ Capital Requirements Regulation (CRR)
▪ Capital Requirements Directive (CRD)
▪ Bank Recovery and Resolution Directive (BRRD)
▪ Deposit Guarantee Schemes Directive (DGSD)
▪ Payment Services Directive (PSD)
▪ E-Money Directive (EMD)
▪ Financial Conglomerates Directive (FICOD)
▪ Distance Marketing Directive (DMD)
▪ Regulation on information accompanying transfers of funds (WTR)
[14]The Omnibus Regulation ((EU) 2019/2175), Articles 1,2 and 3 introducing Article 9c to Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010 of the European Parliament and of the Council.
[15] The Omnibus Regulation ((EU) 2019/2175), Articles 1,2 and 3 introducing Article 16b to Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010 of the European Parliament and of the Council.
[16] The Omnibus Regulation ((EU) 2019/2175), Articles 1,2 and 3 introducing Article 16a to Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010 of the European Parliament and of the Council.
[17] The Omnibus Regulation ((EU) 2019/2175), Articles 1,2 and 3 amending Articles 17 of Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010 of the European Parliament and of the Council.
[18] The Omnibus Regulation ((EU) 2019/2175), Articles 1,2 and 3 amending Articles 17 of Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010 of the European Parliament and of the Council.
[19] The Omnibus Regulation ((EU) 2019/2175), Articles 1,2 and 3 amending Articles 17 of Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010 of the European Parliament and of the Council.
[20] The Omnibus Regulation ((EU) 2019/2175), Articles 1,2 and 3 introducing Article 17a to Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010 of the European Parliament and of the Council.
[21] The Omnibus Regulation ((EU) 2019/2175), Articles 1,2 and 3 introducing Article 17a to Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010 of the European Parliament and of the Council.
[22] The Omnibus Regulation ((EU) 2019/2175), Articles 1,2 and 3 introducing Article 17a to Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010 of the European Parliament and of the Council.
[23] The Omnibus Regulation ((EU) 2019/2175), Articles 1,2 and 3 introducing Article 29a to Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010 of the European Parliament and of the Council.
[24] The Omnibus Regulation ((EU) 2019/2175), Articles 1,2 and 3 introducing Article 29a to Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010 of the European Parliament and of the Council.
[25] The Omnibus Regulation ((EU) 2019/2175), Articles 1,2 and 3 introducing Article 29a to Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010 of the European Parliament and of the Council.
[26] The Omnibus Regulation ((EU) 2019/2175), Articles 1,2 and 3 introducing new Article 30 to Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010 of the European Parliament and of the Council.
[27] The Omnibus Regulation ((EU) 2019/2175), Articles 1,2 and 3 introducing new Article 41 and 45b to Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010 of the European Parliament and of the Council.
[28] The Omnibus Regulation ((EU) 2019/2175), Articles 1,2 and 3 amending Articles 32 of Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010 of the European Parliament and of the Council.
[29] The Omnibus Regulation ((EU) 2019/2175), Articles 1,2 and 3 introducing new Articles 33 of Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010 of the European Parliament and of the Council
[30] The Omnibus Regulation ((EU) 2019/2175), Articles 1,2 and 3 amending Articles 62 of and introduction Article 63, 64, and 65 to; Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010 of the European Parliament and of the Council.
The amendments as introduced were made without prejudice to the obligations of Member States in relation to the processing of personal data.
[31] European Commission (2022), Report from the European Commission to the European Parliament and the Council on the operation of the European Supervisory Authorities (ESAs), Brussels, COM(2022) 228 final, 1
[32] European Commission (2022), Report from the European Commission to the European Parliament and the Council on the operation of the European Supervisory Authorities (ESAs), Brussels, COM(2022) 228 final, 10
[33] European Commission (2022), Report from the European Commission to the European Parliament and the Council on the operation of the European Supervisory Authorities (ESAs), Brussels, COM(2022) 228 final, 18
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