Three European supervisory authorities (ESAs) were formed as part of the European Union banking reforms following the financial crisis. The ESAs are part of the ESFS (European System of Financial Supervision) together with the national regulators and the ESRB (European Systematic Risk Board). Each is a separate legal entity with significant autonomy.
The ESAs are designed to address systematic risks. Governance of the ESAs is by a management board comprised of the chairman and six members of the board of supervisors, chairperson an executive director and a board of supervisors comprising heads of the national competent authorities chaired by the chairperson.
The ESAs are not rule-making bodies but support coordination and convergence. They have various instruments at their disposal pursuant to the ESA regulation and related directives. They have advisory powers and powers to address decisions to participants in the financial markets in some exceptional cases.
- support a common supervisory culture
- engage in peer review
- foster coordination and convergence of supervisory practices.
They have powers in exceptional circumstances to intervene to ensure compliance with regulations. In emergency circumstances, they may require national regulators to take action to respond to developments
They have the power to propose binding rules and technical standards for adoption by the Commission by way of delegated administrative rules.
The European Systematic Risk Board was established in 2010. Its function is to provide macro-prudential oversight of the financial system within the EU. Its main task is to prevent and mitigate systematic risk which might prejudice the stability of the Euro / EU.
Its decision-making body the general board comprises 61 voting and non-voting members including governors of national central banks, the president and vice president of the ECB, member of the Commission and chairpersons of the ESAs.
The board must, in particular,
- determine and collect information necessary for its action
- identify systematic risks and prioritize them
- issue warnings and make them public if necessary
- recommend measures to be taken once risks have been identified
The body comprises a general board, a steering committee, a secretariat and advisory scientific committee and an advisory technical committee.
The President of the ECB chairs the ESRB for a term of five years. He is assisted by two joint chairs, the first of which is elected by and from the general council of the ECB while the other is the chair of the joint committee.
The board may issue warnings and make recommendations concerning remedial action to be adopted. It may be addressed to the EU states, European supervisory authorities or national supervisory authorities.
Recommendations relating to measures to be adopted are to vary according to the level of the risk If its recommendations have not been followed, it shall inform the addresses to cancel on relevant the European supervisory authority concerned.
The objective of the ESMA is to safeguard the stability and effectiveness of the financial system. It operates principally in relation to the activities of firms offering investment services, auditing, corporate governance, financial reporting.
- contributes to the establishment of regulatory and supervisory standards and practices
- monitors and assesses the market in the areas of its competence
- assists protection of investors.
It has a leading role in developing regulation and implementing technical changes, issuing guidelines and recommendations and providing a centrally accessible database of financial institutions within its areas of competence. It also assists in consumer protection matters.
The authority consists of a board made up of heads of the competent national public authorities, representatives of the Commission, representatives of two other European supervisory authorities and representative of the ESRB.
The European Insurance and Occupational Pensions Authority was established by regulation in 2010. Its objective is to safeguard the stability and the effectiveness of the financial system. It acts in the areas of
- Insurance and reinsurance undertaking
- Insurance and intermediaries
- Institutions for occupational retirement provisions
- Corporate governance, financial reporting and auditing.
The authority is responsible for
- contribution to the establishment of regulatory and supervisory standards and practices
- monitoring and assessing the market and trends of the area of its competence
- fostering the protection of policyholders pension scheme and beneficiaries
It has the leading role in
- developing draft regulatory and implementing technical standards
- Issuing guidelines and recommendations
- providing a centrally accessible database of financial institutions in its area of competence.
It also has functions in relation to consumer protection.
The authority has a board of supervisors which is responsible for the guidance of its activities. It is comprised of a chairman, head of the competent national authorities, representatives of the Commission, the ESRB and of each of two other European supervisory bodies.
Any person may appeal against a decision of the authority in writing within two months to a board of appeal. The board has two months in which to confirm the decision or remit it to a competent body.
Single Supervision of Banks
The Single Supervisory Mechanism is based on a 2013 regulation. It confers macro-prudential supervisory role on the European Central Bank in relation to credit institutions in euro member states. This is not a separate entity but is a supervisory function of the European Central Bank
Under the SSM the European Central Bank supervises approximately 120 larger banks in accordance with criteria in the Regulations. In each country at least three of the most significant credit institutions are subject to direct supervision regardless of their size
Direct supervision by ECB applies to banks accounting for approximately 85% of the euro area banking assets. The ECB has the power to withhold authorisation and approve major shareholding acquisition and disposal.
It is home state competent authority for credit institutions within its remit for establishing a branch providing cross-border services in non-euro area states.
It is responsible for prudential requirements and supervisory reviews. It has powers to impose administrative penalties.
The Single Resolution Mechanism is proposed to spread the cost of bank failures. the single resolution mechanism contemplates recapitalisation of banks directly in compliance with state aid rules without recourse to national taxpayers. The single resolution fund is based on mutual contributions levied on banks subject to SSM.
The European Banking Authority was established by 2010 regulation. Its purpose is to improve the functioning of the single market, in particular by ensuring a high quality effective and consistent level of regulation and supervision in the area of banking, e-money and payments as well as corporate governance, auditing and financial reporting. Its area of action includes credit institutions, investment firms, payment institution, financial conglomerates and e-money institutions.
The Authority is
- to contribute to the establishment of regulatory and supervisory standards and practices
- monitor and assess market and credit trends particularly for households and SMEs
- foster depositor and investor protection.
The authority has a role in
- the elaboration of draft regulatory and implementing technical standards
- issuing guidelines for recommendations
- providing a centrally accessible database of financial institutions within its area of competence
The authority consists of a chairman, heads of the national public authorities representatives of the Commission, ECB, ESRB and two other European supervisory authorities
There is provision for an appeal to a board of appeal against its decisions within two months.
EU Securities Committee
The EU established s supervisory and regulatory committees to give practical effect to the achievement of a single market in financial services in accordance with the framework set out in the Financial Services Action Plan.
The European Securities Committee and the Committee of European Securities regulators were established in 2001 to improve the regulation and supervision of securities market. They provide an advisory role in implementing high-level principles in certain financial services directives.
The CESR assists the Ccommission in relation to securities regulation. It submits its opinion on measures impldementing the principles in the general framework directives. It may act of its own initiative or at the request of the commission.In a regulatory capacity, it seeks to ensure that EU legislation is applied uniformly.
It is responsible for carrying out reciprocal assessments promoting best practice and publishing guidelines and recommendations. It organises consultation of market participants, consumers and others. It provides a link between the Commission and national authorities.
It promotes the exchange of information between authorities. It advises ministries of finance and national central banks in relation to risks and problematical matters. It provides a twice-yearly assessment of micro-prudential trends, risks and weaknesses in the security sector to the Commission.
The ESC is comprised of high-level representatives of the states and is chaired by a commission representative. It may invite experts and observers to attend its meetings. The CESR is primarily responsible for the implementation of European Union legislation on a uniform and coherent basis. It acts as a link between the states and the Commission. It contains high-level representatives of national competent authorities in the field of security.