The European Securities and Markets Authority (ESMA), established by the Regulation nº 1095/ 2010, of the European Parliament and of the Council has replaced the Committee of European Securities Regulators (CESR) from first January 2011. The new supervisory architecture is, therefore, the European System of Financial Supervision (ESFS) which is constituted by the above mentioned European Securities and Markets Authority (ESMA) and, besides, the European Systemic Risk Board (ESRB), the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), the Joint Committee and the supervisoty Competent Authorities of the Member States.
The object of the new Authority is to protect the public interest contributing to the stability and effectiveness of the financial system in the European Union through a sound, effective and consistent level of regulation and supervision. Also, it will contribute to ensure the integrity, transparency, efficiency and orderly functioning of financial markets, strengthen international supervisory coordination, prevent regulatory arbitrage, ensure that the taking of risk and investment decisions are appropriately regulated and supervised and, in general, enhance customer protection of financial products. Its framework includes, in the securities markets field, matters of corporate governance, collective investment schemes and auditing and financial reporting; also it shall take appropriate action in the context of take-over-bids, clearing and settlement and derivative issues.
The ESMA has, in contrast with the EBA and the EIOPA, some direct supervisory powers that would help to achieve the supervisory convergence in the EU, such as the collecting and analysing consumer trends, the monitor of the new and existing financial activities, the issue of warning in the event that a financial activity poses a serious threat to the objectives of the ESMA, the establishment of the Committee on financial innovation, and the temporarily prohibition or restriction of certain financial activities in emergency situations. According to its proper legislation, ESMA also has direct powers on the supervision and register of the credit rating agencies. The ESMA shall have other tasks and powers to contribute to the supervisory convergence: conduct peer review analyses, to mediate and solve international disagreements and to cooperate with the ESRB in the systemic risk measurement.
ESMA could develop draft regulatory and implementing technical standards, issue guidelines and recommendations, take individual decisions addressed to competent authorities in specific cases and to market participants in cases concerning directly applicable Union law and issue opinions to the European Parliament, the Council or the Commission. ESMA establishment has resulted in some changes regarding the four level legislative and of implementation procedure and known as the Lamfalussy process.
With its headquarters in Paris, its internal organization consists of the Board of Supervisors, composed of the 27 Competent Authorities from the EU Member States, an EC observer and a representative from EBA, EIOPA and ESRB respectively; the Management Board, formed of six members elected from the Board of Supervisors and to which the EC observer and executive director attend without vote; the president; the executive director and the joint Board of Appeal of the three European Supervisory Authorities (ESAs) composed of independent experts, which will hear appeals against certain decisions taken by them. A stakeholder group will also be established to act as a market participants consultative panel in relation to ESMA’s scope of activities.
The Joint Committee of the European Supervisory Authorities (ESAs) is established as a strategic working group for cooperation between the three ESAs and the European Systemic Risk Board, with the aim of ensuring cross-sectoral consistency, developing joint positions in relation to financial conglomerates and in other cross-sectoral matters.
Within ESMA, there are permanent standing committees, temporary groups, technical support groups and operational networks.
The permanent standing committees are being revised in order to assist in the development of ESMA’s new competencies. At present, these are as follows: the review panel, which coordinates application of European law and cooperation between national authorities; corporate reporting, dealing with accounting and enforcement , audit, publication of periodic information, and storage of regulated information; corporate finance, which studies prospectuses, corporate governance and major shareholdings; Credit Rating Agencies, in charge of the register and supervision of the agencies; ESMA-Pol, which deals with market integrity, enforcement, cooperation and exchange of information and market abuse; secondary markets, concerning structure, transparency and efficiency of secondary markets, including trading platforms and OTC markets and MiFID implementation; post-trading, which studies central counter parties, clearing and settlement services and trade repositories; investor protection and intermediaries, concerning financial services and MiFID implementation; and investment management, dealing with collective investment management, covering harmonised and non-harmonised investment funds and implementation of the UCITS and AIFM Directives.