ESMA will publish a number of opinions on the regulatory arbitrage issue - one general opinion looking at cross-cutting issues, along with three specific thematic opinions focusing on asset management, investment firms and secondary markets.
In its response to the CMU Mid-Term Review, ESMA shared its recent experiences and suggested further steps that could positively contribute to the CMU in four specific areas. Instead of reiterating the four specific suggestions included in our answer, let me focus on one area, which is supervisory convergence. I believe this is a key pillar in building a genuine CMU and one which contributes in two ways.
First, as bigger and more interconnected financial markets also imply bigger risks, supervisory convergence provides a consistent approach to achieving financial stability and investor protection in the EU, two of ESMA’s objectives. While, secondly, supervisory convergence can contribute to the removal of barriers between Member States, fostering the single market.
Convergence work is complex and the instruments used concern both generic tools available to ESMA as well as legislation-specific tools. The well-known general tools include, for example, guidelines, opinions, Q&As, peer reviews and mediation. Legislation-specific tools concern for example the obligation for CCPs to obtain ESMA’s approval when they want to change their margin models and the upcoming banning powers under MIFID 2. Effective convergence work requires the right combination of general tools and legislation-specific tools.
ESMA is currently working towards developing a convergent position on key issues to be taken into account when market participants move some of their activities from the UK to the EU27. These views will be included in a general opinion on cross-cutting issues, along with three specific thematic opinions which will be published before the summer. The general opinion will cover issues such as how NCAs should ensure on-going effective supervision of re-located activity, in particular when certain functions are subject to outsourcing and delegation. Potential limitations to outsourcing and delegation are also being discussed.
ESMA’s focus has shifted markedly from the single rule-book to supervisory convergence, but the experience indicates that stronger powers to ensure consistency across the EU are needed. Stronger tools would allow more effective and timely intervention to promote convergence of practices across the EU, while different combinations of tools might be needed to address specific convergence issues.
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