At the heart of the EC’s new regulatory framework – officially dubbed the European System of Financial Supervisors – will be three European Supervisory Authorities: the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority. They will replace the Committee of European Securities Regulators, the Committee of European Banking Supervisors, and the Committee of European Insurance and Occupational Pensions Supervisors, respectively.

Rob McIvor, a managing director at sellside trade body, the Association for Financial Markets in Europe, said: “The main role of the new framework is to make sure that European regulators speak with one voice and ensure that regulation is consistently applied across jurisdictions.” While in the past these agencies performed a largely technocratic function – gathering information, suggesting industry standards and providing technical advice – the new bodies will have more far-reaching powers. These include the ability to develop legally enforceable standards across their sectors and to force through the consistent adoption of EU supervisory rules in the European member states. In instances of dispute or emergency situations, the agencies will have the power to roll up their sleeves and intervene directly with financial institutions.

That the new agencies have been conferred more bite reflects, at least in part, the EC’s desire to enforce far more co-ordination among Europe’s national regulators and to ensure greater consistency on the adoption of its rulings – since a lack of pan-European standardisation has been identified by policymakers as a chronic problem for the union.

European policymaker Kay Swinburne, who is a member of the European Parliament’s Economics and Monetary Committee and has played a key role in shaping the EC’s review of the Markets in Financial Instruments Directive, raised this issue last month when she told a London conference: “I don’t believe the Mifid implementation was consistent across all 27 member states.” Harmonisation across Europe is regarded as a critical means by which to prevent a regulatory race to the bottom, whereby national supervisors adopt lax regimes in a bid to enhance the competitiveness of their financial centres.

Many institutions fear that, in time, too much national power will be ceded to Brussels and that the big financial centres will no longer be arbiters of their own fate. This could lead to problems, say practitioners, as member states jostle for influence in Europe. “ESMA may be set alight in a crucible of conflicting state agendas,” said James Godwin, director of regulation at London exchange PLUS Markets Group. “It needs to be well-placed to determine and progress its own agenda. Compromise will satisfy no one.”

The new funding arrangements for ESAs suggest that fears regarding the growing centralisation of power are warranted. Unlike its predecessors, which were funded entirely by member states, the new ESAs will receive 40% of their backing from the EC, with 60% from member states. Funding remains a thorny subject, however, since the EU member states have not yet come to an agreement on the 2011 EU budget, meaning next year’s spending remains uncertain. The latest EC proposals indicate that €40.3m has been earmarked for ESAs in 2011, with staffing of about 150 in total, though a spokesperson for CESR confirmed these figures were still subject to change.

ESMA, which only received clearance by the European Parliament last month, will be especially busy. In September, the EC released its draft proposals for European Market Infrastructure Regulation, which will bring more transparency to the over-the-counter derivatives market, while the next iteration of Mifid is shortly to enter its consultation phase. ESMA will play a key role in implementing both pieces of regulation and has been tasked with reporting back to the EC on the legislative details of EMIR by June 2012. The decision to charge an as yet non-existent body with hammering out the details of the new EMIR rules is both “confusing and unhelpful”, said one broker.