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SUPERVISORY CONVERGENCE

SUPERVISORY CONVERGENCE

ESMA has identified Supervisory Convergence as a strategic priority for 2016-2020.  ESMA takes an active role in building a common supervisory culture among National Competent Authorities to promote sound, efficient, and consistent supervision throughout the European Economic Area. This is known as supervisory convergence. To achieve this objective, ESMA sets annual convergence priorities through its Supervisory Convergence Work Programme and uses of a number of tools such as:

  • issuing guidelines, opinions, and Q&As;
  • fostering closer dialogue between supervisors across the EU;
  • undertaking peer reviews to assess national supervisory practices;
  • mediation between national competent authorities; and
  • taking action on breaches of Union Law.

Supervisory convergence does not mean a one-size fits all approach. It means that ESMA promotes the consistent and effective implementation and application of the same rules and using sufficiently similar approaches for similar risks. The overall goal is to strive for comparable regulatory and supervisory outcomes.

Supervisory convergence Supervisory convergence

ESMA Opinions on Brexit

Given the prominent role of the United Kingdom in the EU single market, ESMA is working to ensure a consistent supervisory approach to safeguard investor protection, the orderly functioning of financial markets and financial stability in the context of the UK’s withdrawal from the EU.

Opinions are a practical tool to achieve supervisory convergence. ESMA has published four of them in 2017 to address regulatory and supervisory arbitrage risks arising as a result of increased requests from financial market participants seeking to relocate in the EU27.

 

Supervisory Coordination Network

ESMA has set up a network in order to provide a forum for discussion among NCAs regarding market participants seeking to relocate entities, activities or functions to the EU27, with the objective of promoting consistency in the approach of the national competent authorities.

In this context, ESMA issued a public statement in order to raise the awareness of all market participants on the importance to prepare for the possibility of no agreement in the context of the United Kingdom withdrawing from the European Union.

As there is no assurance that a transition period will be agreed upon, entities need to consider the scenario where a hard Brexit would take place on 30 March 2019. In particular, ESMA emphasised the importance of timely submission of requests for authorisations to the NCAs.

Supervisory Convergence Work Programme

ESMA identifies annual priorities for supervisory convergence through the elaboration of a Supervisory Convergence Work Programme. The objective is to drive ESMA’s convergence agenda in the year ahead and foster a coordinated setting of national supervisory priorities. The elaboration of priorities builds on an iterative process between ESMA and the national competent authorities.

The 2018 convergence priorities are the following:

  1. Ensuring that MiFID II/MiFIR are applied in a sound, efficient and consistent manner across the EU.
  2. Improving data quality to ensure efficient reporting under various requirements set by EU legislation.
  3. Ensuring supervisory convergence in the context of the UK’s decision to withdraw from the EU.
  4. Safeguarding the free movement of services in the EU through adequate investor protection in the context of cross-border provision of services.
  5. Monitoring developments in financial innovation, in particular through the analysis of emerging and existing instruments, platforms and technology.

Previous work programmes are available here:  2016  and 2017. 

ESMA promotes supervisory convergence through Guidelines, Q&As, Opinions, peer reviews, breach of Union Law

ESMA divides its tools to promote supervisory convergence into three broad categories:

1 - Preparatory tools are designed to help support the effective application of new or amended rules or a response to new market developments, and to support the application of common high level standards of supervision.

Examples: guidelines, Q&As, opinions, statements, supervisory briefings.

2 - Implementation tools are designed to understand how rules or market developments are being supervised in practice (this includes where relevant authorisation/licencing and enforcement action), to enable NCAs to improve the efficiency, effectiveness and consistency of current or future work, and/or to take action to address a live issue.

Examples: Common Enforcement Priorities, delegation agreements, thematic studies.

3 - Assessment/remediation tools are designed to test whether supervision of rules or market developments is being carried out in line with expectations and/or to take action to address a situation where this appears not to be the case.  In this category are included the tools used to formally assess whether supervision of national competent authorities is effective.

Examples: peer reviews, warnings, mediation, breach of Union Law investigations, product intevention measures.