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Varieties of European Economic Law and Regulation pp 757–780Cite as

Enforcement by the New European Supervisory Agencies: Quis Custodiet Ipsos Custodes?

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Part of the book series: Studies in European Economic Law and Regulation ((SEELR,volume 3))

Abstract

The financial crisis enabled the EU to move forward in terms of centralised supervision of financial institutions by moving away from the Lamfalussy committees towards a new regime of European agencies, the ESAs. Despite the newfound powers these agencies enjoy, there are several flaws in the system of supervision remaining. This contribution addresses three of these flaws: (1) the double role of national supervisory authorities as both addressees of the oversight by the ESAs and as their watchdogs; (2) the reliance on soft law with uncertain legal consequences; (3) the obscure constitutional embedding of the ESAs in the system of the TFEU and the case law of the ECJ. In order to overcome the half-way house situations the ESAs are in right now, the ESAs should be given a more independent position. Instead of deriving their legitimacy from the EU legislature via the Commission, we suggest to cut-through this ‘transmission belt’ but at the same time increase the accountability of the ESAs by codifying procedural rules with regard to stakeholder participation, consultation, and judicial review for those affected by the rules and decisions of regulatory agencies.

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Notes

  1. 1.

    GE Wood, ‘Too Much Regulation’ (2003) 23 Economic Affairs 21.

  2. 2.

    Julia Black has, for example, argued that: ‘In particular, the reputations of four broad categories of regulatory approach and technique have suffered heavy casualties: principles based regulation, risk based regulation, reliance on internal management and controls, and market based regulation.’ She immediately adds to this, however, that detailed rule based regulation did not particularly fare well either. See: J Black, ‘Forms and Paradoxes of Principles Based Regulation’ (2008) LSE Law, Society and Economy Working Papers 13/2008, 2.

  3. 3.

    See: A Ottow, ‘The New European Supervisory Architecture of the Financial Markets’ in M Everson, C Monda and E Vos (eds), European Agencies in Between Institutions and Member States (The Hague, Kluwer Law International, 2013) Chap. 8 (forthcoming). She gives the example of the Banking Dir 2006/48/EC on the basis of which a bank licensed by an EU Member State was permitted to establish a branch in another Member State without having to apply for a new licence. The home state was responsible for supervision of the credit institution as a whole.

  4. 4.

    High Level Group on Financial Supervision in the EU, 25/2/2009, ec.europa.eu/internal_market/finances/docs/de_larosiere_report_en.pdf.

  5. 5.

    The new ESA are to a certain extent a follow-up of the old Lamfalussy level 3 committees (CEBS, CESR, and CEIOPS).

  6. 6.

    The ESRB, COM(2009) 499, consists of a network of national financial supervisors working together with the ESAs, which are created by the transformation of existing Committees for the banking securities and insurance and occupational pensions sectors: European Banking Authority, COM(2009) 501; European Insurance and Occupational Pensions Authority COM(2009) 502 final; European Securities and Markets Authority COM(2009) 503. See E Ferran, ‘Understanding the New Institutional Architecture of EU Financial Market Supervision’ (2011) University of Cambridge Faculty of Law Research Paper No 29/2011, available at ssrn.com/abstract = 1701147.

  7. 7.

    E Ferran and K Alexander, ‘Can Soft Law Bodies be Effective? Soft Systemic Risk Oversight Bodies and the Special Case of the European Systemic Risk Board’ (2011) Cambridge Legal Studies Research Paper Series, Paper No 36/2011. Available at: papers.ssrn.com/sol3/papers.cfm?abstract_id=1676140.

  8. 8.

    Already before the crisis hit Europe it became clear that the Lamfalussy process caused too much differentiation in the implementation of EU financial regulation and was not flexible enough to keep up with the dynamics of the international financial markets.

  9. 9.

    M Busuioc, ‘Rule-making by the European Financial Supervisory Authorities: Walking a Tight Rope’ (2013) 19 European Law Journal 111, 112.

  10. 10.

    Final Report of the Committee of Wise Men on the Regulation of European Securities Markets, 15/2/2001, available at ec.europa.eu/internal_market/securities/docs/lamfalussy/wisemen/final-report-wise-men_en.pdf.

  11. 11.

    Initial report of the Committee of Wise Men on the Regulation of the European Securities Markets, Brussels, 9/11/2000, ec.europa.eu/internal_market/securities/docs/lamfalussy/wisemen/initial-report-wise-men_en.pdf.

  12. 12.

    ESC stands for European Securities Committee and CESR for Committee of European Securities Regulators. In 2003 and 2004 the CEBS and CEIOPS were installed along the same Lamfalussy-lines in the field of banking and insurances & pensions.

  13. 13.

    Final Report of the Committee of Wise Men, 37.

  14. 14.

    Inter-Institutional Monitoring Group Third Report monitoring the Lamfalussy Process, 17/11/2004, ec.europa.eu/internal_market/securities/docs/monitoring/third-report/2004-11-monitoring_en.pdf.

  15. 15.

    See: ec.europa.eu/internal_market/securities/lamfalussy/monitoring/index_en.htm. Especially useful are the responses of Barclays PLC, BBA and BDB. Interesting to see is that the BDB response already envisioned a single supervisory authority for financial markets as the way forward for truly establishing a single market.

  16. 16.

    See also European Commission, Review of the Lamfalussy process- Strengthening Supervisory Convergence, COM(2007) 727.

  17. 17.

    Preliminary progress report: which supervisory tools for the EU securities markets? An analytical Paper by CESR, Paris October 2004 (www.esma.europa.eu/system/files/04_333f.pdf).

  18. 18.

    IMF, Regional Economic Outlook: Europe, November 2007, www.imf.org/external/pubs/ft/reo/2007/eur/eng/ereo1107.pdf.

  19. 19.

    High Level Group on Financial Supervision in the EU, 75.

  20. 20.

    Ibid, 40–42.

  21. 21.

    Ibid, 56. It contains a list of 7 new competences compared with the Level 3 Lamfalussy-committees.

  22. 22.

    K Alexander, ‘Reforming European financial supervision and the role of EU institutions’ (2010) Amicus Curiae 2, 10. See also P Schammo, ‘EU Day-to-Day Supervision or Intervention-based Supervision: Which Way Forward for the European System of Financial Supervision?’ (2012) 32 OJLS 771, 775.

  23. 23.

    Reg (EU) 1093/2010 establishing a European Supervisory Authority (European Banking Authority), [2010] OJ L 331/12 (EBA Regulation); Reg (EU) 1094/2010 establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority), [2010] OJ L 331/48 (EIOPA Regulation) and Reg (EU) 1095/2010 establishing a European Supervisory Authority (European Securities and Markets Authority), [2010] OJ L 331/84 (ESMA Regulation). When referring to all three, they will be mentioned as ‘the Regulations’.

  24. 24.

    Alexander, ‘Reforming European financial supervision’, 5.

  25. 25.

    They now draft standards which will be adopted as delegated legislation. See Arts 10 and 15 of the Regulations.

  26. 26.

    Art 10(1) of the Regulations.

  27. 27.

    L Szegedi, ‘Challenges of Direct European Supervision of Financial Markets’ (2012) 57 Public Finance Quarterly 347, 349. See also Art 18 of the Regulations.

  28. 28.

    Schammo, ‘EU Day-to-Day Supervision’, 792.

  29. 29.

    Art 35 of the Regulations.

  30. 30.

    Art 40(1)(b) of the Regulations.

  31. 31.

    Schammo, ‘EU Day-to-Day Supervision’, 796.

  32. 32.

    AB Spendzharova, ‘Power to the European Supervisory Authorities: Explaining the Incremental Evolution of European Financial Regulation’ (2012) Paper prepared for the 2012 UACES conference, 13. Available at uaces.org/documents/papers/1201/spendzharova.pdf.

  33. 33.

    Art 44(1), second paragraph of the Regulations. This means that all the quasi-rulemaking powers (standards, guidelines and recommendations based on Arts 10 and 16) fall outside the scope of simple majority voting. Budgetary matters as well.

  34. 34.

    Art 44(1), third paragraph of the Regulations. This seems confusing, for a clearer answer look at Article 16(4) TFEU and in Art 3 of the Protocol (No 36) on transitional provisions which describes the different kind of voting procedures.

  35. 35.

    Art 45(1), third paragraph of the Regulations.

  36. 36.

    See www.eba.europa.eu/about-us/organisation/management-board/members, eiopa.europa.eu/ organisation/management/management-board/index.html and www.esma.europa.eu/mb.

  37. 37.

    Draft Report with recommendations to the Commission on the European System of Financial Supervision (ESFS) Review (2013/2166(INI)), available at www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//NONSGML+COMPARL+PE-521.510+01+DOC+PDF+V0//EN&language=EN.

  38. 38.

    See the aforementioned BDB-response to the third report on the Lamfalussy-structure as well as the report from Deutsche Bank Research, Financial supervision in the EU Incremental progress, success not ensured, Frankfurt am Main 4 August 2011, available at www.dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD0000000000276501/Financial+supervision+in+the+EU%3A+Incremental+progress,+success+not+ensured.PDF.

  39. 39.

    Which is exactly why these are the regulatory instruments one should watch out for. See Busuioc, ‘Rule-making by the European Financial Supervisory Authorities’, 113.

  40. 40.

    Ibid, 118 f.

  41. 41.

    See for example the ‘Policy rule application guidelines EBA’ of the Dutch Central Bank that are being applied in relation to the enforcement of the Act on financial supervision, Staatscourant 2012, no 4959.

  42. 42.

    TJ Möllers, ‘Sources of Law in European Securities Regulation—Effective Regulation, Soft Law and Legal Taxonomy from Lamfalussy to de Larosière’ (2010) 11 European Business Organization Law Review 379, 400. Interesting is whether the ECJ can review guidelines and recommendations by agencies since Art 263 TFEU refers to ‘acts intended to produce legal effects vis-à-vis third parties’.

  43. 43.

    Ferran and Alexander, ‘Can Soft Law Bodies be Effective?’, 32.

  44. 44.

    The EP amended the specific article concerning guidelines and removed the word ‘non-binding’ but thereby leaving open room to debate whether this means it’s binding or some sort of third option, see www.europarl.europa.eu/sides/getDoc.do?type=REPORT&mode=XML&reference=A7-2010-166&language=EN.

  45. 45.

    See for example responses from HSBC, Allianz and Federation of Finnish Financial Services at ec.europa.eu/internal_market/consultations/2013/esfs/contributions_en.htm.

  46. 46.

    Case 9/56 Meroni & Co., Industrie Metallurgiche, SpA v High Authority of the European Coal and Steel Community [1958] ECR 133.

  47. 47.

    M Chamon, ‘EU agencies between ‘Meroni and Romano’ or the devil and the deep blue sea’ (2011) 48 CML Rev 1055.

  48. 48.

    This article refers back to Art 26 TFEU which states that ‘the Union shall adopt measures with the aim of establishing or ensuring the functioning of the internal market’.

  49. 49.

    See recital 7 of the Regulations.

  50. 50.

    See also Case C-338/01 Commission v Council [2004] ECR I-4829, paras 54–61.

  51. 51.

    N Moloney, ‘The European Securities and Markets Authority and Institutional Design for the EU Financial Market—A Tale of Two Competences: Part (2) Rules in Action’ (2011) 12 European Business Organisational Law Review 177, 219.

  52. 52.

    Case C-217/04 United Kingdom v European Parliament and Council [2006] ECR I-3771, paras 44 f.

  53. 53.

    E Fahey, ‘Does the Emperor Have Financial Crisis Clothes? Reflections on the Legal Basis of the European Banking Authority’ (2011) 74 MLR 581, 593.

  54. 54.

    Art 352(2) TFEU.

  55. 55.

    S Weatherill, ‘The Limits of Legislative Harmonization Ten Years after Tobacco Advertising: How the Court’s Case Law has become a ‘Drafting Guide’ (2011) 12 German Law Journal 827.

  56. 56.

    AG Jääskinen, Opinion of 12 September 2013, case C-270/12 United Kingdom v Council and Parliament, not yet reported, para 35.

  57. 57.

    Ibid, paras 52 f and 59.

  58. 58.

    Ibid, para 58.

  59. 59.

    Case 270/12 United Kingdom v. Parliament and Council, not yet reported, paras 102–116.

  60. 60.

    It is needless to say that the UK has an interest in keeping a unique position in the short selling branch.

  61. 61.

    Case 98/80 Giuseppe Romano v Institut national d’assurance maladie-invalidité [1981] ECR I-1241.

  62. 62.

    COM(2009) 114 final, 5.

  63. 63.

    See M Chamon, ‘Le recours à la soft law comme moyen d’éluder les obstacles constitutionnels au développement des agences de l’UE’ (2014) Revue du Marché Commun et de l’union européenne forthcoming.

  64. 64.

    Case 270/12 United Kingdom v. Parliament and Council, not yet reported, para 66.

  65. 65.

    Draft European Parliament legislative resolution on the proposal for a regulation establishing a European Banking Authority, EP doc A7-0166/2010, amendment 86.

  66. 66.

    Art 17 of the EBA-regulation.

  67. 67.

    E Chiti, ‘European Agencies’ Rulemaking: Powers, Procedures and Assessment’ (2013) 19 ELJ 93, 96.

  68. 68.

    N Moloney, ‘Reform or Revolution? The financial crisis, EU financial markets law, and the European Securities and Markets Authority’ (2011) 60 ICLQ 521, 532.

  69. 69.

    S Lavrijssen and A Ottow, ‘Independent Supervisory Authorities: A Fragile Concept’ (2012) 39 Legal Issues of Economic Integration 419, 439.

  70. 70.

    M Scholten, ‘Independent, Hence Unaccountable? The Need for a broader debate on the Executive’ (2011) 4 Review of European Administrative Law 5, 43.

  71. 71.

    The last sentence of Art 1(5) of the Regulations states that ‘When carrying out its tasks, the Authority shall act independently and objectively and in the interest of the Union alone’.

  72. 72.

    Chiti, ‘European Agencies’ Rulemaking’, 109.

  73. 73.

    Recitals 11 to 13 of the EBA- and ESMA-Regulation and Recitals 10 to 12 of the EIOPA-Regulation.

  74. 74.

    R Stewart, ‘The Reformation of American Administrative Law’ (1975) 80 Harvard Law Review 1667.

  75. 75.

    E Chiti, ‘An Important Part of the EU’s Institutional Machinery: Features, Problems and Perspectives of European Agencies’ (2009) 46 CML Rev 1420.

  76. 76.

    AG Geelhoed, however, argued in 2003 that Meroni would apply to agencies. See his opinion in Case C-378/00 Commission v European Council and Council [2003] ECR I-937. In hindsight of C-270/12 AG Geelhoed seems to be in the right with his argument.

  77. 77.

    Chamon, ‘EU agencies’, 1069.

  78. 78.

    Ibid, 1070. See also P Craig, ‘Delegated acts, implementing acts and the new Comitology Regulation’ (2011) 36 EL Rev 671, 672.

  79. 79.

    D Gerardin, ‘The Development of European Regulatory Agencies: What the EU should Learn from American Experience’ (2005) Columbia Journal of European Law 1.

  80. 80.

    See for instance Mistretta v United States 488 US 361, 372 (1989) in which the Supreme Court ruled, among others that: ‘our jurisprudence has been driven by a practical understanding that in our increasingly complex society, replete with ever changing and more technical problems, Congress simply cannot do its job absent an ability to delegate power under broad general directives.’

  81. 81.

    In 2008, for example, 284 federal statutes were enacted against 3,995 agency regulations. See L Schultz Bressman, E Rubin and K Stack, The Regulatory State (Aspen Publishers, New York, 2010) 2.

  82. 82.

    E Rubin, ‘Shocking News for Legislatures and Law Schools: Statutes are Law’ in HR Schouten, De opleiding van wetgevingsjuristen en wetgevingsonderzoekers in vergelijkend perspectief (­Nijmegen, Wolf Legal Publishers, 2011) 12.

  83. 83.

    Public Law No 416, June 19, 1934, Sec 303 (f).

  84. 84.

    Rubin, ‘Shocking News for Legislatures and Law Schools’, 12.

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Authors and Affiliations

  1. Faculty of Law, Research Group for Methodology of Law and Legal Research, Tilburg University, PO Box 90153, Tilburg, The Netherlands

    Rob van Gestel & Thomas van Golen

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  1. Rob van Gestel
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Correspondence to Rob van Gestel .

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  1. Law and Governance Group, Faculty of Law, Wageningen University, Erasmus University of Rotterdam, The Netherlands

    Kai Purnhagen

  2. Faculty of Law, University of Copenhagen, Copenhagen, Denmark

    Peter Rott

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van Gestel, R., van Golen, T. (2014). Enforcement by the New European Supervisory Agencies: Quis Custodiet Ipsos Custodes?. In: Purnhagen, K., Rott, P. (eds) Varieties of European Economic Law and Regulation. Studies in European Economic Law and Regulation, vol 3. Springer, Cham. https://doi.org/10.1007/978-3-319-04903-8_37

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