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I. REFORM OR REVOLUTION? THE FINANCIAL CRISIS, EU FINANCIAL MARKETS LAW, AND THE EUROPEAN SECURITIES AND MARKETS AUTHORITY

  • Niamh Moloney (a1)

Extract

Since the outset of the financial crisis, the EU financial markets regime1 has been undergoing a period of turbulence which contrasts sharply with the period of relative stability which it briefly enjoyed over 2005–2007 and post-FSAP (Financial Services Action Plan2). The FSAP reforms had been adopted. The Committee of European Securities Regulators (CESR) had emerged as an influential actor, driving some degree of supervisory coordination and co-operation and constructing a significant soft law ‘rule-book.’ And the 2007 Lamfalussy Review suggested broad political, institutional and stakeholder satisfaction with the Lamfalussy process. There was little enthusiasm for grand adventures in institutional design, albeit that supervision, an institutionally-driven concern, was presciently if belatedly emerging as a concern of the EU institutions. The Review's main concern, however, was with strengthening the pragmatic, if somewhat haphazard, network-based, ‘supervisory convergence’ model as the means for supervising the integrating EU financial market. With respect to regulation, reflecting the wider international zeitgeist pre-crisis,3 ‘Better Regulation’ and the need for a ‘regulatory pause’ were the watchwords of a Commission which, once the massive FSAP regime was safely in place, espoused the benefits of self-regulation and highlighted the risks of intervention without impact assessment, extensive consultation and evidence of market failure.4 This was most apparent with respect to credit rating agencies,5 debt market transparency,6 hedge funds,7 and clearing and settlement.8 Institutionally, a relatively sophisticated law-making apparatus, in the form of the Lamfalussy structures, a plethora of advisory bodies and stakeholder bodies (notably FIN-NET which represents the consumer and SME interest), had been established.

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1 This short note does not address the major and related reforms to the banking regime which are currently underway (e.g., the revisions to the Capital Requirements Directive, including CRD II (Directive 2009/111, OJ (2009) L302/97) and CRD III (Directive 2010/76, OJ (2010) L329/3).

2 COM(1999)232.

3 As documented in many of the diagnostic and remedial reports on the crisis, including the UK FSA's Turner Review—FSA, The Turner Review. A regulatory response to the global banking crisis (2009).

4 Commission, White Paper on Financial Services Policy 2005–2010 (COM (2005) 629).

5 The Commission endorsed a novel self-regulatory model (OJ (2006) C59/2) under which leading rating agencies subjected themselves voluntarily to CESR supervision of their compliance with the 2004 IOSCO Code on credit rating agencies.

6 After an extensive consultation, in 2008 the Commission decided against imposing a transparency regime on the debt markets, relying instead on market initiatives, particularly with respect to retail bond market transparency.

7 E.g. Commission White Paper on Investment Funds (SEC (2006) 1451). Commissioner McCreevy precipitated hostilities with the European Parliament following his support for the sector to remain subject to self-regulation.

8 The Commission supported integration through a voluntary, code-based model, albeit that the threat of subsequent intervention was made clear.

9 E.g. N Moloney, ‘The European Securities and Markets Authority and Institutional Design for the EU Financial Market—a Tale of Two Competences: Part (1) Rule-Making’ 12 European Business Organization Law Review (2011) 41, E Ferran, Understanding the Shape of the New Institutional Architecture of EU Financial Market Supervision (2010), available via http://ssrn.com/abstract=1701147, G Ferrarini and F Chiodini, Regulating Multinational Banks in Europe. An Assessment of the new Supervisory Framework (2010), available via http://ssrn.com/abstract=1596890, Moloney, N, ‘EU Financial Market Regulation after the Global Financial Crisis: ‘More Europe’ or More Risks?' 47 Common Market Law Review (2010) 1317, and Wymeersch, E, ‘The institutional reforms to the European Financial Supervisory SystemEuropean Company and Financial Law Review (2010) 1.

10 Commission, Europe's Financial System: Adapting to Change (COM (2008) 122), 3.

11 Commission, Driving European Recovery (COM (2009) 114), 5.

12 The High-Level Group on Financial Supervision in the EU, Report (2009) (the DLG Report).

13 For the crisis-era law reform agenda see Commission, Regulating Financial Services for Sustainable Growth (COM (2010) 301).

14 Although it has frequently adopted a nuanced approach, including with respect to the proposed Alternative Investment Fund Managers Directive: E Ferran, The Regulation of Hedge Funds and Private Equity: A Case Study in the Development of the EU's Regulatory Response to the Financial Crisis (2011), available at http://ssrn.com/abstract=1762119.

15 E.g. Buckley, J and Howarth, D, ‘Internal Market Gesture Politics? Explaining the EU's Response to the Financial Crisis48 Journal of Common Market Studies (2010) 119.

16 Regulation (EC) No 1060/2009, OJ (2009) L302/1 (CRA Regulation).

17 T7-0478/2010, based on Commission Proposal COM (2010) 289. Publication in the Official Journal is expected shortly.

18 T7-0393/2010, based on Commission Proposal COM (2009) 207. Publication in the Official Journal is expected shortly.

19 COM(2010) 482.

20 COM(2010) 484.

21 COM(2010) 371.

22 The Commission's first major policy orientations on the MiFID Review were published in December 2010: Commission, Public Consultation. Review of the Markets in Financial Instruments Directive (MiFID Review).

23 E.g. Commission, Public Consultation on a Review of the Market Abuse Directive, June 2010.

24 E.g. Commission, Consultation Document on the Modernization of Directive 2004/109, May 2010.

25 Directive 2010/73/EU OJ (2010) L327/1.

26 Commission, Consultation Paper on the UCITS Depositary Function and on the UCITS Managers' Remuneration, December 2010.

27 COM(2005) 314.

28 Directive 2009/65/EC OJ (2009) L302/32.

29 Commission Regulation (EU) No 583/2010 OJ (2010) L176/1.

30 Most recently, Commission Services, Consultation on Legislative Steps for the Packaged Retail Investment Products Initiative (2010).

31 Directive 2010/76/EU OJ (2010) L329/3.

32 Eg, J Black, The Rise, Fall and Fate of Principles Based Regulation (2010), available at http://ssrn.com/abstract=1712862.

33 COM (2010) 716.

34 E.g. Möllers, T, ‘Regulating Credit Rating Agencies: The New US and EU Law—Important Steps or Much Ado About Nothing?4 Capital Markets Law Journal (2009) 477 and Coffee, J, ‘What Went Wrong? An Initial Inquiry into the Causes of the 2008 Financial Crisis9 Journal of Corporate Law Studies (2009) 1.

35 Commission, Communication on Credit Rating Agencies (OJ (2006) C59/2).

36 London G20 Meeting, April 2009, Leaders' Statement, Declaration on ‘Strengthening the Financial System’, available via http://www.londonsummit.gov.uk/en/summit-aims/summit-communique/

37 As noted in ESMA, Consultation Paper. Guidelines on the Application of the Endorsement Regime under Credit Rating Agency Regulation 1060/2009 (2011).

39 CESR/10-322.

40 SEC(2010) 678.

41 CESR/10-945 (methodologies); CESR/10-944 (enforcement practices); CESR/10-331 (the Central Repository—CEREP); CESR/10-521 (FAQs); and CESR/10-347 (registration; colleges of supervisors).

42 Case 9/56, Meroni v. High Authority [1957–1958] ECR 133.

43 See further Moloney, N, ‘The European Securities and Markets Authority and Institutional Design for the EU Financial Market—a Tale of Two Competences: Part (2) Supervision12 European Business Organization Law Review (2011), forthcoming.

44 As the different Impact Assessments, and reports of the Commission's Impact Assessment Board suggest (e.g., Reports of the Impact Assessment Board Ref.Ares (2010) 108790 and 205437).

45 Commission, Public Consultation on Rating Agencies, November 2010.

46 eg the references at n 9 above. See also P Iglesias Rodriguez, Towards a New Financial Supervision Architecture (2009), available via http://ssrn.com/abstractid=1518062 and D Masciandaro, M Quintyn and M Nieto, Will they sing the same tune? Measuring Convergence in the new European System of Financial Supervisors (2009), available via http://ssrn.com/abstractid=1442244.

47 See further Alexander, K and Ferran, E, ‘Can Soft Law Bodies Be Effective: The Special Case of the European Systemic Risk Board35 European Law Review (2010) 751.

48 ESMA Regulation (EU) No 1095/2010 OJ (2010) L331/84.

49 E.g. references at (n 9) above.

50 ESMA's annual budget for 2011 is €17 million and is to rise to €24 million by 2013: ESMA, Frequently Asked Questions (2011), 13.

51 Commission Decision 2009/77 OJ (2009) L25/18, art 1.

52 Directive 2010/78/EU OJ (2010) L331/120.

53 E.g. Thatcher, M and Coen, D, ‘Network Governance and Multi-level Delegations. European Networks of Regulatory Agencies’ (2008) 28 Journal of Public Policy 49.

54 European Parliament Press Release, 20110203IPR13128.

55 ESMA, Frequently Asked Questions (2011), 4–5.

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I. REFORM OR REVOLUTION? THE FINANCIAL CRISIS, EU FINANCIAL MARKETS LAW, AND THE EUROPEAN SECURITIES AND MARKETS AUTHORITY

  • Niamh Moloney (a1)

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