modification dateThe European System of Financial Supervision, a new financial supervision architecture in the European Union, commenced the functioning as of 1st January 2011. The main objective of the ESFS is to ensure that the rules applicable to the financial sector are adequately implemented to preserve financial stability and to ensure confidence in the financial system as a whole and sufficient protection for the customers of financial services.
The ESFS comprises the following:
• European Systemic Risk Board – ESRB,
• European Supervisory Authorities – ESA:
1. European BankingAuthority – EBA,
2. European Insurance and Occupational Pensions Authority – EIOPA,
3. European Securities and Markets Authority - ESMA,
• Joint Committee of ESAs,
• the competent or supervisory authorities in the Member States as specified in the relevant Union acts.
European Supervisory Authorities (ESAs)
One of the major elements of the EU financial supervision reform is the establishment of three European Supervisory Authorities which have replaced previously operating Level 3 Committees (CEBS, CEIOPS, CESR). The seats of the newly-established ESAs are located in the previous locations of the above-mentioned committees, namely in London, Frankfurt and Paris.
The main tasks of the Level 3 Committees involved convergence of supervisory practices by means of issuing non-binding guidelines and recommendations as well as advising the European Commission in the field of its legislative activity. The ESAs – established in place of Level 3 Committees – have much broader scope of tasks and powers.
The Authorities have inter alia the following tasks:
• to contribute to the establishment of high-quality common regulatory and supervisory standards and practices, in particular by providing opinions to the Union institutions and by developing guidelines, recommendations, and draft regulatory and implementing technical standards which shall be based on the relevant legislative acts;
• to contribute to the consistent application of legally binding Union acts, in particular by contributing to a common supervisory culture, ensuring consistent, efficient and effective application of the relevant acts, preventing regulatory arbitrage, mediating and settling disagreements between competent authorities, ensuring effective and consistent supervision of financial institutions, ensuring a coherent functioning of colleges of supervisors and taking actions, inter alia, in emergency situations;
• to stimulate and facilitate the delegation of tasks and responsibilities among competent authorities;
• to cooperate closely with the European Systemic Risk Board, in particular by providing the ESRB with the necessary information for the achievement of its tasks and by ensuring a proper follow up to the warnings and recommendations of the ESRB;
• to organise and conduct peer review analyses of competent authorities, including issuing guidelines and recommendations and identifying best practices, in order to strengthen consistency in supervisory outcomes;
• to monitor and assess market developments in the area of their competences;
• to undertake economic analyses of markets to inform the discharge of the Authorities’ functions;
• to foster protection of depositors and investors (in case of EBA), policyholders, pension scheme members and beneficiaries (in case of EIOPA) and investors (in case of ESMA);
• to contribute to the consistent and coherent functioning of colleges of supervisors, the monitoring, assessment and measurement of systemic risk, the development and coordination of recovery and resolution plans, providing a high level of protection to depositors and investors throughout the Union and developing methods for the resolution of failing financial institutions and an assessment of the need for appropriate financing instruments, in accordance with Articles 21 to 26 of regulations;
One of the tasks of ESAs is development of draft regulatory and implementing technical standards, which are endorsed by the European Commission. The standards regulate detailed technical issues relating to financial supervision by means of specifying relevant provisions of European legislative acts in order to ensure convergence of supervisory practices among Member States and homogenous application of EU law.
The Authorities have also been equipped with competences concerning consumer protection, such as collecting, analysing and reporting on consumer trends; reviewing and coordinating financial literacy and education initiatives by the competent authorities; temporary prohibition or restriction of certain financial activities that threaten the orderly functioning and integrity of financial markets or the stability of the whole or part of the financial system in the Union in cases specified in relevant EU legislation.
The ESAs carries out the tasks related to identification and assessment of systemic risks, the development and coordination of effective and consistent recovery and resolution plans, procedures in emergency situations and preventive measures to minimise the systemic impact of any failure.
Additionally, pursuant to the regulation adopted by the European Parliament on 15 December 2010, amending the Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies, ESMA is responsible for registration and on-going supervision of credit rating agencies.
Each European Supervisory Authority comprises:
• Board of Supervisors,
• Management Board,
• Executive Director,
• Board of Appeal – common for all three ESAs.
The most important decisions within each ESA are taken by the Board of Supervisors, whose voting members are representatives of relevant supervisory authorities from all Member States, as well as (without voting right): the Chairperson, one representative of the Commission, one representative of the European Central Bank, one representative of the ESRB, one representative of each of the other two European Supervisory Authorities.
The chairperson is responsible for preparing the work of the Board of Supervisors and chairs the meetings of the Board of Supervisors and the Management Board.
The Executive Director is in charge of the management of the Authority, prepares the work of the Management Board, implements the annual work programme of the Authority under the guidance of the Board of Supervisors and under the control of the Management Board.
The Board of Appeal – one for three ESAs – is composed of six members and six alternates, who are individuals of a high repute with a proven record of relevant knowledge and professional experience, including supervisory experience, to a sufficiently high level in the fields of banking, insurance, occupational pensions, securities markets or other financial services, excluding current staff of the competent authorities or other national or Union institutions involved in the activities of the Authority. The Board of Appeal have sufficient legal expertise to provide expert legal advice on the legality of the Authority's exercise of its powers.
Any natural or legal person, including competent authorities, may appeal against a decision of the Authority taken: in case of breach of European law (Article 17), binding mediation (Article 18) and crisis situation (Article 19) and any other decision taken by the ESA in accordance with the relevant Union acts which is addressed to that person, or against a decision which, although in the form of a decision addressed to another person, is of direct and individual concern to that person.
Joint Committee of ESAs
The Joint Committee shall serve as a forum in which the three European Supervisory Authorities shall cooperate regularly and closely and ensure cross-sectoral consistency among them. In particular the Joint Committee shall ensure cross-sectoral consistency of work and reaching joint positions where appropriate, in particular regarding the area of supervision of financial conglomerates, accounting and auditing; micro-prudential analyses of cross-sectoral developments, risks and vulnerabilities for financial stability; retail investment products; measures combating money laundering; and information exchange with the European Systemic Risk Board (ESRB) and developing the relationship between the ESRB and the ESAs.
European Systemic Risk Board (ESRB)
The major task of the ESRB is macro-prudential oversight of the financial system within the European Union in order to contribute to the prevention or mitigation of systemic risks. The ESRB contributes also to the smooth functioning of the internal market and thereby ensures a sustainable contribution of the financial sector to economic growth.
The ESRB consists of a General Board, a Steering Committee, a Secretariat, an Advisory Scientific Committee and an Advisory Technical Committee.
The members of the General Board are mainly representatives of national central banks, who have the voting right. High-level representatives of the competent national supervisory authorities are members of the General Board without voting rights. The General Board is a forum to take the most important decisions within the ESRB. Ordinary plenary meetings of the General Board should take place at least four times a year.
The Steering Committee assists in the decision-making process of the ESRB by preparing the meetings of the General Board, reviewing the documents to be discussed and monitoring the progress of the ESRB’s ongoing work. The meetings of the Steering Committee take place at least four times a year.
The Secretariat of the ESRB is responsible for the day-to-day business of the ESRB. It provides analytical, statistical, administrative and logistical support to the ESRB under the direction of the Chair and the Steering Committee. The Secretariat is ensured by the European Central Bank.
The Advisory Scientific Committee and the Advisory Technical Committee provide advice and assistance on issues relevant to the work of the ESRB. The representative of the KNF is involved in activities of the Technical Advisory Committee.
One of the main tasks of the ESRB is provision of warnings about identified systemic risks and, where appropriate, issuing recommendations for remedial action, including, where appropriate, for legislative initiatives.
Warnings or recommendations issued by the ESRB may be of either a general or a specific nature and shall be addressed in particular to the Union as a whole or to one or more Member States, or to one or more of the ESAs, or to one or more of the national supervisory authorities.