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Erscheinung:31.08.2018 BaFin Executive Director Elisabeth Roegele: "The measures implemented by ESMA indirectly affect all market participants"

The European Securities and Markets Authority’s (ESMA) mission is to enhance investor protection and promote stable and orderly financial markets in the EU. Its efforts centre on four focal activities: completion of the single rulebook for the European financial markets; assessment of risks to investors, markets and financial stability; direct supervision of specific financial entities; and promoting convergence in the field of capital markets supervision.

The foundation for ESMA's work is formed by legally binding EU rules such as directives and regulations (level 1 provisions).1 To promote convergence, ESMA is working within the scope of its powers to develop level 3 measures and other convergence tools designed to bring about a common understanding and application of the law by the national competent authorities – as are its counterparts in the fields of banking supervision and supervision over insurance undertakings and occupational pensions, the EBA and EIOPA. In practice, supervisory convergence tools include guidelines and questions and answers (Q&As), which play a particularly significant role.

Definition:Supervisory convergence

Supervisory convergence means creating a common supervisory culture, ensuring consistent supervisory practices and guaranteeing uniform processes throughout the European Union.

Ms Roegele, ESMA uses a very large number of convergence tools. Is that appropriate?

The number of guidelines and recommendations, Q&As and opinions has indeed constantly risen over recent years. This is understandable if you consider that European directives and regulations often represent an imprecise compromise that still needs to be fleshed out and translated into standardised measures throughout Europe.

How many such measures have there been in recent years?

The most significant convergence tools are guidelines and Q&As. To date, ESMA has issued 44 sets of guidelines and published more than 1,000 Q&As.

Does BaFin apply all measures set out by ESMA?

We strive to adopt ESMA's interpretations in our administrative practice to the fullest extent possible. This is also in line with ESMA's expectations. At present, there are only three sets of guidelines and one Q&A which we do not fully apply in our administrative practice.

How can market participants find out which ones BaFin applies and which ones it does not?

We are highly transparent in that regard. Market participants can visit our website to find out which guidelines and Q&As BaFin applies and which ones it does not apply or does not apply in full. This does not only concern measures taken by ESMA but also those taken by the other European Supervisory Authorities.

Are guidelines and Q&As issued by the European Supervisory Authorities legally binding for German market participants?

While these convergence tools are initially not legally binding for market participants, they do indirectly affect them whenever BaFin adopts them in its administrative practice. That is because BaFin aligns its administrative practices with the provisions of the guidelines and Q&As. This generally means that BaFin obliges itself to comply with these provisions which consequently apply to all market participants.

Certain undertakings and associations take a critical view of the convergence efforts of ESMA and BaFin. What is their criticism directed at?

There are several aspects which certain market participants take exception to. In particular, they criticise that there is a large number of convergence tools – primarily Q&As – and that ESMA does not provide for consultation on these in advance or translate them.

Do you consider their criticism justified?

Without a doubt, the large number of measures, above all the many detailed Q&As, presents a challenge to market participants, particularly for smaller institutions and issuers. However, of course not all provisions are relevant to every market participant. That depends entirely on the activities undertaken by the individual participants. Thanks to the tables of contents within the documents and the notices on the ESMA website, it is possible to quickly identify which measures might be relevant to each market participant. Of course, the question as to whether and how individual processes can be improved or transparency can be increased is always debatable.

However, in and of itself, strengthening convergence in capital markets supervision is urgently necessary in order to reduce the risk of supervisory arbitrage within the EU. The level playing field promoted by ESMA creates uniform supervisory standards and thus offers equal opportunities throughout the entire European market. But that is not the only reason why greater convergence directly benefits market participants.

Why else?

For one thing, because it increases security and transparency as far as interpretation is concerned. For another, stronger convergence also improves the ability to compare supervisory regimes.

A largely uniform administrative practice therefore renders it easier for market participants to conduct their activities on a cross-border basis. We must not forget that the questions are often asked by undertakings and associations themselves. This indicates a high level of need for answers from supervisory authorities.

BaFin attempts to play its part in ensuring that market participants throughout Europe are subject to practices which are as uniform as possible. However, at the same time it maintains a focus on the particularities of the German financial market and supports market participants and associations in a wide variety of ways in keeping up with the latest convergence measures.

What specifically does BaFin do?

BaFin keeps a keen eye on all three European Supervisory Authorities, both in the working groups and in the Board of Supervisors, to ensure that guidelines and Q&As take into account the peculiar features of the German market. It is more familiar with this market and can therefore better guarantee that supervision is effective and efficient and adequately takes into consideration the market's particularities. That is why it is so important to preserve the European Supervisory Authorities as member-driven institutions in which their members actively participate and to prevent the establishment of a one-size-fits-all approach.

The fact that this requires proactive support for convergence efforts by the national competent authorities is underscored by the Review of the European supervisory authorities, the current review and reform of the European supervisory system. The European Commission has stated in this context that due to a lack of uniform supervisory practice, there are still a large number of hurdles in the European capital market, although it did not provide more detailed grounds to back this impression. In our view, its proposal to centralise the organisation and performance of comparative analyses and authorise the European Supervisory Authorities – particularly ESMA – to gather data and information directly from the market participants is the wrong approach. The existing system has proven effective in this regard – with peer reviews and data collection carried out by the national competent authorities, which then pass on the information to EBA, EIOPA and even ESMA.

In order to keep undertakings and associations apprised of the current situation, BaFin regularly organises specialist workshops. For instance, Securities Supervision is offering another Transparency Workshop in November. And independently of this, market participants can address questions and comments to us at any time, which we respond to as quickly as possible. And, last but not least, in certain cases BaFin offers non-binding German translations of Q&As for market participants on its website – particularly of those pertaining to issues surrounding consumer protection2. Translations of the guidelines into the official languages of the member states are, however, organised by the European Supervisory Authorities themselves.

What would you like to say to market participants?

Convergence of capital markets supervision is not there for its own sake, but rather is necessary in order to pave the way for a homogeneous European capital market and to strengthen Germany as a financial centre. To that end, the rules set out in the Single Rulebook for financial markets in the EU must be applied effectively, efficiently and uniformly to comparable market participants in all member states. The European Supervisory Authorities have a mandate, set out in their founding Regulations, to promote a uniform culture of supervision by using the corresponding convergence tools. BaFin plays an active part in shaping this culture – including for market participants in Germany.

These participants can and, as it is in their own interests, should inform themselves of the measures implemented by the European Supervisory Authorities to promote convergence, and take them into account when conducting their activities. BaFin supports them in doing so to the best of its ability by providing information on convergence tools and level 3 measures, and by offering guidance. And we are always receptive to comments whenever it turns out that certain measures do not suit individual market participants. In such cases, please do not hesitate to contact us.

Please note

This article reflects the situation at the time of publication and will not be updated subsequently. Please take note of the Standard Terms and Conditions of Use.

Footnotes:

  1. 1 In addition, the legally binding rules at the EU level also include in particular the level 2 measures set out under Article 10 et seq. and Article 15 of the ESA Regulation, i.e. regulatory technical standards and implementing technical standards. These standards are developed by the European Supervisory Authorities and confirmed by the Commission.
  2. 2 One current example is the set of Q&As on investor protection and agents.

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