Last December and after more than two years of intensive talks, the revision of the European system of financial supervision introduced in the aftermath of the 2008 financial crisis was approved. The revision affects the three European Supervision Authorities (ESAs) and the European Systemic Risk Board, which, together with the network of national supervisory authorities, which are responsible for ensuring the appropriate oversight of the European Union’s financial sector.

The purpose of this new update of the supervisory framework is to address one of the priority goals of the action plan for Capital Markets Union: To achieve a more effective and consistent supervision, eliminating possibilities for regulatory arbitrage between Member States. This should contribute to expediting, on the one hand, the market integration process and, on the other, to opening opportunities linked to the single market for financial institutions and investors.

However, the final text has been less ambitious than the Commission's initial proposal and will not bring about a revolution, but rather an update, of the current European supervision framework aligned with the needs of the financial system. This is because certain Member States voiced their concerns over what they consider would be an excessive transfer of powers from competent national authorities to the European Supervisory Authorities. Therefore, although it is a step towards an increased supervisory convergence, we will still have to wait to see how it is implemented and if it manages to avoid discretionary interpretations by individual countries.

The final text has been less ambitious than the Commission's initial proposal and will not bring about a revolution

At the microprudential level, the revision of ESAs’ functioning has enhanced their ability to coordinate their actions and strengthened their competences in their corresponding fields: banking (EBA), securities and financial markets (ESMA), and insurance and occupational pensions ( EIOPA), especially the "direct oversight" over ESMA and EIOPA. The new revision also improves the structure of these authorities and urges them to build their skills in pressing issues, including climate change, sustainable finance and technological innovation (fintech), in accordance with the European Union’s new strategic priorities.

This level of agreement reached reinforces the mandate of the European Banking Authority (EBA), expanding its supervisory functions to better combat money laundering and terrorist financing, with the aim to create a more stable European banking and financial sector. Specifically, the new text endows the EBA with powers to implement the measures required to prevent and fight against these activities, which in the past were exclusively held by national authorities. Also, the new text aims to ensure that competent national authorities effectively and systematically supervise risks related to money laundering, as well as their appropriate cooperation with prudential supervisors. To this end, efforts are currently focusing on developing strategies to improve information exchange and coordination between prudential and money laundering authorities.

Of the three authorities, it is the European Markets and Securities Authority (ESMA) whose powers this new revision has expanded the most, endowing it with new direct supervisory powers in specific sectors, such as financial instrument markets and financial indicators (Euribor or Eonia). These measures are aimed to ensure a more uniform application of EU standards and promote an actual Capital Markets Union. On the other hand, EIOPA will guarantee a more integrated oversight of the insurance industry, marking the supervision priorities for the sector.

As for the macroprudential authority, the European Systemic Risk Board (ESRB) will be responsible for preventing and mitigating systemic financial stability risks. The changes aim to boost its efficiency and enhance coordination with other European agencies through governance improvements.

The implementation of the aforementioned developments is expected to increase coordination at European capital markets and boost efficiency in the management of the financial sector, which will in turn bring changes to the relationships of our supervisory bodies with those of non-EU members.

In short, this update of the supervisory architecture of the European Union is intended to guarantee greater consumer, increase the authorities’ ability to adapt to market developments, improve coordination between European and national authorities, and ensure the alignment with some of the priorities established by the European Commission: an economy that works for people (greater consumer protection), a Europe that embraces the digital era (coordination in the FinTech field) and a European Green Pact (promoting sustainable financing mechanisms).