Regulating and Supervising European Financial Markets (eBook)

Mads Andenas is Professor of Law at Faculty of Law, University of Oslo, Oslo, Norway, and Institute of Advanced Legal Studies, School of Advanced Studies, University of London, London, United Kingdom.Gudula Deipenbrock is Professor of Business Law at HTW Berlin, University of Applied Sciences, Berlin, Germany.

Acknowledgements 6
Contents 8
List of Editors and Contributors 10
More Risks than Achievements? 12
1 Setting the Scene 12
2 Structure of the Book 16
3 Some Substantive Highlights of this Book 16
4 Outlook 20
Part I: The European System of Financial Supervision as Originally Introduced from the Institutional Perspective: Selected Asp... 21
The European Securities and Markets Authority and Its Regulatory Mission: A Plea for Steering a Middle Course 22
1 Introduction 23
2 ESMA: Legislative Objectives and Mission 26
3 ESMA: Regulatory Tasks, Powers and Institutional Design 27
3.1 Regulatory Tasks and Powers of ESMA 28
3.2 Institutional Design of ESMA 35
3.2.1 Independence 38
3.2.2 Accountability 43
4 ESMA: Performance as Regulator 44
5 Conclusion and Critical Outlook 47
References 48
Form and Function of the ESRB: A Critical Analysis 51
1 Introduction 52
2 Background 55
3 Legal Basis 56
4 Mission and Objectives 57
5 Organisation and Structure 60
6 Tasks and Applicable Measures 64
7 Reporting and Accountability 70
8 Relations with the ESFS and Other Relevant Entities 71
9 Conclusion 73
References 74
Power and Accountability in the EU Financial Regulatory Architecture: Examining Inter-Agency Relations, Agency Independence an... 75
1 Introduction 76
2 The Institutional Architecture in the European System for Financial Supervision (ESFS): The First Stage of Institutional Ref... 78
2.1 An Outline of the Framework of the ESFS 80
2.2 Critically Exploring the Complex Designs in Power and Accountability in the ESFS and Technocratic Effectiveness of the Ins... 83
3 Inter-Agency Learning, Coordination, Accountability and Achievements 90
3.1 Joint Committee 90
3.2 Inter-Agency Learning and the Board of Appeal 94
3.3 Inter-Agency Coordination and Accountability Generally 96
4 The SSM, SRM and Lessons That Can Be Learnt with Respect to Inter-Agency Coordination 99
5 Final Observations and Conclusions 106
References 107
The Regulatory Powers of the European Supervisory Authorities: Constitutional, Political and Functional Considerations 110
1 Introduction 111
2 EU Financial Market Integration Project in Context 115
3 Legal Basis for the Creation of the ESAs 119
4 The Regulatory Powers of the ESAs 123
4.1 Case Law Overview: Constitutional Limitations 124
4.2 Political Concerns and Functional Objectives 133
5 A Discussion of the Quasi-Rulemaking Process 135
5.1 Quasi-Rulemaking Process 136
5.2 The Balance of Powers in the Rule-Making process 137
5.3 Union Interests 140
6 Conclusion 141
References 143
Cases 145
The Effects of the ESMA´s Powers on Domestic Contract Law 146
1 Introduction 146
2 The Potential Effects of the ESMA´s Powers on Financial Market Participants 149
2.1 Draft Technical Standards 152
2.2 The Horizontal Intervention Powers 153
2.3 The Sectoral Intervention Powers 154
2.4 Guidelines and Recommendations 156
3 The Horizontal Effects of the MiFID I 158
4 From the MiFID I to the MiFID II: Towards the Harmonization of the Private Enforcement of EU Conduct of Business Rules? 161
5 The Impact of the ESMA´s Powers on the Contract-Making and Enforcement 163
6 The Drivers and the Effects of the ESMA´s Involvement in National Contract Law 167
7 Conclusion 169
References 170
Strengths and Weaknesses of the ESMA-SEC Supervisory Cooperation 174
1 Introduction 175
2 ESMA: Some Fundamentals 175
2.1 The Scope of Supervision of ESMA 175
2.2 Direct Supervision by ESMA 179
2.3 International Relations of ESMA 181
3 SEC: Some Fundamentals 184
3.1 The Scope of Supervision of SEC 184
3.2 The International Relations of SEC 186
4 The ESMA-SEC Cooperation 186
4.1 The Antecedents 186
4.2 The 2012 MoU on the Supervision of Cross-Border Regulated Entities 187
4.2.1 Cross-Border Regulated Entities 188
4.2.2 Communication 188
4.2.3 Legal Nature 188
4.2.4 Denial of Cooperation 188
4.2.5 Areas of Cooperation 188
4.2.6 On-Site Visits 189
4.2.7 Requests 189
4.2.8 Enforcement 189
4.2.9 Confidentiality 190
4.2.10 Termination 190
4.2.11 Annex on CRAs 190
4.3 The 2013 AIFM Directive Memoranda 191
4.3.1 Preamble 192
4.3.2 Legal Nature 193
4.3.3 Communication 193
4.3.4 Denial of Cooperation 193
4.3.5 Areas of Cooperation 193
4.3.6 Enforcement 194
4.3.7 Exchange of Information 194
4.3.8 On-Site Visits 195
4.3.9 Confidentiality 195
4.3.10 Termination and Transfer of Functions 196
5 Conclusion 197
References 197
Sustainability Impact Assessment in ESAs 199
1 Introduction 199
2 The Role of ESAs in a European Sustainable Financial System 201
3 Assessment for Sustainability in ESAs: The ESMA Case 205
3.1 ESMA Sustainability Impact Assessment 206
3.1.1 Level 1: Organization´s Governance, Commitments and General Policies 207
3.1.2 Level 2: Organization´s Management Structures 209
3.1.3 Level 3: Results 209
3.2 Expert System Proposal 215
4 Conclusions 219
References 220
Selected Aspects of International Regulation and Policy: Reforming International Financial Regulation Along Macro-Prudential L... 221
1 Introduction 221
2 The Crisis and the Rise of the G20 222
3 International Regulatory Reform and the Financial Stability Board 224
4 Financial Stability Board and International Monetary Fund Coordination 226
5 Reforming and Restructuring Financial Supervision 228
6 Other Aspects of International Regulatory Reforms 230
7 Environmental and Social Risks 232
8 Conclusion 233
References 234
The Federalisation of Financial Supervision in the US and the EU: A Historical-Comparative Perspective 236
1 Introduction 237
2 Federalisation of Financial Regulation ``Without Washington´´ (or Brussels) 239
3 The Structure(s) for Financial Supervision in a Federal Context 242
3.1 The International Outreach of Federal Financial Supervision 242
3.2 Financial Supervision as an Integral Part of Financial Regulation in the US 244
3.3 The ``Institutional Turn´´ of EU Financial Regulation 246
4 Beyond the Internal Market: The Federal Challenges Faced by the EU Banking Union Through the Lens of US Federalism 248
4.1 A Banking Union Sitting Astride Between the Internal Market and the EMU 249
4.2 The Potential Disruptive Effects of the Banking Union on the Functioning of the Internal Market 250
4.3 Towards a Complex ``Triple Banking System´´ in the EU? 252
5 Conclusion 253
References 253
Part II: The European Central Bank and Banking Supervision from the Institutional Perspective: Selected Aspects Covering the L... 256
The ECB and Banking Supervision: Does Single Supervisory Mechanism Provide an Effective Regulatory Framework? 257
1 Introduction 257
2 Historical Context for the ECB´s Supervisory Function 259
3 Severing the Tie Between Banking and Sovereign Debt Crises 260
4 Banking Union and the Internal Market 262
5 Single Supervisory Mechanism 264
6 The Legal Basis 268
7 Balancing the Price Stability Objective with Banking Supervision 271
8 The ECB and Macro-Prudential Supervision 273
9 Reconciling the ECB´s Independence with Effective Banking Supervision 276
10 The ECB´s Accountability 278
11 Conclusion 278
References 279
The Role of the European Banking Authority (EBA) After the Establishment of the Single Supervisory Mechanism (SSM) 281
1 The Legal Acts Establishing the EBA and the SSM 282
1.1 Establishment of the EBA 283
1.2 Establishment of the SSM 285
1.3 Regulation (EU) No 1022/2013 Amending the `EBA Regulation´ 288
2 The Relationship Between the SSM and the EBA 289
2.1 The SSM as Part of the ESFS: The Provisions of the `Twin Regulations´ 290
2.2 Amendments Introduced to the EBA Regulation by Regulation (EU) No 1022/2013 291
2.2.1 The Relationship Between the ECB and the EBA 292
2.2.2 The EBA´s Tasks Revisited 292
2.2.3 The EBA´s Powers Revisited 294
2.2.4 Amendments to the EBA´s Governance 295
3 Concluding Remarks 296
References 299
The Single Supervisory Mechanism (SSM): Selected Institutional Aspects and Liability Issues 302
1 Inferring the Limitation of the ECB´s Liability from the General Principles Common to Member States´ Laws and the Court of J... 303
1.1 Introduction 303
1.2 The SSM Liability Regime Under Recital No 61 of the SSM Regulation and the Court of Justice Task to Infer a Legal Protecti... 304
1.3 The Trend Towards the Limitation of Supervisors´ Liability Within the Member States: The German, English and French-Based ... 306
1.4 Whether and to What Extent the Rules on the Legal Protection of Supervisors Are Compatible with the European Convention of... 311
1.5 Towards a Common Criterion? 314
1.6 Liability Under EU Law: The Sufficiently Serious Violation Criterion and the ECB´s Task of Protecting a Multiplicity of In... 315
1.7 The Singleness and Unitariness of the SSM as a Further Element Suggesting a Limitation of Liability for the ECB as Supervi... 316
1.8 Would the CJEU´s Limitation of ECB Liability as Supervisory Authority Pass the Test of an IMF Assessment Under Basel Core ... 318
2 The Allocation of Responsibilities, Powers and Liabilities Between the ECB and the NCAs Within the SSM 319
2.1 Introduction 319
2.2 The Tasks Conferred on the ECB and Those Remaining Under the Jurisdiction of NCAs 320
2.3 The Allocation of Supervisory Competences Within the SSM: The Criterion Contained Under Article 6 SSMR and Its Exceptions 322
2.4 Cases of Misalignment Between Prudential Supervisory Tasks and the Relevant Powers 325
2.5 The ECB´s General Power to Give Instructions to NCAs and the NCAs Margin of Manoeuvre 327
2.6 The Side-Effects of the Allocation of Tasks, Responsibilities and Powers on the Allocation of Liability Within the SSM 329
3 The Liability for Damage Caused to Third Parties by ECB Staff and Members of the ECB´s Bodies 333
3.1 Introduction 333
3.2 The Liability for the Acts and Omissions of the Joint Supervisory Teams (JSTs)´ Staff 333
3.3 The Application of the Immunities Under Protocol 7 on the Privileges and Immunities of the EU Annexed to the EU Treaties t... 334
3.4 The Allocation of Decision Making Powers Among the ECB´s Organs: The Roles of the Supervisory Board, the Executive Board a... 336
3.5 Some Conclusions on the Liability of the Governing Council, the Supervisory Board and the Executive Board 337
References 339
Judicial Review in the Eurozone: The Court System as Regulator? The Case of the Sovereign Debt Crisis 340
1 Introduction 340
1.1 Important Corner Stones 342
1.2 Structure of the Present Analysis 343
2 Part One: The Juridical Approach 343
2.1 Judicial Review in the Current System of Financial Regulation 343
2.1.1 Judicial Review of ESA Acts: A Novel Approach in Procedure and Substance 345
2.1.2 Judicial Review of ECB Acts 347
2.1.3 The Special Nature of the EU Judicial Review Process in the Context of Financial Markets 348
3 The OMT Litigation in the Courts 351
3.1 Justiciability of the OMT Decision 351
3.2 Effective Judicial Protection 352
3.3 Using Public Law Tools Only 353
3.4 Enforceability 354
3.5 The Credibility Dilemma 355
4 Part Two: Approaches from Other Disciplines 356
4.1 Sovereign Bonds in Financial Markets 356
4.2 The OMT Decision in Economic Theory 357
4.2.1 Neoclassical Economic Theory 357
4.2.2 Fault Lines in the ECB´s Intervention 358
4.3 The Role of the OMT Litigation in Eurozone Financial Markets 359
4.3.1 Economic Rationales 359
4.3.2 Reduction of Debtor Moral Hazard 360
4.3.3 Ordoliberal and Neoliberal Views 360
4.3.4 Conditionality in Neoclassical Economic Theories 361
4.4 A Sociological Model of the OMT Litigation: Judicial Legislation 363
5 Conclusion 364
References 365
The Management of Systemic Risk from a Legal Perspective 367
1 Introduction 369
2 Principle-Based and Judgment-Based Micro-Prudential Supervision in the UK 373
3 Macro-Prudential Supervision 376
4 The Pro-Cyclical Nature of Banking and Its Effect on the Type of Supervision. Countercyclical Capital and Liquidity Buffers 381
5 The Legal Framework in the Euro Banking Union. The Approach in the Single Supervisory Mechanism (SSM) and Single Resolution ... 384
6 The Issue of Recourse Under the Single Supervisory Mechanism (SSM) and Single Resolution Mechanism SRM 387
7 What Does This Mean in Practice? 390
8 Conclusion 392
References 393
Regulating SIFIs in the European Union: A Primer from an Economic Point of View 394
1 Regulation and Supervision of SIFIs as Part of the European Institutional Responses to the Financial Crisis 394
2 The Evolution of the SIFI Approach 396
2.1 Systemic Risk 396
2.2 The Traditional ``Too Big to Fail´´-Doctrine 397
2.3 From TBTF to SIFI 399
3 Two Pillars of SIFI-Specific Regulation 402
4 Identification of SIFIs in the European Union 403
5 Treatment of SIFIs in the European Union 410
5.1 Adapting the Concept of Expected Loss 410
5.2 PD-Aimed Rules 411
5.3 EAD-Aimed Rules 413
5.4 LGD-Aimed Rules 414
6 Conclusion 415
References 417
Loss-Absorbing Capacity: The Last Remedy for European SIFI Regulation? 422
1 Introduction: Why Existing SIFI Regulation in the European Union Does Not Go Far Enough 423
2 Bank Runs and the Disarray of Large Bank Failures 424
3 Conceptual Basis of Loss-Absorbing Capacity 425
3.1 Eligibility of Bank Capital to Absorb Losses 426
3.2 Why Equity and Bail-in-Able Debt Are No Substitutes 427
4 Loss-Absorbing Capacity in Regulatory Practice 429
4.1 Total Loss Absorbing Capacity (TLAC) Proposal of the Financial Stability Board 429
4.2 Minimum Requirement for Eligible Liabilities (MREL) as a Pendant in the European Union 431
4.3 Comparison of TLAC and MREL 434
5 Conclusion: Pros/Cons and Outlook 435
References 437