Legal Implications of the Establishment of the European Securities and Markets Authority

Abstract

The EU’s response to the financial crisis has encompassed the establishment of the new institutional architecture of European financial market supervision. Together with the other two created European Supervisory Authorities (ESAs), the European Securities and Markets Authority (ESMA) has been granted considerable quasi-rule making and extensive direct supervisory powers. The new complex institutional design of ESMA is however burdened with legal constraints arising from the limits of the European law.

The paper aims at examining the legal implications of ESMA, concentrating on the choice of the legal basis, application of the institutional agency design and compliance of ESMA’s powers with legal limitations. In terms of ESMA’s quasi-rule making powers, the paper proves that the desired compliance with the restrictions leads to a discrepancy between the de jure and de facto situation. With regards to ESMA’s supervisory powers, it argues that the compliance with the limitations has potential to generate legal certainty risks, which may prejudice effective exercise of supervision. The paper further demonstrates that the application and appropriateness of the chosen institutional agency model has to be treated differently with regards to quasi-rule making and supervisory powers of ESMA.

Keywords: Securities regulation, ESMA, financial supervision, Meroni, agencies, legal basis

JEL Classification: K22, K20