On 21 March 2019, the European Parliament and EU Member States agreed on a reform of the European supervision of EU financial markets. The new rules will reinforce the role and powers of the three European supervisory authorities (ESAs), including on anti-money laundering and terrorist financing. The agreement, which has been endorsed by the European Parliament this month (April), should strengthen the supervision of the European financial system and promote its integration (see previous article).

Financial supervision system

The reforms represent the first fundamental review of the responsibilities, powers, governance and funding of the ESAs. Along with the European Systemic Risk Board, which monitors the financial system as a whole, the ESAs make up the European system of financial supervision that was set up in 2010 in the wake of the financial crisis. They consist of the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA). They were created to ensure increased stability in banking, insurance and securities markets and help prevent further crises in European and global economies.

This European system of supervision was one of the elements that has helped the EU recover from the financial crisis. Nonetheless, the process of financial integration is still a work in progress and needs to keep pace with developments both within the EU and at a global level.  Furthermore, while there are robust rules against money laundering in the EU, scandals in European banks in the past few years have showed that they are not always enforced and supervised properly.

Features of the agreement

The agreed rules give the EBA new powers when it comes to anti-money laundering supervision of the financial sector to prevent cases like the recent scandals from happening again.  For instance, the EBA will be able to ask national anti-money laundering supervisors to investigate potential material breaches and ask them to consider targeted actions, such as sanctions. The review will also reinforce ESMA’s role, giving it direct supervision of EU critical benchmarks (such as EURIBOR and EONIA) as well as non-EU benchmarks for use in the EU. The agreement strengthens the role of the chairperson of the ESAs’ board of supervisors, whose powers will be reinforced for instance when it comes to overseeing investigations and in certain case-by-case decisions.

The new rules bring the ESAs improved tools and resources to ensure effective cooperation and convergence of supervisory standards. For instance, they strengthen the procedure for the assessment of the work of national supervisors – or ‘peer reviews’. They also institutionalise the currently voluntary coordination groups of the ESAs and national authorities to work on concrete cases to find solutions for more supervisory convergence.   

The agreement forms part of the EU’s capital markets union project, aimed at creating stronger, more secure and integrated financial markets.

Read more on the ESAs and the European system of financial supervision