The European System of Financial Supervision (ESFS) is currently being reviewed. The aim from the outset was to test how effectively the ESFS, and thus also the European Supervisory Authorities (ESAs) operate, and to reform them if necessary. In March 2017, the European Commission presented a reform proposal for consultation, which led to a draft amendment to the ESA regulations in September. This draft amendment envisages far-reaching centralisation of, and thus a fundamental change to, the EU's existing supervisory architecture.

New powers for the ESAs

In order to promote supervisory convergence within the EU, the Commission has proposed that additional tasks and powers should be transferred to the ESAs. According to the proposal, they are to set EU-wide strategic supervisory plans in future against which the competent authorities will be assessed. In addition, the Commission is planning to involve the ESAs if undertakings domiciled in the EU plan significant outsourcing to third countries. The ESAs are to be allowed to issue opinions on the authorisation proceedings. The powers of the ESAs are also planned to be expanded for when they assist the European Commission in preparing its third-country equivalence decisions.

For insurance supervision, the Commission is proposing that EIOPA should be involved in a meaningful and timely manner in the approval process as well as in the ongoing supervision of internal models. There are plans to give EIOPA a dual role in this context, i.e. it will firstly be able to issue opinions and secondly provide support in settling disagreements between the supervisory authorities affected.

The most extensive changes proposed relate to ESMA. The plan is firstly to introduce direct supervisory powers over central counterparties (CCPs). To this end, the Commission published a draft amendment¹ to the European Market Infrastructure Regulation (EMIR) in June. Secondly, ESMA is to be given primary responsibility for the approval, supervision (including market and advertisement supervision) and sanctioning of certain types of prospectus. In addition, ESMA will in future be responsible for approving and supervising data reporting service providers as well as for approving, registering and supervising certain funds and their investment managers.

In terms of internal governance of the ESAs, the Commission's proposal advocates a partial departure from the principle of member-led organisations. The Boards of Supervisors (BoSs), which consist of heads of the national competent authorities, are to remain the principal decision-making bodies of the ESAs, especially for regulation. But an Executive Board is to be introduced in addition, which will replace the existing Management Boards, which, like the Boards of Supervisors, currently consist of heads of the competent authorities. According to the Commission's proposal, the members of the Executive Board will include the ESA Chairperson as well as three ESA representatives each at the EBA and EIOPA and another five at ESMA. Their function will be to prepare all BoS decisions by issuing an opinion. Furthermore, there are plans to transfer key competencies (e.g. for stress tests and the new tasks and powers mentioned earlier) to the Executive Board.

As for financing the ESAs, the European Commission proposes that the contributions of the national competent authorities should be replaced by contributions from private sector entities. The EU's contributions are to be made variable in future, covering up to 40 percent of the ESAs' budget. The European Council is currently debating the European Commission's proposals.

BaFin critical of the plans

BaFin had been critical of the changes planned by the European Commission already during the consultation phase. The European System of Financial Supervision (see info box "European System of Financial Supervision") was created in 2010 specifically as a network of national and European supervisory authorities and has proven itself in this role.
Of course, BaFin strongly supports of a more active role for the ESAs when it comes to creating supervisory convergence and a shared supervisory culture in the EU. But it is against creating a "supervisor of the supervisor" or granting the ESAs information powers that belong to the national competent authorities. BaFin also rejects plans to allow the ESAs to intervene in national authorisation proceedings. Moreover, in view of the subsidiarity principle, BaFin has argued from the outset that moderation should be used when transferring new responsibilities to ESMA so that the legal limits are not transgressed. President Felix Hufeld also explained BaFin's position at a hearing before the European Parliament on the review of the European System of Financial Supervision held on 27 February 2018.²