Is now the right time to make any significant changes?
The key question, in response to the consultation on the operation of the European Supervisory Authorities, is whether now is the right time to make any significant changes, or whether it would be better to wait to see how the future of Europe develops and how the needs of supervision change as the broader supervisory context crystallises.
There are undoubtedly areas where the ESAs could do more. With the volume of new financial regulations slowing from post-crisis levels, and work on technical rule-making nearing completion, the ESAs should have more capacity to focus on their wider remit, including the quality and consistency of regulatory implementation and supervision. However, it should be noted that new legislative initiatives are in train and many post-crisis rules come up for review over the next three years.
The consultation asks questions on whether the ESAs should be merged into a single supervisor, but it seems too early to make such a change. The separate ESAs need to oversee supervision of different business models, risk profiles, product features, capital requirement and solvency models, with the different sectors posing very different risks to financial stability. Without significant investment and costly changes to the existing approach, it is hard to see how merging the ESAs would enhance the supervision in each segment.
Brexit will undoubtedly impact the landscape of Europe’s capital markets and financial services, and therefore what the needs of supervision will be. Opportunity areas, including Capital Markets Union (CMU) and FinTech, will also change the needs of supervision.
Despite this consultation being only the start of what could be a lengthy legislative change, without further evidence and experience of what the needs are, it is too soon to make substantive changes. Nevertheless, industry needs to be actively engaged in how the debate develops as changes will impact how business models evolve.