kom (2017) 0536 - Endeligt svar på spørgsmål 1: Spm. om oversendelse af de høringssvar, der er kommet ind i forbindelse med Erhvervsministeriets høring over Europa-Kommissionens forslag til revision af forordningerne vedr. de europæiske tilsynsmyndigheder, til erhvervsministeren, kopi til udenrigsministeren

Europaudvalget 2017-18
KOM (2017) 0536
Offentligt

Finanstilsynet

Århusgade 110

2100 København Ø

Att. Vicki Erfurt Larsen

[email protected]

Review of the role of the European Su-

pervisory Authorities

Høringssvar

Finance Denmark appreciates the opportunity to contribute to the Danish Gov-

ernment’s reply to the

Commission proposal on the review of the European Su-

pervisory Authorities.

11. oktober 2017

Dok. nr. 574173-v1

Generel comments

The ESAs play an important role in the European supervisory and regulatory land-

scape. Following the coming into place of an unprecedented reform program in

recent years, the establishment of the Banking Union and UK’s decision to leave

the EU, it is timely to reflect upon earlier experiences and what framework will be

needed going forward

–

in a changing political and market environment.

The ESAs in general, and the EBA in particular, have the immensely important

and challenging tasks to ensure the functioning and development of the EU’s

internal market for financial services and capital

–

for all EU countries.

The current regime provides a good basis for a well-functioning internal market

for capital and financial services.

While it is true that the ESAs will face new challenges in the years to come

–

both

in terms of substance and in terms of the institutional framework

–

we think it is

important to recognize that the ESAs have largely fulfilled their duties in a satis-

factory way since the coming into place in 2011. Consequently, the current regu-

latory framework governing the ESAs is a good basis for a continued develop-

ment of the ESAs’

activities. That in turn speaks for a dig-where-we-stand kind of

approach and that no radical changes should be introduced at this point of

time. Initiatives to adjust the current setup and enhance the efficiency and co-

ordination in the ESAs are however welcome.

Finans Danmark

Amaliegade 7

1256 København K

www.finansdanmark.dk

kom (2017) 0536 - Endeligt svar på spørgsmål 1: Spm. om oversendelse af de høringssvar, der er kommet ind i forbindelse med Erhvervsministeriets høring over Europa-Kommissionens forslag til revision af forordningerne vedr. de europæiske tilsynsmyndigheder, til erhvervsministeren, kopi til udenrigsministeren

We support the strengthening of the ESAs’ role and power in the rule making

processes. This will support the convergence within the EU and development of

the single rulebook. However, we oppose a strong centralization of regulatory

powers to the ESAs. There are important merits in applying the subsidiarity princi-

ples

–

also in this area. It is also of paramount importance to recognize differ-

ences when regarding business models, products, markets governance etc. in

the financial sector. Principles of proportionality shall be recognized carefully at

all levels.

It is often at Level 3 administrative burdens are materialized.

The development of the single rulebook should not be achieved at the expense

of well-functioning financial systems at member state level. It is therefore of par-

amount importance to maintain an appropriate balance between supporting

the single rulebook and ensuring that specificities of the financial systems in indi-

vidual member states are recognized.

Our comments can be summarized as follows:



We welcome the initiative to strengthen the governance inside the ESAs,

including adding external and independent expertise. Recruitment of



members to the Executive Board must not become politicized.

Non-euro-zone

member states’

interests must continue to be taken into

account. Clear safeguards for non-euro-zone countries in the decision-

making system of the ESAs, most importantly the EBA should continue to



exist.

One seat in the Executive Board should be dedicated to a member from

a non-euro country.

The far-reaching competences of the new Executive Board speak for in-

troducing more checks and balances.

The current funding system should be maintained.

The total amount of resources spent on supervision in the EU should not

increase.

Any proposals for giving ESMA more direct supervisory powers should be

preceded by careful consultations and impact assessments that show a



clear benefit of such changes

–

a subsidiarity test.

To pass the authority to approve prospectuses from the NCAs to ESMA

does not add any value to the functioning of the EU DCM market. We



are against handing over supervisory powers to ESMA.

We are generally positive to initiatives strengthening the level playing

field across Europe and work towards a more harmonized legal ecosys-

tem in the area of collective investment funds

–

but we are concerned

that it will raise barrier to entry if the application process is to be handled

with ESMA instead of local NCAs.

Finans Danmark

Amaliegade 7

1256 København K

www.finansdanmark.dk



We welcome the general goal of improving stakeholder involvement

and increase transparency, and we therefore welcome the Commis-

sion’s proposals regarding enhancement of the level 3 procedures on



guidelines and recommendations by e.g. requiring cost-benefit analysis.

Improvements are also needed at level 2 to improve transparency and

stakeholder involvement in both level 2 and 3 processes.

In order to improve the stakeholder involvement and more generally to

ensure satisfactory implementation processes, realistic implementation



deadlines are key.

The ESAs mandates, work plans etc. need to adapt to new develop-

ments and consequently, we welcome that new responsibilities in the



areas of fintechs and sustainable finance are suggested.

We believe and hope that the EBA could play a stronger role in ensuring

that the EU punches its true weight in global foras such as the FSB and

BCBS.

Governance inside the ESAs

–

non-euro-zone member

states’ interests must continue to be taken into account

We welcome the initiative to strengthen the governance inside the ESAs, includ-

ing adding external and independent expertise. A more formal involvement of

external and independent experts ought to strengthen the quality of the work as

well as the legitimacy towards the external environment.

However, from a non-euro-zone country perspective, we have some important

observations from the proposal that should be taken into account during the

coming negotiations:

Euro-zone and non-euro-zone

countries’ interests must be balanced

EU’s internal market consists of both

euro-zone and non-euro-zone countries, and

all interests must be considered in order to ensure the best outcome and not risk

the legitimacy of the system. Consequently, there must continue to be clear

safeguards for non-euro-zone countries in the decision-making system of the

ESAs, most importantly the EBA. Appropriately designed, such safeguards should

not risk the efficiency of the decision making process, merely ensure that non-

euro-zone countries are not overrun and that unintended consequences are

avoided.

Finans Danmark

Amaliegade 7

1256 København K

www.finansdanmark.dk

It is welcome that the non-euro-zone

country safeguard in the EBA’s Board of Su-

pervisors is maintained

In the current EBA regulation, Article 44, there is a non-euro-zone country safe-

guard for decisions according to specific mentioned articles (the “double majori-

ty”). Besides

qualified majority in the Board of Supervisors, also separate simple

majority amongst respectively participating Member States (euro-zone countries)

and non-participating Member States (non-euro-zone countries) is required. The

current voting rules in EBA should be maintained. We acknowledge that they in

principle have been maintained in the proposal.

However, some of the below described proposed amendments seem to alter the

double majority safeguard, even though it is in principle maintained. This is by

narrowing down the safeguard by deleting the reference to Articles 17 and 19

(since the decision making power on those articles is suggested to be moved to

the Executive Board), and by not having specific requirements to the composi-

tion of the Executive Board. New safeguards should be introduced to maintain

the balance.

One seat in the Executive Board should be dedicated to a member from a non-

euro country

In the current EBA regulation, Article 45, there is a non-euro-zone country provi-

sion requiring at least two representatives of the Management Board to come

from non-participating Member States (non-euro-zone countries). This safeguard

has not been maintained in the amended article 45(2) when appointing mem-

bers to the new Executive Board. The sentence

“the Executive Board shall be

balanced and proportionate and shall reflect the Union as a whole”

is no guar-

antee for a diversified board when it comes to having in-depth knowledge and

understanding of local markets, actors etc. outside the euro-zone.

Consequently, we propose that one seat in the Executive Board is always dedi-

cated to a member from a non-euro-zone country.

Recruitment of members to the Executive Board must not become politicized

The proposed new Executive Board shall replace the current Management

Board and Chairperson. When hiring the members to the Executive Board, the

Commission shall make up a shortlist of applicants, and based on the shortlist, the

Council shall appoint the members (article 45 in the ESA-regulations).

We see some challenges in the proposed setup. It is essential that the members

of the Executive Board have a solid knowledge of capital markets, financial

regulation etc. We believe that the Board of Supervisors is best suited to make up

a short-list of candidates that fulfils all the necessary criteria.

Finans Danmark

Amaliegade 7

1256 København K

www.finansdanmark.dk

We also find that having the Council hire members to an Executive Board does

not live up to usual governance standards and will introduce a more complex

and less efficient governance structure. In a usual governance setup, members

of an Executive Board are hired by the Board (of Supervisors), they refer to the

Board (of Supervisors), and they can be fired by the Board (of Supervisors). To

whom will the members of the Executive Board refer and be accountable to in

the proposed setup where they are hired by the Council? Some clarifications

and possibly accountability provisions would be welcome.

The far-reaching competences of the new Executive Board speak for introducing

more checks and balances (new article 47 in the ESA-regulations)

With the proposed article 47, some decision powers are moved from the Board of

Supervisors to the new Executive Board. The Executive Board will have power to

take decisions “for

the purposes of Articles 17, 19, 22, 29a, 30, 31a, 32 and 35b to

35h”.

It is very important to consider the effects of this balance between the Board of

Supervisors and the Executive Board. We do not see a clear line in why the said

articles have been chosen. It is worth noticing that especially articles 17 and 19

can have far-reaching consequences for institutions since decisions according to

those have to be made public (according to article 39(6)).

If decision powers are moved to the Executive Board, it is in our opinion essential

to ensure a better balance of the composition of the Executive Board in relation

to non-euro country representation and to ensure a more transparent govern-

ance setup regarding who refers to whom etc., as well as a more optimal hiring

setup, cf. comments above.

The current funding system should be maintained

We are skeptical to introduce grand changes to the current funding system.

To ensure effective, transparent and equal supervision in all Member States, the

EU budget should remain the main source of ESA funding. This gives the European

Parliament legitimacy to supervise the ESAs, thus rendering them democratically

accountable. The financial industry is already contributing through National Su-

pervisory Authorities, and this system should be maintained as it stands. We do

not see that there is any need to increase the total costs relating to supervision as

such at the EU level.

The ESAs were formed mainly to assist the European Commission in strengthening

the financial sector by developing draft technical standards and issuing guide-

Finans Danmark

Amaliegade 7

1256 København K

www.finansdanmark.dk

lines and recommendations. In working on regulatory technical standards or im-

plementing technical standards the ESAs are, in fact, performing tasks that

should normally be performed by the European Commission pursuant to Articles

290 and 291 of the TFEU. This supports the argument that a significant part of the

costs of the ESAs should be covered by the EU budget.

More clarity at level 1 is needed to avoid unpredictability

If the co-legislators nevertheless choose to move forward along the lines of the

Commission proposal (according to which maximum 40 percent of the ESAs’

budget should come from the EU budget and the remaining part via direct con-

tributions from the sector) there must, as an absolute minimum, be more clarity in

the level 1 text as to how much each financial institution should contribute. We

consider it excessively unpredictable for the institutions to decide the methodol-

ogy for collecting each institution’s contribution via a level 2 Commission dele-

gated act.

Clear checks and balances must be introduced

Further, it creates unpredictability that the ESAs themselves (the Executive

Boards) decide on their own budget, including the size of the budget, together

with the fact that the EU budget funding is formulated as maximum 40 pct. (“shall

not exceed 40 pct.”) which gives no guarantees on the actual size of EU funding.

Institutions could end up paying very large contributions.

The total amount of resources spent on supervision in the EU should not increase

In order to be able to deliver on an ambitious agenda, the resources of the ESAs

could be increased appropriately. However, the total supervisory costs for each

institution should not increase

–

so if it is deemed necessary to increase the

budget of the ESAs,

national FSAs’ budgets should decrease by the same size.

We would also expect the ESAs to optimize their efficiency in a way to minimize

the need for additional funding. Therefore, it is important to have some checks

and balances on the budgets set by the ESAs to ensure that increases in ESA

budgets correspond supervisory powers taken over from national FSAs

–

so that

national FSAs do not end up as losers in the game.

ESMA powers on direct supervision

Any proposals for giving ESMA more direct supervisory powers should be preced-

ed by careful consultations and impact assessments that show a clear benefit of

such changes

–

a subsidiarity test. According to our view, the rationale for cen-

tralizing powers must be that a central body

–

in this case the ESMA

–

can solve

Finans Danmark

Amaliegade 7

1256 København K

www.finansdanmark.dk

what the national FSAs cannot, or can solve it more effectively or in a more co-

ordinated and consistent manner than national FSAs.

In that regard, it is warranted to underline the importance of having knowledge

and an in-depth understanding of local market conditions, actors etc. when ex-

ercising supervisory powers. Supervision that requires understanding of local mar-

kets ought to stay local. The development of the internal market for financial ser-

vices shall however, also support the increased cross-border trade and infrastruc-

ture, and in such areas centralization by giving ESMA direct supervision could be

necessary following appropriate impact assessments etc.

The Commission proposes several new areas for direct supervision by ESMA. If the

ESMA powers are to be extended, please see below our specific comments on

each area:

Prospectuses:

We are against handing over supervisory powers to ESMA and have the following

concerns:

To pass the authority to approve such prospectuses from the NCAs to ESMA does

not add any value to the functioning of the EU DCM market, as the current sys-

tem works efficiently and without problems, thus the suggested change will not

add value to either issuers nor investors. Further, it should be noted that this notion

was rejected following strong advocacy efforts during the PD III legislative pro-

cess, which itself was only concluded in June this year.

Currently, issuers are able to choose their competent authority/home member

state across the EU. If the proposal is implemented, this flexibility will no longer be

available, as ESMA will be the only authority, which will effectively create a mo-

nopoly. We think it is efficient for an issuer to choose (if the issuer so desires) to

have the regulator in the same country as the stock exchange where the issuer

most frequently lists his bonds/notes. We find this minimizes the number of com-

ments on the submitted documents and provides for a more efficient and

streamlined process and we are of the opinion that this aspect is part of the issu-

ers’ decision-making

process when deciding on home member state. It is our

experience that the two entities coordinate their timing so that issuers have cer-

tainty as to when they will receive comments and thus an issuer can better plan

and estimate time to market. This is very important to issuers and provides huge

efficiency benefits to issuers. An issuer would lose this with a regulator in one juris-

diction and a stock exchange in another.

Finans Danmark

Amaliegade 7

1256 København K

www.finansdanmark.dk

We are concerned that knowledge of local market conditions etc. built up in the

experienced and competent teams in each of the NCAs throughout many years

will be lost. Knowledge that today secures flexibility and the ability to respond

quickly to market needs. It is not sure how ESMA will fill this loss of knowledge and

ensure market effectiveness for the future.

We are against the proposal, as it will give both legislative and supervisory pow-

ers to one entity (ESMA), powers that are normally separated according to fun-

damental principles of constitutional law.

It should also be noted that property and shipping companies are using the issu-

ance of bonds to a larger extent. It is therefore possible that it may have a nega-

tive impact on this segment of issuers in respect of timing, local knowledge of

markets etc., cf. as stated above.

The proposal might add to the tendency of foreign issuers bypassing the EU listing

process. Many exchanges believe that US issuers are choosing to bypass the Eu-

ropean listing process, something that has become even more pronounced in

the last 12 months since the introduction of the MAR regulation. Moreover, Latin

American issuers are also now choosing Singapore over Europe. And more Euro-

pean issuers may do the same as the current Commission proposal will be seen

as a step towards an inflexible, formal regime which will increase time to market.

Harmonized collective investment funds (EuVECA, EuSEF and ELTIF)

We are generally positive to initiatives strengthening the level playing field across

Europe and work towards a more harmonized legal ecosystem in the area.

According to proposal managers of ELTIFs, EuVECAs and EuSEFs would be re-

quired to apply for authorization to ESMA, rather than the NCAs. ESMA would also

be responsible for ensuring that the rules laid down in those Regulations are con-

sistently applied throughout the EU.

We are concerned that this will raise barrier to entry as application process is to

be handled with ESMA in Paris instead of local NCAs. There are very few such

fund structures in the whole of EU so far and it is unlikely that it would help to

launch new such products, if the authorization

is moved to EU level. ESMA’s role

as an authorizing entity in financial markets makes sense when there are a small

number of large entities operating in the whole of EU or large part of it, such as

credit rating agencies. However, managers of ELTIFs, EuVECAs and EuSEFs should

also be able to be smaller firms and not EU-wide operators only.

Finans Danmark

Amaliegade 7

1256 København K

www.finansdanmark.dk

Coordination powers of ESMA on delegation/outsourcing/risk transfers

Article 31a requires ESMA to coordinate supervisory actions of NCAs with a view

to promoting supervisory convergence in the fields of delegation and outsourc-

ing of activities and risk transfers. The NCAs would need to notify ESMA when they

intend to authorize a plan by a financial market participant involving outsourcing

or delegation or a risk transfer of a material part of its activities into third countries

“to benefit from the EU passport while

essentially performing substantial activities

or functions outside the Union”. ESMA may issue an opinion to NCAs regarding

non-compliance of an authorization or registration.

This would give ESMA legal powers to enforce its July opinions on delegation re-

garding Brexit. However, more broadly speaking, these changes will affect all

countries that utilize delegation to manage funds that are offered in the EU.

While it is difficult to get accurate numbers, industry sources estimate that in ex-

cess of EUR 1.5 trillion of US and Asia Pacific equities and fixed income securities

are offered via UCITS, not including assets managed in AIFs. These assets are

largely managed by local portfolio managers to whom European asset manag-

ers have delegated the portfolio management, to get the best local investment

expertise to the benefit of the investors of the UCITS/AIFs.

UCITS and AIFMD allow management companies to delegate functions such as

custody and portfolio management subject to strict control, oversight and ac-

countability. Being able to access best of breed portfolio managers and service

providers is a cornerstone of the global success of the European UCITS regime. In

our experience delegation works, it is properly supervised by the NCAs and there

is no market failure that needs addressing.

Should the proposal go ahead, European investors need to be confident that

ESMA has the expertise, market experience and knowledge of local markets to

ensure their interests are being served at least as well as they are under existing

practices. Similarly, the Member States, European Parliament, industry and tax-

payers will need to be assured that this undertaking is an appropriate use of ES-

MA’s resources and that the needs of the Capital Markets Union are best served

by ESMA focusing so much of its resource on this major administrative task.

There is a concern that ESMA’s role in approving third country delegation leads

to a more costly and slower process weakening the time to market of European

fund products, which could damage the competitiveness of European asset

managers. There is also a concern whether this change could lead to less access

to third country portfolio managers/service providers. This could damage the

Finans Danmark

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UCITS regime the global success that is indeed largely based on the ability to

delegate portfolio management globally.

Central Counterparties (CCPs)

To some extend we find it reasonable to extend ESMA supervisory powers of

CCPs. However, regarding third country CCPs, London Clearing House is com-

monly used by Danish Banks, and with Brexit it will become a third country CCP. It

is important not to risk such well-functioning CCPs by introducing new third coun-

try supervision.

Data reporting services (ARM, APA, CTP)

We see some merit in the proposal to centralize the authorization and supervision

of data reporting service providers, cf. MiFID II, however, as regards ESMA access

to MiFID II data, it must be ensured that no double reporting exists if firms are re-

quired to report data directly to ESMA.

Benchmarks

Regarding critical benchmarks, we find that the assessment of whether a given

benchmark is “critical” requires

local market understanding and should be as-

sessed by the local FSAs. For international benchmarks and for third country

benchmarks, centralization with ESMA supervision could make sense in order to

enhance convergence and level playing field.

Level 2 and 3 processes

–

improve the involvement of stake-

holders, increase transparency and ensure realistic imple-

mentation deadlines

We welcome the general goal of improving stakeholder involvement and in-

crease transparency, and we therefore welcome the Commission’s proposals

regarding enhancement of the level 3 procedures on guidelines and recom-

mendations by e.g. requiring cost-benefit analysis. However, improvements are

also needed at level 2 to improve transparency and stakeholder involvement in

both level 2 and 3 processes

–

see our suggestions below. All parties would gain

from an improved system for stakeholder engagement.

Improve stakeholder involvement

This could for example entail more formal and informal opportunities for contribu-

tions from market participants in the level 2 and 3 processes and a strengthened

role of the stakeholder groups. External consultations should be initiated earlier in

the process than currently, with realistic response deadlines. The stakeholder

groups should get involved earlier in the process and members should be al-

Finans Danmark

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lowed to discuss upcoming issues with relevant stakeholders. Moreover, national

FSAs should be allowed to consult national stakeholders on relevant topics.

Realistic implementation deadlines

In order to improve the stakeholder involvement and more generally to ensure

satisfactory implementation processes, realistic implementation deadlines are

key. The EU’s legislative chambers must at all times ensure that there is sufficient

time to prepare the level 2 and 3 texts, as well as sufficient time between the fi-

nalization of level 2 and 3 texts and their entry into force is needed for implemen-

tation. It should be considered whether dynamic implementation dates can be

used that would be subject to the timing of finalizing level 2 and 3 measures and

their implementation. Too short implementation deadlines lead to unsatisfactory

implementation processes and entail heavy and expensive administrative bur-

dens.

New responsibilities

–

fintechs and sustainable finance

The ESAs mandates, work plans etc. need to adapt to new developments and

consequently, we welcome that new responsibilities in the areas of fintechs and

sustainable finance are suggested. However, we will have to study this in more

detail before making detailed suggestions for what should be the focus of these

tasks.

The EBA could play a stronger role in international negotia-

tions

It has been clear in recent years that the EU member states are sometimes rather

uncoordinated in international fora, in particular the Basel Committee for Bank-

ing Supervision. We believe and hope that the EBA could play a stronger role

here

–

ensuring that the EU punches its true weight in global fora such as the FSB

and BCBS.

In line with the above, EBA also has a key role to play when it comes to re-

creating trust in the IRB approach. The main aspect of this would be to improve

the comparability of IRB models across institutions and member states and we

would strongly encourage the EBA to continue this work with unchanged frenzy.

Med venlig hilsen

Birgitte Bundgaard Madsen

Direkte: +45 3370 1067

Mail: [email protected]

Finans Danmark

Amaliegade 7

1256 København K