Supervision

Esma faces uphill battle to emerge as European SEC

Verena Ross, ESMA Chairperson. Photo: ESMA.

Significant challenges remain before Europe’s financial supervision can match the powerful US Securities and Exchange Commission, SEC. Verena Ross, chair of the European Securities and Markets Authority, Esma, spoke to Investment Officer and emphasised the need for strong supervisory convergence to ensure high-quality oversight across the EU.

“We will never succeed if we don’t bring it together in a genuinely European context,” she said in an interview.

Speaking in Luxembourg, Ross underlined Esma’s priorities for the next five years, focusing on retail investor protection, the stability and attractiveness of European capital markets, and enhancing the quality of supervision as the fragmented nature of European financial markets still presents significant challenges.

“We need to continue as Esma to, in that context, make sure that we have strong and effective supervisory convergence, to ensure that we have common supervisory outcomes, and high quality supervision and enforcement of the European regulatory framework and ruleset,” Ross said. 

The collaborative approach with national European supervisors she advocated—a ‘hub-and-spoke’ model—is essential to avoid regulatory arbitrage and ensure efficient supervision, she said. Yet, achieving this convergence across diverse national frameworks is easier said than done.

Need for political will

When asked if a financial crisis is necessary to move towards a single supervisor for firms that operate in multiple European financial markets - like happened in the banking sector following the Great Financial Crisis - Ross expressed hope that political will can drive progress in a stable environment. 

“I personally hope that we can get to a more efficient and a good supervisory structure in the European Union, in the absence of a financial crisis,” she said. At the same time, Ross underscored the importance of monitoring and mitigating risks to prevent crises. 

Ross refrained from speculating on specific structures for a single supervisor for Europe’s markets but highlighted Esma’s track record as a direct supervisor for certain entities. 

“We’ve shown that we can be an effective, risk-based, outcome-focused and data-driven supervisor,” Ross asserted. Despite this, the path to a unified supervisory framework remains complex, with some national supervisors retaining significant influence and expertise while others, especially in smaller countries, often lack resources.

Fragmentation

Against that fragmented backdrop, the rationale of growing Esma into a single European supervisor is worth exploring further, especially for major market players active in multiple EU member states, according to Ross. At present, heavyweight firms like BlackRock, Amundi and Vanguard remain subject to national supervision in multiple EU countries. This means they have to deal with different supervisors in multiple countries.

“We should investigate other areas where we actually need to reconsider what’s the most efficient and effective way to supervise, particularly for pan-European market players, market infrastructure players, some of the newer type of market players that are coming into the European Union, where we need to make sure we have no regulatory arbitrage risk.”

A European SEC by 2030?

When asked if Esma could evolve into a European version of the powerful US SEC by 2030, Ross was cautious. “We need something that works for Europe,” she said, recognising the need for a regulatory framework that balanced strong national supervision with a system that supported European scale. The goal is to create a structure that accommodates Europe’s unique financial landscape, a task fraught with political and logistical hurdles, she said.

Greenwashing

Disparities in national supervisory capabilities remain a significant barrier to achieving uniform regulatory enforcement. Esma’s recent report on greenwashing highlighted significant discrepancies among national supervisors in terms of capacity and enforcement. Ross acknowledged these challenges, noting that Esma was working to build capacity and focus on sustainability. “It is something where we are all on a learning curve,” she admitted, stressing in particular the importance of IT resources and data in this space.

Ross pointed out that while enforcement actions often occurred at the national level, Esma’s role was to drive common approaches and outcomes across the EU. “It is more about trying to drive more common approaches up front that will then allow us to take the common supervisory actions and achieve common outcomes across the European Union,” she explained. 

Strategic advancements

Esma’s journey to becoming a robust European counterpart to the US SEC is fraught with challenges but also opportunities. The next time Ross gives testimony at the European parliament she faces a political landscape that has shifted to the right, and where the political will required for major changes could be eroding. 

Her vision underscores the need for a collaborative, efficient, and high-quality supervisory framework amidst Europe’s fragmented financial markets. Achieving this goal requires not only political will but also strategic advancements in supervisory convergence and risk mitigation. As Ross’s term approaches renewal in 2026, her continued leadership could be pivotal in steering Esma towards a more unified and effective supervisory structure by 2030, ensuring stability and growth for European capital markets.

Further reading on Investment Officer Luxembourg:

  • Transcript of the interview with Esma Chair Verena Ross: ‘We will never succeed if we don’t bring it together in a genuinely European context’