European Securities and Markets Authority (ESMA)

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In 2009, the European Union called for the financial markets to promote supervisory and direct supervision of credit rating agencies in the bloc. They called this the de Larosiere report, which essentially calls for a European System of Financial Supervision (ESFS).

Two years later, the European Securities and Markets Authority (ESMA) began operating as a decentralized network that replaced the Committee of European Securities Regulators (CESR).

ESMA works closely with other European Supervisory Authorities in banking, insurance, and occupational pension sectors. Additionally, with the help of other European Supervisory Authorities (ESAs) and National Competent Authorities (NCAs), the firm promotes transparency and investor protection. By closely investigating market movements and developments, ESMA makes information available to investors with public registries and databases where needed.

Its rulebook helps level the playing field for investors and issuers across the bloc. Furthermore, it provides advice and technical standards for EU institutions on legislative projects across 28 member states.

It also implements rules in implementing and applying rules to ensure the safety of the financial systems.

ESMA Supervision

ESMA is the direct supervisor of Credit Rating Agencies (CRAs) and Trade Repositories (TRs), which are large parts in the bloc’s market infrastructure. So, its roles include:

  • Assessing risks to investors, markets, and financial stability
  • Completing a single rulebook for all financial markets in the EU.
  • Promoting supervisory convergence
  • Directly supervising financial institutions

In fact, these sectors benefit from and feed into risk assessments and rule book activities.

ESMA Products

ESMA periodically distributes financial activities and retail investor trends in the European market. Thus, these include those in the fintech and crypto-asset sector.

Reports revolve around:

  • Crypto assets, initial coin offerings, and blockchain technology.
  • ESMA publishes multiple papers on how traders can trade with crypto assets in the eurozone.
  • Crowdfunding.
  • ESMA uses crowdfunding to raise money for projects with markets that don’t typically involve professional traders.
  • Regulatory technologies (RegTech) and supervisory technologies (SupTech).
  • ESMA also publishes analyses in regulating RegTech and SupTech in response to various demand and supply drivers in the financial markets.
  • Artificial Intelligence (AI) and the Big Data phenomenon.
  • As more market participants and financial institutions get involved with AI and machine learning, ESMA periodically publishes reports on Big Data.
  • Retail investors and products.
  • The monitoring and assessing retail markets with a range of demand-based indicators like measures of income, sentiment, and asset relocation.
  • Cloud computing.
  • The guidelines for outsourcing to cloud service providers to address the financial market participants interested in digital remittance.
  • Cybersecurity.
  • Additionally, brings out confidence and represents a threat to the stability of the financial system.
  • European Forum for Innovation Facilitators (EFIF).
  • A platform for supervisors to meet regularly to share experiences with firms through promote greater coordination and cooperation between innovation facilitators to support Finance Technologies (FinTech) across the market.

Committees

Overall, ESMA’s work is supported by Standing Committees (SC), working groups, and task forces to work in all areas of the regulator’s activities. The ultimate decision falls on the organization’s Board of Supervisors. While the Management Board deals with how the Authority deals with their decisions.

Responsibilities

  1. For instance, ESMA provides investors with significant information on companies they invest in. In cooperation with its Corporate Finance Standing Committee and the Corporate Reporting Standing Committee.

To carry out this policy, the CFSC and the CRSC cover these fields:

2.      International Accounting Standards (IAS) regulation

So, the IAS synchronizes the information needed to ensure a transparency and comparability between different institutions based on their financial statements. Therefore, this will help the European capital market and internal market to work efficiently.

3.      Prospectus

This field reviews the requirements for drafting, approval and distribution of prospectus to investors when their securities are offered to the general public. This is if a certain company has proved that it is regulated in an EU member state with the ability to provide comprehensive information.

4.      Transparency

To ensure transparency from the companies who gained approval from the sectors above, markets under ESMA’s care are required to disclose periodic and on-going regulated information, as well as the dissemination of information to the public. ESMA cites financial reports and information on major holdings of voting rights.

5.      Corporate Governance for Listed Companies

Moreover, the ESMA keeps a close eye on each firm’s corporate governance and makes sure to carry out information in accordance to the regulator’s responsibilities.

6.      Audit Regulation

The European Union introduced stricter requirements on the statutory audits in companies with public interests. Moreover, this was to reduce the risk of familiarity between the regulator ant their clients to minimize skepticism towards their credibility and professionalism.

7.      Takeover Bids Directive

Meanwhile, with an aim to ensure equal treatment to all entities involved with the watchdog, SMA launches takeover bids that are subject to a change in control for each company. It also gives investors the protection they need for equal opportunities to take over or to have their stakes traded on a regulated market in the EU.

Conclusion

To sum up, with every question towards the firm comes a confirmation for the next. In most markets, investors worry of abuse in each regulatory body. But as we read further on, ESMA has proven that it does its best to maintain transparency and fairness both externally and internally.

In fact, its management team and the implementation of audit regulation in 2016 is one of its remarkable achievements, notably to ensure its own responsibilities won’t be abused.

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