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Proposals to Strengthen ESMAs Oversight Over Delegation

Why you should review your delegation arrangements now


At the end of September 2017, the European Commission published its 283-page Review of the European Supervisory Authorities1 (ESAs). It is concerned with a desire to ensure that the regulation of financial markets keeps up with their continuing integration, and also recognises Brexit as being a trigger for the need to strengthen and centralise supervisory arrangements in the EU27.

The Review document included a proposal from the Commission to amend the Regulations establishing each of the three ESAs to equip them with additional powers to achieve its objective of converging not only regulatory, but also supervisory practices in the EU, through the promotion of an EU supervisory culture.

The Commission is clear about its intentions: “ESAs should particularly focus on situations that may lead to a circumvention of the rules and monitor financial institutions or financial market participants that intend to make an extensive use of outsourcing, delegation and risk transfer in third countries with the intention of benefitting from the EU passport while essentially performing substantial activities or functions outside the Union.”

The Commission’s concern is that, without additionally converging NCAs’ supervisory practices as well as their regulatory ones, the door would remain open for abuses of Union rules.

The fund management industry is concerned about this new mandate for the relevant ESA (ESMA in this case) to monitor firms that intend to make use of delegation or outsourcing to third countries and to review such delegation arrangements. In the current draft, ESMA would have a new power to review delegation arrangements that were previously under the sole supervisory control of each national competent authority.

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