The accountability of the European Supervision Authorities towards stakeholders after the financial crisis

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1 The accountability of the European Supervision Authorities towards stakeholders after the financial crisis Pablo Iglesias-Rodríguez 22 November EUDO Conference, EUI

2 Outline Accountability of the European Supervision Authorities in the financial field (ESAs) towards stakeholders Focus: Participation of stakeholders in ESAs rulemaking Judicial review of ESAs decisions and tort liability of ESAs for supervisory negligence Questions: Contribution of legal design to accountability and legitimacy Do post-financial crisis reforms address shortcomings of the pre-crisis setting?

3 The European Supervision Authorities 1. New EU supervision authorities in financial field 2.Takeover role of Lamfalussy Committees 3. Composed of EU Member States financial supervisors 4. Regulatory powers: draft technical standards, guidelines 5. Mediation between supervisors 6. Binding powers Greater powers and scope What is the position of stakeholders in new architecture?

4 Participation stakeholders in financial regulation Input-legitimacy: all societal actors affected by financial rules Output-legitimacy: opinions and expertise may enhance quality of rules Legitimacy: representativeness and acceptance of rules Accountability: of rule-makers towards stakeholders

5 Judicial accountability Judicial review of decisions Legitimacy Liability for negligence Deterrence from poor supervisory performance Before the crisis: limited judicial accountability

6 Participatory accountability

7 Stakeholders Participation in EU Financial Regulation before 2011 EESC Commission Lamfalussy Committees Lobby Groups Consultation Procedures Consultation Procedures Market Participants Panels Direct Regulation -Formal, mandatory consultation -Non-financial sector specific -Informal, non mandatory consultation -Financial sector specific

8 STAKEHOLDERS Asymmetric participation INDUSTRY CAPTURE LEGITIMACY Legal and regulatory barriers Other factors: expertise, apathy FINANCIAL STABILITY Commission s consultations do generally show a clear pre-eminence of financial industry representatives and very low percentages of participation by non-industry civil society stakeholders, as shown in table 1 below. Table 1 Examples of participation in Commission s consultation procedures by stakeholder group Respondent group Bank capital counterparty credit risk 46 Regulatory procedure Holdings financial sector 47 Tying retail financial services 48 Public authorities 5/34 (15%) 3/9 (33%) 9/55 (16%) Financial industry stakeholders 26/34 (76%) 5/9 (56%) 33/55 (60%) Non-financial industry stakeholders 3/34 (9%) 1/9 (11%) 13/55 (24%) Besides general consultations, the European Commission has devised specific input-provision mechanisms aimed at creating alternative institutional channels of

9 The European Supervision Authorities Participation Consultations Standing Committees The Stakeholder Groups

10 The Stakeholder Groups at the ESAs Stakeholder Groups 30 members Appointed by ESAs Advice Balanced representation of interest groups

11 The Relevance of the SGs Overcome Problems Lack Participation Financial Sector- Specific Formal Status ESAs Strong Powers Balanced Representation Groups Mandatory Consultation

12 The SGs Shortcomings 1. Asymmetric representation of interest groups EBA ESMA Financial Industry Providers Services Industry 5 7 Trade Unions 1 1 SMEs 3 1 Customers 5 5 Academics Risk of asymmetric power allocation between interest groups : - Decision making: simple/qualified majority? - Disclosure of all opinions to ESAs? 3. Urgency Clause: If actions must be taken urgently and consultation becomes impossible, the [SGs] shall be informed as soon as possible.

13 (Quasi) Judicial accountability

14 Judicial Review of ESAs actions Challenge decisions Board Appeal Only binding decisions, not regulatory actions

15 Tort liability of ESAs Legally recognized Case law CJEU + ESAs Regulations LIABILIY UNLIKELY

16 Ombudsman as an alternative More flexible, less formal redress mechanism 8 complaints since 2011 Composition Stakeholder Groups contested

17 Conclusions (1) Legal recognition of accountability mechanisms: political willingness Response to increased relevance of ESAs Enhanced accountability if compared to national level arrangements

18 Conclusions (2) Weaknesses in design affect legitimacy and accountability (notably towards stakeholders outside the financial industry) Regulatory capture? Institutional design: necessary but not sufficient

19 Thank you! Grazie!