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March 21, 2018

The ESMA Chair Steven Maijoor delivered the opening remarks at the BVI 2018 Annual Reception in Brussels. In his opening remarks, he discussed Brexit and the issue around ESMA's work on delegation; costs and charges associated with the second Markets in Financial Instruments Directive (MiFID II) and oackaged retail investment and insurance-based products (PRIIPs); and ESMA review.

He mentioned the decision of the UK to leave EU and the Single Market has triggered concerns about the risk of regulatory and supervisory arbitrage among the EU27 member states. The potential for a significant shift of entities and activities from the UK has also led to the member states seeking to attract this business. "Both the UCITS Directive and the AIFMD explicitly require there to be enough substance in the entity established in the home member state. ... financial centers in the EU27 should be free to compete based on the particular strengths they can offer relocating firms, like speed and efficiency, but in all cases the EU rulebook should be consistently applied. Otherwise, there could be insufficient substance in the EU27, which may pose risks to ESMA achieving its stability and investor protection mandates." Additionally, speaking about the disclosure of transaction costs for PRIIPs, Mr. Maijoor said "it is only fair that investors are fully informed about something that can have a material impact on their returns, especially when the impact can vary significantly across different products... PRIIPs and MiFID II have embedded the idea that no cost, whether explicit or implicit, should escape disclosure. On the methodology for calculation, we are aware of the vocal reactions of stakeholders and the extensive coverage in the media of supposed flaws. What I would say to you is that we are ready and willing to look at this issue but that we need to see concrete evidence to assess whether these flaws are real. In the absence of any such evidence, we maintain our view that the methodology is sound and that negative transaction cost figures should be extremely rare."

The ESMA Chair emphasized that a strong Capital Markets Union project must be accompanied by strong EU-wide and national supervision. He added that last September's EC proposal on the review of ESAs "clearly delivers on these expectations." With a more independent funding base, ESMA would be able to expand its supervisory convergence activities, which ultimately benefits the Capital Markets Union project, consumers, and the financial industry. Moreover, Board of Supervisors of ESMA would retain the budget approval powers and the member states would continue to co-decide the general EU Multi-Annual Financial Framework, which also applies to ESMA. "The last aspect I want to mention in the context of the ESAs review are ESMA’s level 3 measures. People say 'don’t fix what is not broken' and this, in my opinion, applies to the process governing our guidelines and Q&As." ESMA has mostly used these supervisory convergence tools on the request of individual national regulators and industry stakeholders seeking more guidance. "While we consult extensively on draft guidelines, the Q&As are reserved for more technical issues and clearly better suited for providing faster responses. In my view there is no need to change the governance principles around these supervisory convergence tools ... . For this reason, last month, we launched a dedicated stakeholder relations survey, which will remain open until the end of March. I would appreciate receiving your feedback on this important matter."


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Keywords: Europe, EU, Securities, Brexit, Regulatory Arbitrage, Review of ESAs, Capital Markets Union, ESMA

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