European Securities and Markets Authority (ESMA)

SUMMARY OF:

Regulation (EU) No 1095/2010 establishing the European Securities and Markets Authority

WHAT IS THE AIM OF THE REGULATION?

It creates the European Securities and Markets Authority (ESMA) — one of the three European supervisory authorities (ESAs) — which strengthens the coordination between national regulators of financial markets and ensures the consistent application of European Union (EU) financial legislation in EU Member States.
It was amended by Regulation (EU) 2019/2175 which gives all three of the ESAs greater responsibility for ensuring the convergence of financial market supervision in their respective fields.

KEY POINTS

Consistent application of law

ESMA draws up regulatory and technical standards based on EU financial legislation. It also has the power to issue guidelines and recommendations on the application of EU law.

Consumer protection and financial activities

ESMA promotes transparency, simplicity and fairness in the markets to protect consumers of financial products. It monitors financial activities and analyses consumer trends, along with other tasks. Under certain strict conditions, it can temporarily prohibit or restrict financial activities that pose a threat to the stability of the markets.

Breach of law

ESMA can investigate a breach of law by a national authority. This arises when the latter fails to ensure that a financial market participant complies with EU law.
Within 2 months, ESMA can issue a recommendation requiring the national authority to take the necessary action to comply with EU law. Then, the European Commission may issue a formal opinion. If the national authority’s non-compliance persists, ESMA may directly address a decision to a financial market participant under certain strict conditions. This decision prevails over previous decisions taken by the national authority.

Amending Regulation (EU) 2019/2175

This amending regulation grants ESMA direct supervisory powers over the administrators of critical benchmarks* and over providers of data communication services.
It transfers authorisation and supervisory powers in relation to data reporting services providers* from competent authorities to ESMA, except for those benefiting from a derogation because they have limited EU relevance. This will reduce fragmentation and costs and ensure the same quality and reliability of data across the EU.
ESMA gets a greater coordinating role in market abuse cases. Where certain orders, transactions or behaviours give rise to suspicions of market abuses and have cross-border implications for the integrity of financial markets or financial stability in the EU, ESMA is able to issue an opinion on the appropriate follow-up.
The regulation grants ESMA, in addition to the competent authorities, competences to directly gather data from market participants in relation to pre- and post-trade transparency requirements and to authorise and oversee data reporting services providers.
ESMA is able to conduct investigations and on-site inspections and can impose fines or periodic penalty payments to compel data reporting services providers to put an end to an infringement or to supply complete and correct information that it requires.
As the competent authority for recognising non-EU-country benchmark administrators, ESMA is the EU counterpart for supervisors in non-EU countries, making cross-border cooperation more efficient and effective.

FROM WHEN DOES THE REGULATION APPLY?

Regulation (EU) No 1095/2010 has applied since 1 January 2011.
Amending Regulation (EU) 2019/2175 (as far as amendments to Regulation (EU) No 1095/2010 are concerned) has applied since 1 January 2020.

BACKGROUND

Based in Paris, ESMA was created in 2010 to safeguard the stability of the EU’s financial markets and address shortcomings in financial supervision.
ESMA is part of the European system of financial supervision (ESFS), created in 2010, with two other supervisory organisations:
- the European Insurance and Occupational Pensions Authority, based in Frankfurt;
- the European Banking Authority, based in Paris.
The ESFS also comprises the European Systemic Risk Board of Financial Supervision and the Joint Committee of the European Supervisory Authorities and the national supervisory authorities.
For further information, see:
- European system of financial supervision (European Commission)
- ESMA in brief (ESMA).

KEY TERMS

Critical benchmarks. Indices or indicators used to price financial instruments and financial contracts or to measure the performance of an investment fund.

Data reporting services providers. Companies which enable the reporting of transactions in financial instruments to regulators and to the public.

MAIN DOCUMENT

Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/77/EC (OJ L 331, 15.12.2010, pp. 84–119).

Successive amendments to Regulation (EU) 1095/2010 have been incorporated in the original text. This consolidated version is of documentary value only.