Glossary

European Securities and Markets Authority (ESMA)

The European Securities and Markets Authority is an independent financial regulatory body in the European Union. The EU established ESMA in January 2011 and chose Paris as its headquarters. ESMA focuses on ensuring the stability of the European Union’s financial markets and protecting investors.

History of the European Securities and Markets Authority

ESMA began operating in 2011. It superseded the Committee of European Securities Regulators (CESR) and joins three new European Supervisory Authorities (ESAs). These include the European Insurance and Occupational Pensions Authority (EIOPA) and the European Banking Authority (EBA).

Experts credit the Great Recession of 2008 as one of the main contributing factors to ESMA’s creation. Following the US market crash and its effects on global markets, the European Union evaluated the state of its own economy. This led to the 2009 de Larosière report. It called for creating a decentralized financial supervisory system for the European Union.

Governance of the European Securities and Markets Authority

The authority includes a Board of Supervisors, an Executive Board, and several Advisory Committees. The Board of Supervisors is the authority’s decision-making body. It consists of one representative from each EU member state’s securities regulator. The Executive Board implements the Board of Supervisors’ decisions. It includes the Chairperson, three Deputy Chairpersons, and a Member from each EU Securities regulator.

Objectives and Responsibilities of the European Securities and Markets Authority

ESMA has three primary responsibilities. These include financial stability, orderly markets, and financial stability. It engages in several activities to meet these objectives. Consider the following examples:

  • Registering and supervising credit rating agencies
  • Developing and enforcing rules for derivatives trading
  • Investigating market abuse
  • Authorizing and managing trade repositories
  • Cooperating with non-EU regulators
  • Promoting supervisory convergence
  • Encouraging supervisory convergence among national competent authorities across Member States

The ESMA Rulebook for EU Financial Markets

The ESMA Rulebook contains all the regulations that the authority developed. It covers various topics, from market abuse to derivatives trading. The rulebook constantly evolves as the administration creates new regulations and updates existing ones. ESMA hopes it will foster a true single market, so that affected entities only need to comply with one central set of rules. It also levels the playing field across various European markets.

The creation of a single rulebook coincides with supervisory convergence. ESMA aims to implement and enforce rules across all its Member States consistently. Achieving this goal requires more than identical rules. It also involves the sharing of best practices and supervisory strategies.

Direct Supervision of Financial Entities

ESMA oversees the activities of three leading players in the European markets. Supervising all three further ensures consistency across the board.

Securitization Repositories (SRs)

A securitization repository collects data on all types of interest-bearing securities. This data helps market participants, investors, regulators, and other interested parties understand the risks involved in investing in securitizations.

Trade Repositories (TRs)

A trade repository collects and maintains data on derivatives contracts. Counterparties to the derivatives contracts submit this data. The data is then used for risk management, supervisory and statistical purposes.

Credit Rating Agencies (CRAs)

A credit rating agency is a financial institution that provides ratings for debt instruments. These ratings determine the creditworthiness of the issuer. CRAs play a vital role in the markets by providing investors with information on which to base their investment decisions.

Enforcement Actions of the European Securities and Markets Authority

ESMA is vested with several powerful enforcement tools, which it may use to achieve its objectives. Consider the following examples:

  • Investigations are one of ESMA’s most crucial enforcement tools. They allow the authority to collect evidence of suspected breaches of EU law. Inquiries are confidential and can result from the request of a national competent authority or on ESMA’s own initiative.
  • Inspections are another critical enforcement tool. They allow ESMA to assess compliance. Inspections can be announced or unannounced.
  • On-the-spot checks are similar to inspections but are less formal and used to gather information in a more targeted way.
  • Sanctions are the most severe enforcement action that ESMA can take. They can be imposed on individuals or legal entities that have breached EU law. Sanctions can take the form of fees, bans from certain activities, or withdrawal of authorizations.
  • Warnings, recommendations, and opinions are less serious enforcement actions, often used as a first step before taking more drastic measures.

How Message Capturing and Archiving Solutions Help With ESMA Compliance

Ensuring compliance with ESMA’s rules and regulations is a daunting task. It requires the collection and management of large amounts of data. This data must be stored in an accessible, searchable, and auditable way. Message capturing and archiving solutions can help by providing a central repository for all your data.

Archiving solutions can also help with compliance by providing data encryption, user activity logging, and tamper-proof auditing. Archiving solutions facilitate the creation of data backups in case of accidental deletion or corruption. Beyond compliance, companies might need this data in the event of investigations.

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