Executive summary

The combination of banking union and Brexit justifies a reform of the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) in the near term, in line with the subsidiarity principle. The other EU-level financial authorities, namely the European Insurance and Occupational Pensions Authority (EIOPA), European Systemic Risk Board (ESRB), Single Resolution Board (SRB) and Single Supervisory Mechanism (SSM), do not immediately require a legislative overhaul.

For operational reasons, the October 2017 deadline currently set for the decision on EBA relocation from its current base in London to the EU27 must be respected. In a later phase, the EBA’s governance should also be reviewed to take into account the framework of banking union as is currently in place, including the SRB and SSM.

ESMA should be quickly upgraded into a strong and authoritative hub for European Union capital markets supervision and, more generally, financial conduct supervision. This entails a significant overhaul of its governance and funding framework, together with an expansion of its supervisory mandate.

The accountability of EBA and ESMA and their scrutiny by the European Parliament should be enhanced as a key element of their governance reform.

Further initiatives, including possibly the merger of the SSM, EBA and EIOPA, separation of the SSM from the European Central Bank (ECB), and the folding of the ESRB into the ECB, might be considered in the more distant future, but not in the near term as they would unnecessarily distract from more urgent tasks.