Charting the next steps for the EU financial supervisory architecture

The combination of banking union and Brexit justifies a reform of the European Banking Authority (EBA) and the European Securities and Markets Authori

Publishing date: 07 June 2017
Authors: Nicolas Véron

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This Policy Contribution is a lightly edited version of the written statement submitted by the author to the hearing of the Finance Committee of the German Bundestag on the European System of Financial Supervision, held on 31 May 2017 in Berlin.

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.

About the authors

Nicolas Véron

Nicolas Véron is a senior fellow at Bruegel and at the Peterson Institute for International Economics in Washington, DC. His research is mostly about financial systems and financial reform around the world, including global financial regulatory initiatives and current developments in the European Union. He was a cofounder of Bruegel starting in 2002, initially focusing on Bruegel’s design, operational start-up and development, then on policy research since 2006-07. He joined the Peterson Institute in 2009 and divides his time between the US and Europe.

Véron has authored or co-authored numerous policy papers that include banking supervision and crisis management, financial reporting, the Eurozone policy framework, and economic nationalism. He has testified repeatedly in front of committees of the European Parliament, national parliaments in several EU member states, and US Congress. His publications also include Smoke & Mirrors, Inc.: Accounting for Capitalism, a book on accounting standards and practices (Cornell University Press, 2006), and several books in French.

His prior experience includes working for Saint-Gobain in Berlin and Rothschilds in Paris in the early 1990s; economic aide to the Prefect in Lille (1995-97); corporate adviser to France’s Labour Minister (1997-2000); and chief financial officer of MultiMania / Lycos France, a publicly-listed online media company (2000-2002). From 2002 to 2009 he also operated an independent Paris-based financial consultancy.

Véron is a board member of the derivatives arm (Global Trade Repository) of the Depositary Trust and Clearing Corporation (DTCC), a financial infrastructure company that operates globally on a not-for-profit basis. A French citizen born in 1971, he has a quantitative background as a graduate from Ecole Polytechnique (1992) and Ecole Nationale Supérieure des Mines de Paris (1995). He is trilingual in English, French and Spanish, and has fluent understanding of German and Italian.

In September 2012, Bloomberg Markets included Véron in its second annual 50 Most Influential list with reference to his early advocacy of European banking union.