European Capital Markets

The second area that we should prioritise on the CMU agenda relates to supervisory convergence.

The final outcome of the review of the three European Supervisory Authorities (ESAs) fell short of its initial ambitions, in particular on governance aspects, where national authorities retain a leading role despite a strengthened profile for the ESAs' chairpersons.

Ever-more sophisticated technologies and products, climate change and the rise of cybercrime increasingly require a highly coordinated European approach and a governance and accountability structure for the European Securities and Markets Authority (ESMA) that is more consistent with its status as a fully-fledged supervisory body.

Consider Facebook's plan to launch a new global digital currency, the implications of which are now being scrutinised by a G7 working group, which I chair. Such initiatives naturally require a global response, including a harmonised pan-European position.

To put it simply, truly integrated European capital markets will ultimately require a single capital markets supervisor, much in the same spirit as we have a single bank supervisor today.

Take the role of ESMA in the supervision of central counterparties (CCPs). Given that the brunt of default risk in EU CCPs is borne by their clearing members, most of whom are directly supervised and resolved at the European level, the principle of aligning liability and responsibility clearly implies European supervision of EU CCPs.

But despite significant legislative efforts, the recent revision of the European Market Infrastructure Regulation (EMIR 2) is a lost opportunity to advance capital market union, as the competence for CCP supervision will remain almost exclusively national.

What EMIR 2 does do, however, is strengthen the EU regulatory framework with respect to clearing activities which are systemically important for the EU but take place in non-EU countries, including those provided from London after Brexit. This debate is arguably at the heart of the current discussion on fragmentation.

Instead of being based only on equivalence at jurisdiction level, the new framework will also subject systemically important non-EU CCPs to EMIR standards and supervision by ESMA. This will ensure a level playing field with EU CCPs, limiting regulatory arbitrage, and enhance CCP resilience.

One open issue is whether regulators should force swaps clearing to be relocated even if it risks increasing spatial fragmentation. EMIR 2 clearly states that recognition can only be denied as a last resort, and the ECB supports this approach.

Cooperation has, in fact, always been the ECB's preferred approach to the oversight of financial market infrastructures, as per Responsibility E of the CPMI-IOSCO Principles for Financial Market Infrastructures. In this respect, the existence of common regulatory standards for CCPs has been playing a fundamental role for underpinning co-operation arrangements, including mutual recognition.

We therefore also note with interest that the US Commodity Futures Trading Commission now intends to move to a proportional approach similar to EMIR 2, and we look forward to learning more about this new framework in the future.

I would only note that, given the importance of clearing for the stability of the global financial system, our reliance on deference depends on the depth of cooperation and information-sharing between authorities. There is still much progress to be made on that front, and the implementation of international commitments is of the essence.