Regulation of financial supervision in the European Union

Abstract

This contribution offers a broad theory on the regulation of the financial supervisory architecture in the European Union. It discusses the macro- and micro-prudential competences of the specialised agencies that are now ranging from direct supervision of individual financial institutions to the ability to impose market-wide restrictions on financial activities. The regulatory response to the financial crisis of 2007/08 centralised and strengthened the EU competences of monitoring financial markets and enforcing cooperation between the national competent authorities, especially in cross-border situations. It is however observed that – with some notable exceptions – the supervisory model in the European Union remains fragmented. Lack of direct supervisory powers – especially in the securities and payments markets – means that many international institutions remain without appropriate supervision. This results not only in weaker consumer protection and increased systemic risk, but also in jurisdictional arbitrage and, ultimately, damaged competitiveness of the European financial sector.