Abstract

Most of the big decisions about the shape and content of the rules governing financial market activity in Europe are now taken at the EU level and the domestic laws of Member States (MS) have been relegated to an increasingly secondary role. This has not been matched by a simultaneous centralization of supervisory responsibility. Instead the tasks of day-to-day implementation and on-the-ground enforcement of this body of regulation still fall to MSs’ supervisory authorities, with a layer of EU-wide structural co-ordination added on top. EU law impinges to a certain extent on the way in which supervisory responsibilities are discharged at MS level but key structural decisions about the organization and conduct of supervision remain within MSs’ discretion. This freedom is reflected in the many different supervisory models that are in operation across the MSs.

Why has this complicated patchwork of institutional arrangements endured? Why has MS-based supervision not already succumbed to the powerful forces that have propelled the centralization of regulation?

The model of centralized European supervision as the necessary and appropriate complement to centralized European regulation has merit on grounds of logic, clarity and intellectual purity. But financial market supervision is an intensely practical “real world” activity. To understand the current institutional setting for financial market supervision in the EU and to form a view on its future direction, it is necessary therefore to conduct a careful examination that takes account of the highly-charged political questions that surrounds the organization of, and payment for, supervision and of legal issues arising from the limits of European law. This article conducts such an examination.