The European Securities and Markets Authority (ESMA): an overview

The European Securities and Markets Authority (ESMA) is an independent EU agency that focuses on protecting the security of the EU’s financial system.

ESMA does this by supervising financial companies, assessing risk to investors and ensuring the financial markets are transparent and fair. It also serves as the European Union’s (EU) securities market regulator and plays a major role in investigations, fines and crafting policy for the EU’s securities markets. The supervisory and regulatory role that ESMA plays in the securities market informs the European Commission of how strong the financial system is. The Authority provides the EU with information on the securities markets such as trading volumes, equities markets, trading methods and more.

A brief history of the European Securities and Markets Authority

ESMA was founded in 2009 following recommendations of the 2009 De Larosière report. The Report set out proposals to strengthen the EU economy and associated financial sectors. One of the recommendations was to establish the European Securities and Markets Authority to help regulate the securities market and to establish integrity in the financial markets.

ESMA replaced the Committee of European Securities Regulators (CESR), which performed some regulatory and supervisory roles in financial markets across the EU. ESMA continued to perform the roles that the CESR, did in addition to new roles set out by the 2009 report.

Key provisions

Create a single rulebook for EU financial markets: One of ESMA’s primary roles is to provide a single rulebook for EU financial markets to follow. In order to have true integrity in the markets, every company must play by the same rules.

Design a high quality regulatory program: As a regulatory agency, ESMA is in charge of building and maintaining a robust regulatory program. ESMA does this by creating regulations and promoting supervisory convergence. Supervisory convergence consists of sharing the best practices between the member states of the EU. This allows a level playing field of high-quality regulatory practices to be followed.

Assess risk for investors: The European and Markets Authority plays an important role in protecting investors from companies that take significant risk. ESMA completes thorough risk assessments on major companies and the financial markets as a whole. This enables them to prevent crashes from occurring and consequently protects investors from being harmed.

Who must comply?

Securities market: The securities market must comply with ESMA. ESMA is the primary regulatory for the securities market throughout the EU. This means that ESMA is responsible for crafting legislation and implementing it.

Specific financial entities: Although ESMA has the authority to regulate any financial organization, they focus primarily on the following:

• Credit Rating Agencies (CRAs)
• Securitization repositories (SRs)
• Trade Repositories (TRs)