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Third country delegation: European Commission seeks enhanced role for ESMA

The European Commission (Commission) has recently proposed a number of legislative amendments aimed at further promoting supervisory convergence - one of the key tools in its Capital Markets Union toolbox. The proposals aim to provide the European Supervisory Authorities (ESAs) with strengthened powers. Players in the funds industry will have a particularly keen eye towards those proposals that seek to enhance ESMA's role in delegation and outsourcing. 

As the threat of Brexit has already prompted moves by the ESAs to ‘avoid a regulatory march to the bottom’, authorisation and supervision of relocating entities and delegation are key areas of focus for both regulators and industry participants. ESMA itself has issued a series of opinions in relation to outsourcing and issues of substance in delegation models in the context of potential Brexit relocations to the EU27. The Commission's latest proposals would see ESMA take a more direct supervisory role with regard to certain sectors and products, as well as an enhancement of its existing supervisory coordination role. This enhanced coordination function would see it take a more active part with national regulators in authorisation/registration applications involving outsourcing, delegation and/or the risk transfer of a material part of the applicant's activities to third countries.

ESMA's new coordination role would require the national regulator, such as the Central Bank of Ireland, to engage with ESMA when an applicant for authorisation or registration intends to outsource or delegate a material part of its activities or key functions to third countries. The national regulator would be required to provide a detailed notification to ESMA so that it can assess the application. If, upon assessment, ESMA is of the view that the proposed authorisation/registration is not in compliance with EU law, guidelines, recommendations or an opinion adopted by ESMA, then it can issue an opinion to the relevant regulator. If ESMA deems this opinion necessary, it will notify the national regulator within 20 days of receipt of the original assessment and provide its final opinion within two months. The authorisation/registration process must cease during the period between notification and delivery of the opinion. ESMA may then also issue recommendations to the regulator involved to review a decision or withdraw an authorisation. It would appear that these recommendations would apply on a ‘comply or explain’ basis, as the new provision provides that where a competent authority does not follow ESMA's recommendations within 15 days of receipt of the recommendations, it should state its reasons for not doing so. Therefore, as currently drafted, the proposals are ambiguous in terms of what ESMA can do in such situations. 

Nonetheless, the proposals are likely to prove contentious given that they seek to add a further administrative layer to a process, which appears to be functioning well at national level. However, it is important to remember that, as with all EU legislation, these proposals are subject to the ordinary legislative procedure, which can be lengthy and during which there will likely be much debate followed by compromise proposals. Additionally, there is an opportunity to provide feedback on the proposals to the Commission until 24 November 2017. Therefore, these proposals may be subject to change as they move through the legislative process, which should hopefully bring more clarity to the role ESMA will play in future authorisations/registrations where there is material delegation, outsourcing or risk transfer to countries outside of the EU. 

ICSA’s Excellence in Governance Awards is judged by two independent judging panels. Judging takes place in July and August, with the shortlist announcement in early September.

 

Transparency in governance categories

Transparency in governance categories are judged by Hermes and ISS. Hermes helps institutional shareowners around the world to meet their fiduciary responsibilities and become active owners of public and private companies. Their team of engagement and voting specialists monitor its clients' investments in companies and intervene where necessary with the aim of improving performance.

 

Our judging criteria for these categories stipulate good and poor practice within each category area.

 

Ø  Download the transparency in governance category judging criteria. [LINK]

 

Company secretary award categories

Company secretary award categories are judged by a select panel of five judges, all highly experienced in company secretarial and governance fields, spanning private and not-for profit sectors.

To allow our judges to assess nominations fairly and objectively, all nominations are judged on the same criteria. Nominators will be asked to submit biographical information of the nominee and a general statement in support of the nomination, plus specific examples or evidence of achievement across the following six areas:

1.       Company law, regulation and compliance. Demonstration of the meeting of their organisation’s legal obligations and keeping on top of legislative development and change; examples of excellence in the design and maintenance of efficient and effective control systems for ensuring compliance.

2.       Corporate governance and shareholder relations. Demonstration of measures implemented to improve the effectiveness of corporate governance and shareholder communication within their organisation.

3.       Corporate restructuring. Demonstration of having undertaken acquisitions, disposals and any other significant restructurings or transactions.

4.       Information management and communication. Examples of excellence in the management, retrieval and dissemination of information, including the harnessing of information technology to aid performance; evidence of timely and effective communication with both internal and external stakeholders.

5.       Leadership and management. Evidence of circumstances where an individual has shown exemplary leadership and management.

6.       Innovation. Examples of achievements using new thinking to solve issues and problems.

We ask nominators to include evidence of achievement in at least three of these six areas.