Upon its creation, the European Securities and Markets Authority (ESMA) was imbued with the authority to restrict certain financial activities that destabilize or otherwise threaten to inhibit the E.U.’s financial markets from functioning properly. In navigating the E.U.’s various directives while attempting to perform this duty, ESMA has occasionally unearthed regulatory loopholes that restrict its ability to carry out its mission and which can be exploited by market actors. This recently occurred when ESMA identified gaps in the Markets in Financial Instruments Directive
that could result in regulatory arbitrage and impede its ability to limit certain “top-up” management company activities. As a solution to this issue, ESMA issued a January 2017 opinion in which it proposed an expansion of its powers, as well as those of National Competent Authorities. In a guest article, Attilio Veneziano, the founder of consulting firm Veneziano & Partners Ltd., analyzes the scope of ESMA’s responsibilities, the deficiencies highlighted in its opinion and the solution proposed therein. For discussion of other instances where ESMA has exercised its supervisory convergence authority, see “ESMA Provides Hedge Fund Managers With Plan for Supervisory Convergence
” (Mar. 10, 2016); and “ESMA Chair Calls for Increased Transparency and Regulatory Convergence As Interest Rates Rise
” (Jan. 28, 2016).