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Who watches the watchmen?

With much of the new financial regulation being passed and implementation for most of it in full swing, supervision is likely to gain more attention in the coming years. Since investment firms and infrastructure providers are largely supervised by national competent authorities, it raises the question who watches the watchmen?

In ESMA’s 2016 work programme, the authority dedicates a significant chunk of its resources to what it calls “promoting supervisory convergence”. Under this headline ESMA will look over the shoulders of national regulators and nudge them into harmonising across Europe. Recent ESMA activity, such as its negative opinion on the Greek short selling ban extension for Attica Bank, its peer review on market maker exemptions under EU Short Selling Regulation or best execution under MiFID I, are examples of these. That this process will provoke the occasional fracas is almost guaranteed – take the UK’s failed legal challenge to the short sale ban, for example.

Setting aside concerns about overreach, most market participants undoubtedly welcome the attempt to converge supervisory practices. Harmonising enforcement across jurisdictions is one possible strategy to make the increased regulatory burden more manageable. And, as a nice side-effect, national regulators can experience first-hand just how stressful it can be when the regulator shows up at their doors to conduct an audit.


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