The Committee of European Securities Regulators

THE COMMITTEE OF EUROPEAN SECURITIES REGULATORS

Michael McKee Director British Bankers Association

The Committee of European Securities Regulators (“CESR”) was formally created in June 2001 by a decision of the EU Commission. It is the Commission’s principal adviser on the development of securities legislation and regulation and, as such, a key player in the development of pan-European capital markets. However, CESR is not a typical EU committee and it gains much of its authority from the fact that it is also the forum in which the chairmen of the principal EU securities regulators meet and seek to set common approaches to regulatory issues – which they can then implement in their own member states, often without the need of EU legislation. In this latter role CESR is the successor of the Forum of European Securities Commission (“FESCO”) which it has replaced.

CESR has been in operation for one year and now seems to be an appropriate time to review its organisation and its development since its creation.

This paper does this, and also sets the creation of CESR in context. It does not comment on the substantive works of CESR except for illustrative purposes.

The background: FESCO and European regulatory standards

Securities regulation in Europe is a relatively late growth, compared to similar regulation in North America which began in the 1930s. Most European securities regulators were created in the 1980s or 1990s.

As the European regulatory bodies matured, and as cross-border regulatory issues became more significant, the regulators began to look for ways to cooperate more effectively, share best practice and see if it was possible to take common approaches to solving regulatory challenges.

The result was the creation of FESCO in 1997. FESCO was initially simply a regulators’ association and was not specifically focused on EU legislative issues, or confined to regulators in EU member states. Regulators from Norway and Iceland became members as well as regulators from the 15 EU member states. Its original purpose was simply to build better relationships between regulators in western Europe in the securities field.

The 17 members of FESCO all had different regulatory jurisdictions, which they had to operate in very different national legal and cultural frameworks.

In recognition of this FESCO originated work on a range of regulatory issues. Early FESCO papers tended to set out common positions reached between working groups of officials of the constituent members. These papers often set out a common position agreed by the regulators without reference to the views of the securities industry which they regulated. If there was consultation it usually took place after a common position had been reached. There

D:\Docs\2018-04-05\02fc3db11d8952fc148504040e162a69.doc 2018 年 4 月 28 日 2 was industry concern that consultation was not meaningful because once FESCO had reached a difficult compromise amongst its members it would be reluctant to re-open an issue for further debate and discussion.

There was also uncertainty about the status of FESCO papers. When a FESCO paper was stated to represent a FESCO final position what did this mean – particularly if it set out expected behaviour and a particular securities firm did not currently conform to that behaviour?

It gradually became clear that FESCO papers, in themselves, had no binding force in law. They effectively represented aspirational texts which the FESCO member regulators were expected to try to implement in their own member state on a best endeavours basis.

Some national regulators did implement FESCO standards or papers by the simple expedient of making national regulatory rules which conformed to them. Others could not implement the papers, or could only partially implement them, because changes required were outside the jurisdiction of that regulator or required national legislation.

Notwithstanding these practical concerns FESCO’s influence grew (i) because of the institutional power inherent in its ability to speak in the EU as the single voice of all 15 EU securities regulators (ii) the body of papers and standards it was developing and (iii) the fact that the standards were implemented to some degree in member states.

The Lamfalussy Process and the Financial Services Action Plan

Running in parallel with FESCO’s development was the EU’s ambitious Financial Services Action Plan (“FSAP”). Created in May 19991 the FSAP comprises a suite of legislative changes designed to build a co-ordinated legislative framework to allow the development of integrated European capital markets focused, in particular, on the eurozone. The European Council set a deadline for implementation of the FSAP by 2005. Many of the legislative measures in the FSAP required significant regulatory knowledge and the detail flowing from the legislation would have to be implemented by national regulators in due course.

In addition, at the Lisbon Summit in 2000, the European Council agreed a wide ranging economic reform agenda directed at making Europe the most dynamic world economy by 2010. The FSAP is one element in this agenda.

The FSAP was given added impetus by the Lamfalussy report published in February 2001.2 This report was written by a group (“the Committee of Wise Men”) chaired by Baron Lamfalussy someone who was particularly noted for his role in the early development of the single European currency.

The Committee of Wise Men was mandated by the European Council to review wholesale markets securities regulation within the EU and to make proposals about how this could be improved.

Among the main conclusions of the Lamfalussy report were the following:

1 See “Implementing the Framework for Financial Markets: Action Plan” COM/99/0232 2 “Final Report of the Committee of Wise Men on the Regulation of European Securities Markets”, European Commission. February 2001

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(i) a need for much greater regulatory co-operation between Member States’ regulatory authorities; (ii) greater EU wide focus on regulatory rules and standards; and (iii) a more flexible legislative process for financial services regulation.

The report proposed that some of the FSAP legislation should be given higher priority and that, in future, legislation passed by the Council and the European Parliament should be in a “framework” form (the report calls this legislative level “Level 1”) with more detailed aspects of the legislation passed by a newly created Securities Committee (“Level 2”) which would be given technical rule-making powers. In the EU technical rule-making committees such as this are called “comitology” committees and particular rules apply to them.3

The report also recommended the creation of a regulators committee which would advise the Commission and the Securities Committee on the content of the rules which should be passed by the Securities Committee. It envisaged that the Commission, the Regulators Committee and Member State regulators should work together to develop more co-ordinated regulation between member state regulators and more common standards and practices (“Level 3”).

The suggestion that a comitology committee should be created at Level 2 was a recognition that the EU does not have any constitutional basis for creating secondary legislation in contrast to member states where such subordinate legislation is frequently used as a means of dealing with the more detailed aspects of a piece of primary legislation.

An important element of the Lamfalussy report was its emphasis on consultation with market users. The report emphasised the need for consultation throughout the legislative process and at all levels (1, 2 and 3).

The Lamfalussy report was endorsed by the EU Council at Stockholm in March 2001. The EU Commission decisions of 6 June 2001 created the Securities Committee and CESR (which is the Regulators Committee envisaged by Lamfalussy).

CESR, as a purely advisory body, was able to become operational immediately on its creation and it held its first meeting on 11 September 2001 in Brussels. At that meeting the members of the Committee elected Dr Arthur Docters van Leeuwen, Chairman of the Dutch regulator, AFM, as their Chairman. One reason that CESR was able to become operational so quickly was the fact that FESCO already existed. FESCO’s small secretariat (6 part time staff at that stage) became the secretariat of CESR and FESCO ceased to exist.

The comitology powers envisaged by the Lamfalussy report were only given to the Securities Committee more recently, in February 2002, as a result of an agreement between the three principal EU institutions ratified by a vote of the EU Parliament sitting in plenary session. 4 It is envisaged that the comitology powers will probably be used first in relation to Level 2 of the Market Abuse Directive and in April 2002 CESR began initial work towards preparing its Level 2 technical advice to the Commission relating to this Directive.

3 The comitology procedures are governed by Decision 1999/468/EC. Each comitology committee is set up with a separate mandate and powers. The Decision referred to and the mandate of the committee together form the governing rules of the committee. 4 Resolution of 5 February 2002. See also declaration by President Prodi of the same date at http://europa.eu.int/comm/internal_market/en/finances/general/02-44.htm

CESR’s Constitution and Status.

CESR has taken over all pre-existing understandings, standards, commitments and work agreed within FESCO.5 Among the features common to both CESR and FESCO are the following:

(i) It is funded by the national securities regulators. It makes no call upon the EU budget.

(ii) It has a small secretariat composed of permanent staff and of individuals seconded from the national regulators (each located in the offices of their national regulator). The Secretary-General, as with FESCO, is Fabrice de Marigny and its headquarters are in Paris. Members of the secretariat are each located in the offices of their national regulator.

(iii) It has one overarching governing board (the Chairmen’s meeting in the case of FESCO, the meeting of the Committee in CESR) and operates through working expert groups. Each expert group is chaired by one of the Committee members and the rest of the expert group is made up of officials from other CESR member regulators.

Notwithstanding these similarities the differences between CESR and FESCO are, ultimately, more significant.

The fact that CESR is a formal institution within the Lamfalussy process, and that that is an EU institutional process, means that CESR has made a number of changes to the practice and formal structure of FESCO. Describing these changes, and the new institutional relationships created by the Lamfalussy process, is a useful way of describing CESR’s new institutional structure.

Among the new elements which require further consideration are the following:

- CESR’s charter and consultation processes - The relationship between the Commission and CESR - The relationship between the Securities Committee and CESR - The relationship between the European Parliament and CESR - The involvement of “high level practitioners” in advising CESR - The involvement of “practitioner experts” in advising CESR Expert Groups - The developing role of CESR standing committees (CESRPOL and CESRFIN).

CESR’s charter and consultation processes

CESR’s “constitution” is not found in one document. There are three important documents, one emanating from the Commission and two from CESR itself. They are:

5 See CESR’s Charter Art.9

(i) The Commission Decision of 6 June 20016 (ii) The CESR Charter7 (iii) CESR’s Public Statement of Consultation Practices8

None of these documents, or equivalents, applied to FESCO. They create a network of relationships between CESR and the other EU institutions. They also set out CESR’s own proposals for its consultative relationship with the financial services industry and its customers.

Three other important documents which will not be reviewed in detail here are the Stockholm Council Resolution of March 2001 which contained the Council’s approval of the Lamfalussy process, the EU Parliament Resolution of 5 February 2002 which represents the Parliament’s provisional approval of Lamfalussy and President Prodi’s declaration annexed to that Resolution.

(i) The Commission Decision

The Commission Decision establishes CESR as “an independent advisory group”9 to advise it, “in particular for the preparation of draft implementing measures in the field of securities”. This advice can either be given on CESR’s own initiative or “at the Commission’s request, within a time limit which the Commission may lay down according to the urgency of the matter”. 10

CESR’s membership must be “high level representatives from the national public authorities competent in the field of securities” and each Member State designates a representative to attend. The Commission also “shall be present at meetings of the Committee and shall designate a high level representative to participate in all its debates.” In addition the Committee “may invite experts and observers to attend its meetings”.11

In practice the members of the Committee have turned out to be the Chairmen of the national securities regulators, or a senior director from one of these organisations.

The Committee is tasked with maintaining close operational links with the Commission and the European Securities Committee and with consulting “extensively and at an early stage with market participants, consumers and end-users in an open and transparent manner.” It must report annually to the Commission but is entitled to adopt its own rules of procedure and organise its own operational arrangements.12 The Chairman of CESR participates as an observer at the meetings of the European Securities Committee.13

6 COM 2001/1501/EC 7 Which took effect on 11 September 2001 and can be obtained from the CESR website (http://www.europefesco.org) 8 CESR/01-007c, December 2001.

9 Art.1 10 Art.2 11 Art.3 12 Arts. 4 to 8 13 Commission Decision of 6 June 2001 establishing the European Securities Committee (COM 2001/1493/EC), Art.3

(ii) The CESR Charter

The CESR Charter fleshes out a number of areas touched upon by the Commission Decision and set CESR’s own organisational and procedural rules – as envisaged in the Decision.

The Charter contains more detail about membership of the Committee. It specifies one Committee member per member state but also permits the competent authorities in the securities field from countries of the European Economic Area to each appoint a member who will participate fully in the meetings “without, however, participating in decision making”.

The powers of the Chairman are outlined. He will organise and chair the meetings and set their agenda. He is also responsible for public relations and represents the Committee externally. He is responsible for supervising the secretariat.14

The role of the Chairman is, consequently, a very powerful one as he is effectively the voice of all the securities regulators in Europe acting collectively and their public spokesperson towards other EU institutions, the financial markets in Europe and towards the rest of the world.

Links with the Commission and other EU institutions are fleshed out.15 The Commission representative will be entitled to participate actively in all debates “except where the Committee discusses confidential matters relating to individuals and firms in the context of improving cooperation among European Regulators.” A contact person in the Commission is to be designated as a liaison point for the CESR secretariat.

The annual report to the Commission, required by the Commission Decision, will also be sent to the Council and Parliament. The Chairman will report periodically to the European Parliament and maintain strong links with the European Securities Committee.

As the Commission Decision is only focused on the advice which CESR must give to it the CESR Charter deals separately with CESR’s other responsibilities (continued from its FESCO incarnation). These responsibilities were envisaged in both the Lamfalussy report and the Stockholm Council resolution. In the Charter they are stated 16to be:

- To foster and review common and uniform day to day implementation and application of Community legislation. CESR will issue guidelines, recommendations and standards that the members will introduce in their regulatory practices on a voluntary basis. It will also undertake reviews of regulatory practices within the single market.

- To develop effective operational network mechanisms to enhance day-to-day consistent supervision and enforcement of the single market for financial services.

- To observe and assess the evolution of financial markets and the global tendencies in securities regulation and their impact on the regulation of the single market for financial service.

14 Charter, Art.2 15 See Charter, Arts. 3 and 6 16 Charter, Art.4

Working procedures are also set out.17

The Committee will meet at least 4 times a year (since its inception it has met 4 times with the most recent meeting in June 2002). It can establish expert groups (i.e. working groups of the staff of CESR member’s) and permanent groups (such as CESR-Fin and CESR-Pol).

When providing technical advice to the Commission it can identify any dissenting opinions of individual members of the Committee and set these out. On the other hand it will work by consensus in developing its other work.

Once a year CESR will publish a work programme setting out its planned work for the year ahead. It will also have an annual budget presented by the Chairman for approval by the Committee “no later than the last meeting of the year preceding the budget year”. The members of the Committee (i.e. the national regulators) will contribute to the budget on a basis agreed between them – but not made public.

The Charter commits CESR to work in an open and transparent manner consulting with market participants, consumers and end users. This obligation is amplified in the Public Statement of Consultation Practices (see below).

The secretariat is to be led by a Secretary-General appointed by the Committee after being proposed by the Chairman and Vice-Chairman for a period of three years. This contract may be renewed. Other staff may be permanent or seconded and are appointed on a personal basis by the Chairman after consulting with the Vice-Chairman and the Secretary-General. The new secretariat will be increased by the end of 2002 to between 7 and 9 full time staff.

(ii) CESR’s Public Statement of Consultation Practices

The Public Statement sets out CESR’s approach towards those with which it plans to consult. It envisages a range of consultation methods including:

- Consultative groups of experts - Consultation papers - Open hearings - Concept releases - Roundtables - Electronic dissemination of information through e-mail and websites

Key elements of the document are as follows:

- A recognition that the aim of consultation is to build consensus where possible between all interested and affected parties about what legislation or regulation is appropriate and to improve the decision making of CESR.

- Acknowledgement of the need for a flexible and proportionate approach to consultation that can be adapted according to the significance of an issue.

17 The summary that follows is derived from the Charter, Arts. 5 and 7 to 8

- An intention to target the full range of parties who are potentially interested in the subjects consulted upon.

- Prompt publication of important documents such as mandates from the Commission, the annual work programme and consultation papers.

- Setting a reasonable period of time for response and consulting at a sufficiently early stage to enable CESR to take the responses into account.

- Where necessary releasing CESR’s thinking at various stages through concept releases and consultation papers.

- Producing feedback statements following consultation to address all major points raised and explain why particular views were accepted or rejected.

Industry participants had a significant role in encouraging CESR to adopt such an approach, supported by the weight of the Lamfalussy proposals’ advocacy of good quality consultation. Many of the approaches set out in the CESR document have previously been used in some member states but CESR’s Public Statement of Consultation Practices now stands as one of the most progressive commitments to openness at the pan-European level.

Initial indications are that CESR’s approach to consultation represents a significant break with FESCO’s less inclusive consultation process, and a substantial improvement on the FESCO approach.

The relationship between the Commission and CESR

CESR regard it as critical that their role is independent from that of the Commission. The Chairman of CESR, Dr Docters van Leeuwen tells the anecdote of his meeting with the Committee of Wise Men shortly before its report was published18:

“At this point, the subject of independence for the future Securities Regulators Committee was still unclear. I asked the Committee, “if a European Regulator was to be established, would they grant that Regulator independence?” They responded, “of course the regulator would be given independence”. I then asked why wouldn’t you grant the Securities Regulators Committee the same independence? The members laughed but the point was made, and accepted”. 19

CESR accepts however that independence is only workable if it operates in a transparent and accountable manner, and by establishing strong institutional links with the European Parliament, the Commission and the Council.

CESR’s stress on its independence does create some issues about developing such strong links with the Commission, however.

18 Speech by Arthur Docters van Leeuwen, Chairman of CESR, to The European Compliance Conference, Amsterdam, 11 April 2002 19 Speech at TECC Amsterdam, see fn 18

Under the EU Treaties the Commission has the right to formulate legislative proposals.20 This is a right which the Commission has carefully guarded throughout its existence.

The Lamfalussy process does nothing to change that position but it does mean that CESR, a body with substantial resources behind it, (in the form of the resources of the national regulators) will be giving detailed advice to it on the content of legislative rules which the Commission will then turn into Level 2 proposals for consideration by the Securities Committee. Implicitly there is likely to be some sensitivity about the extent to which CESR’s advice may be read as a legislative proposal. How well placed is the Commission to second guess CESR and develop its own proposals for Level 2 implementing measures?

The relationship between the Securities Committee and CESR

Formally the only direct contact between CESR and the Securities Committee is the fact that the Chairman of CESR is an ex officio member of the Securities Committee. However, the CESR Chairman is tasked with liaison with the Securities Committee and CESR has a vested interest in ensuring that its technical advice to the Commission is acceptable to the Securities Committee as well as to the Commission.

Moreover the member state nominees to the Securities Committee are invariably high level officials from national finance ministries and typically it is the national finance ministry which oversees their national securities regulator. Consequently there are many formal and informal connections at national level between the members of the Securities Committee and their counterparts on CESR. Often the finance ministries and the securities regulators work in tandem at the EU level – for example in Council working groups reviewing financial services legislation it is typical for an official from the national finance ministry and one from the national securities regulator to work together.

The relationship between the Securities Committee and CESR will not be “open and transparent”. The membership of the Securities Committee means that it is effectively a less senior emanation of the Council of Ministers even if formally it is a creation of the Commission. It will be difficult to tell precisely the nature of the relationship but, because of the connections described above, it can be assumed that the relationship will be much closer than would be apparent from reading the texts creating both Committees.

The relationship between the European Parliament and CESR

There is no formal legal relationship between the Parliament and CESR. However, as mentioned, the CESR Charter provides for the Chairman to report periodically to the Parliament.

In practice this will generally mean that the Chairman of CESR will seek to develop a good relationship with the Economic and Monetary Affairs Committee (EMAC) of the Parliament. EMAC is the Committee which has most responsibility for EU financial services legislation (although other Parliamentary Committees such as the Legal Committee also have a substantial role in many financial services measures). It is also the Committee which was most closely involved in the negotiations relating to the Lamfalussy process. Consequently it is the Committee which has the greatest interest in that process. It also has significant

20 EU Treaty Art. 211

D:\Docs\2018-04-05\02fc3db11d8952fc148504040e162a69.doc 2018 年 4 月 28 日 10 concerns about the impact that that process might have on the Parliament’s powers, including in particular its own powers. EMAC, for example, sought for a long time to have a right to “call back” any rules made by the Securities Committee of which it disapproved and the present arrangements have only been agreed on a temporary basis and will lapse if not renewed a few years hence.

This might suggest that relations between EMAC and the CESR would not be good. This need not necessarily be the case. Although EMAC has concerns about the process its main concerns relate to the balance of power between the Council, the Commission and the Parliament. Their fear is that the Lamfalussy process may give too much power to the Council and the Commission.

In the financial services field the Parliament tends to see itself as primarily the guardian of the citizen, the consumer and the retail investor. It is also a strong supporter of open government. Consequently there are potential alignments between the interests of CESR in protecting consumers and the interests of the Parliament. Similarly CESR’s consultation approach is likely to find more favour with the Parliament than the more opaque comitology processes of the Commission.

It is difficult at this stage to predict how the relationship will develop – this is likely to become more obvious when Level 2 “implementing measures” come to be made for the first time (probably in 2003). Current indications are, however, that initial meetings between EMAC and the CESR Chairman have been positive and the relationship is fairly good.

The involvement of “high level practitioners” in advising CESR

Neither the Commission Decision, nor the CESR Charter, specifically call for the creation of a group of “experts” to advise the Committee itself. As we have seen these documents permit CESR to use experts and envisage that the Committee can invite people to attend its meetings but there is no formal requirement for practitioner involvement in the Committee itself.

However, the idea of such involvement was mooted during the deliberations of the Lamfalussy group and EMAC is understood to have been particularly keen for such a group to be formed. Involvement of practitioners in the work of the Committee is unquestionably within the spirit of the Lamfalussy proposals – and welcome to the financial services industry.

At the time of writing CESR is in the process of creating such a group. CESR’s Chairman has commented on this as follows:

“In the context of the consultation process, and according to the Lamfalussy proposal, the Parliament and the Commission have requested that CESR set up a practitioners’ panel.

Our initial thinking …is that it should not be a supervisory board for CESR, nor should it interfere with relations between CESR and the European institutions nor should it interfere with CESR’s consultation processes.

Rather a practitioners’ panel should provide input into CESR’s work programmes, its priorities, its general directions and, last but not least, advise on big issues.”21

21 11 April 2002 speech to The European Compliance conference, see fn 18

It is expected that members of this practitioner panel will be very senior individuals which are broadly representative of the European securities markets (both market professionals and users, including consumers). There are expected to be around 10 members of the panel. No member state will have a right to have one of their nationals represented on it but it is likely that the Chairman of CESR will seek to ensure a reasonable geographic balance as well as a market sector balance among the membership.

The involvement of “practitioner experts” in advising CESR Expert Groups

FESCO expert groups were in existence for several years before CESR took over responsibility for them. They were always groups drawn from the staff of the national securities regulators which were members of FESCO. These expert groups are, in many respects, the secret of FESCO/CESR’s success. It is their work to produce consensual standards agreed by the regulators which gives CESR its standing and authority.

CESR expert groups operated in the same way as the FESCO expert groups during 2001. However, with the advent of the first “Lamfalussy style” mandate from the Commission requesting technical advice from CESR, CESR has set up its first consultative working group of expert practitioners (“CWG”). This CWG has been created to advise CESR’s Market Abuse expert group. A similar CWG has subsequently been created to advise CESR’s Prospectuses expert group.

The precise role and responsibilities of a CWG are not completely defined at present. What is clear is that it is not their responsibility to draft CESR Consultation Papers or Concept Releases – but that CESR will look to a CWG to comment on the general direction in which CESR indicates it is proposing to go.

What is also clear is that appointment to a CWG is a personal appointment, not a representative appointment. Individuals are chosen by the Chairman of the expert group on the nomination of the national regulators. As with the CESR practitioners panel around 10 people will usually be chosen with a view to the appointees being representative of a wide range of market practitioners and users and a good geographic spread also.

It appears that an expert group will meet on its own to seek to develop consensual positions among the regulators and then, from time to time, may have meetings with its CWG as its drafting develops. The CWG is not a substitute for the consultation process, but it appears likely that it will be used as a pre-consultation sounding board and then, post-consultation as part of the review process prior to finalisation of technical advice.

So, in the case of the Market Abuse expert group the CWG has met with the expert group and been used as a sounding board, and for advice, before a consultation paper is drafted. It is expected that it will also meet to comment on the final draft of the consultation paper before publication and that following completion of the consultation process there will be a further meeting between the expert group and the CWG following the expert group’s initial review of responses to consultation.

Between these meetings the CWG may be requested to provide comments on particular issues by the expert group -–usually by way of e-mail.

Consequently a CWG is not part of the Market Abuse expert group – but an adjunct to it. The expert group is free to ignore advice given by the CWG but in practice can be expected to carefully consider what it says.

The use of CWG’s is likely to develop over time. CESR’s enthusiasm for them is likely to depend in part on their experience with the first few CWGs. Similarly one could expect that some guidelines may be developed to give more clarity to the role of members of a CWG.

Much will depend upon the style and preferences of the chairs of the individual CESR expert groups as it is they who will pick the members of a CWG and they who will decide how they should be used.

From an industry perspective financial institutions are likely to watch closely the output of CESR working groups which use CWGs and try to form a view as to whether the Consultation Papers and Technical Advice resulting from those groups appears to be more practical and attuned to the financial markets concerned. On balance it is to be expected that the industry will welcome the use of CWGs – but they are unquestionably not a substitute for a full and open consultation process, as CESR acknowledges.

The developing role of CESR standing committees

One aspect of CESR’s work which is not completely new, but which should be touched upon for the sake of completeness, is the work of its two standing committees, CESR-Pol and CESR-Fin. These standing committees were originally created by FESCO and have been taken over by CESR.

The first of these committees to be created was CESR-Pol. This was done through a wider memorandum of understanding entered into between the FESCO members in January 1999 named (now) the CESR Multilateral Memorandum on the Exchange of Information of Securities Activities. Effectively it is a committee of the Enforcement arms of the different securities regulators and is used as a clearing house for exchanging information about cross- border enforcement issues. It is also the means through which the regulators seek to improve their co-ordination of enforcement approachs and develop peer review of each others enforcement practices.

The present chair of CESR-Pol is Ms Susanne Bergstrasser, Director of International at the German regulator, BaWe.

CESR’s own description of this committee is as follows:

“The purpose of CESR-Pol is to facilitate effective, efficient and pro-active sharing of information, in order to enhance the co-operation and the co-ordination of surveillance and enforcement activities between CESR members. The objective is to make cross-border infromation flows equally rapid as for a domestic matter and, by doing so, enhance the transparency, the fairness and the integrity of the European markets as a whole.”22

22 “Presentation of CESR-Pol” on the CESR website

CESR-Fin is a more recent creation than CESR-Pol. It’s main purpose is to coordinate the work of CESR members in the area of endorsement and enforcement of International Accounting Standards (IAS) and other financial disclosure requirements in the EU in the context of the EU’s financial reporting strategy. This work is growing in importance as the EU is committed to implementing IAS by 2005.

The implementation of IAS is also closely connected with work on disclosure of financial information and on prospectuses since cross-border comparison of corporate financial information in the EU is problematic in the absence of a common approach to accounting rules and principles across member states.

The members of CESR-Fin are, inevitably, recruited from within the departments of the national securities regulators which are responsible for financial accounting and reporting. The current chair of CESR-Fin is Mr Henrik Bjerre-Nielsen Director-General of the Danish regulator, Finanstilsynet.

CESR today – successes and challenges

This review of the development of CESR’s structure and organisation indicates that CESR has achieved a considerable amount in the past year. It now has a clearly definable structure and it has taken seriously the Lamfalussy expectation that it should put in place good quality consultation arrangements and engage practitioners in its work.

Overall its first year has been a successful year if measured in terms of its ability to define its role and make arrangements to generate work product.23 However, looking ahead CESR faces considerable challenges in the next few years:

- The Lamfalussy process is on trial for the next few years and, in the meantime, there will be those who seek to usurp CESR’s role. Some argue for a pan-European financial services regulator embracing banking, insurance and securities, others, such as the ECB are rumoured to want pan-European responsibility for banking supervision, a third group suggest that there should be a single pan-European securities regulator (a “EuroSEC”). There is immense pressure on CESR to be seen to work well quickly. If it does then it may be able to shape European securities regulation, and its own role, for the foreseeable future. If it does not then the likelihood is that a single regulatory authority of some shape will be set up in its place.

- Resourcing is a big issue. The secretariat is still very small and the amount of work expected is increasing. Time frames are shortening – particularly where the Commission sets them to tie in with its own legislative programme. There is an inherent tension between the EU agenda and domestic agendas and between CESR as a separate entity and the interests of its constituent members in preserving their own national powers. Broadly speaking this tension parallels the inherent tension between member states and the European Union they have created – they benefit from pooling sovereignty but are unsure about how much to give away.

- CESR, like all pan-European entities, will have to reorganise itself to cope with enlargement in a few years. The addition of up to 10 new members will put immense

23 This paper focuses on the constitution and processes of CESR, not on the substance of its work – so my assessment here is equally confined to the effectiveness of its constitution and processes.

strain on the consensual approach to standard setting.

- The involvement of CESR in the EU legislative process greatly increases the pressure on CESR to deliver results quickly. In the past FESCO could decide what it looked at, when, and how long it took. This is now only an option where it is not involved in Level 2 work. Increasingly, as the FSAP reaches top gear over the next two to three years, CESR’s agenda is likely to be driven by the Commission and by the needs of the EU legislative machine. It is likely that the timescale for technical advice will be very short putting huge pressure on CESR (and respondents to its consultations) to produce results. By way of example the Commission originally was seeking for technical advice within 6 months from the publication of its mandates relating to implementing measures for the Market Abuse Directive. This has recently been lengthened to 9 months. By comparison the consultation on the FSA’s Code of Market Conduct, roughly equivalent – but applying in one member state, took around two years (going through several drafts).

CESR, therefore, has made a good start but it is likely to be watched carefully, and judged critically, over the next few years. Those few years will make or break it.

Michael McKee Director Wholesale & Regulation British Bankers Association

The moral right of Michael McKee to be identified as the author of this work has been asserted in accordance with the Copyright, Designs and Patents Act 1988

21 May 2002

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