Legal Aspects of Finance Slide Set 4 The Single European Financial Market Free Movements and Basics of Regulation The Supervisory Bodies Matti Rudanko

ESMA – European Securities and Markets Authority On January 1, 2011, the Committee of European Securities Regulators (CESR) officially became the European Securities and Markets Authority (ESMA). Today, ESMA released an FAQ as a guide to understanding the new entity. Please find a copy of the FAQ available via the following hyperlink: European Securities and Markets Authority (ESMA) Additionally, the CESR website has officially transitioned over to an ESMA domain. All sub-domains and databases now end with esma.europa.eu rather than cesr.eu. Legal Aspects of Finance 4 2

3 ESC (and CESR) the European Securities Committee –to advise the Commission on policy issues as well as on draft legislative proposals –composed of high level representatives of Member States and chaired by a representative of the Commission the Committee of European Securities Regulators CESR (now replaced with ESMA) –Its role was to advise the Commission, in particular for the preparation of draft implementing measures in the field of securities. It was a pivotal regulatory body –It was composed of high-level representatives from the national public authorities

ESMA, EBA and EIOPA ESMA is an independent EU Authority that contributes to safeguarding the stability of the European Union ‟ s financial system by ensuring the integrity, transparency, efficiency and orderly functioning of securities markets, as well as enhancing investor protection. In particular, ESMA fosters supervisory convergence both amongst securities regulators, and across financial sectors by working closely with the other European Supervisory Authorities competent in the field of banking (EBA), and insurance and occupational pensions (EIOPA). Legal Aspects of Finance 4 4

Why was ESMA created? Why have a pan-European body? Despite the fact that financial institutions operate across borders using the single market, supervision had remained mostly at national level, uneven and often uncoordinated. They concluded that a stronger financial sector in the EU would require in the future for there to be even greater convergence between Member States on technical rules, and the establishment of a mechanism for ensuring agreement and co-ordination between supervisors of the same cross-border institution or in colleges of supervisors. Legal Aspects of Finance 4 5

The new competences and powers of ESMA Although ESMA will continue the work of the CESR, ESMA will have new competencies and powers, which include i.a.: –the ability to draft technical standards that are legally binding in EU Member States; –additional responsibilities for consumer protection (including the ability to prohibit financial products that threaten financial stability or the orderly functioning of financial markets for a pe-riod of three months); –emergency powers; –monitoring systemic risk of cross border financial institutions; –a new supervisory role (in particular for credit rating agencies); –the ability to enter into administrative arrangements with supervisory authorities, international organisations and the administrations of third countries. Legal Aspects of Finance 4 6

7 IOSCO The International Organization of Securities Commissions (Finnish member: FSA) to cooperate together to promote high standards of regulation in order to maintain just, efficient and sound markets; to exchange information on their respective experiences in order to promote the development of domestic markets; to unite their efforts to establish standards and an effective surveillance of international securities transactions; to provide mutual assistance to promote the integrity of the markets by a rigorous application of the standards and by effective enforcement against offenses.

Legal Aspects of Finance 4 8 Internal Market view EU Directives under the responsibility of the Internal Market DG ensure the development of a single securities market for both new issues and trading of securities. They regulate the initial and on-going conditions for service providers (investment firms), establish requirements for the issuance of securities (both as regards public offers of securities and requirements for securities to be listed on a stock exchange) and co-ordinate the conditions applicable to investment funds. The conditions for the setting-up of investment firms and their on-going business are similar to those for banks, and provide for a level playing field between non-bank investment firms and banks providing investment services. The legislation on issuance of securities lays down minimum requirements for the information that must be disclosed to the public and facilitates cross-border issuance of securities. The legislation on investment funds (UCITS) facilitates the distribution of units of such funds across the Community.

Legal Aspects of Finance 4 9 European internal market Financial services : EU-Japan High Level Meeting on Financial Issues (MEMO/06/14)EU-Japan High Level Meeting on Financial Issues Industrial Property : Consultation on future patent policy in Europe (IP/06/38)Consultation on future patent policy in Europe Motor insurance : Commission report on motor insurance issues (IP/06/24)Commission report on motor insurance issues Financial services : Third meeting of the Inter- institutional Monitoring Group (IP/06/25)Third meeting of the Inter- institutional Monitoring Group Financial services : 2005 was a year of achievement, says Commission report (IP/06/13)2005 was a year of achievement, says Commission report

Legal Aspects of Finance 4 10 Free movement of capital Free movement of capital is at the heart of the Single Market and is one of its 'four freedoms'. It enables integrated, open, competitive and efficient European financial markets and services - which bring many advantages to us all. For citizens it means the ability to do many operations abroad, as diverse as opening bank accounts, buying shares in non-domestic companies, investing where the best return is, and purchasing real estate. For companies it principally means being able to invest in and own other European companies and take an active part in their management. See list for a comprehensive overview of all operations considered as capital movements.

Legal Aspects of Finance 4 11 Freedom to provide services / Freedom of establishment The freedom of establishment, set out in Article 43 of the Treaty and the freedom to provide cross border services, set out in Article 49, are two of the “fundamental freedoms” which are central to the effective functioning of the EU Internal Market. The principle of freedom of establishment enables an economic operator (whether a person or a company) to carry on an economic activity in a stable and continuous way in one or more Member States. The principle of the freedom to provide services enables an economic operator providing services in one Member State to offer services on a temporary basis in another Member State, without having to be established.

Legal Aspects of Finance 4 12 Company Law & Corporate Governance European Corporate Governance Forum Cross-border mergers Directors' remuneration Responsibility of board members Independent directors Shareholders' rights Companies’ capital Transparency obligations of traded companies European Company "Societas Europaea" European Company Takeover Bids

Legal Aspects of Finance 4 13 Core regulation and framework Investment services and regulated markets (MiFID)Investment services and regulated markets (MiFID) Market abuse Prospectus Directive Risk capital Transparency obligations of traded companiesTransparency obligations of traded companies Asset Management Investment funds Financial Analysts Rating Agencies ESC and CESRESCCESR Clearing and settlement Settlement Finality Collateral Hague Convention 2006Hague Convention –Law applicable to securities held with an intermediary