LONDON (Reuters) - The European Union’s securities watchdog wants new powers over clearing houses, credit rating agencies and some financial benchmarks that operate in the EU but are based outside the bloc, as Brexit ushers in fundamental changes to markets.
The European Securities and Markets Authority (ESMA) said on Tuesday that clearing houses, which are currently supervised by national regulators, warrant strengthened and potentially centralised supervision in the EU.
It was responding to a European Commission consultation on whether changes are needed to financial supervision in the EU.
The powers ESMA wants stop short of creating a European Securities and Exchange Commission, but would significantly beef up EU-level supervision.
The watchdog said Brexit, which will remove Europe’s biggest financial market from the bloc, and efforts by the EU to build a capital markets union (CMU) meant reform is needed.
“It will be important to find a new balance to foster the single market, reduce barriers, and avoid regulatory and supervisory arbitrage among jurisdictions,” ESMA Chairman Steven Maijoor said in a letter to the Commission, and made public on Tuesday.
Brussels is due next month to publish a draft law on supervision of clearing euro-denominated transactions after calls from EU policymakers for this activity, which London dominates, to be moved to the euro zone due to Brexit.
ESMA said that while there were “divergent views” among its board members over the best approach to supervising clearing houses, it could be based on some form of “pooled expertise at EU level”.
ESMA also said centralised supervision of clearing could be “complemented” by a role for central banks, without elaborating.
ESMA last month proposed tougher conditions on the use of credit ratings compiled outside the bloc, potentially making it harder for rating agencies in Britain to offer their services in the EU after Brexit.
On Tuesday it went further, calling for powers to directly supervise credit rating agencies as well as clearing houses, trade repositories and major market indices or benchmarks that are active in the EU but based outside the bloc - again making Britain a focus as London-based firms are major players.
Major benchmarks and market data providers based inside the EU should also be regulated directly by ESMA, it said.
The watchdog called for a bigger role in endorsing new global accounting rules for use in the EU, thereby limiting the bloc’s existing advisory group to “purely technical advice”.
Patrick de Cambourg, head of French accounting standards body ANC, said in a separate letter to the Commission that he opposed giving ESMA more say over book-keeping rules because the advisory group was itself reformed only two years ago.
ESMA also said it wants powers to suspend financial rules in the EU on a temporary basis, similar to the “no action” letters U.S. regulators can send financial firms when a deadline for compliance has no chance of being met.
It will be up to the European Commission to propose any legislative changes, which would need approval from the European Parliament and EU states.
Reporting by Huw Jones, editing by Susan Fenton