LONDON (Reuters) - The European Union’s markets watchdog should have the right to review how asset managers delegate tasks, the bloc’s lawyers said in a legal opinion likely to trigger fresh concerns in the global investment sector.
The EU wants to beef up its three pan-European supervisory authorities, or ESAs, who supervise insurers, markets and banks, but some member states are leery at the prospect of their national supervisors losing clout.
EU states asked the bloc’s legal service to check whether handing more supervisory tasks to the three bodies was compatible with founding treaties and the “Meroni” EU court ruling.
The legal service said in a June 25 opinion seen by Reuters that the EU plans generally don’t go against “Meroni”, a 1956 EU court ruling that limited how much of the European Commission’s decision-making powers can be delegated to agencies like ESAs.
The 23-page opinion said the proposed powers for the European Securities and Markets Authority (ESMA) to make recommendations on arrangements made by banks and asset managers to outsource or delegate tasks to staff and bodies based in another country complied with Meroni.
Luxembourg, a major center for listing funds managed in Britain or the United States, had expressed concerns about ESMA’s role, while France is seen as wanting more asset managers based in the bloc after Britain’s departure next March.
Asset managers in the United States and Britain have warned the EU against uprooting the long-standing global practice of delegation.
Recommendations would not breach Meroni because they are not legally binding, the opinion said.
“Nothing in the two provisions under examination suggest that the national competent authorities are bound by the ESAs recommendation and obliged to comply with its content,” the opinion said.
“In both cases, the competent authority retains its power of discretion to adopt a final decision on the matter covered by the recommendation.”
It also backed ESMA making recommendations to national supervisors on their work programs.
But ESMA’s proposed powers to adjust capital requirements at European venture capital funds “ought to be further circumscribed”, the document said. Defining what are considered to be sufficient capital requirements is part of core EU policy and not a matter for wide discretion at ESMA, the opinion said.
ESMA’s proposed powers for supervising major market benchmarks compiled outside the bloc should also be curbed “to avoid a situation in which ESMA would be in a position to develop the Union’s policy on the endorsement of benchmarks provided in third countries”.
The opinion also raises concerns about proposed powers for ESMA to directly supervise prospectuses issued by companies wanting to list their shares and bonds, the opinion said.
The EU wants to beef up the powers of ESMA to build a capital markets union, seen as a more pressing need given that the bloc’s biggest market, Britain, leaves next March.
The opinion could temper any push to turn ESMA into a European counterpart of the powerful U.S. Securities and Exchange Commission.
Reporting by Huw Jones, Editing by William Maclean