The European Securities and Markets Authority (ESMA) may need a new funding model in order to meet its regulatory and data collection obligations, said its chairman, Steven Maijoor.
Among other ongoing responsibilities, the pan-European markets watchdog’s resources are currently being stretched by a requirement to develop technical standards for three major pieces of legislation: the European market infrastructure regulation (EMIR); the central securities depository regulation; and MiFID II.
Speaking at the Association for Financial Markets in Europe post-trade conference in London today, Maijoor said it is difficult for ESMA to raise more money due to the way it is currently funded.
“Right now, we get our funding from the national competent authorities, but they are also having to implement more regulations, which puts pressure on their budgets,” he explained. “For many of the smaller regulators, the cost of ESMA is 20-30% of their budget, so there is little scope for them to pay more.”
The pan-European securities regulator has expanded its staff numbers significantly, doubling each year for the past three years. However, market participants and ESMA itself have raised concerns about how it will be able to effectively create technical standards for three major pieces of regulation as well as monitor the vast quantity of data is has begun collecting from firms with less than 200 staff.
Maijoor said a change in funding model might be needed to enable ESMA to properly meet all its obligations.
“It might be better for ESMA to be funded in part out of the European Union’s budget and also directly by regulated firms themselves.”
He also called on the industry to help to collate and analyse the OTC and listed derivatives data provided by trade repositories under EMIR in order to identify potential risks in the system.
However, regulated firms are already bearing significantly higher compliance costs, in part due to the wide scope of regulatory change required in a short period.
Paul Symons, head of public affairs at Euroclear, said the industry was facing a tight schedule to implement post-trade regulations.
“We’ve been waiting 10 years for post-trade regulation to be introduced and now we have all of it being squeezed into an 18-month period. It simply isn’t practical to force all of this regulation on the industry at the same time,” he explained.
He added that technical standards on settlement discipline and a new buy-in regime would, if provided by ESMA early next year, not be fully implemented until 2016 due to existing compliance projects.
While Maijoor said he was keen on implementing further regulations in Europe, as opposed to directives, as this would harmonise the regime across borders. While regulations set out firm rules for the whole of the EU, directives are usually more vague and principles based, enabling national reglators to interpret them. However, some speakers at the conference were critical of the broad application of some rules.
Diana Chan, CEO of pan-European equities clearing house EuroCCP, said: “Some of EMIR’s provisions for collateral are not appropriate for an equities CCP. For example, we see very little demand from customers for segregation in the equities space.”
A number of speakers also said open access to CCPs was not appropriate for the derivatives market due to the lack of fungibility in the asset class compared to equities.