Micro-prudential supervision

The ESFS’s micro-prudential supervision is aimed at individual institutions. Three sector-specific European supervisory authorities (ESAs) exercise supervision in conjunction with the national supervisory authorities.

Three sector-specific European supervisory authorities (ESAs)

There are three sector-specific European supervisory authorities, i.e. the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities and Markets Authority (ESMA). They have the following main tasks:

  1. improving the operation of the single market by exercising a high, effective and consistent level of prudential regulation and supervision;
  2. protecting the integrity, efficiency and orderly operation of the financial markets;
  3. safeguarding the stability of the financial system and enhancing the international coordination of supervision.

In addition to this mission, the supervisory authorities have certain sector-specific tasks. The EBA protects the interests of deposit holders and investors, the EIOPA protects insurance policy-holders, pension scheme members and other beneficiaries, and the ESMA acts in the interests of investors.

The Netherlands is involved in ESA decision-making

The ESAs’ main decision-making bodies are their Boards of Supervisors. They are composed of representatives of the relevant supervisory authority of each member country. The Dutch central bank (De Nederlandsche Bank, DNB) represents the Netherlands on the boards of the EBA and the EIOPA, while the Netherlands Authority for the Financial Markets (AFM) represents the Netherlands on the board of the ESMA.

The ESAs’ binding and non-binding powers

The ESAs’ mission is to foster cooperation among the national supervisory authorities, to cultivate a joint European supervisory culture, and to ensure the consistent application of EU legislation. They are authorised to draw up binding technical standards as provided for under EU financial legislation. Following endorsement by the European Commission, these standards are directly applicable and do not have to be transposed into national legislation and regulations. The ESAs also have non-binding powers, such as preparing non-binding guidelines, performing peer reviews, initiating stress tests, etc.

The ESAs’ direct supervisory powers

The ESAs have direct supervisory powers over individual financial institutions in the event of:

  • investigations into alleged breaches of EU legislation by national authorities, performed at the request of the European Commission, the European Parliament, the Council, any national supervisory authority or on its own initiative;
  • persistent disagreements between national supervisory authorities, following failed mediation or compromise;
  • emergency situations, such as ‘adverse developments which threaten the orderly functioning and the integrity of financial markets and the stability of the whole or part of the financial system of the Union.’ 

The ESAs’ powers in financial emergency situations

In the event of a financial emergency situation declared by the ESRB and the Ecofin Council, the ESAs are authorised to give instructions to a national supervisory authority. They bypass the national supervisory authorities only if the latter do not act on the ESAs’ instructions, or if they fail to properly enforce European legislation. Instructions given by an ESA may not have any impact on a member state’s national budget.

National supervisory authorities

Under the regulation establishing the ESAs, the member states have a central responsibility for coordinating crisis management and safeguarding financial stability in crisis situations.

In the Netherlands, the Dutch central bank (De Nederlandsche Bank, DNB) supervises the stability of financial institutions. Responsibility for supervising the behaviour of the financial sector as a whole lie with the Netherlands Authority for the Financial Markets (AFM). More about DNB and the AFM:

  • DNB’s supervision
  • AFM activities