Micro-prudential supervision

The European System of Financial Supervisors (ESFS) conducts micro-prudential supervision of individual financial institutions. The supervision is exercised by three European sectoral supervisors (European Supervisory Authorities, ESAs) together with the Joint Committee of the European Supervisory Authorities (JCESA) and the national supervisory authorities. As a member of the respective supervisory boards, the Netherlands participates in the ESAs' decision-making procedures.

Three European sectoral supervisors

There are three European sectoral supervisors: the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA). They are together known as the European Supervisory Authorities (ESAs) and have three main tasks. They:

  • improve the functioning of the internal market by ensuring a high, effective and consistent level of prudential regulation and supervision;
  • protect the integrity, efficiency and orderly functioning of the financial markets;
  • safeguard the stability of the financial system and strengthen the international coordination of supervision.

The supervisory authorities also have specific tasks in their respective sectors. The EBA protects depositors  and investors. The EIOPA protects insurance policyholders and pension scheme members and other beneficiaries. The ESMA protects investors.

The Netherlands participates in the ESAs' decision-making procedures

The main decision-making bodies of the ESAs are the Boards of Supervisors. Every member state is represented on the Boards. De Nederlandse Bank (DNB) represents the Netherlands in the EBA and the EIOPA and the Netherlands Authority for the Financial Markets (AFM) represents the Netherlands in the ESMA.

Binding and non-binding powers of the ESAs

The ESAs are tasked with encouraging cooperation between the national supervisory authorities, creating a common European supervisory structure and monitoring the consistent application of EU legislation. They have the power to set binding technical standards, as laid down in the EU's financial legislation. The EBA's binding powers are laid down in the Capital Requirements Directive and the ESMA's in the Transparency Directive and the Market Abuse Directive. Standards adopted by the European Commission are directly applicable and do not need to be transposed into national legislation. The ESAs also have non-binding powers, such as the adoption of non-binding guidance, the conduct of peer reviews, the initiation of stress-tests, the monitoring and assessment of market developments, the collection of relevant information and the promotion of effective and efficient supervisory practices.

Direct supervisory powers of the ESAs

The ESAs have direct powers to supervise individual financial institutions in the event of:

  • an investigation of alleged breaches or non-application of EU law by national authorities upon the request of the European Commission, European Parliament, Council, a national supervisory authority or at its own discretion;
  • a permanent difference of opinion between national supervisory authorities, following failed mediation and resolution;
  • emergency situations such as 'adverse developments which may seriously jeopardise the orderly functioning and integrity of financial markets or the stability of the whole or part of the financial system in the Union'.

Since 1 July 2011, the ESMA has been tasked with the direct supervision of credit rating agencies. This power centralises and simplifies registration and supervision at European level.

ESAs' powers in a financial emergency

In the event of a financial emergency recognised by the ESRB and the Ecofin Council, the ESAs can give instructions to national supervisory authorities. They pass over the national authorities only if they do not follow up the ESAs' instructions and if they do not apply European regulations correctly. An instruction from an ESA may not have consequences for a member state's national budget.

ESAs' stress test reports

The EBA published the results of its EU-wide stress test of 90 banks in 21 member states, including the Netherlands, in mid-July 2011. The aim of the stress tests was to assess the resilience of the banks to adverse market developments. The methodology was developed in collaboration with the ECB, ESRB and the European Commission. More about the stress test

The EBA monitored the implementation of the recommendations. More about the recommendations.

The Joint Committee of the European Supervisory Authorities

The Joint Committee (JCESA) strengthens cooperation between the three supervisory authorities and acts as a forum for the ESAs to cooperate regularly and closely with each other. The Joint Committee is made up of the chairs of the ESAs. They agree joint positions and prepare joint activities. More about the activities of the JCESA.

National supervisory authorities

The regulations founding the ESAs give the member states core responsibility for ensuring coordinated crisis management and preserving financial stability in crisis situations. The EBA and EIOPA stabilise and resolve failing financial institutions. The ESMA oversees the actors in the financial markets. In the Netherlands, De Nederlandse Bank (DNB) supervises the stability of the financial institutions and the Netherlands Authority for the Financial Markets (AFM) supervises conduct of business in the entire financial market sector.

We have published several reports on the national supervisory system and the credit crisis. More about these reports.

In the report Risks to public finances, Insight and control we mapped out the risks to public finances and presented a first initiative to provide comprehensive information on them.

More about the report Risks to public finances, Insight and control.