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Chapter 2 charted the reforms made in the aftermath of the fall of the Santer Commission, including the emergence of a constitutional framework for Union administration embodied in the Financial Regulation of 2002. The divide between centralized and shared administration was central to the reform initiatives and also to the structure of the new Financial Regulation. This chapter takes the story forward by considering the regime that governs centralized EU administration. The discussion begins with a brief overview of the rationale for centralized administration and the problems encountered in the past. This is followed by a detailed analysis of the regime for centralized administration found in the Financial Regulation and related instruments. Thereafter follows an examination of the use of executive agencies in specific areas of EU policy, with a particular focus on the energy sector. The discussion concludes with reflections on the role of law within centralized EU administration.

This chapter focuses on the impact of the resignation of the Santer Commission, which had profound significance for EU administration, and the controls to which it was subject. The resignation received front-page attention in the press, proof for those minded to believe it of the malaise which had long existed within that organization. Its downfall was prompted by the First Report of the Committee of Independent Experts. This was followed in quick succession by reforms instituted by Romano Prodi as the new President of the Commission, by the Committee of Independent Experts' Second Report, by the White Paper on Reform of the Commission and implementation of these reforms. An understanding of these developments is crucial in order to appreciate the current pattern of EU administration. The chapter charts these developments leading to administrative reform, including the Financial Regulation of 2002, which established a constitutional framework for Union administration of the kind that had not existed hitherto.

This chapter considers the emerging regime that governs centralized/direct Community administration. It begins with a brief overview of the rationale for centralized/direct administration and the problems encountered in the past. It then analyses the regime for direct administration found in the new Financial Regulation and related instruments. It also examines recent initiatives with the use of executive agencies within specific areas of Community policy, with a particular focus on the energy sector. The chapter concludes with reflections on the role of law within direct Community administration.

This chapter presents the classical banking regulatory framework relying exclusively on microprudential policy and its relevance for future regulatory policy. It offers the rationale for microprudential policy, describes its limitations in managing systemic risk, and discusses the impact of the new regulation framework issued by the Basel committee and the Financial Stability Board, as well as its implementations in the Dodd-Frank Act and the new European Directives. It then describes what elements are still missing from the microprudential regulatory framework to make it more effective, including in the area of too big to fail policies, structural measures, resolution frameworks, and risks from over the counter markets. Finally, it explains why microprudential policy alone is insufficient to manage systemic risk, and why there is the need for a new, complementary framework that includes macroprudential policy.

The EU currently manages access by non-EU/-EEA states to the EU financial market through its ‘third country’ rules, which typically require that the financial governance regime of the state in question is ‘equivalent’ to the EU regime. However, the UK's departure from the EU by 31 March 2019 has raised questions about how UK, as a ‘third country,’ ensures access to the EU financial market, and how a related Free Trade Agreement (FTA) might be configured. This chapter first considers the current regulatory requirements governing third country access to the EU capital market and their implications for the Capital Markets Union. It then examines the evolution of third country/equivalence-related techniques internationally for capital markets and how they might be relevant for the EU. It also speculates as to how the EU's equivalence arrangements for third countries are likely to develop, including in the context of an EU/UK FTA.

This chapter lists the key aspects of an effective macroprudential regulatory framework, a list of remaining challenges for creating an effective macroprudential regulatory framework, and an overview of remaining issues in financial regulatory reform more broadly. Remaining challenges include the optimal size and structure of the financial system, a credible mechanism to intervene early on in failing financial intermediaries, disclosure and accounting reforms, a restoration of market discipline at financial intermediaries, including good corporate governance standards in banks, and better macroprudential supervision with complete data for supervisors, substantial better models and real time measures of systemic risk. The chapter also discusses outstanding issues related to the institutional setup and organization of macroprudential policy, including the existing toolkit, the regulatory challenges arising from regulatory arbitrage, the multiplicity of regulatory bodies in the US, the creation of a banking union in the EU, the supervision and resolution of cross-border financial institutions, and some international policy spillovers, including the impact of monetary policy of US and Europe for emerging countries’ asset and credit bubbles through international capital inflows. The chapter concludes that domestic macroprudential policy can be distortionary and that international coordination of macroprudential policies will be essential.

Recent years have witnessed a tidal wave of new EU financial regulation in general and investor protection legislation in particular. The Capital Markets Union project has added a number of further initiatives. This chapter attempts to bring some order in the multitude of rules, by sorting them into three main building blocks: information, service quality requirements (conduct of business rules), and product regulation. A general trend among the three building blocks is a more cross-sectoral approach to investor protection, levelling the playing field between banking, investment, insurance, and personal pension products and services. This trend towards a more horizontal approach, although not perfect, is laudable. A challenge for EU financial regulation is to decide how far this trend should go.

The budget of the European Union is, in many respects, an innovative transnational public finance experiment. The transition to a system of own resources in the 1970s marked an attempt to push beyond the traditional model for financing international organizations (through ‘national contributions’ from the budgets of the participating states) to establish an autonomous European budgetary order that would complement the ‘new legal order’ of Community law. Expectations may not have been fully realized in that regard, but today’s Union does enjoy a level of budgetary autonomy far exceeding that accorded to other treaty-based organizations. On the expenditure side, over 94 per cent of the budget is invested in common European policies, and it performs transnational redistributive functions in certain policy sectors. Moreover, the institutional framework for the establishment and control of the budget includes particular features, such as a strong parliamentary dimension to decision-making on expenditure and an independent Court of Auditors, that are more characteristic of the budgetary system of a state.

The forced resignation of the Santer Commission was prompted by the First Report of the Committee of Independent Experts. This was followed in quick succession by reforms instituted by Romano Prodi as the new President of the Commission, by the Committee of Independent Experts' Second Report, by the White Paper on reform of the Commission and implementation of these reforms. An understanding of these developments is crucial in order to appreciate the current pattern of Community administration. This chapter charts these developments leading to administrative reform, including the emergence of a constitutional framework for Community administration embodied in the new Financial Regulation.

The new Financial Regulation contains provisions dealing with shared management, as well as direct/centralized management. There are nonetheless many issues posed by shared management that are not touched by the new reforms. This chapter explores these problems in the context of the Common Agricultural Policy (CAP) and the Structural Funds. These problems cannot be ignored by anyone seriously interested in law and administration within the EU, both because expenditure in these areas consumes a large part of the Community budget, and because the regime of shared management poses unique problems and challenges.

Securitisation represents a significant worldwide source of capital market financing. European investors commonly invest in asset-backed securities issued in U.S. securitisation transactions, and vice versa One of the key goals of the European Commission's proposed Capital Markets Union (CMU) is to further facilitate securitisation as a source of capital market financing as a viable alternative to bank-based finance for companies operating in the EU. To that end, this chapter explains securitisation and attempts to put its rise, its decline after the global financial crisis, and its recent CMU-inspired revival into a global perspective. It examines not only securitisation's relationship to the financial crisis but also post-crisis comparative regulatory approaches in the EU and the United States.

The previous chapter charted the reforms made in the aftermath of the fall of the Santer Commission, including the emergence of a constitutional framework for Union administration embodied in the Financial Regulation 2002. The divide between centralized and shared administration was central to the reform initiatives and also to the structure of the Financial Regulation 2002, now contained in the Financial Regulation 2012. This chapter will take the story forward by considering the regime that governs centralized EU administration.

This chapter presents the “new” financial regulatory framework that relies on both microprudential and macroprudential policies to manage systemic risk. It gives an overview of macroprudential tools and then discusses the tradeoffs involved in choosing an optimal policy mix and the practical considerations when implementing these tools. It also analyses whether macroprudential policy setting should be within the same organization or a different organization than microprudential policy. The chapter also presents a critical review of the Basel III regulatory framework and the EU and US regulations. The analysis of the effectiveness of macroprudential tools is illustrated with case studies. The chapter emphasizes the preventive role of macroprudential policy in limiting the possibility and impact of financial crises, and concludes that the macroprudential policy mix needs to be chosen such that it deals both with the time and cross-sectional dimensions of systemic risk. This requires a multitude of measures and there is a risk that they will conflict with each other even though they share the same objective. Also, macroprudential policy should be combined with strong supervision, with an increased focus on the buildup of systemic risk through correlated risk exposures and risk taking by systemically important financial intermediaries.

This chapter focuses on FinTech, which offers firms and individuals new ways for accessing alternative sources of finance. It first examines the main types of alternative finance which technology has helped to develop and could further complement the traditional markets, focusing on marketplace investing and its perspectives in Europe. It then analyzes financial return crowdfunding as an application of marketplace investing; its main business models, such as investment-based and loan-based crowdfunding; and the risks and benefits deriving from them. Next, it compares the different regulatory models applicable to crowdfunding at EU and member states' levels, distinguishing between the traditional approach, which extends existing banking or financial regulation to these new sectors, and the ‘innovative’ approach contemplating ad hoc regimes for crowdfunding. The final section suggests a tailored policy approach to marketplace investing in the Capital Markets Union.

Pursuant to Art 70 Draft Financial Regulations, two independent and impartial auditors will be appointed (Art 75(1) Draft Financial Regulations). The working group had been of the opinion that one auditor could be sufficient to fulfil the function effectively during the start-up period but eventually decided that two auditors should be appointed for reasons of transparency and proper control. The Budget Committee may appoint a third auditor if it is deemed necessary (Art 70(1) Draft Financial Regulations). The auditors are appointed by the Budget Committee with the CMSs able to propose candidates who will be included in a list from which the auditors will be recruited (Art 70(1) Draft Financial Regulations). The auditors may not have been staff members of the Court in the three years prior to their appointment (Art 70(2) Draft Financial Regulations), must be experienced in auditing, and should preferably have served as auditors in the public administration of a CMS. They should also be fluent in at least one working language of the UPC and able to work in a second language. All three working languages of the UPC have to be represented (Art 70(2) and (3) Draft Financial Regulations). The auditors are appointed for a period of four years and may be reappointed once (Art 70(4) Draft Financial Regulations). They may not take up employment at the Court in the three years following their term of service and will remain in office until a successor has been found to fill their position (Art 70(5) Draft Financial Regulations).

The budget allows the Budget Committee to estimate the revenue of the Court and the expenses necessary to guarantee the functioning of the Court (Art 15a Draft Budgetary and Financial Regulation). According to Art 29 of the Draft Budgetary and Financial Regulation, the adoption of the budget by the Budget Committee creates the obligation of the CMSs to pay the respective sums to the UPC and empowers the Presidium and the Registrar to make the financial commitments necessary for the purposes of the Court. The costs to be paid by the CMSs include the costs of running the training centre and the mediation and arbitration centre (Art 15a Draft Budgetary and Financial Regulation). The budget further serves as the basis for calculating the financial contributions due from the CMSs to set up the Court (Art 37(2) UPCA). Moreover, the budget will serve as the basis for calculating the contributions by the CMS during the first seven years of operation when the Court will not be able to cover all of its costs from its revenue (Arts 36 and 37(3) and (4) UPCA). The budget will also set out the financial obligations of the Presidium (Art 16 Draft Budgetary and Financial Regulation).

Brexit will have a considerable impact on various segments of economic, social, and personal life. This chapter outlines a few aspects that are of particular importance for the financial services activity. One issue relates to the conditions for EU banks and investment firms to obtain access to each other markets. Today, firms from both sides enjoy passporting rights: they are entitled to establish themselves throughout the Union without any additional authorisation, remaining subject to their home regulation and supervision, the latter being largely harmonised. After Brexit, free access will not be the rule anymore: UK firms, products, and services will be governed by the ‘third country’ regime, calling for authorisations or additional requirements. The remainder of the chapter discusses the equivalence of third country regulations or standards, euro derivatives clearing, and Brexit and the European Banking Authority.

The Introduction introduces the topic of the book, explains the rationale for writing the book, and gives an overview of the book. It explains how a call for macroprudential policy grew out of the crisis with a view to better manage boom-bust cycles and safeguard the stability of the financial system going forward.