Legal alert no. 98

The Joint Committee of the European Supervisory Authorities (EBA, EIOPA and ESMA – “ESAs”) published a Report on the cross-border supervision of retail financial services

On 9 July 2019, the Joint Committee of the European Supervisory Authorities (EBA, EIOPA and ESMA – “ESAs”) published a Report on the cross-border supervision of retail financial services. The Committee analysed several Level 1[1]  European diplomas, where it identified the main obstacles that Competent Authorities (“CAs”) have been facing in regards to this matter, and elaborated recommendations, for both CAs and Member State legislators, in order to overcome them.

At the heart of the Report is the need for clarity and transparency in the cross-border provision of services, be it through the Freedom to Provide Services (“FPS”) or under the Right of Establishment (“ROE”), especially through digital means, as well as the basic principles that should guide cooperation between CAs, so as to guarantee greater protection to consumers.

The Report establishes the general principle under which the prudential supervision of financial institutions (“entities”) providing cross-border services is the home CA’s responsibility, and the role of the host CA’s is mainly one of behavioural supervision, focused on compliance with conduct of business rules, including those related to information to be provided to consumers, and transparency conditions. Exceptionally, this principle may be waived, making it possible (i) in emergency situations, (ii) for host CAs to adopt cautionary measures aimed at an entity in their jurisdiction, (iii) as long as such measures prove to be necessary to address a threat to local consumers.

Another relevant aspect, applicable to entities under both FPS and ROE, is the Committee’s concern about the lack of clear criteria for determining the place from which financial services are being provided. This gap is exacerbated in cases where entities resort to digital media. Consequently, the CA in relation to a certain conduct may sometimes be difficult to ascertain.

The Committee also identified the existence of a cooperation principle between CAs, although with different extensions throughout the relevant European diplomas. Its implementation is exemplified by the fact that home CAs may carry out an inspective action in a branch headquartered at a different Member State, as long as it is preceded by a reasoned and well-timed communication to the host CA, who has the right to take part in said inspections. CAs also have the power to request that their counterparties in another Member State carry out inspections on entities headquartered in their jurisdiction. The requested CA is free to examine the request and, with due justification, refuse it. Ultimately, it is up to the respective ESA (EBA, ESMA or EIOPA) to mediate a conflict between two CAs.

Lastly, the Committee considers it legitimate for host CAs to request information from branches, albeit with a very limited scope, such as statistical purposes.

Since a full and exhaustive analysis of the Report is incompatible with the nature of this Legal Alert, we invite the reader to consult the full document, available here.



[1] Paragraph 42 of the Report indicates which Directives and Regulations were part of the Committee’s study.

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