ESMA is an abbreviation for European Securities and Markets Authority, a European authority working under the European Union (EU) that helps in keeping investors secure and maintains order in the financial markets.
The main objectives of ESMA, include:
- Supervising securitization repositories, trade repositories, and credit rating companies;
- Encouraging supervisory convergence;
- Helping in maintaining the rule book for financial markets in the EU;
- Assessing risks to markets and investors; and
- Maintaining financial stability.
The History of ESMA
ESMA came into being as a result of the Larosière report that revolved around the formation of ESFS, an abbreviation for the European System of Financial Supervision. It started its operations on January 1, 2011, and replaced the Committee of European Securities Regulators (CESR) that served a similar function earlier when ESMA wasn’t founded.
The Activities of ESMA
As mentioned earlier, ESMA has certain objectives and missions. We’ve also established who ESMA applies to and how it was founded. Now let’s have a detailed look on how it works and fulfills its objectives. ESMA assesses risks to financial stability, markets, and investors to spot vulnerabilities, risks, and emerging trends. It performs it all in a timely manner so that they can be acted upon.
ESMA also determines new developments in the market using its unique position. It keeps a check on everything that threatens the functioning of financial markets, investor protection, or financial stability. It uses assessments by NCA and European Supervisory Authorities (ESA) to build its own risk assessments that revolve around stability risks in EU’s financial markets.
Furthermore, these assessments are divided into two kinds as they have two types of benefits, internal and external. Externally, they help in promoting and maintaining transparency. They help in keeping investors secure by providing the investors with the required information, including access to databases and public registries. Also, they monitor the risks as well as benefits of financial innovations in the European Union.
Apart from that, it also serves quite a purpose internally. It feeds the rulebook of ESMA in an efficient manner. It also helps with supervisory convergence and caters to the particular financial entities.
Moreover, supervisory convergence is a major objective for ESMA. It refers to maintaining the status quo, applying and implementing similar rules using similar approaches across all the states in the EU. The central idea behind it is to ensure that there’s no disparity among all member states. It also makes sure that markets remain in order while protecting investors and ensuring financial markets’ safety.
It also works in maintaining the best practices among the financial industry and this entire activity is performed in collaboration with NCAs. Over and above that, ESMA works in actively supporting international supervisory coordination.
The Final Word…
The financial industry is going down across the globe. It is mainly happening because of the absence of a supervisory body. The financial industry in the EU states is relatively better and investors are comparatively secure. It is because of the efficiency of ESMA.
ESMA is effectively working in keeping the system straight, maintaining order in the financial markets, and keeping investors and their money secure. That being said, it is actively promoting better coordination among all member states, which is another plus. All these things, when combined, are improving the financial industry in the EU member states. It is promoting ease of business and contributing to the economy, allowing people to pour in and take out the money effortlessly.