ESMA Case: EU Agencies' Powers and Financial Stability

The ESMA Case: Powers of EU Agencies

ESMA Case

Problems with EU agencies include a lack of democratic legitimacy and the fact that they do not have normative powers. (The two sources of democratic legitimacy are the European Parliament and the Council of the EU, together with the European Council.) The EU still needs agencies because of the level of expertise required.

Facts

• The "ESMA Regulation" gave powers to ESMA to “prohibit some financial activities that threaten the financial markets or the stability.”
• Later, “the Regulation” further increased powers – Article 28 of the Regulation allowed ESMA to intervene with short sale transactions if it thinks that there is a threat to the functioning and stability of a financial market or the financial system in general.
• If under a threat, it would be able to prohibit any short sale transaction.

UK Arguments

1. Regulation contradicted the Meroni doctrine (delegation of powers too broad and insufficiently defined is prohibited).
2. Contradicted the Romano doctrine - agencies should not adopt normative measures.
3. Contradicts Articles 290 and 291 TFEU - these permit delegation of powers only to the Commission.
4. Breach of Article 114 TFEU – the Council and Parliament acted ultra vires as they didn’t have a legal basis to do so.

ECJ’s Decision

The ECJ rejected the arguments:

1. Compatible with the Meroni doctrine. Article 28 did not give ESMA any power that goes beyond the objectives. ESMA’s power to intervene with short sale transactions was subject to substantial and procedural conditions and limits, and the provisions were “delineated to judicial review.”
2. Romano doctrine: Only clearly executive powers were delegated to ESMA. It was allowed to adopt acts of general application.
3. No contradictions with Articles 290 and 291. Firstly, they do not represent a closed system of delegation of powers. Secondly, ESMA was a specialized agency, and the nature of the decisions was different from those under Articles 290 and 291 TFEU.
4. The Council and the Parliament did *not* act ultra vires in enacting the Regulation.

Analysis of Article 114 TFEU

Two requirements to adopt a legislative act under Article 114 TFEU:

• Aim of approximation of the provisions relating to the internal market, and
• Its object must be the establishment and functioning of the internal market.

‘Measures for the approximation’ is interpreted as encompassing the EU legislature’s power to lay down measures relating to a specific product or class of products, as well as, if necessary, individual measures concerning those products.” The Regulation’s object was the establishment and functioning of the internal market, and ESMA’s powers were aimed at the preservation of a stable functioning of the internal market.