I. Introduction
European Union (EU) governance has never been more in the spotlight than in current times. Regulatory, administrative and policy studies began to devote broad attention to it more than a decade ago as a consequence of financial and political crises all over the EU, with a focus on understanding how it could help with managing the gap in confidence in EU institutions and its alleged ineffectiveness.
Most current studies on the functioning of EU governance have focused on the growing role of agenciesFootnote 1 and on “agencification”.Footnote 2 Another key topic for current investigations is the role of networks and their relationships with agencies.Footnote 3 Although regulation is still the preferred focus,Footnote 4 comprehensive studies on enforcement are slowly gaining ground with reference to Europe, in light of the growing need to fill the so called “implementation gap”, often attributed to Member States’ lack of compliance.Footnote 5 Accordingly, new theoretical frameworks and research strands accounting for the various and innovative shapes of enforcement governance have been set up, mostly addressing those governance changes leading to more centralised or shared functions.Footnote 6 Recently, networks in enforcement have also been investigated.Footnote 7
Yet, enforcement studies in the EU display a twofold gap. First, they mainly rely on theoretical assumptions and legal theory, with scarce evidence being gathered from empirical research. Second, they are mostly conducted at the EU level,Footnote 8 paying little attention to the national perspective,Footnote 9 despite the fact that national administrations are not only objects but also (key) subjects of the EU policy process.Footnote 10
Agencies’ regulatory capacity is strictly linked to their enforcement capacity.Footnote 11 Therefore, underestimating the active role that national competent authorities (NCAs) play in larger integration processes – from setting up public policies to ensuring their correct implementation – may compromise an exhaustive comprehension of the phenomena.
This paper aims to contribute to the mentioned literature mainly in two ways.
First, with an analytical aim, it focuses on the key sector of financial supervision and the European System of Financial Supervision (ESFS), and asks whether and how the distribution of enforcement competences therein has changed over time. It provides an interesting example of the complex evolution of EU governance, from the establishment of informal networks to agencification and, as will be argued, to greater institutionalisation.
Second, an empirical assessment of the Italian NCAs involved in the ESFS was conducted with an interpretive aim, to shed light on how new shapes of enforcement governance have an impact at the national level. Italy has a long history of delayed or partial EU law implementation and enforcementFootnote 12 and may therefore serve as a case study. To this aim, a distinction was made among the three sub-sectors of financial surveillance, and the patterns of networked enforcement previously illustrated were deployed, this time as independent variables to explain the differences emerging among the NCAs. Their different degrees of “legitimisation” were considered to be the key variable for explaining NCAs’ variation.
Considering the above, the focus of this paper is on both the organisational changes that have occurred in light of the new European enforcement governance and how they are perceived in Italian NCAs’ enforcement activities following their involvement therein. Direct enforcement is considered in its broader definition,Footnote 13 encompassing more phases, from monitoring to investigation (through inspections, although only eventually) to the final decision, which may not necessarily result in a sanction.
The underlying theory is an institutionalist one,Footnote 14 according to which the implementation of formal changes succeeds if all the actors concerned are committed to this aim. In addition, no “one size fits all” solution exists when it comes to the relationships between EU and domestic institutions,Footnote 15 whereas much depends on the national administrative cultures actively involved in the implementation process.Footnote 16 Accordingly, we may expect that NCAs, taken as institutional organisations, are generally reluctant to change their standard procedures and structures and are more willing to replicate them as appropriate,Footnote 17 provided that “institutionally grown structures and routines prevent the easy adaptation to exogenous pressure”.Footnote 18 This, according to some prevalent theories, is even truer with reference to Italy and Western Europe, where administrative traditions have proved to be particularly persistent and prone to self-reproduction.Footnote 19
The main hypotheses were the following. Regarding the first research issue, the kinds of relationships between national and EU actors in the ESFS change among the three financial branches therein (banks, securities markets and insurance) according to the specific actors involved, although it is often considered to be a homogeneous governance system. In other words, where the network also involves EU institutions whose legal foundation is more strictly linked to the Treaties, enforcement powers tend to upgrade at the EU level. In addition, enforcement tasks tend to be conducted at the upper level as governance gains complexity.
Regarding the second research issue, the main hypothesis was that both NCAs’ perception of their own role in enforcement and their organisational structure are likely to change differently according both to the network’s characteristics and the legitimacy they attribute to the EU authority at top of the network.
The paper is structured as follows. Section II analyses the evolutionary process of enforcement governance in financial supervision and identifies current patterns of networked enforcement for each of the three financial branches. Section III illustrates the empirical analysis conducted at the national level. In Section IV, some conclusions are drawn.
II. Networked enforcement in the ESFS
Regulatory cooperation between national and EU actors in the financial sector has assumed many shapes. We may identify a trend from a looser and more collegial structure to a more institutionalised and hierarchical one.Footnote 20
In this paper it is argued that in this policy field, the same is noticeable regarding the cooperation of national and EU actors in regulatory enforcement, although the latter was traditionally the competence of Member States regardless of whose regulatory competence it was. After the late 2000s’ economic crisis, the EU pushed for major changes in the financial sector, pointing to Member States’ inefficiencies and discrepancies for a harmonised financial environment. This caused a three-step process leading to a broader institutionalisation of the enforcement governance of the EU financial sector. Moreover, its current configuration displays three unique patterns depending on the specific financial branch considered.
First, the evolution of enforcement governance is briefly illustrated; second, I focus on its current configuration, resulting in different patterns of networked enforcement.
1. Enforcing financial supervision: from networks of national enforcers to networked tasks
The first remarkable innovation in the governance of enforcement roles and powers was possible, in the pre-crisis context of 2001, by setting up the Lamfalussy system, which was based on four institutional levels. Of these, at level 3, after the legislative bodies adopted decisions and technical implementing measures, committees of supervisors in the fields of securities and markets, soon after extended to those of banking, and insurance and occupational pensions, were to coordinate networks of both EU and domestic representatives.Footnote 21 Enforcement functions therein were still traditionally the competence of NCAs. Networked powers were still mainly regulatory, with a focus on harmonising implementing standards and procedures among Member States.
In the late 2000s, when networks and expert committees were replaced with regulatory authorities and/or agencies to pursue regulatory effectiveness, the framework for financial supervision was reformed by setting up the ESFS, consisting of a European Systemic Risk Board and three European supervisory authorities (ESAs) that replaced the committees and had enhanced powers: European Banking Authority (EBA), European Securities and Markets Authority, and European Insurance and Occupational Pensions Authority (EIOPA).Footnote 22 Concerning supervision and enforcement, their main task was to contribute to a common supervisory culture by fostering the homogeneous implementation of the EU financial norms and standards, and by taking direct actions in emergency cases, with remarkable differences existing among the ESAs (see below).
In 2012, a further step ahead was represented by governance diversification and the verticalisation of enforcement in the financial sector. The “verticalisation” of enforcement in the EU implies upgrading (direct) enforcement powers, from the national to the supranational level, providing EU authorities with the competence of directly carrying out enforcement actions.Footnote 23 This is observable in increasing fields of regulation. In the financial sector, particularly, two remarkable exceptions to the traditional distribution are worth highlighting. The first is ESMA,Footnote 24 which enjoys direct powers for conducting inspections over credit rating agencies (CRAs)Footnote 25 and trade repositories (TRs).Footnote 26 The second is in the banking sector, where the verticalisation of competences was further sped up through the European Banking Union (EBU).Footnote 27 This was another key reform adopted shortly after ESAs,Footnote 28 pursuant to which the European Central Bank (ECB) was vested with direct powers for governing the “significant” banks, whereas NCAs monitored and supervised the “less significant” banks.
Insurances are the least verticalised, although a debate over the opportunity to widen their harmonisation is ongoing. In 2016–17, a consultation took place.Footnote 29 It emerged that EIOPA’s claims for more supervisory powersFootnote 30 were halted by Member States’ “mixed views” about the need for harmonisation.Footnote 31
Lately, there have been ongoing proposals to strengthen the EU supervisory framework further through a single capital-markets supervisor by 2019,Footnote 32 emphasising that “[a] more integrated supervisory framework ensuring common implementation of the rules for the financial sector and more centralised supervisory enforcement is key”.Footnote 33 Finally, the commission considered recent anti-money laundering supervisory activities to be examples of broader governance deficiencies within the national banks that the ESFS was not able to detect in a timely and correct manner.Footnote 34
2. Patterns of networked enforcement
In this section, for each of the three ESFS branches, the overall enforcement governance is split into the various stages of the direct enforcement process: (a) the setup of general enforcement policies; (b) the harmonisation and convergence of the supervisory framework; (c) direct supervision and inspections; and (d) direct sanctions.
The setup of general enforcement policies, or the array of legal and procedural provisions defining actors and roles at the various levels, ensure that EU regulation is fully accomplished. In EU financial legislation, the main actors are the Commission, with the Parliament and the Council as co-legislators,Footnote 35 and the NCAs. The EU legislator is responsible for the general establishment and design of the ESFS and the SSM (within the EBU).Footnote 36 The same applies to NCAs regarding designing direct supervision, inspections and sanctioning nationwide.
Harmonisation and convergence of the supervisory framework. Here, ESAs play a key role along with EU institutions’ legislative prerogatives. Their tools are mainly soft law: opinions, guidelines and recommendations. They also draft binding rules, such as regulatory and implementing technical standards, which the Commission further adopts.
Direct supervision and inspections. Unlike most policy areas in the EU, in the ESFS + SSM overall governance, we witness increasing instances of verticalised inspecting powers as illustrated below.
Direct sanctions. Insofar as NCAs are tasked with direct investigating and inspecting powers, they are also responsible for taking action against potential infringements, based on their own regulations and according to the common standards issued at the EU level. The same applies to the ESMA with CRAs and TRs, against which it adopts supervisory measures, including fines in some cases,Footnote 37 and to the ECB with significant banks.Footnote 38
The above analysis renders a fragmented and differentiated picture of the EU financial legislation’s enforcement governance. Different factors alter the framework’s neatness: its intersection with other legislative frameworks (the SSM), various levels for the same tasks (direct supervision at the national/EU levels) across the branches, and the different criteria by which regulatees are clustered under varying competences. Table 1 synthesises it.
Table 1. Network governance of enforcement in ESFS + SSM
* Significant banks: ECB; less significant banks: NCAs.
** CRAs and TRs: ESMA; other categories: NCAs.
Among the different patterns that coexist, the verticalisation of enforcement appears to be more advanced, as governance is more complex: where the actors are more numerous (e.g. in the banking sector, characterised by the intersection of competences between the ECB and the EBA), direct enforcement powers are transposed into the EU level, by empowering an EU institution, the ECB, which finds its legitimacy directly in the Treaties, unlike with the EBA. Because the patterns are supposedly not static, instead gaining gradual complexity, the securities and markets sector acts as an intermediate model, where a (minor) share of regulatees experiences direct supervision by an EU agency: CRAs and TRs, whose scope is deemed too far beyond national boundaries for NCAs’ control.Footnote 39 In conclusion, as the complexity of the regulated sector supposedly increases (or the policy sectors involved grow in number), direct enforcement powers are upgraded at the higher level of government.
III. National authorities standing the test of networked enforcement
The increasing powers and activities that the ESAs and the ECB carry out implied a need for more organisational resources, which determined a shift of functions (and burdens) from the national to the EU level. Evidence showed a growing trend of activity carried out at the EU level, especially after 2013.Footnote 40 This resulted in a flow of human resources from the NCAs and in the need to rearrange functions and offices at the national level.
This section illustrates an empirical assessment of the impacts that the current framework has had on the Italian NCAs. The goal is to assess whether and to what extent the changes depicted above, now used as independent variables, have affected their enforcement activities, with a twofold focus: concrete organisational changes that have occurred, and the perceived effectiveness of the new enforcement governance from their members’ viewpoints.
1. Research method
Quantitative and qualitative data were combined to test the research hypotheses. Specifically, data regarding the types and number of new activities that NCAs have carried out in light of their participation in the ESFS ( + SSM as with the banking authority) were obtained from official annual reports. Second, regarding perceptions of the effectiveness of the changes, 11 informal interviews were conducted between December 2017 and February 2019 with the directors and staff members of both inspectorate and sanction offices for each of the three NCAs, regarding their personal perceptions. Regarding the Bank of Italy, two additional interviews with officers from Regulatory Affairs were conducted. Interviews proved to be the most suitable research tool for assessing how the impacts of an overall recent change were perceived by the civil servants in charge of managing it nationwide.
Additionally, a structured and semi-structured questionnaire was previously sent to the managers involved, to which they responded during the face-to-face interview. The questionnaire was aimed at gathering data on the perceived effectiveness of the changes in EU enforcement governance stemming from the ESFS ( + SSM in banking). On the structured part of the questionnaire, respondents were asked to provide qualitative values to specific aspects of the enforcement activities within the ESFS (ranging from extremely or partially negative to neutral, to partially or extremely positive). When answers fell within the “negative” spectrum, they were asked to argue about this in the semi-structured questions. They were also asked about their perspectives on the future of EU governance and about the most needed changes, if any.
Furthermore, where available, interviews, reports and comments from the NCAs’ officers and managers were taken into account.
The main findings are illustrated in the following sub-section 2, where both aspects (organisation and perceived changes) are jointly discussed for each NCA, and crosswise in sub-section 3.
2. Networked enforcement from below. Insights from the Italian competent authorities
The three Italian NCAs concerned with ESFS + SSM are the Bank of Italy (Banca d’Italia), the Italian Companies and Stock Exchange Commission/Commissione Nazionale per le Società e la Borsa (CONSOB) and the Institute for the Supervision of Insurance/Istituto per la vigilanza sulle assicurazioni (IVASS).
a. Bank of Italy: shared enforcement or shared markets?
The Bank of Italy was appointed as the Italian competent authority within the SSM framework by Legislative decree no 72/2015. It is endowed with various enforcement tasks (some still mainly carried out at the national level, eg in the field of consumer protection), beyond the scope of our work. It supervises less significant banks directly and significant ones indirectly through its participation in the Joint Supervisory Teams (JSTs), which the ECB coordinates. Participating in JSTs entails an increasing number of commitments. Indeed, through JSTs, NCAs are involved in the supervisory activities addressed to other Member States, in a collective decisional procedure that reflects the very nature of ESAs.
Regarding the total number of enforcement activities that the bank has carried out over the past several years, we may notice some trends at the turning point represented by the entry into force of the SSM. The total number of staff members on leave or on temporary secondment grew to 186 units in late 2016, 92 more since the establishment of the SSM, representing nearly 50% of the total number of personnel on leave.Footnote 41 This also entailed an ad hoc training activity for the staff involved in SSM activities.Footnote 42
The activities that the Bank carries out have also undergone a changing distribution among the sectors involved. Although the total number of inspections has slightly decreased over time, they were split into two categories after 2015 (thus requiring different staff roles), concerning either significant or less significant banks. The most visible changes are related to the number of administrative decisions addressed to the Italian banks and to the total number of supervisory activities (both growing at a higher rate from 2015 on). As for the latter, evidence is consistent with the hypothesis that being part of such a networked enforcement mechanism does not diminish NCAs’ commitment. Rather, it splits it into different activities.
The Bank also takes part in other permanent networks, supported by the ECB. In 2017, there were 14, whereas the number was 11 in 2015 (see Table 2).
Table 2. Bank of Italy’s main enforcement activities (financial supervision)
Source: own elaboration of data drawn from Bank of Italy’s annual reports (2013–2018).
Overall, the Bank experienced an apparently increased number of commitments under the SSM. Since its start, indeed, it was largely involved by the SSM related activities,Footnote 43 regarding both its direct supervisory powers and its involvement in supervisory activities towards significant banks.Footnote 44
According to officials’ perceptions of the impacts that the new SSM framework had on the Bank’s effective enforcement capacity, which are consistent with evidence from annual reports, the workload has increased, although it is no longer focused on domestic regulatees. In a joint interview with officials from the inspectorate and the office in charge of formulating the proposed sanctions, one of them said, “Take into account our participation in the design of general enforcement policies: previously they were unnecessary activities, we now have to deal with”. Accordingly, an officer from the regulations and macroprudential analysis directorate stated during the interview: “With the EBU, workload for the Bank has increased, not decreased. We now have to take decisions also on Swedish banks, for example […] There are currently twenty or thirty working groups continuously engaged in cranking out guidelines”. Moreover, when members from the inspectorate and sanctions were asked to assign qualitative values among the five intervals providedFootnote 45 to describe their offices’ appropriateness in light of the new network governance, they agreed on defining them “partially understaffed” (see below) because, as the officer from the Inspectorate argued,
“Initially we were expecting a subtraction of competences by the ECB, but we had not properly considered the amount of shared competences. Therefore, overall, we can now say that we have more workload, rather than less than before. In other words, ECB’s processes have determined an uptake of many national resources, who were under pressure to cope with both domestic and EU tasks”.
Nonetheless, representatives from both offices never questioned the overall legitimacy of the SSM, which is rooted in Article 18 of the SSM Regulation,Footnote 46 conferring to the ECB powers to impose administrative pecuniary penalties. Regarding this, it is worth reporting that an officer from the sanctions office attributed to this the main difference between the Bank of Italy and the other financial NCAs involved in the ESFS, as she said, “A regulation weighs more than any directive, and this makes the biggest difference in the degree of direct enforcement experienced between our financial branch and the others”. Moreover, when asked about their own ideas about the development of EU governance, both agreed regarding the need to overcome the current division of competences between national and EU actors regarding significant banks. Reportedly, verticalisation should go even further to achieve more effectiveness, despite the unavoidable organisational changes that would occur at the Bank. This is also confirmed by the answers that the officers dealing with both inspecting and sanctioning affairs provided, regarding their perceptions of the contribution of the ESFS to improving the overall EU financial law enforcement capacity and specifically the Bank of Italy’s own enforcement capacity. In both cases, they answered that the ESFS has not modified either the EU or the national enforcement capacity remarkably in the face of a major reorganisational effort. Furthermore, regarding the SSM, a manager from the inspectorate said, “It is overall an efficient system, provided that it is only four years old. Way beyond what we ever expected”. In his opinion, this was due to the fruitful matching of the right top-down inputs with the bottom-up cooperation of the Member States.
Moreover, whereas the NCAs’ officers appear to largely accept and legitimise the ECB and its role within the SSM, a different perception is worth noting when it comes to the ESFS and the actual efficacy of the EBA, whose partial overlap with the former is perceived to be a source of excessive complexity for the banking sector. This is indeed what Carmelo Barbagallo, head of the Department for banking and financial supervision, complained about in a speechFootnote 47 given at a workshop about the interactions between the ECB and the EBA. Regarding supervisory powers, he also warned about the likely overlapping of the two institutions, with both being engaged in the elaboration of supervisory guidelines at that time. Barbagallo also pointed to the first and foremost challenge that NCAs had to face to cope with the EBU regarding organisational and cultural change, with the language gap being at the forefront.
Furthermore, regarding the ESFS, the Bank recently took critical positions towards ongoing proposals for an overall reform of the European banking architecture. The Bank is mostly concerned about the proposal to increase the EBA’s supervisory powers and independence from the national banks, maintaining that NCAs do not support such proposals.Footnote 48
b. IVASS: “Shaking hands and looking at slides”
IVASS, which up to 2012 was called the ISVAP (Istituto per la vigilanza sulle assicurazioni private e di interesse collettivo), was established in 1982 to supervise private and public insurance markets and to protect consumers. It was appointed to be the Italian competent authority to complete the Solvency II project and to cooperate with the EIOPA to pursue supervisory convergence.
Although IVASS’s involvement in the EU financial network during the past few years mostly echoed its regulatory activities, aiming to accomplish Solvency II,Footnote 49 it also impacted its supervisory activities (whereas sanctioning powers remained mostly the competence of the Institute). IVASS was indeed engaged at the EU level, where it contributed to completing the EIOPA Supervisory Handbook, forthcoming at the time of writing, and it was also engaged at the national level, where it has been amending its own supervisory guidelines, in force since 2013, so as to comply with the forthcoming handbook.Footnote 50
The 2016 entry into force of Solvency II greatly affected IVASS’s enforcement activities, mostly with regard to mechanisms for prudential supervision, which requires that insurance undertakings (IUs) provide NCAs with more and detailed periodic information about their activities than they did in the past, and whose reporting was framed by the EIOPA. In particular, the EIOPA’s intervention in such respect is broad, ranging from timing to specific indicators with which companies have to comply.Footnote 51 Moreover, since 2015, IVASS was engaged in addressing letters to the market, aimed at casting more light on the new mechanism’s functioning, especially with regard to internal reporting rules’ pre-application.Footnote 52 Previously, in 2014, it “remarkably contributed to EIOPA’s activities on the Risk Free rate project”.Footnote 53
As with onsite inspections, representing a key quantitative indicator over time for our research objectives, IVASS carries them out either towards IUs or financial intermediaries (FIs).Footnote 54 The EIOPA and the EU network mainly impact activities referred to the former. Inspections display a quite regular trend over the past several years, increasing in 2015–2016, which is attributable to its stricter participation in the EIOPA’s network: in 2015, “the inspecting phase was significant also on the approach to Solvency II”,Footnote 55 half of which were inspections conducted under Solvency II. In 2016, again, there was a “sizeable increase of enquiries about Solvency II, as set out in the Institute’s Strategic Plan 2015–2017”.Footnote 56 Besides a sharp increase of inspections of IUs since Solvency II’s entry into force, we observe a regular rate of those on FIs, where no EU impacts are noticeable.
Unlike the Bank of Italy, in IVASS, the impact of the ESFS differs remarkably depending on the type of activity involved: although it is relevant in the field of inspections, it is still limited when it comes to sanctioning activities, as mentioned. This is scarcely reflected so far in its organisation, where the organisational resources reportedly did not undergo relevant changes to comply with Solvency II and the ESFS with reference to sanctions, although inspecting activities are increasing slightly. In addition, many resources are being employed in the EU, and domestic working groups have set up common methodologies and implementing standards. In 2016, a working group was established to implement a Solvency II data quality management process and to set up a standard report.Footnote 57
Conversely, the abovementioned different impact is more clearly reflected in the various viewpoints that those interviewed express, depending on the structures to which they belong. High officials of the inspectorate unit defined the organisational resources as “partially understaffed” to cope with the growing commitments, which is most significant if we also consider that they believe the EFSF has “partially reduced” both the overall EU and the national enforcement capacity in the insurance sector. According to one interviewee, “if compared to other NCAs, IVASS’s inspecting resources were more numerous, due to a traditional complex and detailed legislation mirroring cultural complexity when it comes to antilaundering, antifraud and anticorruption provisions”. As an example, they said: “Consider when EIOPA periodically sends us its officers to check, for example, inspections’ duration and resources employed”. In this respect, the EIOPA officers’ reprimands for alleged excessive durations were understood to be inappropriate, “with no reference to national standards and specific processes as usually reproduced over time”. In the official’s view, indeed, the EIOPA’s effort to achieve convergence hinders national efficiencies, as it supposedly “tends to shorten and soften onsite inspections, also where they rely on a consolidated tradition, as in Italy”. Inspections’ very meaning would thus be altered somewhat, as they would be replaced with softer and less detailed standard practices. One official had the following perception of this: “When I happen to attend these meetings, I use to say that there everyone, inspectors and companies, shake hands and look at slides”. From such a perspective, Italian supervisory traditions require that the competent authority maintain a hierarchical distance while inspecting, to safeguard its own authority. This does not fit exactly with the EIOPA’s idea of collaborative inspections, which is more broadly based on moral suasion. From the officials’ viewpoints, the so called “competition in laxity”, according to which some NCAs adopt lighter norms to attract business to their markets, may be detrimental to those NCAs that keep adopting stricter legislation. Indeed, they increasingly happen to manage cases where companies would not have been allowed to operate according to national rules but that, thanks to venue shopping and the free circulation of services, bypass such controls and can freely operate throughout the EU. The officials admitted that, due to unavoidable path dependence, “it is hard to replace old habits in designing inspections, based on rigidity and a “strong-arm” attitude, with tools of moral suasion”.
Conversely, sanctioning activities’ loads might not have changed too much after the establishment of the EIOPA. Indeed, a recent requirement of the EIOPA to periodically communicate the list of sanctions that the NCAs imposed in insurance distribution, for publishing reasons,Footnote 58 may be suggestive of a trend towards an attempted harmonisation of the sanctioning practices as well, as in the securities sector (see below), where it is already in force.
Accordingly, the pieces of feedback that the interviewed official and staff from Sanctioning Affairs provided were different. Regarding the ESFS’s impact on the enforcement capacity, at both the domestic and the EU level, they claimed that it has not modified it substantially, and regarding the structure’s capacity, they evaluated it as adequate for the workload. Nonetheless, as the new reporting obligation enters into force, they fear that this will generate a load that the current resources may not be able to manage properly. Nevertheless, when asked to illustrate the possible changes in governance, if any, to make it more efficient, the official in charge said she would not push too far towards harmonisation because “either sanctions are imposed at the EU level, through an institution like the ECB, or they are better managed nationwide”. Regarding the role of the EIOPA in sanctioning activities, the interviewees confirmed that they do not feel too pressured, as its contribution is very loose. The official said: “For example, it has recently established a maximum amount when imposing sanctions, but it is so high that no NCA even gets close to it”.
To conclude, in its latest annual report, IVASS expressed quite critical views regarding the commission’s ESAs’ reform proposal. In a nutshell, the Institute stated that although the EIOPA’s reinforcement is desirable overall, it should not be pursued through the transfer of further powers from below; rather, the EU should aim to facilitate a more concrete exercise of powers by the EIOPA, especially in the field of supervisory coordination.Footnote 59
c. CONSOB: Reluctant transfer of powers
When called to action for the establishment of the ESFS, the NCAs involved were dissatisfied about the ways in which the ESMA might intervene directly in emergency cases,Footnote 60 in the presence of a serious threat to financial stability.Footnote 61 Nonetheless, an awareness of the need to set up a supranational coordination network to avoid situations such as venue shopping pushed the search for collaborative adaptation.
The national legislator therefore had to amend the CONSOB’s normative frameworkFootnote 62 in light of the shift of enforcement powers to the ESMA regarding CRAs and TRs. In this field, as said earlier, the CONSOB as an NCA retains a supervisory role, insofar as it may report to the ESMA possible infringements of the EU law. Furthermore, in 2011, it implemented the ESMA’s guidelines on supervision.Footnote 63
At the organisational level, since 2011, the CONSOB’s officers started to participate in the ESMA’s working groups, standing committees and dedicated teams. Nevertheless, its organisational structure changed, although not noticeably over the past few years, and specifically, the resources for the inspectorate remained quite stable. Moreover, one of the most frequent remarks addressed to the authority, including by international institutions, is its limited number of onsite inspections when compared with the significant offsite inspective activity carried out.Footnote 64 In this respect, the CONSOB’s manager argued in the interviews that supervision over compliance with the EU (and national) law ought rather to be profitably carried out through careful offsite inspections, also in accordance with the CONSOB’s traditional standards, and that onsite checks should maintain an extrema ratio when no alternative options are available, to keep supervision minimally invasive for regulatees. This is necessary to comply with the ESFS’ provisions in this field, although the authority appears to a certain extent under-resourced. Notwithstanding, the number of onsite inspections that the authority carries out shows a constant though slight increase over the past decade,Footnote 65 with stress on the period following the ESFS’ entry into force. It is worth remarking that within the same period, CRAs and TRs were subtracted from the CONSOB’s direct enforcement scope; the increase therefore looks even more significant in terms of its effort to comply with EU expectations.
In its annual report for 2013, the CONSOB started to account for its critical views regarding the ESFS’s and ESMA’s roles. Specifically, the latter were deemed to be a complex and “modular” approach to enforcement that so far has not resulted in the concrete harmonisation of the various and diverse national systems. In the report, it is stated that “[promoting convergence of the national approaches to surveillance] is probably the hardest role, given the different traditions and the different degrees of development of the national markets, NCAs’ tendencial opposition to change their own praxes and ESMA’s limited tools”.Footnote 66
In addition, the ESMA’s powers were deemed too narrow due to its institutional nature of delegated authority, which was established and empowered pursuant to Article 114 TFEU. The latter allows, among other things, for ESA’s creation by legislative act of the EU,Footnote 67 unlike the ECB, whose powers are foreseen directly in the Treaties, which in its field was considered, on the contrary, the way forward to concrete and effective harmonisation. In CONSOB’s view, soft law measures at ESMA’s disposal were not considered as incisive enough to impact on NCAs’ practices and standards, and the lack of a central authority (as legitimised by the Treaties, like the ECB in the banking sector) to fully implement the financial union, would inevitably allow for competition in laxity.Footnote 68 Rather, a general feeling within the authority was that “the new rules, though taken singularly they represent an important step towards the integration of the EU single market, taken altogether they constitute an increasingly complex normative framework”Footnote 69 and that “with reference to surveillance in financial markets […] differences in surveillance praxes ongoing in the various Member States remain remarkable, despite the commitment to harmonize regulation, through a pattern for decision-making that replaces level 1 directives with directly applicable regulations and that implies a full involvement of ESMA”.Footnote 70
Overall, the CONSOB took many chances to express its critical views about the alleged abuse of directly applicable regulation that the ESMA proposed (e.g. by means of regulatory and implementing technical standards), which gradually increased over the past few years to foster massive harmonisation. Nonetheless, in the CONSOB’s understanding, this paves the way to overall uncertainty about the exact timing and to the competences in place to implement EU regulation correctly.Footnote 71
The critical positions officially taken through their reports were consistent with those represented through the interview by the inspectorate official then in charge, who determined its structure to be partially understaffed and the ESFS’s impact to have “partially reduced” both the EU surveillance capacity and the NCA’s overall efficiency. When asked to express a personal opinion on the possible reasons, he claimed that the “ESMA is not the ECB”.
Like IVASS, also in the CONSOB, we may devise two unique impacts of participation in the ESFS between inspecting and sanctioning activities. In the latter, being part of the network has so far had little impact, except for a reporting duty, regarding the sanctions that the CONSOB imposes due to UE law infringements, which it accomplishes weekly.Footnote 72 Also, when asked to express their personal views about the ESFS and how it affected the CONSOB’s capacity to carry out its sanctioning activities, officers and officials remarked that it did not change too much, at least in the domestic framework. Nonetheless, a slight structure’s undersizing was claimed through the questionnaire, due to the new reporting obligation of sanctions to ESMA, whose concrete benefit was questioned. This is because comparing data on the sanctions imposed following different and non-harmonised procedures may be misleading.
Rather, in their view, more harmonisation would be needed in this field, except judicial standards and systems are still differentiated throughout the EU, and this would hinder the concrete convergence of sanctioning practices and procedures.
3. Discussion: patterns of networked enforcement and administrative legacies
Combining both official data on the increased activity and qualitative feedbacks from the interviews and questionnaires with privileged observers, we see both different degrees of organisational change (with the Bank of Italy at the forefront and IVASS lagging behind) and different perceptions of the concrete effectiveness and legitimacy of the new EU governance (here, again, with the Bank as the most familiar and IVASS as the most sceptical NCA regarding the ESFS’s capacity to improve the overall enforcement performance).
The Bank of Italy appears to be the authority that has changed most in terms of internal reorganisation and procedures. This is also reflected in their officials’ and officers’ verbal reports through the interviews, when they described the new enforcement and supervisory framework as the only way – and one that was long overdue. National officials’ views appear to be much more consistent with those at the EU level compared with what happens both for the CONSOB and IVASS. In addition, in the interviews with both inspectorates’ members, they expressed similar criticisms about the new network in terms of effectiveness at the national level. Also, their annual reports (the CONSOB’s above all) happened to criticise the scarcely effective role of the ESAs. Therefore, instead of longing to return to the old mechanism, the CONSOB’s representatives have both formally (reports) and informally (interviews) claimed for a push towards an even more institutionalised upgrade of enforcement powers in the financial sector, with the goal of replicating the SSM with such an institution as the ECB. This is consistent with IVASS’s and CONSOB’s abovementioned remarks about ESAs’ reiterated underestimation of national praxes, contexts and procedural standards.
The institutionalist perspective underlying the present analysis allows us to recall the abovementioned concept of the institutionalisation of the EU financial sector, understood as a process of the gradual formalisation of powers to acquire more value and stability.Footnote 73 Against this background, insights from the Italian case suggest that, at least in that administrative context, the different degrees of change and positive appraisal by the NCAs of the impact of the ESFS + SSM on the overall enforcement capacity may depend, to a certain extent, on the different degrees of NCAs’ willingness to change. But what makes the latter stronger than resistance to change?
Because this empirical analysis is aimed, as previously illustrated, at assessing the patterns of networked enforcement’s impact on the Italian NCAs, the following is a comparison of the findings from our previous analysis of the various patterns of enforcement governance and the NCAs’ different perceptions and varying degrees of acknowledgement of the ESFS. From this comparison, it emerges that EU’s regulatory enforcement within the financial sector is more verticalised, as the branch is more complex (see above, first hypothesis in §1), and the actors involved – who are supposed to acquire more powers in the process – are more empowered and recognised as legitimised by those expected to leave powers. Moreover, analysis carried out at the national level shows that both concrete change and the perceived level of legitimacy differ among the three NCAs.
Needless to say, the possible variables and conditions for explaining NCAs’ reactions to the evolutions in EU governance are many and diverse. Nonetheless, Figure 1, by matching the present work’s main findings, synthesises the ongoing correlation between the degree of direct enforcement and the degree to which NCAs have changed their organisation: the amount of organisational (attitude towards) change occurred so far to comply with the ESFS ( + SSM) requirements, and the different levels of verticalised enforcement among the three patterns of networks. In so doing, we are able to draw preliminary conclusions about the link between the institutional configuration of powers and the organisational responses of the NCAs.
Figure 1. Patterns of networked enforcement and the NCAs.
The Bank of Italy is the NCA where EU direct enforcement powers are at their upmost degree. Two supranational actors are involved (outside of joint committees and teams), and the largest share of direct supervision by the EU is experienced. Yet, and somewhat counterintuitively, it has deeply restructured its procedures and structures to comply with such a new framework, and its participation in the EU network is barely contested by its staff. The CONSOB and IVASS underwent minor changes (although, of course, all NCAs had to adapt somehow to the new mechanisms). However, the CONSOB transferred a lesser amount of direct powers to the ESMA (only with regard to CRAs and TRs), whereas IVASS has kept all of its direct supervision unaltered so far.
Moreover, the two NCAs involved in networks with an EU authority expressed more criticisms over ESAs’ effectiveness, sometimes explicitly addressing a new EU institution, like the ECB, as a panacea for problems of harmonisation and different levels of performance across Member States. In sum, a more legitimised and institutionalised entity overarching the network would be a key condition for overcoming NCAs’ cultural reluctanceFootnote 74 to modify their rooted organisational and procedural standards, and would help with forcing bounded rationality.Footnote 75
IV. Conclusions
This paper takes into account the establishment of the ESFS as a three-step process, through which enforcement powers were gradually shifted from the national to the EU level, and where networked relationships assumed different shapes depending on the sector involved. Through an empirical analysis based on quantitative and qualitative data, it emerged that, although the relatively short time span does not allow for more detailed assessments, the new supranational systems affected all Italian authorities in terms of organisation, activities conducted and perceived loss/gain of enforcement effectiveness,Footnote 76 though to different extents. The framework resulting from the comparison among the three patterns of enforcement relationships and the three organisational responses by the NCAs, as argued above, suggests that reluctance to (more or less) drastic changes is stronger when it is left to the informal dynamics of a network, headed by an actor with delegated powers (like the ESAs). NCAs are more likely to overcome such reluctances, especially in cases where traditionally stricter legislations are in place, when they are asked to give up their powers in favour of a formal institution, one legitimised to act through coercive instruments and therefore able to activate an acknowledging process within the national actors involved. The link therefore is not just between the concrete organisational changes and the amount of EU direct enforcement. Rather it is between NCAs’ willingness/resistance to change and the different degrees of legitimacy they acknowledge in their network. The paper’s effort was therefore to explain the drivers of such legitimisation by the NCAs in that, so far, the literature has failed to support its assumptions with evidence from empirical investigations.
The present study helped to fill some gaps from various perspectives. First, it contributed to a better understanding of the mechanisms underlying network governance, when applied to enforcement, where little has been said so far about how it works in practice. Second, the analysis gathered evidence on the very mechanisms underlying the relationship between NCAs and the ESAs in the ESFS, going beyond mere theoretical descriptions of the design, as we know it by the rules. Most current studies on the mechanisms of financial supervision indeed are based on legal analyses of the framework, paying scarce attention to the national perspective, and further empirical evidence is very welcome in this realm. Aiming to better understand the changes in the EU governance, a clear and exhaustive understanding of all the administrative levels involved is necessary, not least in light of the main shortcomings that the implementation of EU law has to get through.
Nonetheless, more research is needed to understand the role of the administrative culture in networks (of whatever nature), hopefully by comparing assessments across countries. What need to be further investigated are the various determinants of national compliance with EU requirements and the notion of “effectiveness”, either of regulation or of enforcement.
