The three European Supervisory Agencies (ESAs), comprising the European Banking Authority (EBA), European Insurance & Occupational Pension Authority (EIOPA) and European Securities and Markets Authority (ESMA), are the main drivers of regulatory change throughout Europe, and their annual strategic plans filter down to the competent authorities of each country.

Financial institutions such as banks, insurers, stockbrokers, exchanges and payments firms regulated in Ireland must understand and stay abreast of the key components of this regulatory change.

The key to navigating these changes effectively will be collaborative engagement with regulatory bodies such as the Central Bank and proactive participation in relevant industry initiatives. The intensity of regulatory supervision and the frequency of legislative changes are anticipated to rise.

While each regulatory body has its own priorities and separate strategic timetables, outlined below, there are a few common areas across the ESAs demonstrating their intention to work closer together to address common areas that are fast becoming multi-agency risks.

ESA priorities
The main priorities for each of the individual ESAs are as follows:
1. EBA
EBA aims to conclude negotiations on updates to Capital Requirements Regulation (CRR) in 2024. The resulting new rules will take effect from 1 January 2025.

Related to this, the EBA is focused on the timely implementation of outstanding BASEL III reforms, to enhance banks’ resilience to future crises as well as maintain the stability of the European and global financial systems. The number of regulatory standards and guidelines required to supplement the changes could be as high as 125, with many expected by the end of 2024.

The implementation of the final elements of Basel III reforms will lead to an increased workload for European banks and large investment firms in 2024. The CRR amendments introduce an output floor for banks’ capital requirements calculated with internal models and include changes to risk exposure calculations, such as the Fundamental Review of the Trading Book for Market Risk.

2. ESMA
While all agencies will fulfil mandates from various regulations and contribute to European and international initiatives outlined in the Sustainable Finance Strategy and Commission’s action plan, ESMA will be specifically mandated to expand the single rulebook for sustainable finance. ESMA will deliver its final report on greenwashing, a key document to watch for as it will influence attitudes to disclosures in sustainable finance.

Furthermore, ESMA will be targeting Green Bond regulation and will issue a report on greenwashing in the industry sometime in 2024. Similar to the aforementioned report, this regulation will be required reading for entities advocating the green agenda.

Addressing the increasing consumer risk with crypto investments, ESMA has been tasked with driving the implementation of the Markets in Crypto Asset Regulation (MiCAR). This will include consultations on the drafting of technical standards and guidance documents. These standards and guidance are designed to incorporate the crypto industry within the regulatory framework, imposing heightened supervisory requirements and obligations on the sector.

3. EIOPA
EIOPA is focused on the finalisation of the Solvency II review which will require updating of technical standards and alignment with ESMA who are undertaking an ongoing review of EMIR requirements.

Additionally, EIOPA will continue monitoring the developments on a recovery and resolution framework for insurance, following the European Commission’s proposal for an Insurance Recovery and Resolution Directive.

These initiatives by EIOPA will inevitably lead to changes to taxonomy and reporting frameworks for insurance undertakings. They will also impose a greater onus on boards to exercise appropriate oversight of recovery and resolution planning.

European Supervisory Authorities 2024 Work Programme
In addition to the individual work programmes for each agency, the Joint Committee of the ESAs published its work programme for 2024. This programme forms the output from the cross-sectoral collaboration and addresses the main common risks faced by all three agencies.

The increasingly cross-sectoral nature of many of the risks in the financial sector necessitates cross-functional collaboration and a unified approach. While many of the cross-sectoral risks will be led by one ESA, all have contributed to the strategy and will share responsibility for implementation. The main areas of focus are the following:

1. Consumer protection and financial innovation
The ESAs will prepare revised technical standards for the PRIIPs Key Information Document and will develop Q&As and guidance to promote convergence between competent authorities. Additionally, in 2024, the ESAs will organise the 11th Joint Consumer Protection Day. This is seen as an important initiative highlighting consumer protection for all relevant stakeholders across the EU.

2. Sustainable finance
Under SFDR (sustainable finance disclosure regulations) the ESAs will feed into the EU’s assessment of sustainable finance. In the future, we are likely to see the development of guidance on marketing and disclosure to address such issues as greenwashing.

3. Digital operational resilience
In 2024 there will be further developments on the convergence and monitoring of the implementation of DORA (Digital Operational Resilience Act). This will include the development of technical standards as well as an oversight framework to monitor implementation.

4. EMIR
The three upcoming EMIR proposals are likely to result in additional guidance in relation to bilateral margining.

5. Regulatory convergence
Consistent with the growth of cross-border activity in the EU, the level and intensity of ESA supervision will continue to increase. This is driven by substantially more collaboration and the development of a common European supervisory culture, including the establishment of cooperation platforms.

In pursuit of these objectives, all ESAs will leverage the full extent of the available toolbox and expand the scope of their activities to the maximum to counter potential consumer detriment.

Among the five areas of focus outlined, the first three will have the most impact on regulated firms. Any changes to PRIIPs disclosure will require updating customer-facing documentation, as will any marketing material that is affected by SFDR. In addition, the issuing of guidance and technical standards for DORA and SFDR will require firms to review their current frameworks to identify and address any gaps

Summary
Regulated firms should view all these ESA initiatives as a catalyst to strengthen their regulatory compliance, risk management, and consumer protection measures while staying agile in the face of evolving financial innovation.

Keeping abreast of regulatory notices, following industry newsletters and participating in industry events are key to firms identifying all regulatory changes that will have a future impact and ensuring these are appropriately managed at an early stage.

Ideally, regulated undertakings must keep abreast of regulatory developments across all sectors to ensure that they are fully up to speed with the increasingly cross-functional regulatory landscape. Horizon scanning by regulated firms should encompass cross-sector monitoring as well as focusing on the strategic priorities of their primary ESA. This includes horizon scanning beyond financial services, as indicated by recent publications in ESG, emphasising the growing necessity for a holistic approach to regulatory awareness.