EU financial services - the legislative and rule-making process



In the reports, we draw a distinction between the rule-making/legislative process (the subject of this report) and the “supervision” of individual firms (to check their compliance with the rules/legislation). The latter topic is addressed in our reports ‘The supervision of financial institutions in the EU’ and ‘The supervision of banks within the Eurozone – the Single Supervisory Mechanism’.

Domestic/national legislation and rules

Each member state has its own national/domestic procedures. These are used for –

  • adopting domestic/local requirements in areas where the EU has not adopted harmonised standards
  • (in areas where the EU has adopted harmonised standards) to implement EU directives or to add additional local requirements, to the extent this is permitted (sometimes referred to as ‘gold plating’).

EEA/EU/Eurozone legislation and rules

EU legislation and rule making is complex. Some of the legislation is EU wide and in most cases this is extended to the 3 additional countries of the EEA (see further below). Some of this legislation relates to arrangements which only apply to certain member states, for example the 19 members of the Eurozone (see further below). Some EU legislation may follow or implement broader international standards, such as CRD IV (CRD/CRR) which implements Basel III.

In recent years there has been a renewed emphasis:

  • on the increased use of Regulations (which have direct effect in Member States) and fewer Directives (which need to be implemented by national legislatures);
  • on directive provisions which involve ‘maximum harmonisation’; i.e. allowing Member States less discretion to ‘gold-plate’ the rules;
  • the use of ‘framework’-style legislation (adopted by the European Parliament and the Council of the EU), with the detail being developed in ‘delegated acts’ by the European Commission and in binding technical standards and guidance (under procedures which reflect the greater powers given to the ESAs in 2011 under the ESFS);
  • on setting more detailed standards at the EU level – sometimes referred to as the single rulebook.

The legislative process in detail

The process is explained and illustrated in detail in a series of RZ charts and diagrams entitled ‘EU financial services – the rule-making/legislative process in charts and diagrams’ . This provides:

  1. A chart with an overview of the process – the pre-legislative process, the ordinary legislative process (level 1), non-legislative acts (level 2), binding technical standards (level 2.5) and ESA guidelines (level 3).
  2. A more detailed diagram of the ‘pre-legislative process’ and the question of which legislative process will be used.
  3. A detailed diagram of the EU’s ‘ordinary legislative process’ for level 1 legislation.
  4. A chart which illustrates the taxonomy and the different kinds of EU rule-making (legislation - directives and regulations of the Parliament and Council; non-legislative acts (Commission delegated and implementing directives and regulations); and binding technical standards: Commission delegated and implementing regulations – RTS (regulatory technical standards) and ITS (implementing technical standards)).
  5. A chart with a detailed explanation of the process, scrutiny and scope for each of the different types of instruments.
  6. An illustration of the process for the adoption of EU measures by the EEA (i.e. by Norway, Iceland and Liechtenstein). To read about recent development relating to the EEA EFTA Agreement please see our forthcoming report in the series.