Recent problems applying financial services law under the EEA Agreement


The operation of the EEA Agreement

The EEA Agreement entered into force in 1994. It was created to allow 3 non-EU states to participate in the EU Single Market. The 3 states are Iceland, Liechtenstein and Norway. Along with Switzerland, they are part of the European Free Trade Association (EFTA). The EEA Agreement created the European Economic Area – an economic zone shared by the EU member states and the three EFTA states in which the free movement of goods, people, services and capital – “the four freedoms – are protected.

All EU legislation created prior to 1992 was incorporated into the EEA Agreement. Any legislation made after this date is considered by the EEA Joint Committee (made up of all EU member states and the three EEA EFTA states). A decision is made as to whether the legislation under consideration should be applied in the national laws of the 3 EEA EFTA states, and whether any amendments need to be made to the legislation prior to its adoption into the EEA Agreement.

The majority of relevant legislation has been adopted by the EEA joint Committee into the EEA Agreement.

Recent problems due to introduction of the ESFS

The European System of Financial Supervision (ESFS) was established in 2010 in response to the banking crisis. The ESFS consists of three European Supervisory Authorities (ESAs): the EBA, ESMA and EIOPA. For more information on the ESFS please read our report on its aims and set-up.

The various components of the ESFS have largely been in operation since 2011. However, the regulations establishing the three ESAs were not adopted by the EEA Joint Committee. The constitutions of the non-EU EEA states (Iceland, Liechtenstein and Norway) did not allow for an outside authority (such as an ESA) to impose sanctions against legal persons within them. As a result, the ESFS regulations have not been adopted into the EEA Agreement.

In the Summer of 2014 a variety of vested interests voiced their concerns about the sluggishness of progress towards any integration of the ESA regulations into EEA-country legislation (via the EEA Agreement). Not being party to the new European regulatory regime left the EEA EFTA states dangerously close to being perceived as detached from the internal market, and even on the brink of slipping to ‘third country’ status.[1]

It was estimated in June 2014 that the failure to adopt the ESA regulations into the EEA Agreement had resulted in a backlog of more than 50 pieces of secondary financial services legislation still pending acceptance into the EEA Agreement. CRD IV and EMIR were cited as examples of key elements of the EU regulatory reform agenda which could not be adopted into the EEA Agreement until the ESA situation was resolved.[2]

Potential Solution

In October 2014 a solution was presented which would allow the decisions of the ESAs to be applied in the EEA EFTA states without violating the terms of their constitutions. ESA decisions would not be directly imposed upon EEA EFTA states. Instead, the ESAs would prepare drafts and recommendations for the approval of the EFTA Surveillance Authority.

The EFTA Surveillance Authority was created to ensure that the participating EFTA states of Iceland, Liechtenstein and Norway respected their obligations under the EEA Agreement. The Authority performs an equivalent supervisory role to that of the European Commission in relation to EU member states. The Authority is able to enforce decisions against the three EEA EFTA states through the EFTA Court.

Having taken advice and followed the drafts of the relevant ESA, the EFTA Surveillance Authority may address its decisions to the relevant authority in the EEA EFTA states. It was proposed that representatives of the EFTA Surveillance Authority and representatives of the national authorities of the three EEA EFTA states would participate as much as possible (but without voting rights) on the Boards of Supervisors of the EU ESAs. Likewise, it was suggested that the EU ESAs are as involved as possible in the work of the EFTA Surveillance Authority (again without voting rights). It was hoped that such close integration would effectively enable the EFTA Surveillance Authority to act as an extension of the EU ESAs in relation to the EEA EFTA states.

What has happened since?

On 14 October 2014 the EU and EEA-EFTA Ministers of Finance and Economy agreed on this solution and expressed their desire that the technical details of an official agreement on the matter would be sorted out as soon as possible.[3] On 13 November the EEA Joint Committee stated that discussions on this solution had yet to be concluded.[4]

For more information on the functioning of the EEA Agreement see the EFTA Bulletin and This is EDTA 2015. For a list of all EU legislation with EEA relevance click here.

[1] Finance Norway, Position Paper Challenges Facing the Financial Industry in the Internal Market Pending the Inclusion of the ESA-Regulation in the EEA Agreement (April 2014), p. 2.

[2] Joint letter to Commissioner Barnier (6 June 2014), p. 1.

[3] See para 10 of EEA-EFTA-ECOFIN Joint Conclusions, 14 October 2014.

[4] Council of the EEA, Progress Report by the EEA Joint Committee to the 44th meeting of the EEA Council (13 November 2015), p. 3.