Views on improving the integrity of global capital markets
23 March 2015

Resource Constraints Test Financial Policy Makers Coping with “Regulatory Tsunami”


Global regulators are grappling with a problem of unexpected size. It’s not merely the number of technical standards they need to transcribe, but something more palpable: the lack of manpower. The heads of unit in several European Union market regulators are bemoaning the fact that while lawmakers are creating new rules to make the financial markets safer and more transparent, the authorities mandated to draft the rules simply do not have enough staff to do the work needed.

Take the European Securities and Markets Authority (ESMA), for example. Following the EU institutions’ (the European Commission, Council and Parliament) keenness to regulate the markets since the 2008 financial crisis, ESMA has been flooded with mandates to come up with the so-called Level II technical standards that further support and describe the Level I text legislated by the institutions. In the past year alone, since January 2014, ESMA has published 31 public consultations and 23 final reports on various financial market issues. That is not a small undertaking, considering that for example the recent Markets in Financial Instruments Directive and Regulation (MiFID/R II) consultation paper had 245 questions. Based on the approximately 170 responses received, ESMA will have to develop the final MiFID/R II technical standards within the next few months.

A successful completion of such a huge task would surely require hundreds of hard-working fonctionnaires, correct? The reality is somewhat different. According to ESMA’s Work Programme for 2015, it currently has 186 staff members, 16 of which are working on the MiFID/R II standards. ESMA notes in its budget review that if the number of employees is not increased to 202 in 2015, it will face probable delays on planned legislative work, in particular on technical advice on MiFID/R II, benchmarks, Market Abuse Regulation (MAR), Central Securities Depositories Regulation (CSDR), and credit rating agencies (CRA III). In addition, there will be no work on audit oversight or on the equivalence assessments of third-country regimes. Approximately half of ESMA’s budget comes from the National Competent Authorities as a Member State contribution, and roughly one third from the EU budget.

At the EU Member State level, for example, the UK Financial Conduct Authority has approximately 2,500 employees. Since January 2014 they have produced 40 consultation papers and six discussion papers. Even the Finnish Financial Supervisory Authority (FSA), overseeing the markets in a country of 5 million inhabitants, has more staff than ESMA at the moment (200 employees). In 2014 the Finnish FSA produced four research papers and nine consultations. While the number of consultation papers and reports produced is not a completely fair comparison point, it does give an indication of the imbalance in funding faced by transnational authorities vis-à-vis national Member State supervisors.

ESMA is not the only transnational authority stretching the pennies. The International Organization of Securities Commissions (IOSCO) General Secretariat only has 30 members of staff, 10 of which are seconded national experts. Since January 2014 they have produced 13 public consultations and 17 final reports. The European Insurance and Occupational Pensions Authority (EIOPA) notes in its budget plan that the total number of staff in 2015 will be 146. The EIOPA Work Programme for 2015 foresees that over the course of this year the Authority will produce over 20 reports, including on the transferability of pension rights and on consumer protection issues, though some of the work will be delayed due to budgetary challenges. In the United States, the Securities and Exchange Commission (SEC) has approximately 4,200 employees, yet the lack of resources has continuously been noted by both the current Chair Mary Jo White and by the former Chair Mary L. Schapiro. The CFA Institute-co-sponsored Systemic Risk Council has raised similar funding concerns since 2012.

The lack of manpower has significant impact on the transnational organisations’ ability to provide useful, sensible regulation within the strict time limits that have been imposed by legislators. Without enough people to do the work thoroughly, the markets risk having standards that are inconsistent and unworkable in practice. Drafting good regulation takes time and the people working for authorities such as ESMA should not be rushed in the tasks they have been mandated — even with experienced and knowledgeable staff, the creation of new technical rules is no small feat.

We should not encourage over-regulation and legislation simply for the sake of doing something. Nonetheless, it is clear that the entities that are mandated with drawing important legal standards do not have sufficient means to deal with the post-2008 “regulatory tsunami”. The lack of resources does not seem to be a challenge, to the same extent, with purely national authorities. When national governments do see the need for enhanced regulation in the transnational financial markets, they should empower these transnational organisations with sufficient manpower and funding to succeed. After all, it is in everyone’s interest to create appropriate standards to support safer and more transparent financial markets across the globe.

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About the Author(s)
Maiju Hamunen

Maiju Hamunen was an analyst for the Europe, Middle East, and Africa (EMEA) region in the Capital Markets Policy Group at CFA Institute. She was responsible for developing research projects, policy papers, articles, and regulatory consultations that advanced the policy positions of CFA Institute.

2 thoughts on “Resource Constraints Test Financial Policy Makers Coping with “Regulatory Tsunami””

  1. Peter Dingeldein says:

    Interesting. The EU regulatory bodies are understaffed while a number of national regulatory bodies seem to be overstaffed. Perhaps, on EU level with tight budgets, they could consider to employ retired professionals on less formal contracts and procedures than the normal vetting and application devices. .In this way, many retired ex-regulators and supervisers could be put to good use which would benefit both sides. However, I fear that ageism reigns supreme in the EU as everywhere else.

  2. Maiju Hamunen says:

    Thank you for your comment. It sounds like an interesting idea and I hope that the transnational authorities will explore all possible options to better cope under the resource constraints.

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