Super-agencies and the regulation of financial markets

In Case C-270/12 UK v Parliament and Council (22 January 2014), the ECJ has lent unequivocal support to an expansive view of the EU's competence.

The case concerned a power granted to the European Securities and Markets Authority (ESMA), an agency established to supervise financial markets. Article 28 of Regulation 236/2012 applies where there is a "threat to the orderly function and integrity of financial markets" or to the "stability of the … financial system" which national authorities have not or cannot deal with. In those circumstances, ESMA is empowered to restrict short selling or other transactions designed to speculate in falling prices. The UK challenged this provision. The ECJ has rejected that challenge.

The UK's challenge

The challenge had two strands. The first drew on some old case law that limited the ability of the EU to delegate power to outside agencies. Case 9/56 Meroni [1957 and 1958] ECR 133 disapproved of excessively broad delegations (delegations which gave a "wide margin of discretion"). Case 98/80 Romano [1981] ECR 1241 disapproved of attempts to delegate legislative power. The UK argued that the power delegated to ESMA was so broad and extensive that it contravened these principles.

Since those cases were decided, three things have changed. First, as a matter of actual practice, the creation of European agencies and delegation of authority over particular technical areas has become commonplace. Secondly, this practice has been recognised by amendments to the treaties (under Art 263 TFEU) which explicitly confer upon the European courts the power to review agency decisions - something that was previously lacking. Thirdly, the TFEU contains explicit provisions dealing with delegation of legislative and implementing powers (Arts 290 and 291). But these do not explicitly deal with delegation to agencies, although that sort of delegation is a familiar part of the administrative landscape.

A constitutional muddle

This is quite a constitutional muddle: there is an established practice which some Treaty provisions (dealing with judicial review) assume is valid but which other provisions (dealing with delegation) do not address. Still, the ECJ's conclusion seems clear enough: it is impermissible to confer upon an agency a very broad power to make policy; but it is permissible to delegate a power of implementation, provided the delegation in question is adequately confined in a way that enables judicial review. In the ECJ's view, the policy underlying the power conferred upon ESMA was sufficiently well-defined to validate the delegation.

The UK's second main argument concerned Art 114 TFEU. This is the provision which enables the EU to adopt harmonisation measures for the internal market. It was the purported justification for the short selling rules. The UK, however, argued that they went too far. The legitimate role of Art 114 TFEU is to enable the coordination and harmonisation of member states' policies. But the short selling rules were designed to enable a European agency to "take over", directly, the day-to-day regulation of the market. This, the UK argued, went too far. The Advocate General agreed: "The outcome … is not harmonisation … but the replacement of national decision making … with EU decision making".

The ECJ rejected that approach. Article 114, in its view, is intended to be broad: it imposes no limits on the type of measures that can be adopted, it does not prohibit delegation, and it allows the EU to adopt measures which directly affect individuals, as well as those that take effect via national rules. Article 114 therefore allows the creation of "super-agencies" to deal with issues which affect the European market as a whole, so long as their terms of reference are adequately defined.