A Centralisation of Rule-making in Europe? The Legal and Political Governance of the Financial Market

This project examined if, why and how the patterns of the procedures and instruments used for EU rule-making in the financial market indicate an increasing centralisation, and what the implications are for the EU system of legal and political governance, focusing on the preconditions for accountability.

During recent years there have been striking changes in the patterns of rule-making within the EU internal market. That can be seen, most obviously, in a shift of instruments for rule-making; from directives which ‘leave to the national authorities the choice of form and methods’ to regulations which are ‘directly applicable’ and uniformly implemented across all member states. But the changes extend also to procedures for rule-making and actors involved . Typically, today, extensive ‘regulatory frameworks’ are established by the EU legislature within which delegation is made of normative and executive powers to the European Commission and a new breed of EU regulatory agencies. Even if such changes can be observed throughout the internal market, the most prominent development has taken place in the area of ‘banking and finances’ where EU rule-making has been intense in the aftermath of the financial crisis. The functioning of the financial market is a central concern of the modern society and the development offers rich opportunities for legal and political science with their complementary views on legal institutions and political processes unfolding within these institutions.

This project was conducted jointly by the Uppsala University Law Department (UULD) and the Robert Schuman Centre for Advanced Studies. Funded by the Swedish Research Council (Vetenskapsrádet) and hosted by UULD, it started in Spring 2017 and proceeded for three years, until the end of 2020. The project leaders are Carl Fredrik Bergström, Adrienne Héritier and Dominique Ritleng.

Project outcomes

The research produced insights on the evolution of regulatory structures in EU financial governance.  We provide a comprehensive framework to investigate the dynamics leading to centralisation, decentralisation and fragmentation in EU financial regulation.  This generalizable theoretical account was subject to an empirical assessment on the basis of major EU legislative packages in financial regulation, including the Markets in Financial Instruments Directive II and Capital Markets Union.  We found centralization in rulemaking, but decentralization and fragmentation during the implementation of the rules.

The research went on to ask: who benefits from the regulatory measures analysed and how are decision-makers and stakeholders held politically and administratively accountable? It focuses on all actors involved in the regulatory process, politicians, regulators, as well as market players. The use of the accountability channels is related to policy contents: do specific regulatory objectives and their results trigger the mobilizing of available accountability channels? Does the use of accountability channels help improve regulatory decisions.  We found an important use and impact of accountabiliy channels in the stage of policy formulation; in the formulation of the technical details of rule application the interests of the financial industry due their expertise tend to prevail.

The project work has, among other things, led to the awarding to Prof Adrienne Héritier of the 2019 Hertie School of Governance ‘Michael Endres Prize’ on 7 November 2019. The project has been extremely important in furthering the careers of highly talented young researchers at the post-doctoral and doctoral  stage. Four young researchers were recruited from political science and three from law.

Publications

Héritier, A., and M.G.Schoeller, Eds.,  Governing Finance in Europe. A Centralisation of Rulemaking? Edward Elgar Publ. , Cheltenham UK and Northhampton, MA.USA.

Héritier, A. and M.G. Schoeller, 2020, Governing Finance in Europe: a Centralisation of Rulemaking? In Héritier, A., and M.G.Schoeller, Eds.,  Governing Finance in Europe. A Centralisation of Rulemaking?, 1-31

Karremans, J. and A. Héritier, The Emergence of Transnational Hybrid Governance: how private risks trigger public intervention, in Héritier, A., and M.G.Schoeller, Eds.,  Governing Finance in Europe. A Centralisation of Rulemaking?, 137-165

Smolenska, A., J. Ganderson and A Héritier, 2020,  The Impact of Technological Innovation on Regulatory Structure: Fintech in post-crisis Europe.  In Héritier, A., and M.G.Schoeller, Eds.,  Governing Finance in Europe. A Centralisation of Rulemaking?,

Héritier, A. 2020,  Governing Finance in Europe: discussion and conclusion, in  Héritier, A., and M.G.Schoeller, Eds.,  Governing Finance in Europe. A Centralisation of Rulemaking?, 190-201.

Upcoming Publications

Héritier, A., and J. Karremans, eds., 2021.  Regulating Finance in Europe: Policy effects and Political Accountability, forthcoming with Edward Elgar Publ. , Cheltenham UK and Northhampton, MA.USA.

Héritier, A. and J. Karremans, 2021,  Introduction,  in Héritier, A., and J. Karremans, eds., 2021.  Regulating Finance in Europe: Policy effects and Political Accountability, pp. 1-16

Karremans, J. and A. Héritier, 2021, Conclusion. Procedural and Substantive Accountability in European Financial Regulation, in A. Héritier,  and J. Karremans, eds., 2021.  Regulating Finance in Europe: Policy Effects and Political Accountability, 16pp.

Peridis, P. and A. Héritier, 2021, Policy Effects and Accountability: Unbundling of Research and Execution Costs under MIFID II, In A. Héritier and J. Karremans, eds., 2021.  Regulating Finance in Europe: Policy Effects and Political Accountability, 37 pp.

Smolenska, A. and A. Héritier 2021,  Critical Infrastructures (CCPs) : Political Accountability and the Policy effects of EMIR. In A. Héritier and J. Karremans, eds., 2021.  Regulating Finance in Europe: Policy Effects and Political Accountability, 32 pp.

Héritier, A. 2021,  Governing Finance in Europe: Policy Effects and Political  Accountability,  in M. Strand. and C.F. Bergstroem, eds.,  Legal Accountability in EU Markets for Financial Instruments: The Dual Role of Investment Firms   Forthcoming Oxford University Press, 16.pp

Conference presentations

Hertie School of Governance,  Berlin , 7.November 2019 . Conference Governing Finance in Europe: a centralisation of rule-making.