Jump to ContentJump to Main Navigation
Participation in EU Rule-MakingA Rights-Based Approach$

Joana Mendes

Print publication date: 2011

Print ISBN-13: 9780199599769

Published to Oxford Scholarship Online: September 2011

DOI: 10.1093/acprof:oso/9780199599769.001.0001

Show Summary Details
Page of

PRINTED FROM OXFORD SCHOLARSHIP ONLINE (www.oxfordscholarship.com). (c) Copyright Oxford University Press, 2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may print out a PDF of a single chapter of a monograph in OSO for personal use (for details see www.oxfordscholarship.com/page/privacy-policy). Subscriber: null; date: 16 January 2019

The ‘Lamfalussy Process’, Consultation, and Participation Rights

The ‘Lamfalussy Process’, Consultation, and Participation Rights

Chapter:
(p.268) Chapter 6 The ‘Lamfalussy Process’, Consultation, and Participation Rights
Source:
Participation in EU Rule-Making
Author(s):

Joana Mendes

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199599769.003.0006

Abstract and Keywords

Chapter 6 analyses the role of consultation procedures in the context of the Lamfalussy procedure. It contrasts consultation and rights-based participation, thereby building a bridge between the political and the legal strands of participation. This chapter contributes to clarifying the reasons why participation has become one of the principles of European governance. It shows how rights-based participation has been quite a distant concern in the setting up of consultative procedures, specifically, in the area of financial services, and, in general, in the consultation practices that pervade European governance. At the same time, the specificities of consultation in the field of financial services are highlighted. One specific decisional procedure covered by the Lamfalussy process — the adoption of accepted market practices — is analysed. It illustrates the problems ensuing from the recognition of participation rights in rulemaking procedures. Chapter 6 further elaborates on the solutions to circumvent the contingencies of participation proposed in Chapter 2.

Keywords:   Lamfalussy procedure, consultation, European governance, financial services, rights-based participation, contingency of participation, market abuse, accepted market practices

The regulatory process proposed by the Committee of Wise Men on the Regulation of European Securities Market, chaired by Alexandre Lamfalussy (henceforth, the Lamfalussy Committee)—the so‐called ‘Lamfalussy process’—is one example of EU governance arrangements where ‘participation at large’, in the form of consultation, is given considerable weight. The concrete design of the ‘Lamfalussy process’, as far as consultation is concerned, highlights the difference between, on the one hand, participation rights as they have been characterized in the previous chapters and, on the other, consultation practices as they have been envisaged by the Commission in its governance initiatives. In other words, the ‘Lamfalussy process’ illustrates the difference between a rights‐based approach to participation that underlies the concept of participation propounded in this work and the forms of public involvement in decisional processes that have been sustained by the EU institutions under the impetus of the Commission. This distinction was briefly sketched in Chapter 2 and, in part, concretized by the analyses presented in Chapters 3 and 4. Consultation should nevertheless be recalled here. It was said that consultation is a way of allowing for the involvement of persons situated outside the formal, public decision‐making structures typical of a representative system, while ensuring that the ‘external input’ received is filtered by the latter (it is hence a form of ‘participation at large’, as explained in Chapter 2). Consultation involves the creation of public discussion periods in which either the public in general or particularly interested persons are called upon to express their views on a given regulatory proposal, regardless of the form this proposal may take. In general, this form of procedural intervention does not entail the emergence of a procedural legal relationship between participants and (p.269) decision‐maker(s), that is, the former are not recognized rights inherent in their intervention that would require the latter to follow a specific course of conduct. Explaining how consultation came to the foreground of EU financial services regulation is particularly illustrative of the reasons that made consultation and, with it ‘participation at large’, one of the characteristic features of EU governance. Moreover, this analysis reveals how much the creation of participatory procedures is due to regulatory specificities of the sector at hand, even if some concerns are common to different fields.

In order to analyse the role of consultation in the realm of financial services, one needs first to consider the reasons that led to the adoption of this regulatory approach (Section 6.1) and to situate the fora of participation envisaged in their novel and other not so innovative features (Section 6.2). These are the starting points for the analysis that follows, which will therefore focus on the policy documents that were issued following the adoption of the 1999 Financial Services Action Plan, in particular the Lamfalussy Report.1 The core of the chapter highlights the rationales and characteristics of participation as established in the EU regulation of financial services following the recommendations of the Lamfalussy Report and the subsequent institutional practices (Section 6.3). This contributes to better distinguishing this type of participation from the rights‐based concept defended in the book. Further, a few observations are made on how consultation procedures have been perceived and conducted in practice, as far as this is possible on the basis of the available documents (Section 6.4). This sheds light on the limits of law with regard to some problems ensuing from the practice of participation. Next, the features of consultation are contrasted with the features of a rights‐based concept of participation (Section 6.5). This last section of the chapter presents the differences and points of contact of the two concepts. In addition, by resorting to one aspect of the market abuse regime—the decisional process that underlies the definition of accepted market practices—it illustrates the type of situations in which participation rights should be recognized in the realm of securities market regulation. The difficulties that arise from the proposed extension (p.270) of participation rights in this case are also addressed, as well as the possible ways of circumventing them.

Before proceeding, two facts should be noted. To begin with, the Lamfalussy process was originally conceived for securities market regulation and expanded to banking, insurance, financial conglomerates, and UCITS, where parallel regulatory structures were set up.2 The analysis undertaken in the following pages is limited to securities market regulation, taken here as a reference field. In addition, EU financial regulation and supervision is undergoing a substantial reform process in the context of the current financial crisis.3 The general sense of the reform, in what specifically concerns the structure of regulation and supervision, is to strengthen the role of the EU in this field, building upon existing structures. At the time of writing, the European Parliament and the Council had agreed, inter alia, with the Commission's proposal to transform the so‐called Lamfalussy committees—the Committee of European Securities Regulators (CESR, analysed below) and its counterparts in the areas of banking, insurance, and occupational pensions—into independent agencies.4 They will be part of a (p.271) network of supervisors (European System of Financial Supervisors) and cooperate with the European Systemic Risk Board, which is deprived of legal personality and responsible for macro‐prudential supervision.5 The reform builds on the Lamfalussy process, but affects the regulatory levels where consultation procedures have been in place (in particular, levels 2 and 3), mostly due to the enhanced powers that the new agencies will have. This is taken into account in the following sections. The impact the reforms will have on consultation is still uncertain. This will be analysed below (Sub‐section 6.3.6). For now it suffices to say that the references to consultation in the 2009/2010 documents are scant,6 and this can be interpreted in different ways.

6.1 The Origins of the ‘Lamfalussy Process’

The immediate origins of the ‘Lamfalussy process’ lie in a Commission Communication of 1999 that set up a Financial Services Action Plan, taking the introduction of the euro as the momentum for regulatory change. The fulfilment of this agenda was grafted onto the strategy for accomplishing a ‘competitive and dynamic knowledge‐based economy’ defined by the (p.272) Lisbon European Council of 2000.7 In the Action Plan mentioned, it was assumed that the economic benefits potentially stemming from free cross‐border provision of financial services were hindered mainly by regulatory divergences among Member States.8 The regulatory approach followed up to that point, based on the principle of mutual recognition, on minimum harmonization, and on the principle of home country control, had failed fully to achieve the purposes of integration, due to shortcomings in the regulatory process itself and to deficient—or lack of—enforcement.9

For this reason, according to the Commission, both the European legislative process and the process of implementation and enforcement should be placed under scrutiny. The legislative procedure (co‐decision), as it stood, was deemed to be excessively slow and cumbersome. It was considered that it could not speedily adapt to changing market circumstances and had failed to produce the legislation needed. The deficiencies of the implementation and enforcement phase were attributed by the Commission mainly to the lack of uniform application and interpretation of Community rules by Member States.10 On the basis of this assessment, among other proposals to deliver the Action Plan, the Commission strove for ‘a more inclusive and consensual approach in shaping policies from an early stage and in advance of drafting legislation […] [extensive] to all EU institutions, but also to representatives of market practitioners, consumers, users and employees’. This was deemed to favour swifter decisional processes.11 Thus, with regard to the inclusion of non‐institutional entities, it proposed the creation of ‘a high level forum […] to take soundings from bodies representing the principal EU interest groups which have an interest in the smooth and efficient operation of financial markets’.12 In addition, it was (p.273) underlined that the regulatory system should produce flexible solutions under proper oversight. Speed and flexibility should be the cornerstones of a new regulatory framework to be created in the field of financial services.

The diagnosis of regulatory failures in the field of the securities market, at both levels—decision‐making, on the one hand, implementation and enforcement, on the other—was the basis of the process put forward by the Lamfalussy Committee, mandated by the Council to review the rule‐making procedures in this field, in view of the agenda set out in the Action Plan.13 The regulatory reform delineated in the Lamfalussy Report was endorsed by the Stockholm European Council of 23 March 2001 and by the European Parliament Resolution of 5 February 2002 on the implementation of financial services.14 These resolutions reveal the high degree of inter‐institutional compromise backing up the regulatory approach defined by the Committee. This put an end to an institutional conflict regarding the terms of delegation of powers to the Commission in this field.15 This was only possible after the Commission, at the urging of the European Parliament, provided guarantees aimed at ensuring the respect of the principle of institutional balance and, specifically, of the European Parliament's role in this process.16

6.2 The Four‐level Regulatory Structure

As summarized by one author, the Lamfalussy process essentially aimed at ‘streamlining […] the procedure for the adoption of substantive regulatory (p.274) standards…as a means for ensuring more comprehensive harmonization and…strengthening…cooperation between existing national regulators and the coherent and equivalent application of the European norms by Member States’.17 As mentioned, celerity and flexibility were the ultimate aims of this regulatory strategy.

In order to fulfil these purposes, the Lamfalussy Committee proposed a regulatory approach structured along four regulatory levels: framework principles, implementing measures (in the pre‐Lisbon terminology, which will be used throughout the text), cooperation, and enforcement. This basic structure has shaped current law and is, in essence, maintained in the 2009 proposals, institutional changes notwithstanding.18 At level 1, the European Parliament and the Council following co‐decision—now ordinary legislative procedure—adopt framework principles.19 These enshrine the basic political choices that are complemented by the level 2 detailed technical measures adopted through comitology procedures, following the intervention of the European Securities Committee (ESC), which is supported by the advice of the Committee of European Securities Regulators (CESR), soon to be replaced by the European Securities and Markets Authority (ESMA). The ESC is a comitology committee. It assists the Commission in the adoption of implementing measures following the regulatory procedure or the regulatory procedure with scrutiny defined in the comitology decision.20 It is composed (p.275) of high level officials of Member States' Ministries of Finance and chaired by a Commission representative who participates in the meetings as an observer.21 CESR was conceived as an independent advisory body,22 outside the comitology process. It is composed of ‘high level representatives from the national public authorities in the field of securities’ designated by each Member State and by a ‘high‐level representative’ from the Commission, who will soon integrate the Board of Supervisors of the ESMA.23 At level 2, and at least until the end of 2010, it has been assisting the Commission, ‘in particular’ in the preparation of draft implementing measures in the field of securities, either on its own initiative or upon a Commission request. In this case, it has acted on the basis of a mandate given by the European (p.276) Commission (following the advice of the ESC).24 In essence, it is expected that the ESMA will maintain this advisory role at levels 1 and 2.25 Nevertheless, a significant change will likely affect level 2: the ESMA will be entitled to develop technical standards that, subject to the Commission's enforcement, will then be adopted as delegated or implementing acts (Articles 290 and 291 TFEU).26

It follows from what has been said so far that the Lamfalussy process is very much grounded in comitology procedures. As such, it would risk being trapped by the doubts that cast gloom upon the new Articles 290 and 291 TFEU. This is avoided by Declaration 39 of the Treaty of Lisbon, according to which ‘the Conference takes note of the Commission's intention to continue to consult experts appointed by the Member States in the preparation of draft delegated acts in the financial services area, in accordance with its established practice’. This safeguards the Lamfalussy process from such doubts.

At level 3, as originally conceived, coherent transposition into national law, uniform interpretation and application of EU and national rules, as well as convergence between supervisory practices need to be ensured. Up to the creation of the ESMA, these tasks have been decentralized, and entrusted to national regulators acting within CESR,27 which has operated here under a different hat—no longer as an advisory body to the Commission in the implementing rule‐making procedure, but as ‘a fully independent’ network coordinator acting on its own initiative.28 This will fundamentally change with the creation of the ESMA.

The CESR's core task at level 3 has been to ensure coordinated transposition, as well as convergence among national regulators both in their (p.277) rule‐making tasks (defining ‘common approaches and standards in order to facilitate harmonized implementation of EU law’) and in their supervision of the behaviour of financial firms.29 This task will be taken over by the ESMA, endowed however with increased regulatory powers.30 The CESR's role at level 3 has been progressively defined very much on the basis of CESR's practice. It has also been considerably strengthened, in particular after the 2009 decision that revised the CESR's legal status. Among other points, this decision, currently in force, opened the possibility of adopting decisions by qualified majority, where consensus cannot not be reached,31 and established that the CESR members that do not follow the CESR guidelines are expected to state reasons for their choice.32 This was intended to put pressure on non‐complying members and to reinforce the CESR's authority over the choices of national regulators.33 This was the first step of the ongoing trend to reinforce the role of the EU bodies in ensuring consistent application of EU rules. In fact, the future agency will be endowed with the power, inter alia, to issue draft binding technical standards ‘designed to further develop, specify or determine the conditions of application of…level 2 measures’.34

(p.278) Finally, regulatory action at level 4 as conceived in the Lamfalussy Report was entrusted to the Commission, which should boost the enforcement of EU rules, performing its traditional role of ‘guardian of the Treaties’ (in principle with the cooperation of Member States, regulators, private actors, and the European Parliament).35 The reform will endow the ESMA with considerable powers of enforcement, even if it is specified that these are without prejudice to the powers of the Commission under Article 258 TFEU (former Article 226 EC).36

In short, in view of the aims of the Lamfalussy process, two main features were of fundamental importance. First, the clear distinction between the ‘core principles’ and the technical character of level 2 implementing measures was considered a key aspect to speed up the adoption of legislation. Secondly, the coordination activity carried out by the CESR at level 3 was crucial in order to ensure greater supervisory convergence and address shortcomings in the uniform application and interpretation of EU rules that could otherwise hinder the cross‐border provision of services. The first feature was far from being a novel issue in EU law. In fact, the dividing line between basic and implementing acts has long since been a battleground for defining the contours of inter‐institutional balance (and is likely to remain so, given the doubts on how to apply Articles 290 and 291 TFEU). At the same time, this was, from the outset, one of the thorny points of the process.37 It is in the second feature—the creation of an independent expert committee at level 3 (soon to be succeeded by the ESMA)—that the main innovation of the Lamfalussy process lay.

Both aspects contend with the legitimacy and accountability of the whole process. These two issues have been very much present in the conception, setting up (mainly due to the European Parliament's objections), and (p.279) evolving dynamics of the Lamfalussy process.38 Consultation was, from the outset, proposed as one possible means of ensuring both. However, this provides only part of the explanation on the importance acquired by consultation in this context. Indeed, the specific characteristics of the regulated markets provided an additional impetus to the creation of consultative procedures.

6.3 ‘Active, Well Defined Involvement of Market Participants and Consumers’

Two main sets of reasons justify the relevance attributed to consultation in the Lamfalussy regulatory framework.39 First, as suggested above, fears of technocratic regulation and deficient democratic accountability of decision‐making stemmed from the creation of swift rule‐making procedures relying on extensive delegation and, perhaps to a lesser extent, from the creation of an administrative regulatory structure of fluid contours inserted in the formal Community (now Union) regulatory process. Arguably, these concerns remain after the current ongoing reform, perhaps to an increasing degree, given the powers of the agencies. Secondly, anticipated consensus on the existence and meaning of rules was perceived as a factor favouring the effectiveness of regulation. This is in part due to the neo‐functionalist logic of reaching out to those interested ‘in the smooth and efficient operation of financial markets’, reflected in the Financial Services Action Plan.40 In part, this (p.280) results from specific regulatory characteristics of the securities field that pushed for the desired inclusive approach, namely its fragmented and hybrid nature.41 These two sets of reasons are analysed in the following sections, while presenting also how consultation was conceived in the Lamfalussy Report and in other related documents. Only the documents that preceded the current reform allow us to understand the relevance that consultation acquired in this sector in more recent years. It is thus justified that, despite the envisaged replacement of CESR by the ESMA, the following analysis will refer to the regulatory framework still in place at the end of 2010. This section ends with an overview of the possible impact of the envisaged reform on current consultation practices.

6.3.1 Level 1: minimum standards

According to the Lamfalussy Report, consultation must be ensured throughout the rule‐making process. In a first phase, ‘there should be a strengthened and open dialogue with market participants and end‐users so as to advise the Commission on a continuous basis on level 1 work’.42 To achieve this, the Commission should hold ‘open, transparent and systematic’ consultations and, ‘where necessary, open hearings’. The Lamfalussy Committee considered that minimum guarantees should be adopted to safeguard the usefulness of consultation: it proposed the clear definition of deadlines and the elaboration of a summary of the consultation process undertaken to be made available with the final proposal.43

Far from being a novelty, consultation at this level represented the continuation of the long‐standing practice of consultation preceding the Commission's legislative proposals. The proposals of the Lamfalussy Committee merely underlined aspects that needed to be corrected in order to take the full benefits from consultation procedures, and, in a way, heralded some of the ‘good governance’ measures that the Commission later proposed in the White Paper on Governance.

Alongside this, the Lamfalussy Report also underlined that Member States and their regulators, on the one hand, and the European Parliament, on the other, should be consulted as early as possible on any Commission proposal for level 1 legislation. Therefore, both inter‐institutional agreement and (p.281) anticipated consensus were considered crucial to achieving the desired goals of the regulatory process.

6.3.2 Level 2: bringing participation to the realm of comitology

At the second level of regulation, the Lamfalussy Committee recommended that the CESR, following a request by the Commission for technical advice, should engage in consultation with market participants, consumers, and end‐users ‘according to a fixed, preferably mandatory set of [previously established] procedural rules’. The Lamfalussy Committee defined both the principles and the essential steps of the consultation procedures, according to the following basic principles:

market practitioners must be involved…at every level…in a continuous process…with particular weight given to those with knowledge and expertise on the subject in question…in an open process, using, inter alia, the internet…with end‐users being considered at the same time.44

The consultation procedure should be designed along the following lines. First, in the face of complex issues, the CESR should delineate the appropriate regulatory approach following consultation on the basis of a ‘concept release’, where the problem and the several options are outlined, thereby asking for public input on the desirable approach. Secondly, the CESR should submit a draft proposal to consultation. Each of these two phases should last for a maximum period of three months. Thirdly, it was suggested that, where necessary, the CESR should complement this consultation procedure with hearings or roundtables. Lastly, the Committee advised that the CESR's final recommendations should be accompanied by a summary of the comments received.45 Particular care was taken to insist on the involvement of the European Parliament also during the level 2 regulatory process.

Both the Council and the European Parliament were favourable to consultation. The Council endorsed the proposals of the Lamfalussy Committee in this respect, considering that the Commission should ‘[strengthen] its dialogue with consumers and market participants’ and that the CESR ‘should consult extensively, in an open and transparent manner…and…have the confidence of market participants’.46 The European Parliament urged the Commission to ‘guarantee market operators and consumers wideranging (p.282) consultation by setting up an advisory committee under the supervision of the Regulators Committee [the CESR]’.47 In addition, in line with the recommendations of the Lamfalussy Committee and the European Council's receptivity, the Commission imposed on the CESR a legal obligation to consult, at the same time defining some parameters of action. Thus, according to the first paragraph of Article 12 of the 2009 Decision (which reproduces the corresponding provision of the 2002 Decision), ‘before transmitting its opinion to the Commission, the Committee shall, at an early stage, consult market participants, consumers and end‐users extensively and in an open and transparent manner’.48 Moreover, as a rule, the Committee ought to publish the results of the consultations.49 Clearly, consultation was considered to be intrinsic to the function of the CESR, at least in relation to its role at level 2.50 Finally, since this consultation takes place in one of the sub‐phases of the procedure for the adoption of level 2 measures, the Lamfalussy Committee, in addition to the insistence on consultations carried out by the CESR, recommended the Commission ‘to maintain a similar level of transparency and openness as these proposals move to the Securities Committee [ESC]’.51

It is interesting to compare this approach to consultation with the one that, a few months after the publication of the Lamfalussy Report, was adopted by the Commission in its White Paper on Governance, which was later developed in the Communication on ‘a reinforced culture of consultation’ setting forth a code of conduct on consultation practices. In the main, the Lamfalussy process anticipated the Commission's more ‘structured’ approach to consultation presented in the White Paper on Governance and in the communication mentioned.52 Two aspects are, however, strikingly different. First, the (p.283) obligation to consult imposed on the CESR by the Commission, under Article 12 of the decision establishing the CESR, is seemingly at odds with the position according to which the Commission should not rely on legal rules to ensure consultation. The main concern of the Commission, when stating its general approach to consultation, was to prevent judicial review on procedural grounds. Article 12 certainly prevents a hypothetical inversion of policy with regard to consultation—and, to this extent, consolidates the Lamfalussy recommendations.53

Secondly, and more importantly, consultation was strengthened at the regulatory level that, as a rule, stayed outside of the scope of the Commission's code of conduct on consultation practices: in the procedures leading up to the adoption of implementing regulations and directives by the Commission. This different treatment can be explained on the basis of the two specific features of the Lamfalussy process that distinguish it from ‘traditional comitology procedures’. One of those features was the blunt and overt assumption that in order to ensure one of the main goals of the whole regulatory set‐up—speed in decision‐making—rules adopted under the then co‐decision procedure should be restricted to ‘essential issues’ and leave out ‘technical implementing details’. While this aspect merely corresponded to the well‐known reality of EU regulation, here it was stated as a principle on which the success of the whole process rests. As such, it seemed to limit the Council and the Parliament's power in favour of less democratic and less transparent procedures perhaps more than in other fields. A second specificity of the Lamfalussy strategy, alluded to above, added to the fear of technocratic decision‐making: national regulators, through the CESR, were directly involved in the decisional procedure in an advisory role to the Commission. Again, this was nothing fully unknown to comitology procedures, where often the consultation of expert committees takes place in parallel with the intervention of committees composed of representatives of national governments. The CESR's independence, however, raised specific issues of accountability, as will be seen in the next section.

More broadly, it should be recalled that during this period (in the aftermath of the mad‐cow disease crisis) the comitology system was, more than ever, under scrutiny. Furthermore, at a time at which the Commission was undergoing an overhaul of its governing practices, the Parliament kept struggling for an equal recognition of its institutional rights at the level of (p.284) implementing regulation. Moreover, the EU institutions were in general increasingly concerned with citizens' detachment from European matters. This context could be an indication that the need to ensure the legitimacy and accountability of the regulatory process was one of the concerns justifying the relevance attributed to consultation in the Lamfalussy Process.54 Still, in general, this did not lead to reinforced consultation practices in comitology procedures, which, as noted, remained outside the scope of the consultation standards published in 2002. In this respect, the contrast of the Lamfalussy Process with ‘normal’ comitology procedures is noteworthy, in particular, the degree of detail of the Lamfalussy Report with regard to consultation procedures undertaken at level 2.

Times have changed, and despite the fact that similar issues of legitimacy and accountability are very likely to remain after the present reform, no provision similar to Article 12 of the 2009 Decision is presently envisaged with regard to the ESMA. In the Commission's 2009 proposal, the correspondent provision to Article 12 entails a looser duty of consultation, applicable to draft technical standards according to which ‘before submitting them to the Commission, the Authority shall, where appropriate, conduct open public consultations on technical standards and analyse the potential costs and benefits’.55

6.3.3 Level 3: facing accountability and legitimacy deficits

In contrast to the detail with which consultation was considered at level 2, and despite the insistence on ensuring consultation throughout the regulatory process, the Lamfalussy Report omitted any reference to the involvement of interested parties in the CESR level 3 activities. Indeed, the very definition of the CESR role at level 3 was left quite open. At any rate, it was clear from the outset that, in contrast to its role at level 2, its tasks at this level did not imply issuing an opinion that should be transmitted to the Commission, but the adoption of acts and measures that have the national regulators and authorities as addressees.56 As such, they do not fall under the obligation to consult in current Article 12.57 Nevertheless, there was a (p.285) self‐commitment on the part of the CESR to extend the consultation processes envisaged in level 2 to the activity in level 3. As one can read in the document where the CESR defined its role at level 3, the ‘CESR follows the same consultation practices at level 2 and level 3’ and ‘the CESR Charter and CESR Public Statement on Consultation Practices…do not distinguish between level 2 and level 3 in [the] CESR's approach to consultation’.58

Hence, in addition to the recommendations of the Lamfalussy Committee, the CESR created a market participants' consultative panel and established consultative working groups, working together with its expert groups. The consultative panel, according to information available on the CESR's website, resulted from suggestions of both the European Parliament and the Lamfalussy Committee. At present, this panel assists the CESR but it also has a sort of surveillance role in particular in what concerns the committee's consultation policy, its priorities, and working methods.59 The possibility of creating consultative working groups was envisaged in the CESR's Charter, ‘for the purpose of facilitating the dialogue with market participants, consumers and other end users of financial services’.60 According to the CESR's website, the members of the working groups are drawn from across the Member States and are not intended to represent national or specific firms' interests. Their role is to provide technical advice to the expert groups and their intervention does not replace consultations with all market participants. Information on the processes and criteria to choose the members both of the consultative panel and of the working groups cannot be found either in the legal texts or in the documents available on the CESR's website, although, in some cases, the (p.286) list of members is public61 (as are the reports of the consultative panel meetings).

Concerns for legitimacy and accountability are likely to have determined the role of consultation at this regulatory level. In fact, the CESR was a novel ‘institution’ which needed to prove sufficient ‘democratic qualities’ beyond its ability to perform effectively the role that was assigned to it. At the same time, its ‘hybridity’ is not unproblematic in terms of accountability. It is an ‘independent advisory group’62 deprived of legal personality but, at the same time, it is more than just a network of regulators: it was created by a European decision and given the status of independence in the framework of a regulatory approach that was endorsed at the highest political level. While CESR's level 3 activity is already potentially highly influential on financial markets, it is, arguably, not adequately limited by the controls envisaged at the EU level. The only explicit mechanism formally envisaged is the CESR's duty to ‘periodically and at least annually inform the Council, the European Parliament and the Commission on the achievement of the activities set out in the work program’.63 However, it is not clear what the consequences of this duty to report may be, in particular taking into account the CESR's status of independence and its composition. Given that the CESR is composed of representatives of national regulators, one may argue that it is accountable mainly to the Council as well as to national parliaments and governments. Yet, how these controls are concretized is not envisaged in any of the documents ruling the institutional aspects of the CESR. Alongside this, its members are also independent vis‐à‐vis their national governments, and the ability of national mechanisms of accountability to ensure control over the activity that the CESR performs at the EU level is likely to vary. Not surprisingly, the CESR has ‘shown itself very sensitive to accountability charges’ and carefully built its links with the European Parliament and the Council.64 To this, one could add the fact (p.287) that, at least until recently, the role of the CESR at level 3 remained relatively undefined. This was vaguely sketched in the Lamfalussy Report, which was endorsed as such by the EU institutions, and virtually absent from the 2002 Decision that established the committee.65 In this normative vacuum, it was essentially the CESR itself that defined what its role would be at this regulatory level, until the adoption of the 2009 Decision, which largely built upon previous practices.66

Uncertain accountability mechanisms and the uncertain legal mandate that prevailed until recently could have hindered the perceived legitimacy of the CESR. In addition, legitimacy concerns may arise from the possibility that, in the course of regulatory creation and adaptation, level 3 standards may determine or pre‐empt choices to be taken at levels 1 and 2, thus inverting the logic of the procedure, and overstepping the institutional prerogatives of the European institutions.67 In these circumstances, opening up CESR's decisional processes to input from interested parties, transparently revealing the results of consultation as well as showing which contributions were taken into consideration in the final decisions, was very likely perceived as a means of countervailing legitimacy claims.

One should add that, arguably, similar accountability concerns that were raised up to now by the CESR will apply also to the ESMA, to the extent that it is doubtful whether the envisaged mechanisms of control will suffice to hold it accountable, in particular in view of its reinforced independence.68 Yet, the future of consultation in the new regulatory framework is uncertain.69

(p.288) 6.3.4 Consultation: matching legitimacy and accountability?

How can consultation, in the way it was envisaged in the Lamfalussy Report, enhance legitimacy and accountability of the regulatory process? The answer to this question depends on the concepts of legitimacy and accountability that are adopted. It is not appropriate to enter here into the extensive debates on legitimacy and accountability deficits of the EU institutional set‐up, nor on the discussion on which values and qualities these concepts should ensure.70 For our purposes, the relations between the three concepts at hand will only be considered in the context of the Lamfalussy process. In other words, the observations that follow take the Lamfalussy process as a frame of reference. As previously noted, one should underline that in the primary sources concerning this procedure there are no indications that consultation procedures were at any point associated with legitimacy and accountability. This assumption results from the interpretation presented above.

If legitimacy means the perception by decision‐makers and the recipients of decisions that an institution has the ‘right to rule’,71 then consultation may enhance legitimacy in four different ways. First, it is perceived to further the effectiveness of the regulatory process, insofar as it facilitates anticipated consensus regarding the content and meaning of rules. From this perspective, consultation also ensures responsiveness in a double sense. It allows not only the creation of rules that speak to the needs of the regulated but, in addition, these rules are grounded in a combined deployment of regulatory resources in order to allow for better policy solutions to which both national regulators and regulated contribute.72 Next, and in the same vein, consultation may contribute to adding expertise to the regulatory (p.289) process, thereby aiming at better regulatory outcomes.73 These seem to have been the predominant concerns underlying the design of the Lamfalussy process.74 Finally, by adopting an inclusive approach to consultation—if possible, embracing all those with a stake in the rules to be adopted—decision‐makers (in this case, the Commission, and up to now the CESR) seek to ensure support for regulation and ‘create a public’, thus broadening their legitimacy basis throughout the varied range of interests and communities to which their regulatory activity relates. Indeed, consultation, in the way it was conceived by the Lamfalussy Committee, presupposes open and transparent procedures, in which, first, information is publicized in advance, secondly, any person with a relation to financial markets is granted access as a means of seeking inclusiveness and, thirdly, a summary of the input received is made public together with the final decision (ideally, it should be possible to deduce from there the reasons why a certain rule has been adopted and to trace which input influenced the outcome). In this shift, consultation as a means to improved problem‐solving could probably mutate into a possible source of ‘normative legitimacy’, i.e. the acceptance of the entity in question as legitimate in light of democratic standards,75 insofar as it creates the potential for ‘democratizing destabilization’ through practices that resemble some aspects of democracy.76 However, this can only be verified on the basis of a deeper empirical study, tested against the background of normative theories of legitimacy.77 Admittedly, building (p.290) links with market participants (as well as with international organizations operating in the field), the CESR in particular has sought to create the constituencies that might consider the regulatory options adopted to be legitimate, thereby strengthening its market and institutional position.78

It is conceivable that these potential advantages of consultation were envisaged by the designers of the Lamfalussy process. Nevertheless, the extent to which these are effective advantages depends on empirical evidence that might support these assumptions. While this falls outside the realm of this book, a limited account of how these procedures have worked in practice is given below (Section 6.4), with a view to illustrating the practical problems that might hinder consultative procedures. In any event, as it emerges from the above characterization, consultation is a means of enhancing the technical legitimacy of regulatory options, hardly their political legitimacy grounded in democratic values.

Arguably, it is less evident how the consultation procedures proposed, adopted, and furthered in practice could enhance accountability of the actors involved. At first sight, one could claim that consultation procedures constitute a channel of accountability. Responsiveness, which may be considered one of the aims of this new institutional and procedural design, may be seen as one way of ensuring accountability to the public. Indeed, where decision‐makers are deemed to be or become responsive to a particular public's needs, it may be considered that they are accountable to the public they serve.79 Consultative procedures, in the way envisaged in the Lamfalussy process, could be seen as a means of ensuring both. Furthermore, the legitimacy concerns associated with this regulatory strategy might make it tempting to attribute this role to consultation procedures.80 This would be in line with the Commission's White Paper on Governance, which suggested that better involvement and broad consultations could be a source of (p.291) accountability.81 The idea is that involving external actors in the decisional process and publicizing documents at their various stages provides opportunities for public control that would not exist otherwise. Indeed, in a way, the consultation procedures undertaken in the realm of the Lamfalussy process may be considered to constitute a type of community‐based control,82 insofar as they involve regulators, regulated, and other potentially interested persons in the making of norms and in the definition and monitoring of how they are transposed into each legal system. This is, however, something different than considering that those external actors or the public in general can call decision‐makers to account.83

Countering such arguments, a few authors have recently called attention to the need to distinguish participation (in the sense of ‘participation at large’, following the terminology presented in Chapter 2) from accountability, denying that the former can bring about the latter. Accountability, in a narrow but still somewhat vague sense, presupposes ‘ex post calling by one person of another actor to account for his prior conduct’.84 In a commonly used formula, this implies defining who is accountable, to whom, for what, with which consequences, and through which procedures.85 In this sense, accountability may be a synonym for political responsibility as well as for liability, equally embracing other forms of judicial control.86 As such, the ‘public’ or the interested persons consulted during decisional procedures cannot constitute an ‘accountability forum’, to use (p.292) Bovens' expression. Consultation procedures lack the structural element of accountability, namely that of retrospective control. They do not allow decision‐makers to be held to ‘account to a forum after the fact’.87 This is intrinsically linked to the fact that consultation procedures have a different purpose than that of holding decision‐makers to account. Even if they may allow some control over the decision‐makers' conduct, this is an effect marginal to the goal of ensuring that the persons consulted contribute to the outcome of the decisional procedures. As a result, consultation procedures also lack substantive elements of accountability.88 To begin with, the object of consultation procedures is not to require explanations and justifications pertaining to the conduct of the decision‐maker in order to pass a judgment on their actions. Next, they do not entail sanctions attached to possible misconduct of the decision‐maker. There may be mechanisms for holding the decision‐maker to account for their conduct regarding consultation procedures, but these mechanisms do not themselves constitute a channel of accountability.89 Insofar as they do not encompass the possibility of applying a sanction attached to a right to demand answers, consultation procedures do not fit the concept of accountability.90 Therefore, the idea that accountability to the public could result from consultation procedures should be discarded. This putative form of accountability does not satisfy the requirements that channels of holding decision‐makers to account should fulfil.

Lastly, a few words on transparency are due, since they are likely to better elucidate the question analysed here. Transparency stands at the intersection between legitimacy and accountability and permits clarification of the relationships between these concepts, on the one hand, and consultation (p.293) (and participation), on the other. Transparency is understood here as knowledge about how decisions are made, or, more broadly, as understandability of decisional processes, encompassing access to information, knowledge of decision‐making procedures, and the giving of reasons.91 As such, it is a premise of participatory procedures in a double sense.92 First, those who participate need to have access to the relevant information. In particular if participatory procedures are conceived as a means to ensure inclusiveness and to enable a comprehensive view of the interests involved in decision‐making, they compel the public availability of the relevant information. Secondly, if participation is to be effective, participants should, as much as possible, become aware of which factors weighed in the decision adopted. At the same time, transparency enables the attribution of accountability and creates one condition of legitimacy.93 The giving of reasons and the public provision of information facilitate, in principle, the process of bringing the decision‐maker to account, since the ‘decisional path’ is clear and publicly known. In any case, as such, the giving of reasons and public provision of information do not enable the participants to hold the decision‐maker to account (p.294) for the latter's decisions. However, the possibility of enhanced control over decision‐making that may derive from consultation is intrinsically linked to the conditions of legitimacy. In fact, perceivable decisional processes, that, at another level, may enable the attribution of accountability, are one of the conditions for the exercise of decisional power to be considered legitimate, as individuals need to understand the decisional processes in order to consider them legitimate.94 Beyond this basic condition of legitimacy, there is not a unique answer as to which other values or qualities decisional procedures and decision‐makers need to respect in order to be considered legitimate.

In sum, consultative procedures such as the ones created in the realm of the Lamfalussy process may enhance the technical legitimacy of decision‐making insofar as they favour effectiveness and responsiveness, as well as better regulatory outcomes through the incorporation of expertise and inclusiveness. Possibly, they may also favour political legitimacy, to the extent that they enhance consideration of a variety of conflicting interests. At any rate, even in the instances regarding which such an argument can be made, this is per se not sufficient to ensure political legitimacy grounded in democratic values. Moreover, while consultation procedures may enhance the control exerted over decision‐makers, they do not provide a channel for holding them to account. The transparency of decisional procedures required by participated procedures is a condition both of legitimacy and of accountability exerted through other means.

It is interesting to note that consultation was considered sufficiently important to prevail over concerns of delay that are usually associated with participation. While swiftness was one of the stated justifications and aims underlying the whole Lamfalussy process, the extensive processes of consultation throughout the rule‐making process may add quite a few more months to the length of the procedure. The reason why this was accepted lies, possibly, in the assumptions regarding the contribution of consultation to mitigating the perceived legitimacy and accountability problems raised by this decisional process. In addition, as was mentioned above, beneath these concerns, specific characteristics of the sector at issue contribute to explaining the creation and commitment to consultation in the realm of the Lamfalussy process. These are explained next.

(p.295) 6.3.5 Beneath legitimacy

The perceived need to overcome the legitimacy problems of the Lamfalussy process, enhanced by the particular political salience of this regulatory approach, is only part of the explanation for the peculiarly high degree of commitment to consultation that characterizes it. One also needs to look beneath the regulatory set up and examine the specific features of financial services that might have influenced this aspect of the process.

The stated aim of consultation, at least as it has been conceived by the CESR, is to ‘favour market participants' adherence’ to regulation.95 As mentioned, this ties in with the concern for warranting legitimacy and effectiveness. It is assumed that anticipated consensuses and responsive regulation ensure better results in implementation and compliance. At a deeper level, however, specific characteristics of financial services help to better explain the salience of this concern. Given the way capital markets have developed, regulatory functions—typically rule‐making or standard‐setting, information gathering, and ensuring modification of behaviour in accordance with the regulatory goals—are spread among a myriad of regulatory actors, public and private, national and international, commercial and non‐commercial.96 As a result, ‘financial services regulation is characterised by a network of inter‐locking rules, both at the national and international level’.97 From the point of view of harmonization and cross‐border provision of financial services, the fact that various actors possess different regulatory capacities means that it is particularly important not only to gather spread resources (namely information, expertise, and strategic position in relation to the aims of regulation),98 but also, for this very (p.296) reason, to warrant their adherence in order to ensure that their actions buttress the interest of market integration. The earlier this engagement starts, the more likely adherence is. Its continuity—one of the principles of consultation underlined by the Lamfalussy Committee—ideally ensures adherence throughout the regulatory chain. In addition, the interdependence of the EU regulatory process with international standards also favours consultation. On the one hand, EU regulation is, in a way, framed by standards defined by international bodies. On the other, given that financial markets are highly internationalized, an a priori reaction of international regulatory actors to EU rules is relevant.

In a word, the high ‘fragmentation and hybridisation’ of financial markets regulation make the way in which the various regulatory actors respond to EU regulation and the goals of convergence a crucial factor for the success of integration.99 This is particularly relevant when maximum harmonization is sought, which was one of the ultimate goals to be achieved through the Lamfalussy process. In this light, consultative procedures that potentially involve all interested parties in the regulatory process become an essential instrument to achieve the desired level of integration in this field.

In the Lamfalussy institutional framework, this is not unproblematic. As has been implemented thus far, the advice given by the CESR at level 2 has been, in principle, based on wide consultations with market participants, consumers, and end‐users. Arguably, not only does this represent an agreed solution among national regulators100—which, in addition, can be supported by the ESC's vote—but it is also meant to be the result of the aggregate views of market participants and, possibly, represents an accepted and expected practice. In these conditions, it is fair to assume that the Commission's right of initiative might be constrained, since it is unlikely that its final decision will substantially deviate from the CESR's advice. To this extent, the Lamfalussy regulatory design has not been without risks for the principle of institutional balance and for the Treaty regulatory framework, which the Committee purported to uphold, thereby respecting the limits of its mandate. Against this, it could be argued that, even if the (p.297) constraint of the Commission's power remains a possibility, still the Commission's control over the regulatory process has been ensured, as far as the CESR's intervention is concerned, by the fact that the CESR has acted at level 2 upon a mandate issued by the Commission, whereby the latter formalizes its request for advice. At the end, the content of the CESR's intervention depends on the Commission's will. However, a concrete example shows clearly that this is merely a formal argument. In the mandate that formalized the Commission's request for technical advice regarding the implementing measures of the MiFID Directive, the Commission asked the CESR to be ‘detailed and precise in order to allow for a harmonised and uniform definition of the financial instruments that fall under the scope of this Directive’ and charged the CESR with ‘providing comprehensive advice on all subject matters covered by the delegated powers’. The terms of the mandate gave the CESR considerable leeway. In these conditions, the claim that the Commission's right of initiative cannot be affected and that an articulated proposal by the CESR cannot hinder the Commission from disagreeing with the proposal becomes merely a formal argument. The suggestion of the second inter‐institutional monitoring group, supported by market participants, that the Commission should be obliged to justify the cases where it has not followed the CESR's advice (that of the level 3 Committees in general) seems to confirm this interpretation.101

Fragmentation and hybridization are not exclusive to financial services regulation, even if, to a lesser extent, they are likely to be present in other areas of EU law. At the margin of the Treaties, decisional procedures that entail consultations with the various persons with stakes in the regulatory processes, in particular industries concerned, have been perceived to be necessary to the fulfilment of market integration goals.102 These procedures may be more or less formalized, more or less transparent, more or less exclusive, more or less favourable to the inclusion of all interested parties in the regulatory process. In essence, however, it is fair to assume that they fulfil the same purpose: gathering together different regulatory capacities and, if possible, facilitating the adherence of different actors to the market integration goals in each sector. The concrete shape of procedures or fora of consultation are designed accordingly. In this sense, fragmentation and (p.298) hybridization, on the one hand, and consultation as a form of enhancing the technical legitimacy of the decisional processes, on the other, are interrelated aspects of the same process.

6.3.6 The 2009 proposals: the future of consultation

As mentioned above, both the policy documents that launched the current reform of the EU regulation of financial services and the 2009 legislative proposals, as well as the respective compromise agreements have only scant references to consultation. In particular, contrary to the Lamfalussy Report, the Larosière Report hardly mentioned the role of consultation. There are, however, important specifications in this respect in the Commission's proposal.103

According to the Commission, when drafting technical standards which, once endorsed by the Commission, will have a binding legal effect, the ESMA must, ‘where appropriate’, open the procedures for consultation. The compromise agreement between the European Parliament and the Council on the amendments to financial services directives in respect of the powers of the agencies (‘Omnibus directive proposal’), indicates that the draft technical standards adopted by the agencies will affect both level 2 and level 3 regulation. Indeed, it refers both to ‘draft technical standards [adopted] by means of delegated or implementing acts’ and to ‘technical standards…designed to further develop, specify or determine the conditions of application of…level‐2 measures’.104 At the time of writing, it is not yet clear how this will be translated into the final legislative act. It is submitted that Article 7 could, in certain cases, apply by analogy to both level 2 and level 3 measures. This gives contrasting signs in relation to the future of consultation. Indeed, as mentioned above, Article 7 enshrines a much looser duty to consult than the current Article 12 of the 2009 Decision on the CESR, applicable to level 2 measures. In this respect, Article 7 will be less constraining with regard to the consultation practices of the ESMA and could mean a regression in current practices. However, if it could indeed apply to level 3 measures, these would for the first time be covered by a legal duty to consult, thereby consolidating, to a certain extent, what have so far been (p.299) only self‐imposed practices of the CESR. It remains, in any case, quite a loose duty of consultation that does not bind the ESMA to specific standards and gives it leeway to decide when to conduct open public consultations. Consultations restricted to specific groups of stakeholders remain a choice of the competent EU body.105

In addition to Article 7, the Commission's proposal indicates in the preamble that ‘in its decision‐making procedures, the Authority should be bound by Community rules and general principles on due process and transparency’ and adds ‘the right to be heard of the addressees of the Authority's decision should be fully respected’.106 However, this does not seem to add any legally significant meaning to Article 7. First, the normative value of preamble provisions is questionable. Secondly, this is not significantly reflected in other provisions of the proposal,107 and, as has already been said elsewhere in the book, in EU law principles of due process (contrany to transparency) are restricted to adjudicative procedures, except where legal provisions state otherwise. This indication in the preamble is not a legal provision intended or capable of extending due process rights to rule‐making. The normative consequences of this reference remain obscure in this respect.

The creation of a stakeholder group is the second important measure of the 2009 proposal regarding consultation. According to the preamble of the proposed regulation, this is established for purposes of consultation on the adoption of technical standards, guidelines and recommendations, and ‘for reasons of efficiency’, and should ‘actively work as an interface with other user groups’.108 This is very much in line with some mechanisms that have been developed by the CESR (consultative panel and working groups) and the indications of Article 22 of the proposal reveal much of the inconveniences of organic participation that have been identified in Chapter 3.109 Namely, the appointment of the members of this group, as (p.300) well as its functioning, are dependent on the executive body it assists (in this case, the agency).110 At the same time, there are also provisions that may have the effect of countervailing this dependence. As proposed by the Commission, the stakeholder group may issue opinions independently of an agency's request and the agency has the duty to make these opinions public. This applies also to the results of the group's contributions.111 Furthermore, the group is autonomous in drafting its own rules of procedure.112 These possibilities give the group a certain leeway to act somewhat independently of the agency.

In general, the scant references to consultation in the policy documents on which the current reform is based could be an indication that the same importance is no longer attached to the involvement of market participants. However, this may also reveal that consultation in financial market regulation is already considered a given. This last possibility is perhaps more likely. In fact, the two reports have different scope: while the Lamfalussy Committee was in charge of designing a new regulatory structure for the field, the Larosière Committee specifically dealt with the shortcomings of convergence in financial supervision and with the possibilities of strengthening the role of the EU in this respect (which affects in particular level 3 as originally conceived by the Lamfalussy Committee). Moreover, the Larosière Report explicitly acknowledged that the Lamfalussy process achieved ‘good results’ with regard to open consultation, transparency, and political accountability, highlighting only the difficulties in reaching agreement in practices of supervision.113 In addition, as pointed out below, consultation has been perceived as one of the reasons for the success of the Lamfalussy process in ensuring the completion of the regulatory agenda set out in the 1999 Financial Services Action Plan. On this basis, and taking into account that the consultation practices in the field of financial services have largely developed outside legal frameworks, one can surmise that the provisions on consultation of the 2009 proposals will not impact negatively on current practices.114 Also the fact that the characteristics of the financial services (p.301) sector, which have justified in part the relevance attributed to consultation, remain largely the same would indicate that consultation will retain a similar weight in EU financial regulations. Nevertheless, only time will tell if other factors—such as swiftness—will dictate a regression in the practices currently in place.

6.4 Consultation in Practice

The above considerations shed light on the reasons that determined the relevance attributed to consultation in the realm of the Lamfalussy process and also on why the Committee's recommendations were taken further. The empirical evidence and studies available on the functioning of the Lamfalussy process do not allow us to assert whether the assumptions on the role of consultation procedures with regard the technical legitimacy were concretized or not. Neither the reports of the inter‐institutional groups nor the empirical studies consulted specifically address the grounds that were indicated above as justifying that consultation is one of the characteristic features of the Lamfalussy process.115

These reports and studies do, however, coincide in considering consultation as one of the several reasons for the effectiveness of the procedure.116 The two inter‐institutional monitoring groups, which were set up in order to assess the functioning of the whole procedure, pointed out the virtues and problems of the practice of consultation processes.117 Their reports highlighted two aspects, in particular. First, consultation was perceived, more enthusiastically by the second monitoring group than by the first, as one of the cornerstones of the Lamfalussy process. The first group, while pointing out the problems faced in consultation procedures, deemed ‘the use of earlier and more systematic consultation mechanisms’ to be one of (p.302) the factors that facilitated the speedy adoption of level 1 legislation and, consequently, of level 2 measures.118 The second group stressed that ‘all respondents were generally positive about the improved transparency and consultation mechanisms, which were seen as a major achievement of the Lamfalussy process’.119 Secondly, both groups pointed out problems of inclusiveness, especially in what concerns consumers, as well as problems related to procedures and outcomes. These two last aspects will be presented in turn.

The problems of inclusiveness pertain to the fact that both consumers and end‐users (in particular, companies) are under‐represented in consultation procedures. Two factors may explain this. First, there are not enough incentives to participate. One reason may be that most companies are ‘infrequent users’, as noted by the first monitoring group (this may be due to little integration in the financial markets until the implementation of the FSAP, or, more deeply, to lack of incentives to provide cross‐border services). In these circumstances, many companies have ‘little incentive to monitor events continuously’.120 Another hindrance is the highly technical nature of financial services regulation. Indeed, according to the second group, ‘it is necessary to be realistic about the extent to which consumers can collaborate in the development of technical requirements’.121 Secondly, lack of resources, the production of consultation documents only in English, and the non‐availability of documents addressed to non‐professionals were pointed out as obstacles to the involvement of consumers and small businesses.122 These two factors roughly correspond to some of the drawbacks of consultation pointed out by the literature: lack of involvement and limitations on information available.123 Nevertheless, according to the (p.303) second group, ‘representation of consumers and end‐users in expert groups is increasing’.124 The lack of inclusion of some interests together with the concern of the Commission to ensure the desired inclusiveness in financial services regulation led to the creation of two groups: the Forum of User Experts in the Area of Financial Services (FIN‐USE) and the Financial Services Consumer Group (FSCG).125 While these initiatives are a sign of the Community's efforts to promote access to all interested parties to rule‐making procedures in this field, they reveal not only the inequalities inherent in consultation processes but also the interest of the administration in pushing for inclusiveness in order to benefit from the ensuing regulatory advantages.126

As mentioned, the monitoring groups pointed out deficiencies in the consultation practices of the Commission and the CESR. In particular, their reports reveal that market participants, although generally satisfied with the improvements of consultation processes under the Lamfalussy approach, considered that the length of consultation periods is not always commensurate with the volume and technical nature of the matter, and feedback statements of comments received should be improved.127 Moreover, market participants raised issues regarding the methods used for analysing comments, but it is not clear from the wording of the report whether the problem is lack of clarity or contestation over the methods used.128 Finally, in what concerns the outcomes of the regulatory process, the first group has shown concern for possible inconveniences deriving from consultation practices under the Lamfalussy process. Namely, it (p.304) pointed out that too much consultation and lobbying might lead to more amendments of the original text, possibly hindering its internal logic and quality.129

In these consultation procedures, respect for the self‐imposed procedural rules regarding consultation, as well as consideration for the flaws pointed out by the inter‐institutional monitoring groups depend merely on the will of the rule‐making bodies that conduct consultation, namely the Commission and, up to now, the CESR (or, broadly, the level 3 Committees). Under current rules, the exception is the provision imposing consultation at level 2. At the same time, they seem to have had the utmost interest in ensuring the openness, transparency, and effectiveness of the process for the reasons stated above. The reports of the inter‐institutional monitoring groups show that both the Commission and the CESR have, in fact, remained committed to the spirit of the Lamfalussy recommendations, problems of inclusiveness notwithstanding.130

Finally, some of the problems pointed out in these reports also reveal the limits of law in tackling shortcomings of participation. While issues pertaining to the availability of documents in only one language and, within certain limits, to the length of consultation periods or to the lack of consideration of inputs could be countered by judicial control over decisional procedures, others such as under‐representation due to lack of material resources and the quality of legislative drafting can hardly be tackled through legal rules.

6.5 Consultation and Rights‐based Participation

6.5.1 Dividing and connecting lines

The differences between the type of ‘participation at large’ (consultation) just described, on the one hand, and the rights‐based approach to (p.305) participation endorsed in this book, on the other, become clearer after the above analysis. Their core functions are different and therefore also the scope of persons legitimated or called to intervene may differ in the two cases. A rights‐based approach to participation is grounded in specific values warranted by the rule of law, which can ultimately be pinned down to a concern for material justice. It results from the combination of the subjective and objective functions of participation explained in Chapter 2 that the persons entitled to intervene in the procedure are holders of a substantive right or legally protected interest that is potentially affected by the outcome of the procedure. In other words, holders of participation rights are those whose legal spheres are affected by a decision taken by a public entity.

Consultation as envisaged in the Lamfalussy process, and present in other sectors where similar regulatory structures or institutional arrangements prevail,131 has a different meaning. Respect for the person's dignity is not an issue here, nor is the instrumental rationale of consultation informed by an ideal of material justice. Consultation is a tool designed to achieve certain regulatory outcomes, but detached from the values that ground a rights‐based participation. It results from the awareness that key resources relevant to the exercise of power are spread between different public and private persons and that the achievement of the regulatory goals intended requires assembling them in the decisional procedures. As such, consultation is one among several means of responding to this need. At the same time, it may contribute to the perception that the decisional procedures are legitimate in the ways pointed out above. Access to the procedures may either be restricted to those whose contribution is considered relevant for previously set regulatory goals or extended to the public in general. Access to consultation procedures does not reflect the substantive legal positions that might be affected by the ensuing decisions (although, for consultation to make sense, interveners must have some knowledge of the issue being regulated and, hence, some proximity to the situation being regulated), nor does consultation ground procedural rights (unless the decision‐maker has a legal obligation to hear representatives of the interested sectors, in which case they have at least the procedural right to intervene). Consultation procedures are the product of policy choices. They exist where the (p.306) decision‐maker considers that the characteristics of the sector being regulated and the outcomes to be achieved justify opening the procedure to the views of those concerned. This form of participation is therefore more vulnerable to policy change than one that is grounded in legal values and, ideally, ensured through legal rules.

In a sense, consultation and rights‐based participation are two different concepts, pertaining to two different ways of understanding the administrative phenomenon. The former accompanies ‘modes of governance’ designed to gather together spread regulatory capacities with a view to delivering the desired outcomes. The latter is a well‐known category of traditional administrative law, underpinned by command‐and‐control processes of decision‐making, where rights‐based participation ensures the due consideration of legally protected interests affected by public decisions, both from a subjective and from an objective standpoint. Nevertheless, they are inter‐related. The instrumental rationale of participation rights brings them closer to the intervention of interested parties in consultation procedures. This is clearer in cases where the personal factor is not predominant in the situation that is subject to regulation. In borderline situations, there may be a continuum between participation rights and the intervention of interested parties in consultation procedures. However, in the absence of legal rules that endorse consultation and in the absence of substantive rights and interests that may give rise to the right to participate, the procedural intervention in the latter case remains in the realm of the political.132

Given their different rationales and functions, there might be occasions in which both types of procedural intervention are justified. As mentioned, the intervention in consultation procedures, such as those analysed above, is not primarily designed to ensure the protection of legally protected interests, certainly not of individual legal positions.133 This justifies the decision‐maker being left with the option of defining, in each case, the treatment given to the persons heard, as well as who is heard (except if this aspect is determined by legislation), without being bound by procedural legal rules. However, it is argued here that in cases where the legal sphere of persons concerned is directly affected by decisions adopted following a consultation procedure, there should be room for the exercise of participation rights. Moreover, holders of affected rights and interests that are limited or removed from their legal sphere or indeed persons on whom (p.307) duties or charges may be imposed should be granted a differentiated procedural position from that accorded to the public in general or to representatives of the interests involved in the regulatory regime that is being decided.

In other words, there might be a case for participation rights also in the realm of ‘governance arrangements’, since the decisive criterion for granting such rights lies in the ability of regulatory decisions to cause a change in the legal sphere of persons concerned. Where this is the case, the basic principles that ground participation rights are valid across the spectrum of decisional procedures and of EU actors with decision‐making powers. Admittedly, the type of situation that gives rise to participation rights is rarer in general regulatory procedures than in adjudicative decision‐making. At any rate, where participation rights are justified, the fact that there was a consultation procedure with representatives of the interests affected by the regulatory process should not pre‐empt the right of affected persons to be heard.134

6.5.2 An illustration: the legal regime on market abuse

Consultations similar to those analysed in the sections above are expressly foreseen in the legal regime regarding market abuse. An overview of some of the provisions of the directives that constitute this legal regime helps to clarify the type of situations that may give rise to participation rights. This contributes to separating them from other situations in which rights and interests of market participants may be affected by certain rules without, however, this justifying a legally protected right to intervene in the procedure. This sub‐section is thus dedicated to some of the EU rules on market abuse, examined here only with the purpose of illustrating the distinction between consultation and rights‐based participation.

To begin with, a few words are due on the ‘framework directive’ (level 1). This sets the basic principles regarding inside dealing and market manipulation. For the most part, it defines in general and abstract terms the types of behaviour that must be forbidden by Member States or that must be observed by market participants in order to avoid those forms of market abuse.135 The way this definition of forbidden behaviours relates to the (p.308) legal sphere of the persons concerned is remote. These would be those who, by reason of their participation in the securities markets, may have access to inside information or could engage in market manipulation. The directive sets the general framework within which market participants should operate, in the form of obligations incumbent upon Member States and upon market participants and in view of the stability and integrity required of financial markets. This entails provisions that are liable to shape the content of the legal relationships that will emerge between market participants and regulators and between the latter two groups and EU institutions, thus conditioning their respective rights and duties. To this extent, the rules of the directive concern or affect private persons. However, the duties they define are supposed to be further concretized by rules adopted, first, by the Commission and, secondly, by the national regulators following the recommendations that, up to now, have been issued by the CESR at level 3 and will be issued by the ESMA in the future.136 The rules of the directive are drafted in terms that do not pre‐empt, but rather suppose further substantive concretization of the rights and duties of the persons concerned. Therefore, they are not capable of directly affecting the legal sphere of those who come under its realm of application.

Consultation in the definition of accepted market practices

Contributing to the legal certainty of market participants, the level 1 directive envisages the possibility of certain market practices being defined as accepted on given markets. Accordingly, these will not be penalized as market manipulation. The definition of accepted market practices is a task of national regulators, but, as had been determined in the level 1 directive, (p.309) the Commission identified in one of its implementing directives the factors against which market practices must be assessed for this purpose and the procedure that national regulators should follow in this respect.137 According to this procedure, national regulators ‘consult as appropriate relevant bodies such as representatives of issuers, financial services providers, consumers, other authorities and market operators’.138 Arguably, the rationales for this consultation are similar to those that ground consultations during the adoption of EU legislation. They are also the same as those that justify another consultation duty incumbent upon Member States: the latter must establish ‘effective consultative arrangements and procedures with market participants concerning possible changes in national regulation’.139 The rules adopted by national regulators define which practices market participants may adopt and, a contrario, those which may be considered unacceptable with a view to safeguarding the integrity of the market that is made up of their decisions. These rules guide the action of market participants in view of the public interests of market stability and market integration. It is deemed that the hearing of their representatives in the making of these rules is essential to their acceptability and effective operation. At the same time, the Commission also determined that the revision of accepted market practices needs to follow the same procedure.140

While Member States must ensure that national regulators consult, the latter are also given enough margin of manoeuvre to decide when consultation is appropriate and define the modes of consultation.141 Moreover, the duty to consult refers only to the ‘relevant’ entities that represent the categories mentioned in Article 3(2). Despite the advantages of consultation, the Commission seems to have foreseen that there might be situations in which national regulators consider that consultation may hinder more than favour the effectiveness of the decisional procedure. Thus, the absence of consultation in some instances does not seem to breach the duty to consult as foreseen in Article 3(2). On the contrary, a national regulator that never consults or that only rarely does so would cause the respective (p.310) Member State to be in breach of Article 3(2). Likewise, considering the overall system of consultation in which it is embedded, the express exclusion from consultation procedures of one of the groups mentioned would equally violate this provision. It should, moreover, be noted that it might be problematic to restrict consultation to ‘relevant bodies’, since there are no criteria to define who constitutes a relevant body under Article 3(2).

Before arriving at the stage at which national regulators decide on accepted market practices, the CESR adopted guidance on how national regulators should interpret the directive's provisions in order to ensure ‘the proper operation of the regime for accepted market practices’.142 As such, the CESR served as an intermediary between the decisions of each national regulator and the rules defined by the Commission in the implementing directive. This ‘guidance’ corresponds to level 3 of the Lamfalussy process, which means that it has equally been subject to consultation at the EU level. In a sense, there is a double consultation. Nevertheless, the rules agreed by the CESR should have a different content from those adopted by each national regulator, even if the former are agreed by the CESR members and, hence, are very likely to be followed by each regulator when concretely deciding which practices it will consider acceptable.143 In this case, the CESR chose not to publish the accepted practices that were agreed upon. Instead, it laid down ‘types of practice that the CESR members would consider to constitute market manipulation’, thereby leaving apparently more room for national regulators' decisions to adapt to the specific characteristics of the market they supervise.144 As such, the object of the consultation at the European level is delimited by the goal of convergence that has been the raison d'être of the CESR's decisions at this phase.

(p.311) When participation rights step in

Should there be any room for participation rights in the adoption of accepted market practices? The answer to this question depends on the possible content and effects of the respective decision.

The decision of the national regulator is applicable to all market participants. It needs to be published and it must contain the ‘appropriate description’ of the practices that have been accepted, thereby delimiting the scope of application of the norms on market manipulation and indicating the legal choices of the regulator regarding the treatment of related practices.145 The decision adopted has a permissible character. Nevertheless, in order to benefit from the consequences of the accepted practice, i.e. avoid the risk of being subject to penalties for market abuse, the persons who follow them need to abide by the concrete indications of the national regulator contained in the ‘appropriate description’. For example, in the case of liquidity contracts which were considered as an accepted practice by the Spanish securities market regulator, the rights and duties that may be defined in individual contracts are determined in great detail in the act that accepted this market practice.146 This includes the maximum prices at which buy and sell orders may be made, the maximum percentage of average daily trading, the restrictions in trade to which the issuer is subject, as well as rules on the internal organization of the financial intermediary so as to ensure the independence of its employees.147 In practice, the regulator's act creates a substantive legal relationship between the national regulator and the different persons that need to follow its determinations in order to benefit from the respective advantages. The rights and duties of the latter are concretely defined and the powers of the former in relation to that market practice are constrained, insofar as the regulator cannot engage in punitive action if the terms of the practice are followed by the contracting parties. The conduct of the persons that wish to engage in this type of contract is conditioned by the act's determinations to the point where practically the only elements lacking for the effective constitution of the legal relationship are the actual signing of the contract by the issuer and the financial (p.312) intermediary, where the object and trading price are defined, as are the rate and frequency of the intermediary's remuneration. As for the rest, the will of the contracting parties is almost limited to signing (or not) a contract the terms of which were previously defined.

According to the rights‐based approach to participation defended in this book, given the content and effects of this type of measure, participation rights ought to be granted in the respective decisional procedure. In fact, the rights and duties of the persons who wish to engage in the accepted market practice, as well as those directly affected by their conduct (i.e. investors), are a priori defined by the national regulator on the basis of the assessment of the market in which they operate. The exercise of participation rights by those affected should be ensured in parallel to, or simultaneously with, the consultation phase that, according to Article 3, needs to be followed by national regulators when deciding on accepted market practices. In other words, in view of the possible content of the decisions adopted and the impact that they have in the concerned persons' legal spheres, it can be argued that this consultation phase should be accompanied by or accommodate a form of participation different from the one envisaged by the Commission when defining this procedural step. This is not envisaged in the scheme of the directive and it certainly does not follow from its written provisions, nor arguably from its spirit. Nevertheless, one may elaborate on the claim that this type of measure should lead to the recognition of participation rights.

Several problems follow from this claim, namely: how would this affect the effectiveness of decision‐making? How could holders of participation rights be identified? What consequences should be attached to the breach of such rights? In fact, admitting that the conditions for the recognition of participation rights are fulfilled, there are still other aspects of the decisional procedure that need to be taken into account. In addition, the practicability of participation should also be considered. It follows from the directive's provisions on consultation that the involvement of interested persons might not always be compatible with the effectiveness of the procedure. In particular, the definition of accepted market practices may need to be based on complex economic assessments of the characteristics of the market. In such circumstances, there might not be room to accommodate the concerns possibly voiced by the interested persons that intervene in the procedure. On the other hand, as a rule, this is not the type of decision where the individual position of those affected (p.313) would need to be considered by the decision‐maker. In fact, in principle, the decision‐maker is not assessing the specific conduct of given market participants. The decision is taken on the basis of an assessment of the market and affects the respective participants in their quality of market operators. It was defended earlier in this book that, in these circumstances, the decision‐maker should be given the possibility to dispense with a participatory phase, but needs to justify this decision. Moreover, the act adopted should also reveal that the legally protected interests of the persons concerned were sufficiently taken into consideration.148 Note that this assumption may be inverted, in case the conduct of specific operators is effectively considered in the overall assessment.

At any rate, once it is asserted that the decision‐making procedure should encompass a rights‐based participation, the decision‐maker needs to be able to identify the persons who are entitled to participate and whose exclusion from the procedure could have legal consequences for the validity of the act adopted. In this case, depending on the size of the market, the definition of accepted market practices potentially concerns a great number of persons: issuers, financial services providers, investors operating on the national market (consumers, according to the terminology of the directive). In line with Article 3(2) of the Commission's directive, participation should be restricted to the representatives of these interests. However, contrary to what stems from this provision, the definition of who is a ‘relevant’ entity for these purposes should not be a free choice of the decision‐maker, given the possible effects of an act defining accepted market practices. ‘Relevant’ entities should be those who aggregate the interests of the persons concerned by the decision at issue. The decision‐maker should be bound to ensure the representativeness of the interests concerned during the consultative procedure. Namely, they should certify that, on the whole, the entities who participate are able to represent the legally protected interests at issue (in similar terms to the concept of ‘sufficient collective representativity’ used by the Court of First Instance in the UEAPME case).149 Where necessary, they should urge persons who (p.314) may voice similar interests to coordinate their intervention, for example, requiring them to nominate a representative for the purposes of participation.150

As for the consequences that are attached to the exercise of participation rights conceived in these terms, it is clear that the recognition of participation rights limits the discretion of the decision‐maker as to their procedural conduct vis‐à‐vis interested persons. Following a model of ‘pure consultation’, they may consult whoever they consider to be appropriate for the purposes of consultation, as they may define the scope of consultation according to the aspects regarding which input is considered necessary. Likewise, the treatment of the input received is largely the decision‐maker's choice (whether to write a report on the consultation procedure or not—even though, at present, Article 12 of the 2009 Decision obliges the CESR to publish the results of consultation—which information to include, which treatment to give to such information). On the contrary, the exercise of participation rights means that the decision‐maker is constrained by stricter rules of procedure. These pertain to the persons who are entitled to participate, to the scope of consultation, to the motivation of the decision adopted, to the duty of care in considering the various competing interests touched by that decision, to the moment at which the holders of participation rights are heard (the envisaged act must be available to consultation before it is adopted but at a moment at which it is still possible to incorporate the views manifested by the persons concerned). In a word, there are a series of procedural choices that are no longer left to the discretion of the decision‐maker and that may be controlled by the Courts. Nevertheless, it should be acknowledged that the effects stemming from covering participation with a ‘legal cloak’ may equally result from ‘non‐legalized’ consultation procedures: the fulfilment of the goals of consultation may urge the decision‐maker to adopt similar procedural conduct to that just described as resulting from the exercise of participation rights. The main difference then is that, in the latter case, their conduct is not subject to judicial review, which, from one perspective, may be considered an advantage.

Effectively what is entailed in a claim for participation rights is the ‘judicialization’ of administrative decisions.151 Which consequences (p.315) should then be attached to the breach of participation rights? This point has already been addressed in this book. It results from what was defended in Chapter 5 that, with regard to decisions such as the definition of accepted market practices, where the personal factor is not determinant in the underlying material situation, the harmless error rule would apply. In addition, in cases in which one person claims to have been excluded from the procedure, in violation of the access rules suggested above, an excusable error rule might cover the procedural failure of the decision‐maker.152

Before concluding, reference should be made to other instances in the market abuse regime that give rise to participation rights. At the other end of the spectrum from the regulatory competences of national regulators are the ‘supervisory and investigatory powers that are necessary for the exercise of [their] functions’, the ‘right’ (sic) to ‘require the cessation of any practice that is contrary to the provisions adopted in the implementation of the [market abuse] directive’, ‘suspend trading of the financial instruments concerned’, ‘request the freezing and/or sequestration of assets’, and ‘request temporary prohibition of professional activity’.153 These are administrative sanctions applied to unlawful behaviour. Typically, such powers are exercised according to national administrative law procedures, which, as a rule, entail the right to be heard of the persons against whom the sanctions are aimed. As has been seen elsewhere in this book, the procedural intervention of the persons concerned in these cases corresponds to the core of the participation rights, where the ‘personal factor’ is stronger and where the dignitarian rationale as a justification for that intervention prevails over instrumental considerations.

These two examples of instances where participation rights should be recognized lead to the conclusion that, in the field of financial services regulation, procedural protection of rights and legally protected interests is, in principle, a matter that only needs to be taken into account at the administrative level of execution of the substantive legal regimes that were created according to the Lamfalussy process.

The fact that the decision is adopted by a national entity does not exempt it from the scope of EU administrative law. It is, however, not without consequence for possible participation rights. In fact, in the absence of EU rules on this matter, national rules of procedure apply to the extent that they (p.316) are no less favourable than those ruling national situations and do not render impossible or excessively difficult the exercise of rights conferred by EU law.154

This scenario will change in the future, given that binding technical standards will be adopted by the EU. If the level of concreteness of its decisions is such as to enable the emergence of an administrative relationship, participation rights should then also be acknowledged at the EU level. Certainly so, when it addresses decisions to market participants.155

6.6 Concluding: Legal and Non‐legal Dimensions of Participation

It results from the above that two fundamental aspects allow us to distinguish consultation, as it has been envisaged in the Lamfalussy process, and the rights‐based participation propounded in this book: first, their rationales and functions; secondly, the persons who are entitled to intervene and, especially, the way access is defined as well as their procedural status. Consultation, in this case, has been perceived as a means of circumventing the legitimacy and accountability shortcomings of the Lamfalussy regulatory structure, although, as has been explained in the third section of this chapter, one should be cautious when linking consultation to these concepts. At the same time, consultation responded to the regulatory characteristics of the securities markets that could hinder market integration based on purely unilateral regulation. In fact, consultation enables gathering together regulatory resources that are spread throughout various public and private, national, European, and international actors, thereby ensuring responsiveness and market participants' adherence to the rules adopted. Given these rationales, consultation is destined to encompass representatives of all groups involved in financial markets regulation. Even if it is implied that participants have a material connection to the substance of the matter under regulation, procedural intervention is not linked to the possibility of the participants' substantive rights and legally protected interests being affected (p.317) or to the degree to which they are affected—indeed, consultation is open to whoever wishes to comment on the regulatory initiatives.

Despite the sector's specificities, it is likely that similar reasons have motivated the choice of participation as one of the principles of EU governance. Interestingly, but not surprisingly given the characteristics of the Lamfalussy process, two aspects differentiate consultation undertaken in the fields covered by the latter from consultation rules and standards that have been defined in the Commission's White Paper on Governance and in its Communication ‘Towards a reinforced culture of consultation’: the CESR, at present, has a legal obligation to consult, as well as to publish the results of consultation; and consultation is envisaged in procedures leading up to the adoption of implementing/delegated regulations or directives by the Commission.

The ‘structural’ differences between consultation and rights‐based participation justify the different procedural status of interested persons in each case. Participants in consultation procedures are not recognized as having procedural rights that would require the decision‐maker to follow a specific conduct subject to judicial control. Nevertheless, this difference may be mitigated by the degree of commitment of the deciding bodies to the standards of consultation chosen. In fact, their adherence to the goals of consultation may ensure that persons who intervene in a consultation procedure have de facto a similar procedural status to the one that would result from rights‐based participation.

The identification of situations that could result in the recognition of participation rights in the realm of securities regulation has led us to examine the place of participation in decisional procedures grounded in complex technical assessments. It was concluded that concerns pertaining to the effectiveness of the decisional procedure as well as to the practicability and consequences of the exercise of participation rights should not lead to the complete exclusion of some form of procedural protection, where this is justified. Possible negative consequences of ‘judicialization’ may also be circumvented by attaching to the infringement of participation rights effects other than the annulment of the vitiated decisions.

On the basis of the identification of the situations that in the field of securities regulation could lead to the recognition of participation rights, it was also seen that procedural protection in the realm of the Lamfalussy procedures may be an issue to be tackled at the administrative level of implementation that, in this regulatory scheme, and at the time of writing, is still left to the national authorities.

(p.318) Lastly, it should be mentioned that the practical problems of consultation detected in the realm of the Lamfalussy process, analysed in the fourth section of this chapter, not only illustrate problems that may be common to other forms of participation, but in particular they reveal the limits of legal rules in tackling issues such as the under‐representation of certain groups.

Notes:

(1) Communication of the European Commission, ‘Financial services: implementing the framework for financial markets: action plan’, COM (1999) 232, 11.5.99http://ec.europa.eu/internal_market/securities/docs/lamfalussy/wisemen/final‐report‐wise‐men_en.pdf

(2) ECOFIN decision of 3 December 2002 (see Press release 361, 14368/02 on the 2471st Council meeting, Economic and Financial Affairs, p. 7, available at 〈http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/ecofin/73473.pdf〉). Contradicting the assertion on sector specificities' conditionality, it has been pointed out that the Lamfalussy process might serve as a pilot for future changes in other policy fields (see Frédéric Varone, Christian de Visscher, Carl‐Fredrik Bergström, and Josefin Almer, 2004, ‘Governance and the EU Securities Sector’, report produced in the context of the New Modes of Governance project, Project 7—Governance and the EU securities sector, Priority 7—Citizens and governance in the knowledge‐based society, reference number 7/D1, p. 3—available at 〈http://www.eu-newgov.org/database/DELIV/D07D01_EU_securities_sector.PDF〉).

(3) See, in general, Communication from the Commission, ‘European financial supervision’, COM (2009) 252 final, Brussels, 27.5.2009, hereinafter the ‘2009 Commission Communication on financial supervision’ (in the follow‐up of the ‘Report’ commissioned to the High‐Level Group on Financial Supervision in the EU, Chaired by Jacques de Larosière, Brussels, 25 February 2009—hereinafter the ‘Larosière Report’). See also Communication from the Commission, ‘Review of the Lamfalussy process. Strengthening supervisory convergence’, COM (2007) 727 final, Brussels, 20.11.2007 (hereinafter the ‘2007 Commission Communication on the review of the Lamfalussy process’). Only the aspects pertaining to consultation are taken into account in this chapter.

(4) Proposal for a Regulation of the European Parliament and of the Council establishing a European Banking Authority (COM (2009) 501 final, Brussels, 23.9.2009); Proposal for a Regulation of the European Parliament and of the Council establishing a European Insurance and Occupational Pensions Authority (COM (2009) 502 final, Brussels, 23.9.2009); Proposal for a Regulation of the European Parliament and of the Council establishing a European Securities and Markets Authority (COM (2009) 503 final, Brussels, 23.9.2009); Proposal for a Directive of the European Parliament and of the Council, amending Directives 1998/26/EC, 2002/87/EC, 2003/6/EC, 2003/41/EC, 2003/71/EC, 2004/39/EC, 2004/109/EC, 2005/60/EC, 2006/48/EC, 2006/49/EC, and 2009/65/EC in respect of the powers of the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority (COM (2009) 576 final, Brussels, 26.10.2009). Hereinafter, these will be generally referred to as the ‘2009 proposals’. The European Parliament's resolutions, at first and single reading, were adopted in 22 September 2010 following compromise agreements with the Council and introduced amendments to the Commission's proposal. The official resolutions were not yet available at the time of writing. The following compromise agreements will be considered in the text: COD/2009/0144, ‘European Securities and Markets Authority (ESMA): establishment (political agreement on final act)’, and COD/2009/0161, ‘Financial supervision: powers of the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority (political agreement on final act)’. Both are available in the Legislative Observatory database (〈http://www.europarl.europa.eu/oeil/search_reference_procedure.jsp〉)—hereinafter, ‘compromise agreements’. At the time of writing (October 2010), a consolidated text of the reforms was still not available. Whenever pertinent, reference will be made to the Commission's proposals and, where applicable, to the compromise agreements.

(5) Proposal for a Regulation of the European Parliament and of the Council on Community macro prudential oversight of the financial system and establishing a European Systemic Risk Board (COM (2009) 499 final, Brussels, 23.9.2009).

(6) The Larosière Report, the 2009 proposals, and the compromise texts quoted above.

(7) See ‘The Committee of Wise Men terms of reference given by the European Union's Economic and Finance Ministers on 17 July 2000’ (p. 98 of the Lamfalussy Report).

(8) Financial Services Action Plan, cit., n. 1, pp. 5, 9, and 10. This assumption and concern were, however, not new. See Damien Chalmers, Christos Hadjiemmanuil, Giorgio Monti, and Adam Tomkins (2006) European Union Public Law: Texts and Materials, Cambridge: Cambridge University Press, pp. 786–91.

(9) On this, Rosa Lastra (2003) ‘The governance structure for financial regulation and supervision in Europe’, Columbia Journal of European Law, Vol. 10, n. 1, pp. 49–68, at pp. 60–1; Matteo Ortino (2007) ‘The role and functioning of mutual recognition in the European market of financial services’, International and Comparative Law Quarterly, Vol 56, n. 2, pp. 309–38, in particular pp. 323–8.

(10) cit., n. 1, pp. 13–15

(11) cit., n. 1, p. 16.

(12) cit., n. 1, p. 17.

(13) cit.,

(14) European Council Resolution, of 23 March 2001, on more effective securities market regulation in the European Union (OJ C 138/1, 11.5.2001). European Parliament Resolution, of 5 February 2002, on the implementation of financial services legislation (OJ C 284 E/15, 21.11.2002). In addition, the specificity of the regulatory process is intended to be safeguarded by a declaration attached to the Treaty on the Functioning of the European Union, according to which ‘the Conference takes note of the Commission's intention to continue to consult experts appointed by the Member States in the preparation of draft delegated acts in the financial services area, in accordance with its established practice.’ (Declaration No. 39 on Article 290 of the Treaty on the Functioning of the European Union, Treaty of Lisbon, Final Act of the Intergovernmental Conference, OJ C 83/350, 30.3.2010).

(15) op. cit., n. 2, pp. 6–10.

(16) op. cit., n. 2, pp. 13–16.

(17) et al.op. cit., n. 8, p. 817.

(18) See e.g. recital 15 of the Proposal for a Regulation establishing a European Securities and Markets Authority (cit., n. 4), and recital 9 of the Proposal on the amendments to financial services directives in respect of the powers of the agencies (cit., n. 4; hereinafter ‘Omnibus directive’ proposal), as well as the compromise agreement on this last text.

(19) The Lamfalussy Report and the Stockholm European Council Resolution had shown preference for the adoption of legislation through fast‐track procedure, reduced to a single reading by the European Parliament. This procedure was followed in the adoption of the Transparency Directive (references in n. 20). Neither the Council nor the Parliament have shown willingness in making a more generalized use of this possibility (‘Third report monitoring the Lamfalussy Process’, Brussels, 17 November 2004, pp. 15–17, hereinafter, the ‘Third report’, available at 〈http://ec.europa.eu/internal_market/securities/docs/monitoring/third‐report/2004‐11‐monitoring_en.pdf〉). Nevertheless, in the context of the financial crisis, this was the procedure followed to adopt the amendments to level 1 directives (see compromise agreement on the ‘Omnibus directive’ proposal, cit., n. 4). On the problems raised by this fast‐track procedure, see Inter‐institutional Monitoring Group, ‘Third report…’, cit., p. 16.

(20) Articles 5 and 5a of Council Decision No. 1999/468/EC, of 28 of June 1999, laying down the procedure for the exercise of implementing powers conferred on the Commission, as amended (OJ L 184/23, 17.7.1999), now under revision (see Chapter 7, n. 28). This is applied under Article 64 of the MiFid Directive (Directive No. 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments, OJ L 145/38, 30.4.2004, as amended); Article 17 of the Market Abuse Directive (Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation, OJ L 96/16, 12.4.2003, as amended); Article 24 of the Prospectus Directive (Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading, OJ L 345/64, 31.12.2003, as amended); and Article 27 of the Transparency Directive (Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market, OJ L 390/38, 31.12.2004, as amended).

(21) Article 3 of Commission Decision No. 2001/528/EC, of 6 June 2001, establishing the European Securities Committee, as amended (OJ L 191/45, 13.7.2001).

(23) Article 7 (1) and (2) of the 2009 Decision, cit., n. 22; Article 25(1) of Proposal for a Regulation establishing a European Securities and Markets Authority (cit., n. 4) indicates that the heads of the national competent authorities will integrate the Board of Supervisors. The compromise agreement of the European Parliament and the Council on this proposal indicates that changes were introduced regarding the composition of this body, but it does not specify which ones (see COD/2009/0144, cit., n. 4).

(24) Article 2 of the 2009 Decision cit., n. 22, and Article 4.2 of the CESR Charter, cit., n. 22.

(25) Article 19(1) of the Proposal for a Regulation establishing a European Securities and Markets Authority (cit., n. 4) encompasses this advisory role and recital 8 of the preamble indicates that the new authorities will ‘assume all of the tasks and competences of the [committees they replace]’. This last specification was reiterated in the respective compromise agreement (cit., n. 4).

(26) Article 7 of the Proposal for a Regulation establishing a European Securities and Markets Authority (cit., n. 4). It follows from the compromise agreement on the ‘Omnibus directive’ proposal (COD/2009/0161, cit., n. 4) that the technical standards to which this Article refers are likely to affect both level 2 and level 3 measures. On this see, Sub‐section 6.3.6 below.

(27) cit., n. 1, p. 37cit.

(28) cit., n. 1, pp. 37–8

(30) cit., n. 4

(31) cit.cit.cit.cit., n. 4

(32) See, respectively, Articles 3 and 14, second paragraph, of the 2009 Decision, cit., n. 22. See also Article 6.4 of the CESR's Charter, where the reasons not to apply a CESR decision are spelt out, as well as the procedure that should be followed in this case.

(33) See the 2007 Commission Communication, Review of the Lamfalussy process, cit., n. 3, pp. 9–10.

(34) cit., n. 4

(35) cit., n. 1, p. 40.

(36) cit., n. 4

(37) See, Lastra, op. cit., n. 9, p. 64; Karel Lannoo (2005) ‘The transformation of financial regulation and supervision in the EU’, in Donato Masciandro (ed.), Handbook of Central Banking and Financial Authorities in Europe. New Architectures in the Supervision of Financial Markets, Cheltenham, Northampton: Edward Elgar, pp. 485–511, at pp. 491–2). Relating the Courts' jurisprudence in this matter to financial services regulation, see Yannis V. Avgerinos (2002) ‘Essential and non‐essential measures: delegation of powers in EU securities regulation’, European Law Journal, Vol. 8, n. 2, pp. 269–89. See also the 2007 Commission Communication, Review of the Lamfalussy process, n. 3, p. 4).

(38) Pinning down the whole procedure to institutional links and controls was a concern present in the Lamfalussy Report: it insisted on the need to safeguard the institutional balance and the decisional process defined in the Treaty, and advised the early involvement of the Parliament in the definition of the borderline between level 1 and level 2 measures (see, for example, pp. 19–20, 25, 30, 34). On the European Parliament's resistances regarding the risks posed by the Lamfalussy process to the inter‐institutional balance and on the ensuing guarantees, see John F. Mogg (2002) ‘Regulating financial services in Europe: a new approach’, Fordham International Law Journal, Vol. 26, n. 1, pp. 58–81, at pp. 77–80, Lastra, op. cit., n. 9, pp. 62–3, Chalmers et al., op. cit., n. 8, pp. 810–11. On the way this problem has been perceived by the CESR, see Niamh Moloney (2007) ‘Innovation and risk in the EC financial market regulation: new instruments of financial market intervention and the Committee of European Securities Regulators’, European Law Review, Vol. 32, n. 5, pp. 627–63, at pp. 644–63. Similar concerns are revealed by the compromise agreements on the Commission's 2009 proposals, which insist on the ‘genuinely technical’ nature of the standards adopted by the agencies and on the intervention of the European Parliament in their adoption (see compromise agreements, cit., n. 4).

(39) cit., n. 1, p. 42

(40) cit., n. 1, p. 17

(41) These two characteristics are pointed out by Julia Black (2003) ‘Enrolling actors in regulatory systems: examples from the UK financial services regulation’, Public Law, pp. 63–91.

(42) cit., n. 1, p. 25

(43) All quotations are from p. 25.

(44) cit., n. 1, pp. 32–3

(45) Ibidem., p. 33.

(46) cit., n. 14, paragraphs 2 and 6

(47) European Parliament, Report on the implementation of financial services regulation (2001/2247(INI)), Committee of Constitutional Affairs, Rapporteur: Karl von Wogau, Final A5‐0011/2002, 23 January 2002, point 11 and point 2 of the conclusions.

(48) Emphasis added. The 2009 Decision will be repealed by effect of the entry into force of the regulation establishing the ESMA. This point will be resumed below.

(49) Article 12, second paragraph, of the 2009 Decision, cit., n. 22.

(50) The scope of Article 12 is limited to the decisions that the CESR needs to transmit to the Commission. Its wording does not encompass the non‐binding decisions addressed to national regulators, which form most of the work that the CESR has developed at level 3 up to now.

(51) cit., n. 1, p. 33

(52) Commission of the European Communities, ‘European Governance. A White Paper’, COM (2001) 428 final, Brussels, 25.7.2001

(53) See, however, Sub‐section 6.3.6 below.

(54) op. cit., n. 8, pp. 810–11

(55) cit., n. 4Sub‐section 6.3.6

(56) cit., n. 4

(57) See note above.

(58) ‘The Role…’, cit., n. 29, p. 5. Note that Article 12 of the 2009 Decision continues to exclude the duty of the CESR to consult at level 3, despite the fact that one of the concerns underlying the 2009 revision of the CESR's legal status (and that of the other level 3 Committees) was to adapt its original founding decision in order to better reflect its role and functioning at level 3 (see the 2007 Commission Communication on the revision of the Lamfalussy process, cit., n. 3, p. 8; see also recitals 4 and 6 of the preamble of the 2009 Decision, as well as its Article 4 to 6, without correspondence in the previous Decision). Article 7 of the Commission's proposal (cit., n. 4) covers the adoption of technical standards intended to further develop level 3 measures. Arguably, the looser requirement of consultation enshrined therein could also apply to level 3 measures. On this, see Sub‐section 6.3.6. below.

(59) http://www.cesr‐eu.orgcit., n. 4Sub‐section 6.3.6

(60) Article 5.9 of the CESR's Charter.

(62) Article 1 of the 2009 Decision, cit., n. 22.

(63) Article 13 of the 2009 Decision, emphasis added; see also Article 6 of the CESR's Charter, cit., n. 22. In its Charter CESR further defined that it submits its annual report to the Commission and this is sent to the European Parliament and the Council. However, the Chair of the Committee reports to the European Parliament upon request and maintains strong links with the European Security Committee.

(64) op. cit., n. 38, p. 659idem

(65) These concerns underlie the ‘Final report monitoring the Lamfalussy process’, delivered by the second inter‐institutional monitoring group in 15 October 2007, available at 〈http://ec.europa.eu/internal_market/finances/docs/committees/071015_final_report_en.pdf〉, pp. 17–18 (hereinafter ‘Final Report…’). The inter‐institutional monitoring group pleaded for a clear legal mandate of the Level 3 Committees, including CESR's, and related this to the committees' accountability.

(66) op. cit., n. 38, pp. 644–63

(67) Moloney, op. cit., n. 38, p. 662. This risk is confirmed by the care taken in the compromise agreement on the ‘Omnibus directive’ proposal (COD/2009/0161, cit., n. 4) to clarify that ‘in cases where the technical standards are designed to further develop…level‐2 measures, they should be adopted only once the relevant level‐2 measure has been adopted and should respect the content of the level‐2 measure’.

(68) See, on the one hand, Articles 27, 31, 33(1), 34, 35(1), 37 and, on the other, Articles 28(4) and (5), 32(6), and 35 of the Proposal for a Regulation establishing a European Securities and Markets Authority (cit., n. 4), as well as the specification, added by the compromise agreement, that technical standards shall be forwarded by the Commission to the European Parliament (cit., n. 4).

(69) See Sub‐section 6.3.6 below.

(70) Wolfgang Wessels (2003) ‘On the EU legitimacy debate: approaches and desiderata’, in Georges Vandersanden and Aline de Walsche (eds), Mélanges en hommage a JeanVictor Louis, Vol I, Bruxelles: Éditions de l'Université de Bruxelles, pp. 627–37The Accountability of European Agencies. Legal Provisions and Ongoing PracticesChapter 3

(71) This draws on the concept of legitimacy used by Black, op. cit., n. 41, p. 76. In similar terms, drawing on Harbermas, Amaryllis Verhoeven (2002) The European Union in Search of a Democratic and Constitutional Theory, The Hague, London, New York: Kluwer Law International, p. 11.

(72) Ian Ayres and John Braithwaite (1992) Responsive Regulation: Transcending the Deregulation Debate, Oxford: Oxford University Press, pp. 4–5.

(73) ‘Third report…’, cit., n. 19, p. 20.

(74) See Sub‐section 6.3.5 below.

(75) Achim Hurrelmann (2007) ‘Multilevel legitimacy: conceptualizing legitimacy relationships between the EU and national democracies’, in Joan DeBardeleben and Hurrelmann (eds), Democratic Dilemmas of Multilevel Governance. Legitimacy, Representation and Accountability in the European Union, Basingstoke, New York: Palgrave MacMillan, p. 17–37, at p. 17.

(76) Charles Sabel and Jonathan Zeitlin (2008) ‘Learning from difference: the new architecture of experimentalist governance in the EU’, European Law Journal, Vol. 14, n. 3, pp. 271–327, at p. 277

(77) The Lamfalussy procedure could be tested in light of theories of deliberative democracy, assessing to what extent ‘initial preferences are transformed through discussion by the force of the better argument’ (Sabel and Jonathan, op. cit., p. 272). This is, partially, the object of a doctoral project that was undertaken in the University of Bamberg by Eva Ruffing, who compared the legitimacy of regulatory decisions from the perspective of the liberal and the deliberative democratic theory (at the time of the writing its working title was ‘Die legitimität europaïscher Regulierungsentscheidungen am Beispiel der Wertpapierregulierung’—‘The legitimacy of European regulatory decisions using as an example the securities regulation’). In a way, this is inserted in a broader strand of research that undertakes to assess participation in EU decisional processes in light of deliberative democracy and other democratic theories (see Beate Kohler‐Koch and Barbara Finke (2007) ‘The institutional shaping of EU‐society relations: a contribution to democracy via participation?’, Journal of Civil Society, Vol. 3, n. 3, pp. 205–21).

(78) op. cit., n. 38, pp. 647–9

(79) Richard Mulgan (2000) ‘‘Accountability’: an ever‐expanding concept?’, Public Administration, Vol. 78, n. 3, pp. 555–73, at p. 568

(80) op. cit., pp. 569–70

(81) ‘European Governance. A White Paper’, cit., n. 58, p. 17. Carol Harlow (2002) Accountability in the European Union, Oxford: Oxford University Press, p. 185.

(82) Colin Scott (2002) ‘The governance of the European Union: the potential for multi‐level control’, European Law Journal, Vol. 8, n. 1, pp. 59–79, at p. 65

(83) On the distinction between accountability and control, presenting the former to be narrower than the latter, see Mulgan, op. cit., n. 79, pp. 563–6. Distinguishing both terms differently, Harlow, op. cit., p. 10. See also Madalina Busuioc (2009) ‘Accountability, Control and Independence: The Case of European Agencies’, European Law Journal, Vol. 15, n. 5, pp. 599–615, and Deirdre Curtin (2009) Executive Power of the European Union. Law, Practices and the Living Constitution, Oxford: Oxford University Press, p. 252.

(84) Richard Stewart (2006) ‘Mars or Venus? US and European models for regulatory governance and the discontents of globalization’, Discussion paper presented at the Transatlantic Program, Robert Schumann Centre for Advanced Studies, European University Institute, 27 April 2006, p. 8

(85) IdemMark Bovens (2007), ‘Analysing and assessing accountability: a conceptual framework’, European Law Journal, Vol. 13, n. 4, pp. 447–68, at pp. 454–5

(86) op. cit., n. 81, pp. 13–18

(87) op. cit., p. 453

(88) op. and loc. cit., n. 84.

(89) Idem, ibidem.

(90) There is no general agreement on whether accountability presupposes the possibility of applying sanctions. Nevertheless, it is assumed here that any process of calling to account would be incomplete without it. In this sense, Mulgan, op. cit., n. 79, pp. 555–6; Stewart, op. cit., n. 84, pp. 2 and 19. Less assertively, Bovens, op. cit., n. 85, pp. 450–2 and, in line with the latter, Carol Harlow and Richard Rawlings (2006) ‘Promoting accountability in multi‐level governance: a network approach’, European Governances Papers (EUROGOV), No. C‐06‐02, available at 〈http://www.connex‐network.org/eurogov/pdf/egp‐connex‐C‐06‐02.pdf〉, p. 4. Bovens, Harlow, and Rawlings argue that mechanisms that are ‘effective in securing redress or reparation’ (Bovens, op. cit., n. 85, p. 452) or that operate as ‘to put matters right if it should appear that errors have been made’ (Olivier quoted by Harlow and Rawlings, p. 4) suffice to ensure accountability. See also, Curtin, op. cit., n. 83, pp. 271–2.

(91) This concept of transparency draws both on Adam Tomkins (2000) ‘Transparency and the emergence of a European administrative law’, Yearbook of European Law 1999/2000, Vol. 19, pp. 217–56, at p. 220, and on Jacob Söderman (1998),‘The role and impact of the European Ombudsman in access to documents and transparency of decision‐making’ in Veerle Deckmyn and Ian Thomson (eds), Openness and Transparency in the European Union, Maastricht: European Institute of Public Administration, pp. 75–83, at p. 75. For alternative views, see Andrea Santini (2004) Il principio di trasparenza nell'ordinamento dell'Unione Europea, Milano: Giuffrè, pp. 7–11.

(92) In contrast, transparency does not require participation. Access to information and justification of decisions on the basis of publicly available information (to return once more to Söderman's formulation) may suffice to ensure openness and understandability. For a contrary view, see Bo Vesterdorf (1999), ‘Transparency—not just a vogue word’, Fordham International Law Journal, Vol. 22, n. 3, pp. 902–29, at p. 903. In addition, as is known, the term transparency has broader implications than the ones mentioned in the text (on this, among others, see Kieran Bradley, 1999, ‘La transparence de l'Union Européenne: une évidence ou un trompe l'œil?’, Cahiers de Droit Européen, Vol. 35, n. 3–4, pp. 283–362, at pp. 285–6, and Peter Dyrberg (2002) ‘Accountability and legitimacy: what is the contribution of transparency?’ in Anthony Arnull and Daniel Wincott (eds), Accountability and Legitimacy in the European Union, Oxford: Oxford University Press, pp. 81–96.

(93) On the first limb, Armin von Bogdandy (2006) ‘Constitutional principles’ in Bogdandy and Jürgen Bast (eds), Principles of European Constitutional Law, Oxford and Portland: Hart Publishing, pp. 3–53, at p. 28; Dyrberg, op. cit., p. 83; Bovens, op. cit., n. 85, pp. 450 and 453; Deirdre Curtin (2007) ‘Holding (quasi‐) autonomous EU administrative actors to public account’, European Law Journal, Vol. 13, n. 4, pp. 523–41, at p. 532. On the second, Dyrberg, op. cit., p. 83; Deirdre Curtin (1996) ‘Betwixt and between: democracy and transparency in the governance of the European Union’ in Jan Winter, Deirdre Curtin, Alfred Kellermann, and Bruno de Witte (eds), Reforming the Treaty on the European Union—The Legal Debate, The Hague, Boston, London: Kluwer Law International, pp. 95–121, at pp. 95–6.

(94) , cit., pp. 95–6

(95) cit., n. 29, p. 9

(96) Lastra, op. cit., n. 9, pp. 61–2. Black, op. cit., n. 41, p. 70 (see also pp. 67–9). Julia Black's analysis refers specifically to UK financial services (see, in addition, Julia Black (2003) ‘Mapping the contours of contemporary financial services regulation’, CARR Discussion Paper No. 17, London School of Economics and Political Science). The UK undoubtedly has one of the most dynamic financial markets in Europe (perhaps only matched by that of Germany). Despite the national specificities, it is submitted that, at least to a certain extent, her mapping of the regulatory actors in the UK may be extended to other settings, in particular given the degree of internationalization of financial markets.

(97) op. cit., n. 41, p. 89

(98) Black defines regulatory capacities as ‘a composite notion, consisting of the actual or potential conditions that make it likely that those resources will be deployed both now and in the future in such a way as to further the identified goals of those seeking to regulate or resolve identified problems’ (ibidem, p. 72). She identifies six key resources for the performance of regulatory functions (information, expertise, financial and economic resources, authority and legitimacy, strategic position, organizational capacity) and explains with detail the relative relevance of each (ibidem, pp. 73–81).

(99) The quoted expression is Black's.

(100) Consensus is still the general rule, despite the fact that the CESR's decisions can also be adopted by qualified majority. See Articles 14, paragraph 1 of the 2009 Decision and Articles 6.2 and 6.3, al. a) of the CESR's Charter, cit., n. 22. See n. 31, above.

(101) ‘Final report…’, cit., n. 65, pp. 10—point 19—and 24–5.

(102) Burkard Eberlein (2008) ‘The making of European energy market: the interplay of governance and government’, Journal of Public Policy, Vol. 28, n. 1, pp. 73–92, at pp. 77–8

(103) The following observations will focus on the European Securities and Markets Agency. Similar provisions are, nonetheless, also found in the proposals for the establishment of the European Banking Authority and the European Insurance and Occupational Pensions Authority.

(104) cit., n. 4

(105) cit., n. 4

(106) cit., n. 4

(107) The right to be heard only shows up as a duty of the Commission in Article 9(4), third paragraph, referring to the Commission's power to take a decision requiring action in case of non‐compliance with EU law, although in principle it applies also to the ESMA acting under Article 9(6) of the proposed regulation (see, in particular, Article 9(6), second paragraph).

(108) cit., n. 4

(109) Sub‐section 3.2.1.

(110) cit., n. 4

(111) Article 22(5) and (7), idem.

(112) Article 22(6), idem.

(113) Larosière Report, p. 75.

(114) cit.op. cit., n. 38, pp. 627–8

(115) Of the empirical studies consulted, those undertaken in the realm of the New Modes of Governance project, Project 7—Governance and the EU securities sector, Priority 7—Citizens and governance in the knowledge‐based society—come closer to the issues debated in the text.

(116) See the reports mentioned in nn. 19, 65, and below in n. 119, and Christian de Visscher, Olivier Maiscoq, and Frédérik Varone (2008) ‘The Lamfalussy reform in the EU securities markets: fiduciary relationships, policy effectiveness and balance of power’, Journal of Public Policy, pp. 36–7. Consultation is also praised in the 2007 Commission Communication on the review of the Lamfalussy process as one of the ‘sound regulatory principles’ that this process pioneered.

(117) The first was operational until 2004, the second up to 2007, after the extension of the Lamfalussy process to other areas of financial services. See IP/02/1452, Brussels, 10 October 2002 and IP/05/1002, Brussels, 25 July 2005.

(119) ‘Second interim report monitoring the Lamfalussy process’, delivered by the (second) inter‐institutional monitoring group in 26 January 2007, available at 〈http://ec.europa.eu/internal_market/finances/docs/committees/070126_second_interim_report_en.pdf〉 (hereinafter ‘Second interim report…’), p. 9.

(120) cit., n. 19, p. 210

(121) cit., n. 65, p. 11

(122) cit., n. 19, p. 21

(123) Ian Bartle (2006) ‘Legitimising EU regulation: procedural accountability, participation or better consultation?’ in Richard Bellamy, Dario Castiglione, and Jo Shaw (eds), Making European Citizens: Civic Inclusion in a Transnational Context, Basingtoke, New York: Palgrave Macmillan, pp. 133–53, at p. 148

(124) cit., n. 119, p. 10

(125) Moloney (2006) ‘Financial market regulation in the post‐financial services action plan era’, International and Comparative Law Quarterly, Vol. 55, n. 4, pp. 982–92, at p. 985http://www.ec.europa.eu/comm/internal_market/fin‐use_forum/charter/index_en.htmhttp://ec.europa.eu/internal_market/finservices‐retail/fscg/index_en.htm

(126) cit., n. 65, p. 11

(127) ‘Third report…’, cit., n. 19, pp. 19–20, and ‘Final report…’, cit., n. 65, pp. 24–5. The Commission in its 2007 Communication on the review of the Lamfalussy process also acknowledged these problems (cit., n. 3, p. 5).

(128) cit., n. 65, p. 25

(129) cit., n. 19, p. 12Journal of Public Policy

(130) op. cit., n. 118, pp. 19–21

(131) David Coen and Mark Thatcher (2008) ‘Network governance and multi‐level delegation: European networks of regulatory agencies’, Journal of European Public Policy, Vol. 28, n. 1, pp. 49–71, at p. 64

(132) See, further, Chapter 7, Section 7.2, Sub‐section 7.2.2.

(133) See, above, Section 6.3.

(134) Takis Tridimas (2006) The General Principles of EU Law, Oxford: Oxford University Press, p. 408

(135) cit., n. 21

(136) One of the level 2 acts is Commission Directive No. 2004/72/EC, of 29 April 2004 (accepted market practices, definition of inside information in relation to derivatives on commodities, drawing up of lists of insiders, notification of managers’ transactions and of suspicious transactions), OJ L 162/70, 30.4.2004. For details on the decisional procedure regarding the adoption of level 2 measures, see Guido Ferrarini (2004) ‘The European market abuse directive’, Common Market Law Review, Vol. 41, n. 3, pp. 711–41, at p. 712). The CESR adopted three level 3 documents: Market Abuse Directive, Level 3—first set of CESR guidance and information on the common operation of the Directive (CESR/04‐505b), 11 May 2005, (available at 〈http://www.cesr.eu/index.php?docid=3282〉); CESR, Market Abuse Directive, Level 3—second set of CESR guidance and information on the common operation of the Directive to the market (CESR/ 06‐562b), 12 July 2007 (available at 〈http://www.cesr.eu/index.php?docid=4683〉); Guidelines—Market Abuse Directive, Level 3—Third set of CESR guidance and information on the common operation of the Directive to the marke (CESR/09‐219), 15 May 2009 (available at 〈http://www.cesr.eu/index.php?docid=5727〉).

(137) Article 1, point 5 of Directive No. 2003/6/EC, cit., n. 21, and Articles 2 and 3 of the Commission Directive No. 2004/72/EC, cit.

(138) cit.

(139) cit.

(140) cit., n. 136.

(141) cit., n. 136.

(142) Market Abuse Directive, ‘Level 3—second set of CESR guidance…’, cit., n. 136, p. 4. On this, see Moloney, ‘Innovation and risk in the EC financial market regulation…’, cit., n. 38, pp. 655–7.

(143) Despite the fact that the 2009 Decision has opened the door for enlarging the possibilities of CESR adopting decisions by qualified majority (Article 14, 1st paragraph of the 2009 Decision; also Article 6.3 of the CESR's Charter; cf. Articles 5.6 and 5.7 of the previous Charter, all cit., n. 22), at present the rule is still that decisions are taken by consensus. Qualified majorities, at least at level 3, remain a solution of last resort (see Article 6.3, al. d) of the CESR's Charter). The 2009 proposal for the establishment of a European Securities and Markets Agency will change this (cit., n. 4 Article 29). As mentioned, this proposal also envisages that technical standards developed by the new agency are binding upon endorsement by the Commission (Article 7).

(144) ‘Level 3—second set of CESR guidance…’, cit., n. 136, p. 5 and Section IV.

(145) cit.

(146) See note below.

(147) See second, third, and fifth rules of Circular 3/2007, by the Comisión Nacional del Mercado de Valores on liquidity contracts for the purposes of their acceptance as a market practice (available at 〈http://www.cesr.eu/index.php?docid=4949〉).

(148) These conditions have been specified in Chapter 2, Section 2.6.

(149) Case T‐135/96, Union européenne de l'artisanat et des petites et moyennes entreprises (UEAPME) v Council [1998] ECR II‐2335, paragraphs 90 to 100. In this case, however, the requirement mentioned applied not to the consultation of interest representatives (in this case, social partners) but to access to the negotiation procedure conducive to agreements that may have the value of law, currently adopted under Articles 154 and 155 of the Treaty on the Functioning of the European Union (former Articles 138(4) and 139 EC).

(150) On the conditions that should be placed on the possibility of representation, see Chapter 2, Section 2.6.

(151) On this, see above, Chapter 5, Section 5.3.

(152) See, further, Chapter 5, Section 5.3.

(153) cit.

(154) See Chapter 4, Sub‐section 4.1.2.

(155) cit., n. 4