Sources of Law in European Securities Regulation – Effective Regulation, Soft Law and Legal Taxonomy from Lamfalussy to de Larosière

Abstract

The four Framework Directives of the Lamfalussy Process constituted a further step towards guaranteeing an efficient and dynamic functioning of the EU's securities market. Since then, a number of implementing directives and regulations have been passed and further changes have already been suggested.

Regarding the existing system from a German point of view, this article focuses on the role of the Committee of European Securities Regulators (CESR) and the legal nature of its guidelines and recommendations. It establishes the claim that the CESR's statements have a binding effect despite their character set out in the Framework Directives and argues that the traditional dichotomy of legal sources needs to be substituted by a trichotomy of hard law, soft law and a third kind of secondary law. This so-called third kind of secondary law has three consequences: first of all, it needs to be recognised; secondly, it needs to be complied with; and thirdly, in case of non-compliance, extensive reasons must be given. This puts the third kind of secondary law in a position similar to that of persuasive authorities. Regulation (EC) No. 1060/2009, which was adopted following the financial crisis, confirms this notion by requiring that the national financial supervisors consider the CESR's advice but that they can deviate if they give full reasons for their decision.

Lastly, the creation of a European Securities and Markets Authority (ESMA), which has already been proposed, is discussed and compared with the existing system. The ESMA's expanded supervisory powers over national authorities are a step in the right direction. It remains to be seen, however, whether the Proposal for a Regulation creating the ESMA will achieve the goal of establishing a common supervisory culture for European financial markets.