¹ European Union Committee, The Future of EU Financial Regulation and Supervision, Volume I: Report (Fourteenth Report) (HL 2008–09, 106-I) (hereinafter ‘HL Report on EU Financial Regulation and Supervision’) 52, referring to the evidence given by Professor Goodhart.

² The term ‘competent authority’ refers in EU jargon to the national authorities that are in charge of supervising market activities/actors (eg, the Autorité des marchés financiers, the Bundesanstalt für Finanzdienstleistungsaufsicht and the Financial Conduct Authority).

³ Regulation (EU) No 648/2012 of 4 July 2012 on OTC derivatives, central counterparties and trade repositories [2012] OJ L201/1.

⁴ EMIR does not as such use the home-host terminology, seemingly because CCPs do not require branches to operate across the border. See European Commission, ‘Impact Assessment—Accompanying Document to the Proposal for a Regulation of the European Parliament and of the Council on OTC Derivatives, Central Counterparties and Trade Repositories’ SEC (2010) 1058, 74 (note 162) (hereinafter ‘Commission Impact Assessment on EMIR’), which notes that ‘there is no apparent need to provide CCPs with the possibility to establish branches in Member States other than the one where they are established. A CCP can already serve markets and market participants located in different Member States without the need for them to establish a physical presence in every one of those Member States’.

⁵ It is worth noting that unlike intervention-based supervision, HCC-C involves competent authorities, acting as authorities at the Member State level as opposed to members of the European Securities and Markets Authority (ESMA), one of the three ESAs.

⁶ Thus, the Commission noted in relation to the supervision of the banking sector that it was ‘too fragmented to face current challenges’ and as such was ‘not conducive to the necessary trust between Member States’. It concluded that there was a need for ‘political agreement on more and independent EU supervision’; see European Commission, ‘Update—The Banking Union’ MEMO/12/478, 22 June 2012.

⁷ Second Council Directive 89/646/EEC of 15 December 1989 on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions and amending Directive 77/780/EEC [1989] OJ L386/1. See also Financial Services Committee, ‘Report of the FSC on Long-term Supervisory Issues’ FSC 4162/08, 10 March 2008, 15 (hereinafter ‘FSC Report’).

⁸ FSC Report (n 7) 15.

⁹ Note that while home state control applies when activities are exercised through branches in host Member States, subsidiaries will be subject to the supervisory competence of the authority of the Member State in which the subsidiary is established. See below in relation to cross-border groups.

¹⁰ In the case of group supervision, it is worth noting that the ‘home-host’ terminology is often used more loosely. Thus, when cross-border groups are involved, it is common to use the term ‘host’ even in relation to subsidiaries (eg, FSC Report (n 7) 16).

¹¹ See, eg, Directive 2004/39/EC of 21 April 2004 on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC [2004] OJ L145/1, arts 13(9), 32(7) and 62.

¹² See also Schammo, P, ‘EU Day-to-Day Supervision or Intervention-based Supervision’ (2012) 32 OJLS 771 CrossRefGoogle Scholar.

¹³ Icelandic banks could operate in Member States under EU mutual recognition arrangements, which extend to members of the European Economic Area (EEA).

¹⁴ See, eg, HL Report on EU Financial Regulation and Supervision (n 1) 51.

¹⁵ ‘Report of the High-level Group on Financial Supervision in the EU’ (Brussels, 25 February 2009) 71. Available at: http://ec.europa.eu/internal_market/finances/docs/de_larosiere_report_en.pdf (hereinafter ‘de Larosière Report’); HL Report on EU Financial Regulation and Supervision (n 1) 51.

¹⁶ See de Larosière Report (n 15) 75–76; European Commission, ‘Commission Staff Working Document—Accompanying Document to the Communication from the Commission on European Financial Supervision’ SEC (2009) 715, 26, note 24 (hereinafter ‘Commission Staff Working Document—Financial Supervision’).

¹⁷ The (amended) CRD was known as: Directive 2006/48/EC of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (recast) [2006] OJ L177/1; Directive 2006/49/EC of 14 June 2006 on the capital adequacy of investment firms and credit institutions (recast) [2006] OJ L177/201. The Solvency II Directive is known as Directive 2009/138/EC of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) [2009] OJ L335/1.

¹⁸ The Basel accords are made by the Basel Committee on Banking Supervision which brings together senior officials from banking supervisory authorities and central banks. The latest accord is known as Basel III. For details, see www.bis.org/bcbs/index.htm.

¹⁹ The new ‘CRD IV’ legislative package is made of a directive and a regulation. For details, see Council of the European Union Press Release, ‘Council Adopts New Bank Capital Requirements’ (11290/13, 20 June 2013). For details on the legislative proposals, see Joosen, B, ‘Further Changes to the Capital Requirements Directive: CRD IV—Major Overhaul of the Current European CRD Legislation to Adopt the Basel III Accord: (Part 1)’ (2012) 27 Journal of International Banking Law and Regulation 45 Google Scholar.

²⁰ The dispute over strengthening group supervision concerned the amending Directive 2009/111/EC of 16 September 2009 amending Directives 2006/48/EC, 2006/49/EC and 2007/64/EC as regards banks affiliated to central institutions, certain own funds items, large exposures, supervisory arrangements and crisis management [2009] OJ L302/97 (known as CRD2).

²¹ Article 129(2), para 5. Note that the power of the consolidating supervisor could nevertheless be curtailed by the European Banking Authority exercising its power to settle disagreements under art 19 of its founding regulation (Regulation (EU) No 1093/2010 of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/78/EC [2010] OJ L331/12). If so, the consolidating supervisor was required to take its decision in accordance with the EBA decision.

²² See de Larosière Report (n 15) 76; ‘Commission Staff Working Document—Financial Supervision’ (n 16) 26, note 24.

²³ See, eg, art 129(2), para 5.

²⁴ See art 129(3), para 5, as amended inter alia by the CRD2. Note that art 129(3) fore-saw the exercise by EBA of its dispute settlement powers under art 19(3) of its founding regulation (n 21).

²⁵ Council of the European Union Press Release, ‘2911th Council Meeting—Economic and Financial Affairs’ (16231/1/08 REV 1, 2 December 2008,) 20; European Commission, ‘Proposal for a Directive of the European Parliament and of the Council on the Taking-up and Pursuit of the Business of Insurance and Reinsurance—Solvency II’ COM(2007) 361 final, 15–16.

²⁶ Tait, N, ‘Sweeping Change to EU Insurance Rules’ Financial Times (London, 22 April 2009)Google Scholar.

²⁷ De Larosière Report (n 15) 76.

²⁸ See also above, n 4.

²⁹ For definitions, see, eg, Downes, J and Goodman, JE, Dictionary of Finance and Investment Terms (Hauppauge, NY, Barron’s Educational Series, 1998)Google Scholar, which defines derivatives as ‘a contract whose value is based on the performance of an underlying financial asset, index, or other investment’; European Commission, ‘Commission Staff Working Paper accompanying the Commission Communication: Ensuring Efficient, Safe and Sound Derivatives Markets’ SEC (2009) 905 final, para 2.1.1 (hereinafter ‘Commission Staff Working Paper on Derivatives Markets’); European Commission, ‘Regulation on Over-the-Counter Derivatives and Market Infrastructures—Frequently Asked Questions’ MEMO/12/232, 29 March 2012, question 1 (hereinafter ‘Commission Q&A on EMIR’); European Union Committee, The Future Regulation of Derivatives Markets: Is the EU on the Right Track? (Tenth Report) (HL 2009–10, Paper 93) 8 (hereinafter ‘HL Report on Derivative Markets’).

³⁰ Commission Staff Working Paper on Derivatives Markets (n 29) para 2.1.2.

³¹ Credit derivatives can be defined as ‘deriv[ing] their value from the credit risk of an underlying bond, loan or other financial asset of a reference entity’, the latter being the issuer of the underlying asset (HL Report on Derivatives Markets (n 29) 11).

³² Commission Staff Working Paper on Derivatives Markets (n 29) para 3.1.1, which defines a CDS as a ‘a contract between two counterparties under which the protection buyer will pay an annual fee (on a quarterly basis) to the protection seller until the maturity date of the contract or until a credit event occurs on the reference entity. In the latter case, the protection buyer must deliver bonds or loans of that reference entity for the amount of the protection (notional value of the contract) to the protection seller and receives the par value in return’.

³³ FSA, ‘The Turner Review—A Regulatory Response to the Global Banking Crisis’ (March 2009) 81. Available at: www.fsa.gov.uk/pubs/other/turner_review.pdf; R Anderson, ‘Credit Default Swaps: What are the Social Benefits and Costs?’ Banque de France, Financial Stability Review July 2010, No 14, 2.

³⁴ Ibid 81, noting that CDS had ‘grown to over $60 trillion of gross nominal value by end 2007’.

³⁵ For details, see Financial Crisis Inquiry Commission, ‘The Financial Crisis Inquiry Report—Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States’ (January 2011) (hereinafter ‘Financial Crisis Inquiry Report’). Available at: www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf.

³⁶ Commission Q&A on EMIR (n 29) question 2.

³⁷ Commission Staff Working Paper on Derivatives Markets (n 29) para 2.2.

³⁸ HL Report on Derivative Markets (n 29) 21. See also EMIR rec (4).

³⁹ European Commission, ‘Ensuring Efficient, Safe and Sound Derivatives Markets (Communication)’ COM(2009) 332 final, 5.

⁴⁰ EMIR rec (5); European Commission, ‘Proposal for a Regulation of the European Parliament and of the Council on OTC Derivatives, Central Counterparties and Trade Repositories’ COM(2010) 484 final, 2–3.

⁴¹ See generally on the topic, C Pirrong, ‘The Economics of Central Clearing: Theory and Practice’ (2011) 1 ISDA Discussion Paper; Braithwaite, J, ‘The Inherent Limits of ‘Legal Devices’: Lessons for the Public Sector’s Central Counterparty Prescription for the OTC Derivative Markets’ (2011) 12 European Business Organization Law Review 87–119CrossRefGoogle Scholar.

⁴² Braithwaite (n 41) 88–89. The role which CCPs can play in addressing counterparty credit risk has indeed been widely acknowledged. At their summit in Pittsburgh, G20 leaders resolved to ensure that: ‘All standardized OTC derivative contracts should be … cleared through central counterparties by end-2012 at the latest.’ See G20 Pittsburgh Summit com muniqué (September 2009). Available at: www.ft.com/cms/s/0/5378959c-aa1d-11de-a3ce00144feabdc0.html#axzz23ZaiEhfW.

⁴³ EMIR, art 2(1).

⁴⁴ Pirrong (n 41) 5.

⁴⁵ Netting can be defined as ‘offsetting of positions or obligations by counterparties’. See Commission Impact Assessment on EMIR (n 4) 90.

⁴⁶ Margin can be defined as: ‘An asset (or third-party commitment) that is accepted by a counterparty to ensure performance on potential obligations to it or cover market movements on unsettled transactions’ (ibid 89).

⁴⁷ A default fund is a ‘fund composed of assets contributed by a CCP’s participants that may be used by the CCP in certain circumstances to cover losses and liquidity pressures resulting from defaults by the CCP’s participants’ (ibid 89).

⁴⁸ Pirrong (n 41) 10.

⁴⁹ EMIR rec (49).

⁵⁰ Note that there is a variety of other means and strategies that a CCP uses in order to deal with defaults. For details, see Pirrong (n 41) 6–10.

⁵¹ European Commission, ‘Ensuring Efficient, Safe and Sound Derivatives Markets: Future Policy Actions’ (Communication) COM(2009) 563 final, 5. There might be other reasons: for example, they might lack sufficient liquidity to be suitable for clearing (ibid). Note, however, that standardisation is not necessarily a prerequisite for central clearing (HL Report on Derivative Markets (n 29) 31). For a critical discussion, see Braithwaite (n 41) 106–09.

⁵² EMIR rec (16); arts 4 and 5.

⁵³ Article 11.

⁵⁴ Article 2(2).

⁵⁵ See, eg, the G20 Pittsburgh Summit communiqué, stating that ‘OTC derivative contracts should be reported to trade repositories’.

⁵⁶ HL Report on Derivative Markets (n 29) 23.

⁵⁷ Articles 14 and 55.

⁵⁸ Article 55(1). The only other field in which ESMA has such powers concerns credit rating agencies. See Schammo, P, ‘The European Securities and Markets Authority: Lifting the Veil on the Allocation of Powers’ (2011) 48 CML Rev 1911–46Google Scholar.

⁵⁹ Articles 14(2) and 55(3).

⁶⁰ For the avoidance of doubt, the home authority’s unilateral decision will produce effects beyond its territorial boundaries as a result of the principle of mutual recognition. This is not the case for host state authorities.

⁶¹ Article 129(2); art 129(3), para 5 of Directive 2006/48/EC. Note that I use the term ‘host’ in a broader sense here (see n 10 for details).

⁶² This is not to say that the ESAs might not get involved; they participate in colleges, for instance. But as decision makers, their role is limited, as will be shown below.

⁶³ See also, eg, art 17(4) of EMIR, which states that: ‘The competent authority shall duly consider the opinion of the college reached.’

⁶⁴ As a consequence, verifying that the obligation has been discharged will in practice raise concerns. To address these concerns, this type of say might be coupled with a type of explanatory accountability that requires its addressee to explain its courses of action in light of the views expressed by other actors. EMIR includes such an obligation (art 17(4)). At the outset, it requires the CCP’s competent authority to ‘duly consider’ the opinion reached by the college of supervisors (art 17(4)). It adds that where the CCP’s competent authority disagrees with the college which has reached a positive opinion on the approval of a CCP, the former should give ‘full reasons’ in its decision and explain ‘any significant deviation’ from the college opinion (ibid).

⁶⁵ Articles 14–20. Note that the same procedure applies where a CCP wishes to extend its activities or services. See art 15.

⁶⁶ Article 4(3). Note that for third-country CCPs, EMIR states that a third-country CCP can provide clearing services in the EU if it is recognised by ESMA (art 25).

⁶⁷ Article 14(2).

⁶⁸ Article 14(1).

⁶⁹ As mentioned earlier, EMIR does not as such use the home-host terminology, but for the sake of convenience, I will use it at times.

⁷⁰ Article 17.

⁷¹ Article 19(1).

⁷² Ibid.

⁷³ Article 17(4).

⁷⁴ Or, perhaps more accurately, if they decide to dissent.

⁷⁵ Note that according to art 17(4), such a decision must be motivated in writing and disclose why members of the college consider that obligations under EMIR or generally under EU law have not been met. This requirement will obviously matter in order to determine whether the reasons for disagreeing with the CCP’s competent authority are legitimate or not.

⁷⁶ Note that, strictly speaking, the terminology of ‘unanimity minus one’, although often used in order to describe the voting requirements of EMIR, is somewhat misleading for the reason that more than one authority from the ‘home’ Member State might be involved. The reference to ‘one’ must therefore be understood as encompassing any number of authorities from the CCP’s ‘home’ Member State which might have voting rights. This fact is also reflected in art 17(4), which speaks of ‘authorities from the Member State where the CCP is established’.

⁷⁷ To be sure, the fact that the ESAs were vested with intervention powers (see below for details) already somewhat erodes home country control. The exercise of such intervention powers is also foreseen in EMIR. Additional conditions and requirements will, however, apply. In any event, the present scenario is different, given that it concerns national authorities acting at the national level. Moreover, the use of intervention powers is meant to be exceptional. Under EMIR, the normal course of action is for college members to be involved in the decision making of the CCP’s competent authorities.

⁷⁸ See, eg, art 5 of Directive 2004/39/EC of 21 April 2004 on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC [2004] OJ L145/1 (on the performance of investment services/activities); art 13 of Directive 2003/71/EC of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading and amending Directive 2001/34/EC [2003] OJ L345/64 (concerning the approval of prospectuses).

⁷⁹ The CCP’s home competent authority will, however, be subject to a form of explanatory accountability (art 17(4); see also above, n 64). Note that the decision to withdraw an authorisation is also a matter for the CCP’s competent authority which must only consult college members (save in the case of urgency). See art 20.

⁸⁰ See, eg, CEBS, ‘Range of Practices on Supervisory Colleges and Home-host Cooperation’ (27 December 2007) 2, which notes that ‘The colleges do not have formal decision-making powers’.

⁸¹ See, eg, art 1(5) of the founding regulation of EBA (n 21), which notes that: ‘When carrying out its tasks, the Authority shall act independently and objectively and in the interest of the Union alone.’

⁸² J Adams, ‘Solvency II: What to Expect over the Coming Months’ (Association of British Insurers Solvency II Conference, London, 8 December 2011). Available at: www.fsa.gov.uk/library/communication/speeches/2011/1208_ja.shtml.

⁸³ EBA, ‘Annual Report 2010’ 8. Available at: www.eba.europa.eu.

⁸⁴ HL Report on EU Financial Regulation and Supervision (n 1) 63.

⁸⁵ For a more critical assessment, see K Lannoo, ‘Concrete Steps Towards More Integrated Financial Oversight—The EU’s Policy Response to the Crisis’ (CEPS Task Force Report, Centre for European Policy Studies, 1 December 2008). Available at: www.ceps.eu.

⁸⁶ See CEBS (n 80), which notes that ‘Colleges of Supervisors are permanent, although flexible, structures’.

⁸⁷ Article 18. The college is to be set up, managed and chaired by the CCP’s competent authority (ibid).

⁸⁸ The college includes: ESMA; the CCP’s competent authority; the competent authorities in charge of overseeing the CCP clearing members which are established in the three Member States ‘with the largest contributions to the default fund of the CCP … on an aggregate basis over a one-year period’; the competent authorities in charge of overseeing trading venues which are served by the CCP; the competent authorities in charge of overseeing CCPs with which interoperability arrangements exist; the competent authorities in charge of overseeing central securities depositories to which the CCP has links; relevant members of the European System of Central Banks (ESCB) which are in charge of overseeing the CCP and members of the ESCB that are in charge of overseeing CCPs with which interoperability arrangements have been put in place; and finally central banks ‘of issue of the most relevant Union currencies of the financial instruments cleared’ (art 18(2)).

⁸⁹ Article 18(3).

⁹⁰ Article 17(4). As noted, college members can block the decision of the CCP’s competent authority to authorise a CCP if all the members of the college, with the exception of the authorities of the CCP’s ‘home’ state, agree that the CCP should not be authorised.

⁹¹ Ibid. See below for details.

⁹² Article 19(3).

⁹³ Ibid.

⁹⁴ Ibid.

⁹⁵ Article 18(5).

⁹⁶ Ibid.

⁹⁷ In relation to ESMA, see Regulation (EU) No 1095/2010 of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/77/EC [2010] OJ L331/84, arts 17–20. Note that according to art 19 of ESMA’s founding regulation, for ESMA to exercise its power to mediate and settle disagreements, provision must be made for the exercise of this power in sectoral acts (such as EMIR). The use of the power in a college setting is envisaged in art 21(4) of the founding regulation. It is worth noting that the usual safeguards found in ESMA’s founding regulation on the use of dispute settlement will also apply. Thus, the fiscal responsibility clause, which is provided for in ESMA’s founding regulation, will apply (see art 38 of ESMA’s founding regulation).

⁹⁸ For details, see Schammo (n 12).

⁹⁹ Ibid.

¹⁰⁰ See, eg, MiFID, art 58a (as amended); PD, art 22(2) (as amended). Both provisions were added following amendment by the so-called Omnibus I Directive (Directive 2010/78/EU [2010] OJ L331/120).

¹⁰¹ Article 17(4). It is worth noting that EMIR also makes provision for ESMA to exercise its powers to deal with breaches of EU law (see art 17(5) of EMIR and also art 17 of the ESMA founding regulation (n 97)).

¹⁰² Article 17(4).

¹⁰³ Ibid. Note that the decision to refer must disclose in writing why college members think that relevant obligations under EMIR, or generally under EU law, have not been met.

¹⁰⁴ Article 19(1).

¹⁰⁵ See, eg, art 2(4) of ESMA’s founding regulation (n 97), which states that ‘the parties to the ESFS shall cooperate with trust and full mutual respect, in particular in ensuring the flow of appropriate and reliable information between them’.

¹⁰⁶ Admittedly, this may change if the ESAs use their powers effectively. This remains to be seen. See generally Schammo (n 12).

¹⁰⁷ Lannoo (n 85) 32.

¹⁰⁸ Case C-5/94 The Queen v Ministry of Agriculture, Fisheries and Food ex parte Hedley Lomas (Ireland) Ltd [1996] ECR I-2553 [19]. See also Case C-124/95 The Queen ex parte Centro-Com Srl v HM Treasury and Bank of England [1997] ECR I-81 [49]; Case C-1/96 The Queen v Minister of Agriculture, Fisheries and Food ex parte Compassion in World Farming Ltdpara [1998] ECR I-01251 [47]; Case C-102/96 Commission v Federal Republic of Germany [1998] ECR I-6871 [22]; Case 46/76 Bauhuis v The Netherland s [1977] ECR 5 [22]. See also AG Geelhoed in Case C-212/03 Commission v France [2005] ECR I-04213 [62], who talks of a ‘fundamental assumption of mutual trust’.

¹⁰⁹ Hedley Lomas (n 108) [19]. On Hedley Lomas, see also Barnard, C, The Substantive Law of the EU: The Four Freedoms (Oxford, Oxford University Press, 2010) 189–90Google Scholar.

¹¹⁰ Hedley Lomas (n 108) para 3.

¹¹¹ See, eg, art 2(4) of ESMA’s founding regulation (n 97).

¹¹² Gambetta, D, ‘Can We Trust Trust?’ in Gambetta, D (ed), Trust—Making and Breaking Cooperative Relations (Oxford, Basil Blackwell, 1988) 213, 231Google Scholar.

¹¹³ See, eg, MiFID, art 62; PD, art 23. It would be interesting to consider how these precautionary measures square with the Court’s case law on trust.

¹¹⁴ Hedley Lomas (n 108) [20] and see also the cited case law. The matter must be dealt with under the treaty enforcement procedures, which give competence to the Court of Justice to deal with such breaches.

¹¹⁵ That is not to say that a host Member State will have no way to deal with a breach of EU law that is committed by another Member State. A Member State might thus bring an enforcement action in front of the Court of Justice under art 259 TFEU.

¹¹⁶ See generally Cook, K, Hardin, R and Levi, M (eds), Cooperation without Trust? (New York, Russell Sage Foundation, 2005) 40–59Google Scholar; Farrell, H, ‘Trust, Distrust, and Power’ in Hardin, R (ed), Distrust (New York, Russell Sage Foundation, 2004) 85–105Google Scholar.

¹¹⁷ Farrell, H, ‘Institutions and Midlevel Explanations of Trust’ in Cook, K, Levi, M and Hardin, R (eds), Whom Can We Trust? (New York, Russell Sage Foundation, 2009) 127, 131Google Scholar.

¹¹⁸ Farrell (n 116) 101.

¹¹⁹ Ibid 86–87. See also Hardin, R, Trust and Trustworthiness (New York, Russell Sage Foundation, 2002) 101 Google Scholar, who notes that ‘Inequalities of power therefore commonly block the possibility of trust’.

¹²⁰ Farrell (n 116) 87.

¹²¹ For earlier contributions which look at trust in an EU context, see, eg, Maher, I, ‘Trust and EU Law and Governance’ (2011) 12 Cambridge Yearbook of European Legal Studies 283 CrossRefGoogle Scholar; Lianos, I and Odudu, O (eds), Regulating Trade in Services in the EU and the WTO (Cambridge, Cambridge University Press, 2012)CrossRefGoogle Scholar.

¹²² See, eg, Hardin (n 119) 200.

¹²³ Hardin, R, Trust (Cambridge, Polity Press, 2006) 19 Google ScholarPubMed.

¹²⁴ Ibid.

¹²⁵ Ibid.

¹²⁶ Ibid.

¹²⁷ Hardin (n 119) 7.

¹²⁸ See Cook, Hardin and Levi (n 116) 4, who note that: ‘Ours is a relatively specific definition that imposes clear requirements on those we claim are trusting.’

¹²⁹ There are other conceptions of trust. See also Lewis, J and Weigert, A, ‘Trust as a Social Reality’ (1985) 63 Social Forces 967 CrossRefGoogle Scholar, 972, who note that ‘Trust in everyday life is a mix of feeling and rational thinking’ (reference omitted).

¹³⁰ Cook, Hardin and Levi (n 116) 4–5.

¹³¹ Ibid 105.

¹³² Ibid 8: ‘Trust involves a genuine involvement between you and the trusted other and a specific, not abstract, assessment of that other’s motivations toward you.’

¹³³ See also Hardin (n 119) 200, who notes that: ‘It may still be true that trust and trustworthiness are fundamentally important in making large-scale activities, and especially, large social institutions function. To show how they do this, however, requires substantial unpacking of the relationships within those institutions to understand how trust plays a role at the micro level. Trust is inherently a micro-level phenomenon.’

¹³⁴ As mentioned in the introduction, I do not discuss the proposed Eurozone banking union in this chapter. Suffice it to note that under the current proposals, decision making is supposed to be located with the ECB.

¹³⁵ On ESMA’s intervention powers, see Schammo (n 12).

¹³⁶ Ibid.

¹³⁷ Gambetta describes a similar strategy when talking about a ‘strategy of economizing on trust’ which ‘just claims that we should set our sights on cooperation rather than trust. We should, in other words, promote the right conditions for cooperation, relying above all on constraint and interest, without assuming that the prior level of trust will eventually be high enough to bring about cooperation on its own account’: Gambetta (n 112) 229. See also Cook, Hardin and Levi (n 116).

¹³⁸ Emerson, R, ‘Power-Dependence Relations’ (1962) 27 American Sociological Review 31 CrossRefGoogle Scholar.

¹³⁹ Ibid 32.

¹⁴⁰ Ibid.

¹⁴¹ Ibid 32. Put differently, the power of an actor over another is the amount of resistance on the part of the latter (in our case, the host supervisor) that can be overcome by the former (the home supervisor).

¹⁴² Ibid.

¹⁴³ Cook, Hardin and Levi (n 116) 41.

¹⁴⁴ Ibid 54; Farrell (n 116).

¹⁴⁵ HL Report on EU Financial Regulation and Supervision (n 1) 52, which refers to the evidence given by Professor Goodhart.

¹⁴⁶ Mutual recognition is of course the instrument that ensures that home supervisors have a say over host competent authorities.

¹⁴⁷ If the decision to approve a market actor were taken by a central authority (eg, a single securities authority), the effects of refusing approval would of course be the same.

¹⁴⁸ As Farrell notes, ‘there is a point at which asymmetries are such that it is impossible for the more powerful actor to give credible commitments to the weaker. At this point, disparities of power prevent trust from arising and make distrust the likely outcome’: H Farrell (n 116) 101.

¹⁴⁹ Ibid.

¹⁵⁰ The allocation of power in exchange networks has been a major topic in the literature. See, eg, Cook, K and Yamagishi, T, ‘Power in Exchange Networks: A Power-Dependence Formulation’ (1992) 14 Social Networks 245 CrossRefGoogle Scholar (and references therein).

¹⁵¹ For references, see eg, ESMA’s founding regulation (n 97) especially recs (5) and (50), art 38; rec (52) of EMIR. It is worth noting that in the banking context and especially in recent discussions on a proposed banking union, the fiscal responsibility problematic has taken a different form from the one that is presented here. In these discussions, the question is about whether the fiscal responsibility of Member States should be pooled together. This would require making provision for some form of financial burden sharing between Member States. The question has proved to be a major bone of contention between Member States.

¹⁵² Think as an example of the financial crisis in this context and how the interests (and ultimately the fate) of major investment banks became entangled. For details, see the Financial Crisis Inquiry Report (n 35).

¹⁵³ Rec (52).

¹⁵⁴ Commission Impact Assessment on EMIR (n 4) 75.

¹⁵⁵ Moreover, as Majone notes, regulators (or supervisors for that matter) that are organised in networks are likely to be concerned about their reputation and this concern might come to benefit cooperation. See Majone, G, Dilemmas of European Integration (Oxford, Oxford University Press, 2009) 101 Google Scholar. However, one must be mindful not to over-state such claims. The reality is likely to be much more complex.

¹⁵⁶ See Schammo, P, EU Prospectus Law—New Perspective on Regulatory Competition in Securities Markets (Cambridge, Cambridge University Press, 2011)CrossRefGoogle Scholar.

¹⁵⁷ See also in this context Emerson’s original work on balancing operations in Emerson (n 138).

¹⁵⁸ Of course, this presupposes that Eurozone countries are able to act as a bloc (and hence share common interests).

¹⁵⁹ European Central Bank, ‘Standards for the Use of Central Counterparties in Eurosystem Foreign Reserve Management Operations’ (November 2011) 11. Available at: www.ecb. int/pub/pdf/other/standards201111en.pdf; European Central Bank, ‘Eurosystem Oversight Policy Framework’ (July 2011) 10. Available at: www.ecb.eu/pub/pdf/other/eurosystemoversightpolicyframework2011en.pdf. Note that the UK has challenged the ECB’s location policy in front of the Court of Justice.

¹⁶⁰ European Union Committee, Correspondence (House of Lords) 42 Available at: www. parliament.uk/documents/lords-committees/eu-sub-com-a/CWM/CwMSubAJun11-Nov11.pdf.

¹⁶¹ Article 17(6). See also recs (47) and (52).

¹⁶² Under the relevant provisions, the CCP’s competent authority must provide ‘full reasons’ and explain ‘any significant deviation’ from the opinion of the college, where the latter is positive about authorising the CCP, but the CCP’s competent authority disagrees (art 17(4)). A similar obligation to state reasons also exists for college members if the college blocks the decision of the CCP’s competent authority to authorise a CCP or if it refers the matter to ESMA for mediation. Specifically, in these cases, ‘full and detailed reasons’ must be provided with respect to why college members believe that the obligations of EMIR, or of EU law, have not been met (art 17(4)).

¹⁶³ Hardin (n 123) 19: ‘My trust turns, however, not directly on the Trusted’s interests per se, but on whether my own interests are encapsulated in the interests of the Trusted, that is, on whether the Trusted counts my interests as partly his or her own interests just because they are my interests’.

¹⁶⁴ British Banking Association, ‘Colleges of Supervisors’ (10 June 2008). Available at: www.bba.org.uk/policy/article/colleges-of-supervisors/supervision.

¹⁶⁵ Ibid.

¹⁶⁶ CEBS, ‘CEBS Guidelines for the Operational Functioning of Supervisory Colleges (GL34)’ (15 June 2010) 18. Available at: www.eba.europa.eu.