towards a european regulatory toolkit. on the enforcement of
TRANSCRIPT
Het Europa Instituut Utrecht
Masterscriptie in het kader van de Master European Law
Towards a European Regulatory Toolkit On the Enforcement of Union Law by National Regulatory
Authorities
K. de Weers Onder begeleiding van Prof. mr. A.T. Ottow
Contents Chapter I ‐ Introduction .......................................................................................................................... 4
Chapter II ‐ Setting the Scene: The Current Situation ........................................................................... 5
2.1 National Procedural Autonomy..................................................................................................... 5
2.2 The Principle of Effectiveness and Equivalence ............................................................................ 5
2.3 The obligation of loyal cooperation .............................................................................................. 6
2.4 Case‐law ........................................................................................................................................ 7
2.5 Conclusion ................................................................................................................................... 10
Chapter III ‐ Enforcement Styles........................................................................................................... 11
3.1 Vertical or Horizontal enforcement?........................................................................................... 11
3.2 Assessing Vertical Enforcement .................................................................................................. 12
3.3 Assessing Horizontal Enforcement.............................................................................................. 12
3.4 Responsive Regulation ................................................................................................................ 13
3.5 Risk‐based Regulation ................................................................................................................. 15
3.6 Sparrow’s Regulatory Craft ......................................................................................................... 16
3.7 Smart regulation.......................................................................................................................... 16
3.8 Self‐regulation ............................................................................................................................. 17
3.9 Meta‐regulation .......................................................................................................................... 18
3.10 Conclusion ................................................................................................................................. 19
Chapter IV ‐ Top‐down Analysis ........................................................................................................... 21
4.1 The Energy Directives .................................................................................................................. 21
4.2 The Electronic Communications Directives................................................................................. 23
4.3 The Financial Services Directives................................................................................................. 27
4.3.1 Communication on the Reinforcing of the Sanctioning Regimes in the Financial Sector..... 27
4.3.2 The Financial Services legislation ......................................................................................... 28
4.4 Conclusion ................................................................................................................................... 31
Chapter V ‐ Bottom‐up Analysis: A First Exploration .......................................................................... 33
5.1 The Netherlands .......................................................................................................................... 33
5.1.1 The Dutch Independent Post and Telecommunications Authority (OPTA)........................... 35
5.1.2 The Netherlands Competition Authority – The Office of Energy Regulation (NMa)............. 36
5.1.3 The Dutch Central Bank (DNB) and the Netherlands Authority for the Financial Markets
(AFM)............................................................................................................................................. 37
5.2 The United Kingdom.................................................................................................................... 38
5.2.1 The Office of Communications (Ofcom) ............................................................................... 39
5.2.2 The Office of the Gas and Electricity Markets (Ofgem) ........................................................ 40
5.2.3 The Financial Services Authority (FSA).................................................................................. 40
5.3 Conclusion ................................................................................................................................... 41
Chapter VI ‐ European Supervisory Authorities (ESAs) ....................................................................... 43
6.1 The Energy Market ...................................................................................................................... 43
6.1.1 The European Regulators Group for Electricity and Gas (ERGEG)........................................ 43
6.1.2 The Agency for the Cooperation of Energy Regulators (ACER)............................................. 44
6.2 The Electronic Communications Market ..................................................................................... 45
6.2.1 The European Regulators Group (ERG) ................................................................................ 45
6.2.2 The Body of European Regulators for Electronic Communications (BEREC) ........................ 45
6.3 The Financial Services Market ..................................................................................................... 46
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6.3.1 The European Banking Authority (EBA)................................................................................ 47
6.3.2 The European Insurance and Occupational Pensions Authority (EIOPA) ............................. 48
6.3.3 The European Securities and Markets Authority (ESMA) ..................................................... 49
6.4 Conclusion ................................................................................................................................... 51
Chapter VII ‐ Analysis............................................................................................................................ 54
7.1 National Procedural Autonomy................................................................................................... 54
7.2 The Dissuasiveness Requirement ................................................................................................ 55
7.3 The Influence of European Supervisory Authorities (ESAs) ........................................................ 57
Chapter VIII ‐ Conclusion ...................................................................................................................... 59
Bibliography .......................................................................................................................................... 63
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Chapter I Introduction
Effective law enforcement is vital to the success of any legal order. 1 For any legal order to exist
effectively, it is vital that the enforcement of that law be effective. The European Union is primarily
dependent on the Member States for the enforcement of EU law. Member States and their
authorities are entrusted with ensuring compliance with Union law and sanctioning infringements.2
In the field of market supervision, national regulatory authorities (NRAs) are entrusted with the
supervision and regulation of markets. Over the past two decades many different NRAs have been
created by the Member States of the European Union in order to implement the relevant European
sectoral market liberalisation directives.3 The main task of the NRAs is to supervise and regulate the
relevant markets. Therefore, they have been given various regulatory and supervisory powers. In this
way the NRAs play a key role in implementing and enforcing European rules.4
The work of NRAs is based on the national procedural autonomy of Member States. This means that
NRAs are free to determine what national procedures are used to enforce Union rights before
national courts.5 However, the national procedural autonomy of Member States can lead to
inconsistent application of EU law by NRAs. This thesis assesses the European influence on the
national enforcement practices of NRAs. It seeks to find a balance between the national procedural
autonomy of Member States and the need for effective and consistent application of Union law. This
thesis is organised as follows.
In Chapter II the impact of European Law on national supervision in Member States will be discussed.
Special attention will be paid to the notion of national procedural autonomy, the European
requirements for the enforcement of Union law and the relevant case‐law. Chapter III aims to
provide an overview of the existing enforcement styles and strategies. What is the best enforcement
strategy to enforce Union law? In Chapter IV a top‐down analysis will be conducted. In this Chapter
the requirements of national enforcement of Union law in European secondary legislation will be
assessed. In Chapter V a small scale bottom‐up analysis will be conducted. In this Chapter the
enforcement strategies of NRAs in the Netherlands and the UK will be briefly discussed. Chapter VI
deals with the influence European Supervisory Authorities have on the enforcement practices of
NRAs. Chapter VII analyses the findings of the previous Chapters. Special attention will be given to
the national procedural autonomy, the dissuasiveness requirement and the significance of European
Supervisory Authorities for the enforcement practices of NRAs. Finally, Chapter VIII aims to draw
some general conclusions.
1 M Acceto and S Zleptnig, ‘The Principle of Effectiveness: Rethinking its role in Community Law’ (2005) 11 EPL 375. 2JH Jans, R de Lange, S Prechal, and RJGM Widdershoven, Europeanisation of Public Law (Europa Law Publishing 2007) 200. 3 S Lavrijssen and L Hancher, ‘Networks on Track: From European Regulatory Networks to European Regulatory ‘Network Agencies’’ (2008) 34(1) LIEI 26. 4 AT Ottow, ‘Europeanisering van het markttoezicht’ (2011) 1 SEW 3. 5 Jans (n 2) 35.
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Chapter II Setting the Scene: The Current Situation
The implementation and enforcement of the liberalisation directives is primarily the responsibility of
the National Regulatory Authorities (NRAs). Nevertheless, European Law has a growing impact on the
activities of the NRAs. This Chapter will discuss this impact of European law on national supervision in
Member States. Some authors refer to this development as the ´Europeanisation´ of market
supervision.6 The notion of national procedural autonomy will be discussed before turning to the
principle of equivalence and effectiveness. Finally, the relevant case‐law will be discussed.
2.1 National Procedural Autonomy
The work of NRAs is based on the principle of national procedural autonomy. National procedural
autonomy refers to the power of Member States to determine what national procedures are used to
enforce Union rights before national courts.7 This means that the enforcement of Union law is
primarily dependent on Member States and their authorities. European rules are created at a
European level, but implemented and enforced at a national level. Member States are free to
determine what national procedures they use to secure EU rights at a national level. In most cases
the EU relies on decentralised, indirect administration through the Member States for enforcement.8
The dependence on national regulatory authorities to enforce EU law can have major consequences.
National procedural autonomy leads to different enforcement regimes throughout Europe and
subsequently to regulatory competition. In order to prevent or reduce disparities between different
enforcement regimes within the European Union, the ECJ has imposed limits on the national
procedural autonomy of Member States. The ECJ has laid down some minimum requirements which
national procedural rules should comply with. These requirements will be discussed in the next
section.
2.2 The Principle of Effectiveness and Equivalence
Member States are free to determine how EU law is enforced before their national courts. However,
the ECJ has imposed limits on the national procedural autonomy. The twin rulings in Rewe9 and
Comet10 laid down the basic framework that has consistently served the ECJ ever since when
addressing issues relating to the decentralised enforcement of Union law.11 In the case Rewe, the
Court laid down two minimum requirements that national procedural rules should comply with:
Accordingly, in the absence of Community rules on this subject, it is for the domestic legal system of
each Member State to designate the courts having jurisdiction and to determine the procedural
conditions governing actions at law intended to ensure the protection of the rights which citizens
have from the direct effect of Community law, it being understood that such conditions cannot be less
favourable than those relating to similar actions of a domestic nature. The position would be different
6 Jans (n 2) 35. 7 ibid 40. 8 Acceto (n 1) 381. 9 Case 33/76, Rewe‐Zentralfinanz eG and Rewe‐Zentral AG v. Landwirtschaftskammer für das Saarland [1976] ECR 1989. 10 Case C‐45/76 Comet BV v Produktschap voor Siergewassen [1976] ECR 2043. 11 M Dougan, ‘The Vicissitudes of Life at the Coalface: Remedies and Procedures for Enforcing Union Law Before the National Courts’ in P Craig and G de Búrca (eds), The Evolution of EU Law (Oxford University Press 2011) 411.
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only if the conditions made it impossible in practice to exercise the rights which the national courts
are obliged to protect. 12
First, the ECJ made clear that national procedural autonomy is the point of departure when no
harmonisation measures on the subject have been taken yet.13 Next, the ECJ points out that in the
absence of Union legislation, enforcement of Union rights and obligations will take place in
accordance with national procedural rules, but that those rules are subject to two requirements: the
principle of equivalence and the principle of effectiveness.
The principle of equivalence entails that rules that govern a dispute with a Union dimension may not
be treated less favourable than those governing similar domestic actions. This principle used to be
known as the non‐discrimination principle. More recently the term principle of equivalence came
into use by the ECJ.14 The principle of effectiveness states that national procedural rules must not
render enforcement virtually impossible, or at the very least, make it excessively difficult.
The test set out in Rewe is rife with contradictions.15 On the one hand the ECJ called for national
procedural autonomy, stating that enforcement of Union rights and obligations is left to the Member
States, but this enforcement has to be subjected to the principle of effectiveness and equivalence.
On the other, the requirement that national enforcement of EU law should not make it virtually
impossible to exercise EU rights, pushes for the development of a Union framework of enforcement.
This contradiction contributed to a fairly complex case‐law on this subject. This case‐law will be
discussed in section 2.4.
2.3 The obligation of loyal cooperation
The minimum requirements of national enforcement of EU law by NRAs are developed by the ECJ,
based on the principle of loyal cooperation. When NRAs are enforcing EU law, they are likely to be
torn between loyalty towards the Union and their own national interests.16 Therefore, the principle
of loyal cooperation plays an important role in Union law. This principle carries a number of
obligations for NRAs. First, NRAs are required to secure legal certainty for EU law. Secondly, NRAs
must actively police EU law (e.g. Spanish Strawberries). Thirdly, NRAs must penalise infringements of
EU law that are similar to those applicable to infringements of national law.
In Ireland v. Commission17 the Court has confirmed the importance of the principle of loyal
cooperation with regard to the effectiveness of Union law. In this case the Court stated that the
principle of loyal cooperation entails an obligation on the Member States to take all the necessary
measures to guarantee the application and effectiveness of Union law and imposes on Member
States and the Union institutions mutual duties to cooperate in good faith.
12 Case 33/76, Rewe‐Zentralfinanz eG and Rewe‐Zentral AG v. Landwirtschaftskammer für das Saarland [1976] ECR 1989, 5. 13 L Flynn, ‘When National Procedural Autonomy Meets the Effectiveness of Community Law, can it survive the impact?’(2008) 9 ERA Forum 246. 14 Jans (n 2) 42. 15 D Chalmers, G Davies and G Monti, European Union Law: Cases and Materials (2nd edn, Cambridge University Press 2010) 276. 16 Acceto (n 1) 382. 17 Case C‐339/00, Ireland v. Commission, [2003] ECR I‐11757, 71.
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2.4 Caselaw
Since 1976 the ECJ has produced an enormous amount of jurisprudence within the framework of the
cases Rewe and Comet18. The ECJ has influenced the national enforcement of Union law by the NRAs
in Member States in two ways.19 Firstly, it is settled case‐law that national enforcement measures
must fulfil the requirements of equivalence (also known as non‐discrimination), effectiveness,
dissuasiveness and proportionality. Secondly, the ECJ has ruled that while enforcing Union law,
fundamental rights, the general principles of EU law and the Treaty freedoms must be observed.20
In this section the case‐law with regard to decentralised enforcement of EU law will be briefly
discussed. As stated earlier, the first case in which the principles of effectiveness and equivalence
were laid down were the rulings Rewe21 and the similar ruling Comet.22 In these cases the Court
ruled that national law must deal with infringements of Union law in the same way as it deals with
infringements of similar domestic law (equivalence) and that national law should not render the
enforcement of EU law virtually impossible (effectiveness).
Both cases concerned traders who had paid levies charged by their Member States which were
contrary to Union law. The question arose whether time‐limits with regard to commencing actions
before national courts could be set aside in cases involving Union rights. The ECJ rejected these
claims by stating that the combined doctrines of supremacy and direct effect did not guarantee
absolute protection of Union rights, but only their protection in the context of a particular legal
system.23 An interesting feature of the ruling was the explicit recognition of the ECJ that reliance on
the enforcement by Member States and their authorities could lead to disparities between the
Member States.24 The Court stated:
Where necessary, Articles 100 to 102 and 235 of the Treaty enable appropriate measures to be taken
to remedy differences between the provisions laid down by law, regulation or administrative action in
Member States if they are likely to distort or harm the functioning of the Common Market.
Further requirements to limit the procedural autonomy of national regulatory authorities were laid
down in subsequent case‐law. In Sagulo, the Court ruled that Member States are entitled to impose
reasonable penalties for infringement by persons subject to Union law of the obligation to obtain a
valid identity card, such penalties should by no means be so severe as to cause an obstacle to the
freedom of movement.25 In other words, in Sagulo the ECJ added the requirement of proportionality
to the already existing Rewe/Comet principles.
In Van Colsen26, the Court had to rule on the question whether national sanctions to remedy
breaches of the Equal Treatment Directive 76/20727 were compatible with EU law.28 The Court ruled
18 Dougan (n 11) 411. 19 Jans (n 2) 206. 20 ibid. 21 Rewe‐Zentralfinanz (n 8). 22 Comet (n 10). 23 R Craufurd Smith, ‘Remedies for Breaches of EU Law in National Courts: Legal Variation and Selection’ in P Craig and G De Búrca (eds), The Evolution of EU Law (Oxford University Press 1999) 294. 24 ibid. 25 Case 8/77 Sagulo, Brenca, and Bakhouce [1977] ECR 1495, 12‐13. 26 Case 14/83 Von Colson and Kamann v. Land Nordrhein‐Westfalen [1984] ECR 1891.
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that the Directive leaves the Member States free to choose between different solutions to achieve its
objective. However, the Court continued, stating, first, that a sanction must guarantee real and
effective judicial protection.29 Secondly, a sanction must have a deterrent effect on the violator.
Thirdly, the sanction must be adequate in relation to the damage sustained.30 Thus, Van Colson
added the requirement of adequacy and effectiveness of national remedies to the requirement of
proportionality and the principles of effectiveness and equivalence.31
About four years later the ECJ ruled in Germany vs. Commission that the requirements of national
enforcement of EU law also apply to NRAs.32 It stated that:
(..) it should be observed that it is for all the authorities of the Member States, whether it be the central authorities of the State or the authorities of a federated State, or other territorial authorities, to ensure observance of the rules of Community law within the sphere of their competence. However, it is not for the Commission to rule on the division of competences by the institutional rules proper to each Member State, or on the obligations which may be imposed on federal and Länder authorities respectively. It may only verify whether the supervisory and inspection procedures established according to the arrangements within the national legal system are in their entirety sufficiently effective to enable the Community requirements to be correctly applied.
Greek Maize is undoubtedly the leading case on the requirements of European law on national
enforcement. 33 Greek Maize was about the failure of the Greek state to fulfil those obligations to
initiate all the criminal or disciplinary proceedings provided for by national law against the
perpetrators of fraud.34 The Court ruled that Article 4(3) TEU (before 5 EEC) requires the Member
States to take all measures necessary to guarantee the application and effectiveness of Community
law. Next, the EJC ruled:35
24. For that purpose, whilst the choice of penalties remain within their discretion, they must
ensure in particular that infringements of Community law are penalized under conditions,
both procedural and substantive, which are analogous to those applicable to infringements in
national law of a similar nature and importance and in which in any event, make the penalty
effective, proportionate and dissuasive.’
25. Moreover, the national authorities must proceed, with respect to infringements of
Community law, with the same diligence as that which they bring to bear in implementing
corresponding national laws.
27 Council Directive (EC) 76/207 on the implementation of the principle of equal treatment for men and women as regards access to employment, vocational training and promotion, and working conditions (Equal Treatment Directive) OJ L 39. 28 P Craig and G De Búrca, EU Law: Text, Cases and Materials (4th edn, Oxford University Press 2008) 310. 29 AB Blomberg, ‘European Influence on National Environmental Law Enforcement: Towards an Integrated Approach’ (2008) 1 REALaw 45. 30 Von Colson (n 26) 28. 31 Craig and De Búrca (n 28) 310. 32 Case C‐8/88 Germany v Commission [1990] ECR I‐02321, 13. 33 Case C‐68/88 Commission v Greece (Greek Maize) [1989] ECR 2965. 34 ibid 22. 35 ibid 24.
8
In subsequent decisions the ECJ repeated the requirements of Greek Maize. Earlier case‐law of the
Court was about disputes on the enforcement of EU regulations and directives before national
courts, also known as ‘positive’ integration mechanisms. In Spanish Strawberries, the Court made
clear that NRAs may be under an obligation to enforce rules with regard to ‘negative’ integration
mechanisms as well.36 From Spanish Strawberries follows that Member States enjoy a margin of
discretion in determining what measures are most appropriate to guarantee the full scope and effect
of Union law. In this case the Court was asked to rule on the question whether France had taken
‘adequate measures’ to prevent obstacles to the free movement of goods that were created by
actions of private individuals on its territory. The ECJ ruled that Member States enjoy a margin of
discretion, but concluded that France had not adopted appropriate measures for ensuring the free
movement of goods. Interestingly enough, the Court implied a positive obligation from Article 34
TFEU (before 28 EC), to ensure the free movement of goods. This new obligation of enforcement is
subject to the requirements of being necessary and appropriate to prevent the obstruction of the
free movement.37 This means that the requirements of ‘negative’ integration (Spanish Strawberries)
are similar to the requirements of ‘positive’ integration (Greek Maize).
In Berlusconi, Advocate General Kokott explained what the requirements of effectiveness,
proportionality and dissuasiveness entail:38
88. Rules laying down penalties are effective where they are framed in such a way that they do
not make it practically impossible or excessively difficult to impose the penalty provided for
and, therefore, to attain the objectives pursued by Community law.
89. A penalty is dissuasive where it prevents an individual from infringing the objectives pursued
and rules laid down by Community law. What is decisive in this regard is not only the nature
and level of the penalty but also the likelihood of its being imposed. Anyone who commits an
infringement must fear that the penalty will in fact be imposed on him. There is an overlap
here between the criterion of dissuasiveness and that of effectiveness.
90. A penalty is proportionate where it is (that is to say, in particular, effective and dissuasive) for
attaining the legitimate objectives pursued by it, and also necessary. Where there is a choice
between several (equally) appropriate penalties, recourse must be had to the least onerous.
Moreover, the effects of the penalty on the person concerned must be proportionate to the
aims pursued.
In Schmidberger39 and Roquette Frères40 the ECJ made clear that NRAs must observe fundamental
rights when enforcing European law. Schmidberger was the first case in which a Member State
invoked the necessity to protect fundamental rights to justify a restriction on one of the fundamental
freedoms. Schmidberger can be considered as the fundamental rights sequel to the Spanish
Strawberries case discussed above.41 The Court made clear in Schmidberger that the obligation to
36 Jans (n 2) 208. 37 ibid 209. 38 AG Kokott, Joined Cases C‐387/02, C‐391/02 and C‐403/02 Berlusconi and Others [2005] ECR I‐3565. 39 Case C‐112/00 Schmidberger [2003] ECR I‐5659. 40 Case C‐94/00 Roguette Frères [2002] ECR I‐9011. 41 Jans (n 2) 214.
9
ensure the free movement of goods may under certain circumstances be restricted by fundamental
rights.
In Roquette Frères, the ECJ made clear that Article 8 ECHR can also place limits on the enforcement
of European rules. This case was concerned with whether the protection of the home as laid down in
Article 8(1) ECHR should be extended to cover business premises as well. The ECJ held that searching
business premises without prior authorisation by a national court would be ‘a disproportionate and
intolerable interference.’42
Both Schmidberger and Roquette Frères make clear that besides the requirements as laid down in
Greek Maize, fundamental rights should also be observed when enforcing EU law before national
courts.
2.5 Conclusion
In most cases the European Union relies on decentralised, indirect administration through the
Member States for enforcement.43 The ECJ confirmed in Spanish Strawberries that Member States
enjoy a margin of discretion in determining what measures are most appropriate to enforce Union
law. This is sometimes referred to as the ´enforcement autonomy.´44 This discretion has been limited
by general enforcement principles set in case‐law as well as by specific enforcement requirements
deriving from EU legislation.45
The basic principle of the enforcement of Union law can be found in Article 4(3) TEU, which lays
down the principle of loyal cooperation.46 The principle of loyal cooperation entails an obligation on
the Member States to take all the necessary measures to guarantee the application and effectiveness
of Union law. This general obligation has been translated into four minimum requirements:
effectiveness, equivalence, proportionality and dissuasiveness.47 In addition to these minimum
requirements, fundamental rights must be observed when enforcing Union law at a national level.
In the case Berlusconi AG Kokott has contributed to the understanding of these principles by
explaining what effectiveness, dissuasiveness and proportionality entail. However, the requirements
given by the ECJ are minimum requirements and remain rather vague. Blomberg doubts whether it is
possible to specify these principles further, other than on a case‐by‐case basis, since this is generally
the ECJ’s approach. 48
42 Roguette Frères (n 40) 76. 43 Acceto (n 1) 381. 44 Blomberg (n 29) 42. 45 ibid 43. 46 ibid. 47 ibid. 48 ibid 46.
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Chapter III Enforcement Styles
This Chapter aims to provide an overview of the existing enforcement styles and strategies. In social
science, many empirical studies have been conducted on enforcement styles and strategies.
However, the findings of these studies have not been applied much in legal research. In this Chapter
some major discussions on enforcement styles and strategies will be discussed. It is important to
note that some authors make a distinction between enforcement styles and enforcement strategies
the former being the behaviour of NRAs towards a supervisee, the latter being the tactical choices
and type of actions of NRAs. In this Chapter enforcement styles and enforcement strategies will be
used interchangeably; both meaning the tactical choices NRAs make with regard to enforcement.
3.1 Vertical or Horizontal enforcement?
Disagreement between regulatory policy scholars over the right style of law enforcement has been
around for decades.49 The labels of the different regulatory policy styles have changed over the
years, but the debate has always concentrated on roughly two methods of regulatory policy: vertical
and horizontal enforcement. Vertical enforcement is based on formal, precise rules and is considered
adversarial, accusatory and punitive. It emphasises not only a confrontational style of enforcement,
but also the sanctioning of rule‐breaking behaviour and is a classic command‐and‐control model.50
Generally accepted is that this method is based on an underlying distrust of the regulated and
supervised community.51
Horizontal enforcement, in contrast, emphasises cooperation rather than confrontation and
conciliation rather than coercion.52 It adopts a more principle‐based, softer, more result‐oriented
approach. This method stresses the importance of responsiveness, and its frequently used tools are
trade‐offs, persuasion and negotiation. Horizontal enforcement seeks to prevent harm rather than to
punish infringements. It is based on trust between the supervisor and supervisee and gives
supervisees more responsibility.
The discussion about vertical or horizontal enforcement is ultimately between “those who think that
corporations will comply with the law only when confronted with tough sanctions and those who
believe that gentle persuasion works in securing business compliance with the law”.53 One should,
however, bear in mind that horizontal and vertical enforcement styles are two extremes, unlikely to
be found in their pure form.54 The next sections will discuss the various enforcement strategies,
including mixtures of different styles and strategies.
49 MK Sparrow, The Regulatory Craft. Controlling Risks, Solving Problems, and Managing Compliance (Brookings Institution Press 2000) 34. 50 N Gunningham, ‘Enforcement and Compliance Strategies’ in R Baldwin, M Cave and M Lodge (eds), The Oxford Handbook of Regulation (Oxford University Press 2010) 121. 51 Sparrow (n 49) 34. 52 Gunningham (n 50) 121. 53 I Ayres and J Braithwaite, Responsive Regulation (Oxford University Press 1992) 20. 54 Gunningham (n 50) 122.
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3.2 Assessing Vertical Enforcement
Proponents of vertical enforcement take as a point of departure that regulated businesses only
comply with the law if it is economically rational to do so. Advocates of vertical enforcement assume
that regulatees will not comply with the law spontaneously if the chance of detection of non‐
compliance is too small or if the punishment is not deterrent enough. Vertical enforcement is also
known as a ‘deterrent strategy’. Two types of deterrent strategies can be distinguished: general
deterrence and specific deterrence. The general deterrence theory assumes that punishing one
corporation will deter other corporations from doing so. Alternatively, the specific deterrence theory
is based upon the idea that corporations which have been previously punished for non‐compliance
will make an effort to comply with the law in the future. Both forms of deterrence are assumed to
contribute to the reduction of social harm as proscribed by regulation.55
A deterrence‐based strategy is twofold. First, it aims to deter non‐compliance prior to the law being
broken; second, it aims to sanction non‐compliance after the law has been broken.56 Deterrence‐
based strategies assume that the higher the chance of getting caught breaking the law and/or the
higher the penalty, the less willing corporations are to violate the law.57 However, to what extent is
there a link between deterrence and compliance? Research has shown that this link between
deterrence and compliance is fairly complex.58 From these studies follows that the perception of
detection of non‐compliance plays a more important role than the actual chance of detection. In
other words, the gravity of the penalty does not deter corporations from non‐compliance, what is
more important is how a corporation assesses its own chances of being caught.59 Furthermore, in
another study, Haines has shown that the impact of deterrence differs according to the size of a
corporation.60 She has shown that the behaviour of small and medium sized corporations is
influenced by deterrence‐based strategies, but that the impact of deterrence on larger corporations
is much smaller.61
Deterrence‐based strategies have both positive and negative consequences. The effectiveness of this
enforcement style depends on the various characteristics of the specific case. Not only the size of a
corporation plays a role, also the motivation of the corporation is of importance. Deterrence‐based
strategies may be effective when applied to reluctant compliers with the law, while it may be
counter‐productive to corporations who respond badly to an adversarial approach.62
3.3 Assessing Horizontal Enforcement
Horizontal enforcement is a compliance‐based strategy. Compliance‐based strategies seek to prevent
non‐compliance prior to a violation of the law rather than to punish a violation after the law has
already been broken. Horizontal enforcement aims to achieve spontaneous compliance with
55 Gunningham (n 50) 122. 56 J van der Heijden, Building Regulatory Enforcement Regimes. Comparative analysis of private sector involvement in the enforcement of public building regulations (IOS Press 2009) 44. 57 ibid. 58 Gunningham (n 50) 122. 59 FL Leeuw, JS Kerseboom and R Elte (eds), Turven, Tellen, Toetsen. Over toezicht, inspectie, handhaving en evaluatie en hun maatschappelijk betekenis in Nederland (Boom Juridische Uitgevers 2007) 68. 60 Gunningham (n 50) 123. 61 ibid. 62 ibid 122.
12
regulations. Proponents of compliance‐based strategies assume that corporations spontaneously
comply with the law because they morally disapprove of breaking the law. To encourage
spontaneous compliance with the law, NRAs can give positive incentives by issuing grants and
subsidies. An advantage of this enforcement style is that there is a low risk of capture. However,
horizontal enforcement also has its disadvantages. The primary problem with compliance‐based
strategies is that it can easily degenerate into a too lenient strategy which fails to deter those who
are not willing to comply voluntarily.63 Even worse, there is evidence showing that leaving non‐
compliance unpunished may even discourage those actors who do comply with the law.64 The
effectiveness of compliance‐based strategy depends, just as with deterrence‐based strategies, upon
the motivation of the supervisees. Horizontal enforcement will not work adequately with reluctant
compliers while it will definitely be a good option for badly informed, first time non‐compliers.
However, the problem is that it is not always feasible for NRAs to find out what the motivation of
non‐compliance for corporations is.
3.4 Responsive Regulation
Responsive regulation is a judicious mix of a compliance and deterrence‐based enforcement
strategy.65 As seen above, compliance and deterrence strategies in their purest form both have
considerable disadvantages. Deterrence‐based strategies are prone to capture while compliance
standards are difficult to set and hard to enforce.66 Therefore, contemporary regulatory and
supervisory experts argue that a combination of both strategies will result in the most effective
enforcement.67 The Responsive Regulation model of Ayres and Braithwaite68 is an enforcement
model which tries to combine the best of both enforcement styles. The Responsive Regulation model
aims to punish the most severe offenders while at the same time aims to encourage innocent
corporations to comply spontaneously. The notion of responsive regulation is built around the
‘enforcement pyramid’.
63 Gunningham (n 50) 125. 64 ibid. 65 ibid. 66 van der Heijden (n 56) 45. 67 See e.g. I Ayres and J Braithwaite, Responsive Regulation: Transcending the Deregulation Debate (Oxford University Press 1992) and R Kagan, ‘Regulatory enforcement’ in D Rosenbloom and R Schwartz (eds.), Handbook of Regulation and Administrative (Dekker 1994). 68 Ayres and Braithwaite (n 53).
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The Enforcement Pyramid, adapted from I. Ayres & J. Braithwaite, Responsive Regulation: Transcending the Deregulation Debate (Oxford University Press 1992). Downloaded from: <http://www.unep.org/dec/onlinemanual/Enforcement/NationalApproaches/tabid/74/Default.aspx?page=9>
The enforcement pyramid above depicts a range of enforcement sanctions a NRA can have at its
disposal. At the base you can find soft, compliance‐based sanctions like advice, persuasion and
warnings, which are applied most frequently. At the top you find tough, deterrence‐based sanctions
like fines, criminal penalties and ultimately licence revocation, which are applied least often.
According to the Responsive Regulation model, NRAs must always start at the bottom of the pyramid
and escalate in response to failure to comply. Through regular interaction between the supervisor
and supervisee the supervisor will be able to find out what type of corporation they are dealing with.
Is the corporation concerned willing to comply with the law or is it deliberately not complying? Two
aspects are essential for the success of this model. Firstly, there is the need for a gradual escalation
up the face of the pyramid. The essence of the Responsive Regulation model is a ‘tit‐for‐tat’ response
by the NRA. At first more compliance‐based strategies will be used, but if the supervisee fails to
comply, more punitive deterrent responses will be applied.69 Secondly, there must be a credible,
sufficiently deterrent sanction at the peak of the pyramid.70 This severe penalty does not only deter
corporations from not complying, but also creates a level playing field in the sense that cooperative
corporations are not disadvantaged. 71 However, there is also criticism on the pyramidic regulatory
strategy of enforcement. Julia Black has divided the criticism in three groups: the policy or
conceptual problems, the practical problems and the constitutional problems.72 The first criticism, in
policy terms, states that escalation up the pyramid may not be appropriate if there is a catastrophic
risk.73 In that case, NRAs should not escalate to the next level, but immediately resort to the top of
the pyramid. Secondly, the responsive regulation model assumes that it is possible to move up and
down the pyramid. However, Black argues, as Ayres and Braithwaite recognise, that moving down
69 R Baldwin and J Black, ‘Really Responsive Regulation’ (2007) LSE Law, Society and Economy Working Papers 15/2007 < http://www.lse.ac.uk/collections/law/wps/WPS15‐2007BlackandBaldwin.pdf> accessed 1 June 2011, 5. 70 Gunningham (n 50) 126. 71 ibid. 72 Baldwin and Black (n 69) 5. 73 ibid.
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the pyramid may not be that easy. When punitive sanctions have been imposed, the relationship
between supervisor and supervisee may be damaged. Moreover, the threat of punitive sanctions at
the top of the pyramid makes ‘voluntary’ compliance at the bottom virtually impossible.74 Thirdly, it
may not always be very useful to use an escalating tit‐for‐tat approach. Corporate behaviour is not
always driven by regulatory and supervisory pressure but rather by the culture of the sector or the
pressure of competition.75 Here comes the earlier mentioned motivation of non‐compliers into play.
An analysis of the motivation of non‐compliers is required to assess at what level of the pyramid
enforcement should be started. It will be more efficient to target responses rather than to respond
accordingly to the general responsive regulation model. In addition, repeated interaction between
supervisor and supervisee is required to make the model of responsive regulation work. In many
industries there is not sufficient interaction between supervisor and supervisee which makes the
method of moving up or down the pyramid virtually impossible.
Regardless of the critique, it is widely acknowledged that the model of Responsive Regulation has
greatly contributed to the development of compliance and deterrence models of enforcement.
Responsive Regulation is influential worldwide and has been applied by governments and NRAs
across the world.76
3.5 Riskbased Regulation
A relatively new approach to law enforcement is the so‐called ‘risk‐based’ regulation. Since the 1980s
onwards there has been a shift towards more risk‐based approaches. In 2005, the Hampton review
recommended that all NRAs should adopt a risk‐based approach to enforcement in the UK.77
Risk‐based regulation can entail a very broad range of approaches. Some NRAs use the notion of risk‐
based regulation as if it represents a framework of governance, while other NRAs refer to risk‐based
regulation when talking about the adoption of risk based tools.78 In this thesis, risk‐based regulation
entails an approach which argues that NRAs should primarily focus their enforcement based on the
assessment of the degree of risk posed by a regulated corporation.79 Although a risk‐based approach
clearly differs from the enforcement pyramid of Ayres and Braithwaite, the former does not exclude
the latter approach. The enforcement pyramid may be applied to corporations that have first been
targeted by a risk assessment.80 A risk‐based approach is based on two key elements: evaluation of
the risk of non‐compliance and calculations with respect to the impact that non‐compliance will have
on the NRA’s ability to achieve its objective.81
74 Baldwin and Black (n 69) 6. 75 ibid. 76 ibid. 77 P. Hampton, Reducing administrative burdens: effective inspection and enforcement, <http://www.berr.gov.uk/files/file22988.pdf> accessed 15 June 2011. 78 Bridget M. Hutter, ‘The Attractions of Risk‐based Regulation: accounting for the emergence of risk ideas in regulation’ (2005) LSE Discussion Paper no. 33, 3. 79 Gunningham (n 50) 128. 80 ibid 129. 81 Baldwin and Black (n 69) 12.
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The risk‐based approach differs from traditional regulation because it is not based upon the input of
an activity, but on the output.82 Risk‐based approaches to enforcement emphasise analysis and
targeting rather than a method of responsive escalation.83 As with any other enforcement strategy,
risk‐based regulation has both advantages and disadvantages. Proponents of risk‐based regulation
argue that it is effective and efficient, because enforcement will be targeted towards regulatory
priorities. Furthermore, advocates of risk‐based approaches consider a risk‐based approach to be
more legitimate, because the enforcement decision is based upon an analytical assessment.
However, this argument can also be used by opponents of risk‐based approaches because it is
virtually impossible to calculate risks objectively. In addition, opponents of risk‐based approaches
argue that it raises concerns with regard to the consistency of treatment of regulated corporations
and equality of protection of the public.84 Moreover, risk‐based approaches tend to focus on familiar
risks.85 In doing so, they can fail to notice developing new risks. Another problem with risk‐based
approaches is that they focus on large risks and tend to forget about smaller risks even though
numerous smaller risks may generate a large cumulative risk. Finally, risk‐based approaches tend to
focus on an individual corporation and neglect to address non‐compliance within regulatory
community as a whole.
Nevertheless, risk‐based approaches are becoming increasingly influential among NRAs. It is
considered to be an effective and efficient approach to enforcement although it also has its
disadvantages.
3.6 Sparrow’s Regulatory Craft
Another risk‐based enforcement strategy has been developed by Malcolm Sparrow in his book The
Regulatory Craft.86 In his book Sparrow develops a specific risk‐based approach in which ‘problem
solving’ and ‘risk reduction’ are the core for normal operations.87 Sparrow emphasises the need to
define problems accurately, the importance of monitoring and measuring performance and to adjust
strategies on the basis of those performance evaluations. Sparrow argues that problems should be
identified and subsequently solved with appropriate solutions or interventions. However, he does
not state whether this should be done by adopting a deterrence‐based or compliance‐based
approach.88 Solely defining problems and solving them does not help NRAs in designing an
appropriate strategy for responding to non‐compliance. This is better dealt with in the smart
regulation model.
3.7 Smart regulation
A considerable move away from the traditional regulation is the ‘smart regulation’ model, developed
by Gunningham and Grabosky in their work Smart Regulation.89 They argue that law does not
necessarily have to be enforced by NRAs, but that this can also be done by self‐regulatory initiatives
or through third parties. They have developed a three‐sided smart regulatory pyramid. Three
82 van der Heijden (n 56) 46. 83 Baldwin and Black (n 69) 12. 84 ibid. 85 ibid. 86 Sparrow (n 49). 87 ibid 309. 88 Baldwin and Black (n 69) 14. 89 Gunningham (n 50) 131.
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different sorts of controls can be imposed: by NRAs, by surrogate‐regulators and by corporations. 90
The smart regulation model allows not only to escalate the gravity of the punishment within a single
instrument, but also across several instruments. A central argument within the smart regulation
model is that, most of the time, the use of various rather than one single policy instrument and
various actors rather than one single actor will produce better regulation and supervision.91 This
means that a smart regulation model tries to get those actors involved in the regulatory process
which are best fit to enforce regulations.92 The advantage of this model is that it is extremely flexible:
it renders it not only possible to adapt the gravity of the punishment, but also the actor who imposes
it. This allows new, creative mixes of instruments or actors to be adopted.93 Traditionally, regulation
and supervision were seen as a bipartite process involving only NRAs and corporations, the former
being the supervisors, the latter being the supervisees.94 However, extensive empirical research has
shown that various actors influence the behaviour of supervisees in various forms.95 Therefore,
Gunningham and Grabosky argue that second and third parties should act as ‘quasi‐supervisees.’ This
allows more flexibility with regard to instruments and actors and can subsequently lead to more
cost‐efficient and more effective supervision.
Nevertheless, the smart regulation pyramid is not always feasible. The smart regulatory pyramid of
Gunningham and Grabosky builds on Ayres and Braithwaite’s enforcement pyramid. Since smart
regulation also involves a responsive escalation process, it encounters the same difficulties as
responsive regulation. First, in case of situations which involve a serious risk or catastrophic damage,
responsive escalation is inappropriate.96 Second, a graduated response is only feasible when parties
have frequent interaction. In addition to the problems related to a responsive escalation process
there are some difficulties related to smart regulation specifically. Within the smart regulation model
there are various actors involved in the regulatory process. The actor who is most fit to enforce will
be involved in the regulatory process. This flexibility can be problematic. Because of the fact that
various actors are involved, the evaluation of a case for an escalatory response is made more
complex. Moreover, a consistent approach to enforcement is in danger because the coordination
between the different actors is not always smooth. This can cause problems with regard to
knowledge‐sharing and there could also be possible political differences between different actors.
Smart regulation reduces the drain on scarce regulatory resources because part of the supervision
will be done by second and third parties. By involving the regulatory community in the regulatory
process, legitimacy of regulatory enforcement could be enhanced. However, the general difficulties
of responsive escalation remain and the coordination between the different actors could be
problematic.
3.8 Selfregulation
Self‐regulation is an enforcement strategy which entails a government body overseeing the process
of self‐control. In order to achieve this objective, compliance agreements between the government
90 Baldwin and Black (n 69) 11. 91 Gunningham (n 50) 131. 92 van der Heijden (n 56) 48. 93 Baldwin and Black (n 69) 11. 94 Gunningham (n 50) 131. 95 ibid. 96 Baldwin and Black (n 69) 12.
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body and the corporation are made. Corporations themselves set up protocols for non‐compliance
and assess themselves whether they comply with regulation or not. Self‐regulation is considered to
be the opposite of the classic command‐and‐control model.
As with the previous enforcement strategies, a self‐regulation model has both advantages and
disadvantages. Proponents of self‐regulation argue that corporations themselves have more
expertise and hands‐on knowledge than any NRA could ever have.97 In addition, self‐regulatory
organisations are considered to have better access to valuable information on compliance at lower
costs.98 Furthermore, corporations tend to accept their ‘own rules’ more easily. However, opponents
of self‐regulation are concerned about the democratic legitimacy of self‐regulatory organisations and
doubt whether the public interest is served by these organisations. Furthermore, they voice concerns
about capture, the accountability of self‐regulators and the lack of public trust in self‐regulatory
models.99
Within the self‐regulation model, corporations set up their own protocols for non‐compliance and
determine whether or not they comply with regulations. A government body oversees this process of
self‐control. This model gets the supervisees involved into the regulatory and supervisory process.
This simplifies the acceptance of supervisees of the rules imposed on them. However, self‐regulation
can easily degenerate into a too lenient strategy, which fails to deter other corporations from non‐
compliance. Concerns are raised with regard to capture, accountability and the lack of public trust.
3.9 Metaregulation
The final enforcement method discussed in this Chapter is ‘meta‐regulation’ or ‘meta risk
management.’ Meta‐regulation has been described as the regulation of self‐regulation, or the risk
management of risk management.100 Just as with smart‐regulation, this enforcement method also
involves ‘quasi‐regulators’ and reduces the hands‐on enforcement of the state.101 Within this
approach NRAs do not focus on checking compliance with rules, but encourage industries to design
their own system of self‐control, which subsequently will be controlled by the NRA.102 In other
words, instead of directly enforcing rules, NRAs check whether corporations are self‐enforcing their
self‐control systems. Some authors see meta‐regulation as an ‘attractive alternative’ to a prescriptive
standards or even performance‐based approach.103 They argue that because of the limited capacity
of NRAs, it is virtually impossible to deal with complex corporations and complex regulatory
problems solely through rules. Therefore, they argue that corporations should be encouraged to be
subject to self‐regulation. Furthermore, meta‐regulation enables NRAs to use the experience of the
industry itself, which is especially useful in complex industries. However, self‐control systems do not
necessarily always function properly. It could be possible that corporations adopt a self‐control plan
to maintain public legitimacy, while actually not being committed to compliance at all. Another
concern with meta‐regulation is that it requires a specialist, high‐quality supervisor who is able to
97 van der Heijden (n 56) 49. 98 ibid. 99 ibid 50. 100 John Braithwaite, (2003) "Meta risk management and responsive governance", paper presented at Risk Regulation, Accountability and Development Conference, University of Manchester, Manchester, June 26‐27, 2. 101 Gunningham (n 50) 135. 102 ibid. 103 ibid.
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oversee the self‐control plan of the corporation. Furthermore, a receptive corporate culture is
necessary for its success.104
3.10 Conclusion
This Chapter has explored the most important enforcement strategies that NRAs can adopt. Critics
may suggest that smart‐regulation, self‐regulation and meta‐regulation are not enforcement
strategies per se and should therefore have not been included in this Chapter.105 However, smart‐
regulation, self‐regulation and meta‐regulation can be seen as a way to extend the capacity of a NRA
to enforce the law.
There is no single enforcement strategy which has proved to be the most effective or efficient. Both a
pure compliance‐based and a pure deterrence‐based approach have many disadvantages.
Compliance‐based approaches can easily degenerate into a too lenient strategy, which fails to deter
other corporations from non‐compliance. Deterrence‐based approaches are most effective with
large, rational corporations but less effective with small incompetent corporations.
The quest for the optimal enforcement strategy will probably never end. A judicious mix of
enforcement styles and strategies is most likely to take away most disadvantages. Responsive
regulation is an example of such a mix of compliance and deterrence. This enforcement strategy
adapts to the particular features and the motivation of the supervisee. However, as discussed in this
Chapter, responsive regulation also has its limits. This strategy works best with large corporations
and frequent interaction between supervisor and supervisee is required.
Risk‐based approaches to enforcement emphasise analysis and targeting rather than a method of
responsive escalation.106 It is considered to be effective and cost‐efficient but tends to focus on
familiar, large risks and forget about the smaller risks. Proponents of a risk‐based approach argue
that it is more legitimate than responsive regulation because the prioritisation is subject to an
objective analysis. However, how do you assess risks objectively? In the Hampton Review 2005 it was
recommended that all NRAs should adopt a risk‐based approach to enforcement in the UK.
A specific risk‐based approach is developed by Sparrow in his work ‘The Regulatory Craft’. In his work
Sparrow argues that regulation is about defining problems and solving them. However, he does not
explain whether this should be done by adopting a deterrence‐based or compliance‐based strategy.
This does not help NRAs with designing a strategy how to response to non‐compliance.
The smart regulation model argues that law does not necessarily have to be enforced by NRAs, but
that this can also be done by self‐regulatory initiatives or through third parties. This allows new,
creative mixes of instruments and actors to be adopted. In addition to the general difficulties of the
responsive escalation process, smart regulation also encounters its specific problems. The
coordination between different actors can make it hard to evaluate the escalatory response for
example.
104 Neil Gunningham, ‘Enforcing Environmental Regulation’ (2011) J Environmental Law 23 (2) 191. 105 ibid 23. 106 Baldwin and Black (n 69) 12.
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Self‐regulation is an enforcement strategy which entails a government body overseeing the process
of self‐control. Corporations have more knowledge and experience in their field of work than any
NRA. However, there is a chance that this model degenerates into a too lenient strategy, which fails
to deter other corporations from non‐compliance.
Meta‐regulation is the regulation of self‐regulation. Meta‐regulation enables NRAs to make use of
the knowledge and experience of the industry. Within this approach NRAs do not focus on checking
compliance with rules, but encourage industries to design their own system of self‐control, which
subsequently will be controlled by the NRA.107 A disadvantage of meta‐regulation is that highly
specialised supervisors are needed and self‐control plans are sometimes made for public legitimacy
rather than a real commitment to compliance.
In conclusion, it is important to note that there is no clear link between deterrence and compliance.
From social studies follows that the perception of detection plays a larger role in the behaviour of
corporations than the actual chance of detection. Furthermore, the impact of deterrence strongly
depends on the size of a corporation. This is important in the light of European secondary legislation
as will be discussed in the next Chapter. This Chapter argues that the European legislator generally
tends to favour a deterrence‐based approach over a compliance‐based approach, while this does not
necessarily have to be the most effective enforcement strategy.
107 Gunningham (n 50) 135.
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Chapter IV Topdown Analysis
The Europeanisation of market supervision is occurring in two ways: European Union law influences
the enforcement of Union law by laying down general principles and minimum requirements or by
harmonising sanctions (top‐down) or, alternatively, national enforcement rules and practises
influence the formulation of European principles (bottom‐up). In this Chapter, a top‐down analysis
will be conducted by looking at the requirements of national enforcement as laid down in secondary
European legislation in the field of energy, electronic communications and financial services.
A crucial element in the development of general principles is the interaction between general
principles of European law and of national law.108 This is a ‘continuing two‐way process’109, a
‘symbiosis’110 or ‘cross‐fertilization’111 between the national legal concepts which influence EU law
and EU concepts which in turn influence national law.112 Koopmans has clarified the interaction
between European and national legal principles by considering that general principles of EU law:
“(…) are, in a certain sense, commuters. Frequently, they travel from national legal systems to
European Community law, as principles common to the legal systems of the Member States.
Subsequently, after having been baptized as General Principles of Community law, they travel back to
national systems as part of the influence of Community law on national law.”113
Taking into account this two‐way process of European and national legal influences on the
emergence of general principles of EU law, this Chapter will analyse the requirements of national
enforcement of Union law as laid down in EU law (top‐down approach). In the next Chapter a small‐
scale bottom‐up analysis will be conducted.
4.1 The Energy Directives
In this section the secondary legislation with regard to energy will be discussed. European energy
legislation includes amongst others directives and regulations on oil, gas and electricity. Before
looking at the requirements of national enforcement in the secondary energy legislation, it is
important to note that the procedural autonomy of Member States is acknowledged in the energy
Directives. Provisions with regard to enforcement of Union law often first start with stating that it is
up to the Member States to design their enforcement regime. An example of the acknowledgment of
108 K Lenaerts and JA Gutiérrez‐Fons, ‘The Constitutional Allocation of Powers and General Principles of EU Law’
(2010) 47 CMLR 1653. 109 ibid. 110 LW Gormley, ‘Some further reflections on the development of general principles of law within article 10 EC’,
in: U Bernitz, J Nergelius and C Cardner (eds), General Principles of EC Law in a Process of Development (Kluwer
2008) 313, referring to T Lang, ‘The core of the constitutional law of the community – article 5’, in: L Gormley
(ed), Current and future perspectives on EC competition law (Kluwer 1997) 50. 111 C Timmermans, ‘The European Union’s judicial system’ (2004) 41 CMLR 400 and Lenaerts and Gutiérrez‐
Fons (n 108) 1630. 112 Timmermans (n 111) 393‐405. 113 T Koopmans, ‘General Principles of Law in European and National Systems of Law: A Comparative View’, in: U Bernitz J Nergelius and C Cardner (eds), General Principles of European Community Law (Kluwer 2000) 25 and C Timmermans, ‘The European Union’s judicial system’ (2004) 41 CMLR 400.
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the procedural autonomy of Member States in secondary legislation with regard to energy can be
found in Article 27 of Regulation (EC) 715/2009:114
Member States shall lay down rules on penalties applicable to infringements of the provisions of this
Regulation and shall take all measures necessary to ensure that those provisions are implemented.(…)
After ensuring that Member States are free to determine how Union law will be enforced before
their national courts, the energy Directives lay down minimum requirements with regard to the
national enforcement of Union law. These requirements are often identical to the criteria laid down
by the Court in Greek Maize.115 Penalties must be ‘effective, proportionate and dissuasive.’ A good
example of these requirements can be found in Article 9 of Directive (EC) 2006/67/EC:116
Member States shall determine the penalties applicable to breaches of the national provisions
adopted pursuant to this Directive and shall take any measure necessary to ensure the
implementation of these provisions. The penalties shall be effective, proportionate and dissuasive.
However, these requirements are rather vague and leave a wide discretion to the Member States.
Occasionally does Energy legislation contain provisions with more specific guidance on the
enforcement of Union law. Article 37 (4) (d) Directive 2009/72/EC is an example of a more detailed
instruction:117
(d) to impose effective, proportionate and dissuasive penalties on electricity undertakings not
complying with their obligations under this Directive or any relevant legally binding decisions of the
regulatory authority or of the Agency, or to propose that a competent court impose such penalties.
This shall include the power to impose or propose the imposition of penalties of up to 10 % of the
annual turnover of the transmission system operator on the transmission system operator or of up to
10 % of the annual turnover of the vertically integrated undertaking on the vertically integrated
undertaking, as the case may be, for non‐compliance with their respective obligations pursuant to
this Directive;
This provision starts with reiterating that penalties must be effective, proportionate and dissuasive,
and continues with specifying that a regulatory authority must have the power to impose penalties
of up to 10% of the annual turnover of the supervisee. This provision gives better guidance to NRAs
how to enforce Union law by indicating what tools NRAs must have in their toolkit. Exactly the same
provision is laid down in Article 41(4) of Directive 2009/73/EC. This provision also states that a NRA
must have the power to impose penalties for up to 10%, but this provision is specifically aimed at
transmission system operators, while the abovementioned provision focuses on vertically integrated
undertakings.
114 Regulation (EC) 215/2009 of 13 July 2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No 1775/2005 [2009] OJ L 211/36. 115 Case C‐68/88 Commission v Greece (Greek Maize) [1989] ECR 2965. 116 Council Directive (EC) 2006/67 of 24 July 2006 imposing an obligation on Member States to maintain minimum stocks of crude oil and/or petroleum products [2006] OJ L 217/8. 117 Directive (EC) 2009/72 of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC [2009] OJ L211/55.
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Another example of a provision stating more specifically what measures should be taken when rules
imposed by the Directive have not been respected, is Article 37 (14) Directive 2009/72/EC:118
Member States shall ensure that the appropriate measures are taken, including administrative action
or criminal proceedings in conformity with their national law, against the natural or legal persons
responsible where confidentiality rules imposed by this Directive have not been respected.
In this provision the European legislator indicates that appropriate measures must be taken when
rules imposed by the Directive have not been respected, including administrative action or criminal
proceedings. Occasionally, the European legislator indicates what measures cannot be included in
the toolkit of the regulatory authority. An example can be found in Article 27 (2) of Regulation (EC)
715/2009 which states that penalties as provided by that article shall not be of a criminal law
nature.119
It can be concluded that the requirements of national enforcement in secondary legislation with
regard to the energy market are minimal and rather vague. The instruction that penalties must be
effective, proportionate and dissuasive does not lead to more convergence in the enforcement
practices of NRAs across Member States. Occasionally the European legislator states what powers
NRAs must have in their toolkit. However, proper guidance on how Union rules should be enforced is
not abound. Instructions that have been provided tend to be of a punitive character. In two of its
directives the European legislator has laid down that a NRA must have the power to impose fines of
up to 10% of the annual turnover. Furthermore, secondary legislation talks about penalties, rather
than measures, which implies punitive sanctions as well. However, it should be borne in mind that
the national procedural autonomy of Member States leaves the NRAs free to determine their
enforcement strategy as long as long as the objectives of the Directives will be achieved. The
European legislator must strike a balance between the effective enforcement of Union law and the
procedural autonomy of Member States. The creation of a uniform toolkit across the NRAs would
enhance the uniform application of Union law across Member States and prevent regulatory
competition.
4.2 The Electronic Communications Directives
The Electronic Communications legislation has been developed to develop an internal market for
electronic communications networks and services in Europe. To achieve this objective, it is of
paramount importance that the electronic communications legislation is enforced adequately.
Effective enforcement fosters regulatory certainty, which is an important driver for investment.120
118 Directive (EC) 2009/72 (n 117). 119 Regulation (EC) 715/2009 of 13 July 2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No 1775/2005 [2009] OJ L 211/36. 120 Recital 51, Council Directive 2009/140/EC of 25 November 2009 amending Directives 2002/21/EC on a common regulatory framework for electronic communications networks and services, 2002/19/EC on access to, and interconnection of, electronic communications networks and associated facilities, and 2002/20/EC on the authorisation of electronic communications networks and services [2009] OJ L337/37 (Council Directive 2009/140/EC).
23
The importance of effective enforcement is acknowledged in the European legislation. Recital 69 of
Directive 2009/136/EC states:121
(69) The need to ensure an adequate level of protection of privacy and personal data transmitted and
processed in connection with the use of electronic communications networks in the Community calls
for effective implementation and enforcement powers in order to provide adequate incentives for
compliance. Competent national authorities and, where appropriate, other relevant national bodies
should have sufficient powers and resources to investigate cases of non‐compliance effectively,
including powers to obtain any relevant information they might need, to decide on complaints and to
impose sanctions in cases of non‐compliance.
Regardless the importance of effective enforcement, the European legislator tries to strike the right
balance between effective enforcement and the procedural autonomy of Member States. An
example of the recognition of the procedural autonomy of Member States can be found in Article
21a of Directive 2009/140/EC:122
Member States shall lay down rules on penalties applicable to infringements of national provisions
adopted pursuant to this Directive and the Specific Directives and shall take all measures necessary to
ensure that they are implemented. The penalties provided for must be appropriate, effective,
proportionate and dissuasive. The Member States shall notify those provisions to the Commission by
25 May 2011 and shall notify it without delay of any subsequent amendment affecting them.
The national procedural autonomy of Member States, however, finds its limits in the minimum
requirements of national enforcement as laid down in the electronic communications directives and
the Greek Maize case123. Therefore, the abovementioned Article 21a continues stating that the
penalties provided for must be ‘appropriate, effective, proportionate and dissuasive’. In this Article
the European legislator has added the requirement ‘appropriate’ to the Greek Maize criteria.
Another interesting feature of Directive 2009/140/EC is that recital 51 states that the power to fine
has failed to provide an adequate incentive to comply with regulatory requirements:124
Experience in the implementation of the EU regulatory framework indicates that existing provisions
empowering national regulatory authorities to impose fines have failed to provide an adequate
incentive to comply with regulatory requirements. Adequate enforcement powers can contribute to
the timely implementation of the EU regulatory framework and therefore foster regulatory certainty,
which is an important driver for investment. The lack of effective powers in the event of non‐
compliance applies across the regulatory framework. The introduction of a new provision in Directive
2002/21/EC (Framework Directive) to deal with breaches of obligations under the Framework
121 Directive (EC) 2009/136 of 25 November 2009 amending Directive 2002/22/EC on universal service and users’ rights relating to electronic communications networks and services, Directive 2002/58/EC concerning the processing of personal data and the protection of privacy in the electronic communications sector and Regulation (EC) No 2006/2004 on cooperation between national authorities responsible for the enforcement of consumer protection laws [2009] L 337/11. 122 Directive (EC) 2009/140 (n 120). 123 Greek Maize (n 115). 124 Directive (EC) 2009/140 (n 120).
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Directive and Specific Directives should therefore ensure the application of consistent and coherent
principles to enforcement and penalties for the whole EU regulatory framework.
In this recital the European legislator has made clear that the power to impose fines cannot be
considered as an adequate incentive to comply with regulatory requirements. Therefore, new
powers have been included in Article 9 (7) of Directive 2009/140/EC amending Directive
2002/21/EC.125
(..) in particular by setting out strict deadlines for the effective exploitation of the rights of use by the
holder of the rights and by applying penalties, including financial penalties or the withdrawal of the
rights of use in case of non‐compliance with the deadlines. These rules shall be established and
applied in a proportionate, non‐discriminatory and transparent manner.’;
This provision specifies what measures can be taken to prevent spectrum hoarding: setting out strict
deadlines, financial penalties or the withdrawal of the rights of use. It is striking that the European
legislator first indicates that fines ‘have failed to provide an adequate incentive to comply,’126 but still
encourages NRAs to lay down rules to impose those fines.127
Because the electronic communications legislation is not always very clear on how Union law must
be enforced before national courts, it could be useful to look at the toolkit that the Directives require
from NRAs. Article 13b of Directive 2009/140/EC amending Directive 2002/21/EC sums up which
powers a national regulatory authority must have at its disposal:
1. Member States shall ensure that in order to implement Article 13a, competent national regulatory
authorities have the power to issue binding instructions, including those regarding time limits for
implementation, to undertakings providing public communications networks or publicly available
electronic communications services.
2. Member States shall ensure that competent national regulatory authorities have the power to
require undertakings providing public communications networks or publicly available electronic
communications services to: (a) provide information needed to assess the security and/or integrity of
their services and networks, including documented security policies; and
(b) submit to a security audit carried out by a qualified independent body or a competent national
authority and make the results thereof available to the national regulatory authority. The cost of the
audit shall be paid by the undertaking.
3. Member States shall ensure that national regulatory authorities have all the powers necessary to
investigate cases of non‐compliance and the effects thereof on the security and integrity of the
networks.
4. These provisions shall be without prejudice to Article 3 of this Directive.
125 Directive (EC) 2009/140 (n 120). 126 ibid recital 51. 127 Ibid art 9 (7).
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More guidance on what powers NRAs must have at its disposal can be found in Article 10 Directive
2002/20/EC as amended by Directive 2009/140/EC.128
1.(…)
2.(…)
3. The relevant authority shall have the power to require the cessation of the breach referred to in
paragraph 2 either immediately or within a reasonable time limit and shall take appropriate and
proportionate measures aimed at ensuring compliance.
In this regard, Member States shall empower the relevant authorities to impose:
(a) dissuasive financial penalties where appropriate, which may include periodic penalties having
retroactive effect; and
(b) orders to cease or delay provision of a service or bundle of services which, if continued, would
result in significant harm to competition, pending compliance with access obligations imposed
following a market analysis carried out in accordance with Article 16 of Directive 2002/21/EC
(Framework Directive).
The measures and the reasons on which they are based shall be communicated to the undertaking
concerned without delay and shall stipulate a reasonable period for the undertaking to comply with
the measure.
4. Notwithstanding the provisions of paragraphs 2 and 3, Member States shall empower the relevant
authority to impose financial penalties where appropriate on undertakings for failure to provide
information in accordance with the obligations imposed under Article 11(1) (a) or (b) of this Directive
and Article 9 of Directive 2002/19/EC (Access Directive) within a reasonable period stipulated by the
national regulatory authority.”;
5. In cases of serious or repeated breaches of the conditions of the general authorisation or of the
rights of use, or specific obligations referred to in Article 6(2), where measures aimed at ensuring
compliance as referred to in paragraph 3 of this Article have failed, national regulatory authorities
may prevent an undertaking from continuing to provide electronic communications networks or
services or suspend or withdraw rights of use. Sanctions and penalties which are effective,
proportionate and dissuasive may be applied to cover the period of any breach, even if the breach has
subsequently been rectified.”
6. Irrespective of the provisions of paragraphs 2, 3 and 5, where the relevant authority has evidence
of a breach of the conditions of the general authorisation rights of use or of the specific obligations
referred to in Article 6(2) that represents an immediate and serious threat to public safety, public
security or public health or will create serious economic or operational problems for other providers
or users of electronic communications networks or services or other users of the radio spectrum, it
may take urgent interim measures to remedy the situation in advance of reaching a final decision.
The undertaking concerned shall thereafter be given a reasonable opportunity to state its views and
propose any remedies. Where appropriate, the relevant authority may confirm the interim measures,
which shall be valid for a maximum of 3 months, but which may, in circumstances where enforcement
procedures have not been completed, be extended for a further period of up to three months.
This provision is relatively detailed on how Union law should be enforced in Member States. It sums
up which various powers NRAs must have at their disposal, including the power to require the
128 Directive (EC) 2009/140 (n 120).
26
cessation of a breach of Union law, the power to impose dissuasive financial penalties, the power to
order to cease or delay provision of a service, the power to prevent an undertaking from continuing
to provide services, the power to suspend or withdraw rights of use and the power to take urgent
interim measures. These kinds of provisions are of great importance for NRAs, because they provide
specific instructions on how EU law could be enforced.
It can be concluded that the European requirements of national enforcement in the field of
electronic communications are more detailed than those in the field of energy, but are still rather
vague. The electronic communications legislation states that penalties must be appropriate,
effective, proportionate and dissuasive. It is not clear what the additional ´appropriate´ requirement
adds to the existing Greek Maize criteria. This additional requirement seems to be redundant. The
electronic communications legislation is relatively detailed on the tools a NRA must a have at its
disposal. These detailed provisions on the toolkits of NRAs will help to create a uniform toolkit for
NRAs across Member States. A uniform toolkit will enhance consistent application of Union law
across Member States and prevent regulatory competition while at the same time preserving the
national procedural autonomy of Member States.
4.3 The Financial Services Directives
In this section, the European requirements with regard to national enforcement of financial services
directives will be discussed. The financial crisis has made it clear that the enforcement of Union law
with regard to financial services is of utmost importance for the stability and functioning of the entire
European Union. First, the Communication from the Commission with regard to the reinforcement of
sanctioning regimes in the financial services sector will be discussed. Second, the European
legislation within the field of financial services will be assessed.
4.3.1 Communication on the Reinforcing of the Sanctioning Regimes in the Financial Sector
In December 2010 the Commission published a Communication on reinforcing the sanctioning
regimes in the financial services sector.129 In its Communication, the Commission points out that it is
essential for the EU to ensure a ´consistent and effective application of EU rules´.130 The Commission
has been working on an extensive reform of the financial sector aiming at ‘ensuring the soundness
and stability of the financial system.’131 It has recognised that a proper functioning supervisory
system needs to have efficient and sufficiently convergent sanctioning regimes. A similar conclusion
was drawn in the De Larosière report, which stated:132
‘Supervision cannot be effective with weak, highly variant sanctioning regimes. It is essential that
within the EU and elsewhere, all supervisors are able to deploy sanctioning regimes that are
sufficiently convergent, strict, resulting in deterrence’.
129 Commission, ‘Reinforcing sanctioning regimes in the financial services sector’ (Communication) COM (2010) 716 final. 130 ibid 2. 131 ibid. 132 Report of the High‐level Group on Financial Supervision in the EU chaired by Jacques de Larosière (25 February 2009) 50.
27
The recent establishment of the European Supervisory Authorities (ESAs) is expected to contribute to
a better coordination between regulatory authorities. This new development will be discussed in
Chapter VI. However, what is even more important for the proper enforcement of Union law is the
fact that all NRAs should have the same sanctioning powers. This is not always the case, as was
concluded in a review written by the Commission.133
The Commission carried out the review in cooperation with the three Committees of Supervisors
(Committee of European Banking Supervisors, Committee of European Insurance and Occupational
Pensions Supervisors and the Committee of European Securities Regulators) with the goal of
examining sanctioning regimes across Member States. The review focused on the application of EU
directives by Member States with regard to the banking, insurance and securities sector. Following
this review, the Commission concluded that the sanctioning regimes in those sectors show
considerable divergences across Member States.134 The Commission identifies in its Communication
several divergences and weaknesses across Member States. Firstly, some NRAs do not have certain
important types of sanctioning powers for certain violations at their disposal. Secondly, the levels of
administrative fines vary widely across Member States and are too low in some Member States.
Thirdly, some NRAs cannot address administrative sanctions to both natural and legal persons.
Fourthly, NRAs do not take the same criteria into account in their application of sanctions. Fifthly,
divergence exists in the nature (administrative or criminal) of sanctions provided for in national
legislation. Finally, the level of sanctions varies across Member States. Thus, the Commission came to
the conclusion that sanctioning regimes across Member States diverge considerably. These
divergences may lead to a situation in which sanctions are not applied in an ‘effective, proportionate
and dissuasive’ manner.
4.3.2 The Financial Services legislation
In this section the requirements of national enforcement as laid down in the financial services
legislation will be assessed. How are the requirements of national enforcement of Union law
formulated in the financial services legislation?
In principle, European legislation with regard to financial services acknowledges the procedural
autonomy of Member States. A good example can be found in Article 99 Directive (EC) 2009/65:135
1. Member States shall lay down the rules on measures and penalties applicable to infringements of
the national provisions adopted pursuant to this Directive and shall take all measures necessary to
ensure that those rules are enforced. Without prejudice to the procedures for the withdrawal of
authorisation or to the right of Member States to impose criminal penalties, Member States shall, in
particular, ensure, in conformity with their national law, that the appropriate administrative
measures can be taken or administrative penalties be imposed against the persons responsible where
the provisions adopted in the implementation of this Directive have not been complied with.
The measures and penalties provided for shall be effective, proportionate and dissuasive.
133 Commission Communication Reinforcing Sanctioning Regimes (n 129) 3. 134 ibid 6. 135 Directive (EC) 2009/65 of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) [2009] OJ L 302/32.
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This provision makes clear that the European legislator leaves the Member States discretion to lay
down rules with regard to the enforcement of Union law. However, the last sentence of paragraph 1
of Article 99 Directive 2009/65 also indicates that measures and penalties provided for must be
effective, proportionate and dissuasive.136 How regulatory authorities can comply with these rather
vague requirements is not explained in the Directive. Nevertheless, in recital 69 of Directive (EC)
2009/65 the European legislator emphasises the importance of a uniform toolkit of regulatory
authorities:137
(69) It is necessary to enhance convergence of powers at the disposal of competent authorities so as
to bring about the equal enforcement of this Directive throughout the Member States. A common
minimum set of powers, consistent with those conferred upon competent authorities by other
Community financial services legislation should guarantee supervisory effectiveness. In addition,
Member States should lay down rules on penalties, which may include criminal or administrative
penalties, and administrative measures, applicable to infringements of this Directive. Member States
should also take the measures necessary to ensure that those penalties are enforced.
Therefore, Article 98 of the same Directive lays down what supervisory and investigative powers
regulatory authorities should have at their disposal, in order to exercise their tasks:138
1. The competent authorities shall be given all supervisory and investigatory powers that are
necessary for the exercise of their functions. Such powers shall be exercised:
(a) directly;
(b) in collaboration with other authorities;
(c) under the responsibility of the competent authorities, by delegation to entities to which tasks have
been delegated; or
(d) by application to the competent judicial authorities.
2. Under paragraph 1, competent authorities shall have the power, at least, to:
(a) access any document in any form and receive a copy thereof;
(b) require any person to provide information and, if necessary, to summon and question a person
with a view to obtaining information;
(c) carry out on‐site inspections;
(d) require existing telephone and existing data traffic records;
(e) require the cessation of any practice that is contrary to the provisions adopted in the
implementation of this Directive;
(f) request the freezing or the sequestration of assets;
(g) request the temporary prohibition of professional activity;
(h) require authorised investment companies, management companies or depositaries to provide
information;
(i) adopt any type of measure to ensure that investment companies, management companies or
depositaries continue to comply with the requirements of this Directive;
136 Directive (EC) 2009/65 (n 135). 137 ibid. 138 ibid art 98.
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(j) require the suspension of the issue, repurchase or redemption of units in the interest of the unit‐
holders or of the public;
(k) withdraw the authorisation granted to a UCITS, a management company or a depositary;
(l) refer matters for criminal prosecution; and
(m) allow auditors or experts to carry out verifications or investigations.
However, there is no clear guidance on how the various powers a national regulatory authority is required to have at its disposal should be used in practice. Secondary legislation with regard to financial services often states that ‘appropriate sanctions’ or ‘appropriate measures’ should be provided and occasionally gives an example of a sanction which should be included. A good example can be found in Article 8 of Directive 2002/92/EC:139
1. Member States shall provide for appropriate sanctions in the event that a person exercising the
activity of insurance or reinsurance mediation is not registered in a Member State and is not referred
to in Article 1(2).
2. Member States shall provide for appropriate sanctions against insurance or reinsurance
undertakings which use the insurance or reinsurance mediation services of persons who are not
registered in a Member State and who are not referred to in Article 1(2).
3. Member States shall provide for appropriate sanctions in the event of an insurance or reinsurance
intermediary's failure to comply with national provisions adopted pursuant to this Directive.
4. This Directive shall not affect the power of the host Member States to take appropriate measures
to prevent or to penalise irregularities committed within their territories which are contrary to legal
or regulatory provisions adopted in the interest of the general good. This shall include the possibility
of preventing offending insurance or reinsurance intermediaries from initiating any further activities
within their territories.
5. (..)
This provision states that ‘appropriate sanctions’ must be provided but includes only one example of
an appropriate measure to prevent or penalise violations of regulatory provisions, which is the
possibility of preventing of offending insurance or reinsurance intermediaries from initiating any
further activities within their territories.
An interesting distinction between the financial services legislation and the energy and electronic
communications legislation is the wording of the legislation. Energy and electronic communications
directives often mention ‘penalties’ which must be ‘effective, proportionate and dissuasive,’ while
financial services legislation relatively often mentions ‘appropriate measures’ or ‘appropriate
sanctions.’ The distinction between `administrative sanctions` and ´administrative measures` is not
clear‐cut.140 Some administrative actions are considered to be an administrative sanction in one
Member State, while the same action is considered to be an administrative measure in another
Member State. The fact that there is no clear definition of both actions does not contribute to a
uniform application of Union law across Member States. In order to reduce disparities between the
enforcement regimes across Member States, a clear‐cut distinction between ‘measures’, ‘sanctions’
and ‘penalties’ should be formulated.
139 Directive (EC) 2002/92 of 9 December 2002 on insurance mediation [2003] OJ L 9/3. 140 Commission Communication Reinforcing Sanctioning Regimes (n 129) 5.
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It can be concluded that the requirements of national enforcement of EU financial services legislation
are minimal and rather vague. Penalties must be ‘effective, proportionate and dissuasive’ or
‘appropriate.’ These rather vague requirements do not contribute to more convergence in the
enforcement practices of Member States. Furthermore, there is no clear‐cut distinction between
‘administrative sanctions’ and ‘administrative measures.’ Both terms are used interchangeably in the
European financial legislation. In order to achieve a more uniform application of Union law, both
concepts should be clearly defined by the European legislator.
There is no adequate European guidance on how Union law should be enforced by NRAs. Usually,
NRAs take their own policy rules on fines into consideration when applying Union law. Financial
services legislation does occasionally include provisions stating what powers NRAs must have at its
disposal. This is helpful, but not yet sufficient.
4.4 Conclusion
In all three sectors (energy, electronic communications and financial services) the national
procedural autonomy of Member States is acknowledged in the European legislation. The national
procedural autonomy in these fields is often limited by the requirement that penalties shall be
‘effective, proportionate and dissuasive.’ The last requirement, dissuasiveness, seems to be of
particular importance. In general, the European legislator tends to favour a deterrent‐based
approach to enforcement over a compliance‐based approach. This can be concluded from the
wording of secondary legislation and specific articles prescribing punitive sanctions. This will be dealt
with in more detail in Chapter VII.
The Greek Maize requirements are minimal and rather vague. It is questionable whether it is possible
to further specify these requirements. 141 Further specification of these requirements can only be
done on a case‐by‐case basis, since this is generally the approach of the ECJ.142
A balance should be sought between the national procedural autonomy of Member States and the
need for effective and consistent application of Union law. When the ECJ does not provide sufficient
guidance on the enforcement of Union law, the European legislator should step in. A good start could
be made by developing a uniform regulatory toolkit. Occasionally, a basic list of tools NRAs must
have at its disposal is provided. However, this is not always the case. The European legislator should
develop a uniform regulatory toolkit which sets out all the enforcement measures a NRA must have
at its disposal. A uniform regulatory toolkit would contribute to more consistent regulatory regimes.
Nevertheless, uniform regulatory regimes do not only depend on the powers NRAs have at their
disposal, but also the way they are used. Inconsistent application of Union law would still be possible.
Inconsistent application of Union law can be minimised by providing more guidance on the practical
enforcement of Union law, but cannot be completely excluded due to the national procedural
autonomy.
141 AB Blomberg, ‘European Influence on National Environmental Law Enforcement: Towards an Integrated Approach’ (2008) 1 REALaw 46. 142 ibid.
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Therefore, more guidance on the practical enforcement of Union law should be provided. This
objective could be achieved in two ways. First, more or better cooperation between the NRAs across
Member States will contribute to a more uniform application of Union law. The NRAs should be more
aware of how other NRAs apply Union law within their jurisdiction. This also follows from recital 39
Directive 2003/6/EC, which states:143
39) Member States should remain alert, in determining the administrative measures and sanctions, to the need to ensure a degree of uniformity of regulation from one Member State to another.
The second way of achieving a more uniform application of Union law is more and better guidance from European Supervisory Authorities (ESAs). This will be discussed in Chapter VI. First, a small scale bottom‐up analysis will be conducted in the next Chapter.
143 Directive (EC) 2003/6 of 28 January 2003 on insider dealing and market manipulation (market abuse) [2003] OJ L 96/16.
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Chapter V Bottomup Analysis: A First Exploration
In this Chapter a small scale bottom‐up analysis will be conducted by examining some national
developments with regard to the enforcement of Union law in both the UK and the Netherlands.
Extensive empirical research is required to conduct a proper bottom‐up analysis, which would better
suit a PHD‐research. Therefore, only a limited number of enforcement policies of NRAs in the
Netherlands and the UK will be discussed here. This Chapter serves as a first exploration.
5.1 The Netherlands
In the Netherlands the enforcement strategy of NRAs is decided at government level. In 2001 and
2005 the Dutch government published a ‘Framework Vision on Inspection and Supervision’ setting
out the guidelines on supervision for all NRAs in the Netherlands. Following these Framework Visions
the NRAs subsequently adapt their enforcement strategy.
In 2001 the first ‘Framework Vision on Inspection and Supervision’ was published, setting out general
principles of good market supervision.144 In 2005 an updated ‘Framework Vision on Inspection and
Supervision’ was published, entitled ‘More Effect, less Burden’.145 The new Framework Vision lays
down six principles of good market supervision: selectivity, decisiveness, cooperation, independence,
transparency and professionalism.
The first principle, selective supervision, refers to supervision which is based upon an objective
calculation of risks, costs and benefits.146 The NRAs cannot supervise every single sector. Therefore,
the Dutch government has decided that the level of supervision must depend on the specific
circumstances of the case. The NRAs have to use their enforcement capacity in those areas where
the risk of non‐compliance is the highest. This will contribute to a more effective way of using
enforcement resources.
Decisiveness is the second principle of the Framework Vision on Inspection and Supervision 2005.
Decisive supervision is about using the appropriate enforcement measure at the appropriate time.
When a compliance‐based approach is required, the NRA should use soft enforcement mechanisms.
When a deterrence‐based approach is required, the NRA should impose more punitive measures.147
The third principle of the Framework Vision is cooperation. Cooperation between the various
supervisors, on both a national and international level, is of paramount importance. Overlapping
responsibilities should be prevented and valuable information should be exchanged. The cooperation
principle is reflected in the proposed merger of the Netherlands Competition Authority,
telecommunications and consumer authority into a single regulator in 2013.148
144 Framework Vision on Inspection and Supervision (2001) (Kaderstellende Visie op Toezicht) <http://www.velders‐imc.nl/Kaderstellende_visie_op_toezicht_I.pdf> accessed 5 July 2011. 145 Framework Vision on Inspection and Supervision (2005) (Kaderstellende Visie op Toezicht) < www.ngfg.nl/bibliotheek.html?download=36> accessed 5 July 2011. 146 ibid 4. 147 ibid. 148 ibid 5.
33
The fourth principle of the Framework is independent supervision. Supervisors should act
independently from both politics and the market parties.149
The fifth principle of the Framework is transparency. Transparent supervision is about providing
insight into five different aspects of supervision: the necessity of supervision, the safeguards of
independence, the choices made by supervisors, the findings and the result of supervision.150
The last principle of the Framework is professionalism. Professional supervision requires a flexible
and sound attitude towards work.151
The Dutch government argues that these six principles are required for good market supervision.
However, the government also acknowledges that compliance is not only about good supervision. It
has taken the position that risks of non‐compliance cannot completely be taken away by good
supervision. The society also has its own responsibility to comply with the law. NRAs should assume
that corporations comply with the law, but when they find out this is not the case, they will impose
punitive measures. This approach to supervision is called ‘high trust’ and has been adopted by the
Dutch Independent Post and Telecommunications Authority, the Netherlands Competition Authority
and the Dutch Consumer Authority. In the next sections the enforcement strategies of the Dutch
telecommunications, energy and financial services NRA will be briefly discussed.
With regard to supervision on the financial services market, a report entitled ‘Credit Lost’ of the
Parliamentary Committee Inquiry Financial System (the Committee) was published in May 2010.152
The effect of the financial crisis motivated the Dutch House of Representatives to launch a
parliamentary inquiry into the causes of the financial crisis.153 The results of this parliamentary
inquiry were to be used to reform the financial system in the Netherlands. The Committee came to
the conclusion that the crisis called for ‘serious and critical reflection’ with regard to the financial
sector.154 Only the most relevant proposals of the Committee will be discussed here. Firstly, the
Committee recommends that regulations should preferably be global or European but national if
necessary and possible. Secondly, supervision should be reinforced at the European level. Thirdly, the
Committee recommends the reinforcement of the quality of supervisory boards. Fourthly,
instruments for supervision and enforcement should be improved. Fifthly, internal improvement of
supervisory authorities is required. Sixthly, more transparency in the execution of supervision is
required. Finally, the government’s repertoire of instruments for intervention should be extended.
The Committee states that a European approach to the regulation of the financial sector is
preferable.155 Adjustments should first be made on a European level, but when this is not possible,
the option of developing national legislation should be used more frequently. Furthermore, the
149 Framework Vision on Inspection and Supervision (2005) (n 145) 5. 150 ibid 24. 151 ibid 5. 152 English Summary of Report of the Parliamentary Committee Inquiry Financial System Tweede Kamer der Staten‐Generaal (Commissie de Wit rapport) (2010) <http://www.tweedekamer.nl/images/Credit_Lost_‐_summary_of_the_report_118‐206545.pdf> accessed 14 July 2011. 153 ibid 2. 154 ibid 4. 155 ibid 12.
34
Committee emphasises the importance of a proper functioning European Supervisory system. The
Committee states that the De Larosière review is a starting point, but states that the goal must be a
single, strong European Supervisory Authority.156 Furthermore, the exchange of supervisory
information between NRAs could be enforced if necessary.
5.1.1 The Dutch Independent Post and Telecommunications Authority (OPTA)
The Dutch Independent Post and Telecommunications Authority (OPTA) ensures that there is
sufficient competition in the communications market in the interest of the consumer.157 The OPTA
intervenes as long as there is a market player present with significant market power in a particular
market.158 If there is sufficient competition on a market and no market player with a significant
market power is present anymore, the measures adopted by the OPTA will be removed.159
In 2008 the OPTA published its ‘Vision on Regulation and Enforcement.’160 In this document, the
OPTA set out its vision on its supervision and enforcement policy. The OPTA stated that it will place
more emphasis on the prevention of non‐compliance. This should be achieved by stimulating
compliance‐programmes and subsequently implementing the programmes in the organisations. The
OPTA will provide compliance assistance by providing know‐how and information. This new approach
is in line with the ‘high trust’ approach as envisaged by the government.
A ´high trust´ approach to supervision means that the OPTA takes as a point of departure that
corporations are responsible for complying with the law themselves. However, if the OPTA finds out
that the law is violated, it will impose tough sanctions. The adoption of the ‘high trust’ approach is
reflected in the amended ‘Policy Rules on Fines 2010’ of the OPTA.161 The Policy Rules on Fines 2010
provide insight into the method of calculating fines.162 When determining a fine, the specific
circumstances of the case will be taken into account. Amongst others the OPTA will take recidivism,
the seriousness of the violation, the duration of the violation, damage caused and advantages gained
into consideration. The OPTA has a margin of discretion when imposing a measure. On the one hand,
the policy rules regarding fines make it possible that the OPTA reduces a fine when a corporation is
part of a compliance programme. On the other, the policy rules on fines make it possible to double a
fine in the case of recidivism.163
In February 2011 the OPTA has published a new ‘Vision on Regulation and Enforcement’
(Consultation Document).164 The OPTA is planning to update the Vision Document dating from 2008
and has asked stakeholders to comment on its proposal. The Vision Document 2011 states that
156 Commissie de Wit rapport (n 152) 16. 157 OPTA, Annual Report 2010, <http://jaarverslag2010.opta.nl/jaarverslag/english/> accessed 5 July 2011, 4. 158 ibid. 159 ibid. 160 OPTA, ‘Vision on Regulation and Enforcement’ (2008) <http://www.opta.nl/nl/actueel/alle‐publicaties/publicatie/?id=2531> accessed 5 July 2011. 161 OPTA, ‘Policy Rules on Fines’ (2010) (Boetebeleidsregels) <http://www.opta.nl/nl/actueel/alle‐publicaties/publicatie/?id=2530> accessed 2 July 2011. 162 ibid. 163 OPTA, ‘Vision on Regulation and Supervision’ (2011) (Consultation version) (Visie op Toezicht & Handhaving) <http://www.opta.nl/nl/actueel/alle‐publicaties/publicatie/?id=3355> accessed 5 July 2011, 7. 164 ibid.
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prevention, compliance‐programmes and high trust remain important themes for the OPTA.165 In the
Consultation Document the OPTA emphasises that enforcement measures can also include
compliance assistance, advice and warnings.166 Furthermore, the OPTA has laid down five principles
of enforcement. The first principle is that it prefers spontaneous compliance to intervention. The
second principle is that enforcement only takes place on the basis of signals from society. The third
principle states that preventive enforcement is preferred to repressive enforcement. The fourth
principle says that an infringement first must be stopped before punished. The fifth and final
principle is that prioritisation must take place on the basis of a risk‐analysis.
5.1.2 The Netherlands Competition Authority – The Office of Energy Regulation (NMa)
The Office of Energy and Transport Regulation of the Dutch Competition Authority (NMa) is
responsible for the supervision on the energy and transport market. Just as the OPTA, the NMA has
adopted a ‘high trust’ approach to supervision. Its starting point is that corporations should comply
with the law spontaneously.167 However, if an infringement of the law is found, the NMa will
intervene and impose a tough enforcement measure. The NMa takes the circumstances of the
specific case into consideration when imposing a measure. It has various supervisory and regulatory
tools at its disposal. It can accept commitments, issue binding directions, impose penalties, impose
structural measures and withdraw licences.168 The NMa finds administrative fines particular useful,
because they have both a general and specific deterrent effect. The general deterrent effect is that if
one corporation is fined, others will be deterred from non‐compliance as well. Alternatively, the
specific deterrent effect is that if a corporation is fined, the same corporation will make an effort to
comply with the law in the future. However, fines are not the only enforcement measures at the
disposal of the NMa. The NMa also emphasises the importance of recommendations, guidance,
informal views, brochures and other measures as possible enforcement mechanisms.169
The NMa’s Policy Rules on Fines 2009 provide insight into the method of calculating fines when a
violation of the law has been found. First, the board of the NMa determines the basis for the
calculation of the fine. Next, the basis for the calculation of the fine will be adjusted to the specific
circumstances of the case. Various factors will be taken into consideration here, such as the
seriousness of the violation and the specific characteristics of the violator. Lastly, the board of the
NMa will take factors into consideration which could possibly increase or decrease the level of the
fine. Recidivism and hindering the investigation could for example increase the level of the fine,
while cooperation with the NMa could lead to a decrease of the level of the fine.
165 OPTA, ‘Vision on Regulation and Supervision’ (2011) (n 163) 2. 166 ibid 3. 167 NMa, ‘Enforcement practices of the Netherlands Competition Authority’ (2009) (Handhaving door de Nederlandse Mededingingsautoriteit) Stcrt 2009 nr 63, 1 april 2009. 168 ibid 3. 169 Enforcement Practices of the NMA (n 167) 2.
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5.1.3 The Dutch Central Bank (DNB) and the Netherlands Authority for the Financial Markets (AFM)
The Dutch Central Bank (DNB) and the Netherlands Authority for the Financial Markets (AFM) ensure
the stability of the financial system and protect the financial interests of consumers.170 Supervision of
the financial services market in the Netherlands takes place within the so‐called ‘Twin Peaks Model.’
Within the Twin Peaks model, the DNB is responsible for prudential supervision, while the AFM is
responsible for conduct‐of business supervision.
In July 2008 the AFM and the DNB published a document entitled ‘The Enforcement Policy of the
AFM and the DNB’, which set out their vision on the supervision of the financial services market.171 In
this document they state that regular supervision is not only about imposing enforcement measures,
but that supervision is also about giving information and instructions about legal norms, assembling
information and examining whether rules are complied with.172 Both the AFM and the DNB use a
risk‐based approach, although their methods of calculating risks are different. Both supervisors use
their supervisory and enforcement capacity in those areas where the risk of non‐compliance is the
highest.
Not every infringement of the law automatically leads to the use of enforcement measures. Meetings
with supervisees, warning letters and other compliance‐based methods also play a large role in the
nforcement practices of the AFM and DNB.
models and strategy, the behaviour of a corporation and the
usiness culture of the supervisees.
e
In addition to the abovementioned policy document of the AFM and the DNB, the DNB published its
‘Vision on Supervision 2010‐2014’ in March 2010.173 In this document the DNB set out how the
prudential supervision of financial services in the Netherlands should look like. The DNB has found
that two major changes should be made in its approach to supervision. First, supervision should be
approached from a more macro‐economic angle.174 The financial crisis has shown that financial
institutions are often interwoven and the most important risks often occur at various financial
institutions at the same time. Secondly, in addition to traditional supervision, more attention should
be devoted to the strategic and qualitative elements of supervision.175 This means that more
attention should be paid to business
b
In the Vision document the DNB states that it will stick to principle‐based supervision, while
emphasising that this does not mean that it should degenerate into ‘light touch regulation.’176
Principle‐based supervision makes it possible to adapt to new developments in a quick and flexible
170 DNB, ‘Vision on Supervision 2010‐2014’ (2010) (Visie DNB Toezicht 2010‐2014) <http://www.dnb.nl/binaries/Visie%20DNB%20Toezicht%202010‐2014_tcm46‐230507.pdf> accessed 5 July 2011, 9. 171 DNB and AFM, ‘The Enforcement Policy of the AFM and the DNB’ (2008) (Handhavingsbeleid van de Autoriteit Financiële Markten en de Nederlandsche Bank). <http://www.afm.nl/layouts/afm/default.aspx~/media/files/wetten‐regels/beleid/handhavingsbeleid‐afm‐dnb‐100708.ashx> accessed 6 July 2011. 172 ibid 3. 173 DNB Vision on Supervision (n 170). 174 ibid 6. 175 ibid 7. 176 Vision on Supervision DNB (n 170) 13.
37
manner. In the Vision Document the DNB acknowledges the importance of international cooperation
and welcomes the advent of the European Systemic Risk Board and European Supervisory
uthorities.
181 Finally, the DNB and AFM will keep the violator’s
capacity to pay in mind when imposing a fine.
osts programme.184 This report complements the Hampton Review, which will be discussed below.
A
The DNB and AFM can impose administrative fines in order to enforce the law. The methodology of
calculating fines is laid down in the Act Financial Supervision (WFT)177 and the Decree on Fines
Financial Sector.178 The Act Financial Supervision has established three categories of fines. Each
category consists of a basic fine, a minimum fine and a maximum fine. Category 1 amounts to a fine
up to €10 000, category 2 is up to €1 000 000 and category 3 is a fine up to €4 000 000. The Decree
on Fines Financial Sector lays down which category is applicable to which violation. However, the
AFM and DNB still have a margin of discretion when imposing the fine. The AFM and the DNB can
increase or decrease the level of the fine up to 50% when the violation or the duration of the
violation justifies so.179 Furthermore, the DNB and AFM can increase or decrease the level of the fine
depending on the culpability of the violator180 or double a fine when a similar violation takes place
within five years from the previous measure.
5.2 The United Kingdom
On 18 October 2004 the Prime Minister of the UK asked the so‐called ‘Better Regulation Task Force’
to look at: i) the new Dutch approach of reducing the administrative costs faced by businesses with
regard to regulation; and ii) a ‘One in, One out’ rule for regulation, meaning that new regulation
should be matched by a deregulatory measure.182 In March 2005 the Task Force published the
report: ‘Regulation – Less is more. Reducing Burdens, Improving Outcomes’.183 The report came with
two key conclusions. First, the UK could considerably reduce the regulatory burden on businesses by
adopting the successful Dutch approach to reducing administrative costs. Second, a ‘One in, One out’
approach to new regulation was needed, which would complement the reduction of administrative
c
In 2005 the Hampton Review ‘Reducing administrative burdens: effective inspection and
enforcement’ was presented to the UK Chancellor.185 Hampton was asked to consider how
administrative burdens could be reduced by promoting more efficient approaches to regulatory
inspection and enforcement, without ‘compromising regulatory standards or outcomes’. 186 The
review came to the conclusion that the regulatory system could be improved in a number of ways.
177 Act Financial Supervision (Wet op het Financieel Toezicht (WFT)) accessible at http://www.st‐ab.nl/wetten/1064_Wet_op_het_financieel_toezicht_Wft.htm. 178 Decree on Fines Financial Sector (Besluit Bestuurlijke Boetes Financiële Sector) accessible at http://www.st‐ab.nl/wettennr06/1064‐019_Besluit_bestuurlijke_boetes_financiele_sector.htm. 179 ibid art 2 (2). 180 ibid art 2 (3). 181 Article 1:81 Act Financial Supervision (n 177). 182 Better Regulation Task Force, ‘Regulation. Less is More. Reducing Burdens, Improving Outcomes’ (2005) <http://www.bis.gov.uk/files/file22967.pdf> accessed 6 July 2011. 183 ibid. 184 ibid 3. 185 P Hampton, ‘Reducing Administrative Burdens: effective inspection and enforcement’ (2005) <http://www.berr.gov.uk/files/file22988.pdf> accessed 6 July 2011. 186 ibid 1.
38
First, the use of risk assessment was patchy. Second, NRAs did not place enough emphasis on
providing advice in order to secure compliance. Third, NRAs lacked effective tools to punish
ersistent offenders and reward compliant behaviour by corporation.
alties for most breaches and tougher penalties for corporations
hich persistently violate the law.
move to a more targeted and risk‐based approach
p
In his Review, Hampton emphasised the importance of risk assessment. He stated that the failure to
use risk assessments properly means that resources are not always targeted strategically. Hampton
believed that unnecessary inspections could be eliminated in order to spend more resources on
providing advice.187 Furthermore, the Review argued that regulatory penalties in the UK do not take
the economic value of a breach into consideration. In other words, sometimes corporations would
rather pay the fine than comply with the law. Therefore, the Review formulated recommendations in
order to improve the regulatory and supervisory regime in the UK.188 The Review’s principal
recommendations were the following. Firstly, the principle of risk assessment must be used
throughout the regulatory system in order to make sure that the highest administrative burden falls
on the highest‐risk corporations. Secondly, more emphasis should be placed on providing advice,
again taking the principle of risk assessment into consideration. Thirdly, penalties should be tougher
and more consistently applied where these are deserved. The level of the penalty should be decided
according to a sliding scale: low pen
w
In April 2011, following the Better Regulation Task Force and the Hampton Review, the UK
government published the Document ‘One‐in, One‐out: Statement of New Regulation’, introducing a
strategy to reduce regulation. This document aims to make departments hesitate to regulate and
more likely to consider non‐regulatory methods to achieve their goals.189 The UK government has
come to the conclusion that regulation and supervision can be a significant barrier to economic
growth. Therefore, it aims to reduce regulatory burdens and reform the regulatory and supervisory
system in the UK. The regulatory reform will entail the removal or simplification of existing
regulations, reducing the overall number of regulations by introducing regulation only as a last
resort, improve the quality of regulations and
enforcement regime.190
5.2.1 The Office of Communications (Ofcom)
The Office of Communications (Ofcom) is the independent regulator and competition authority for
the UK communications industries. In May 2009 the Ofcom published ‘The Ofcom Enforcement
Report’ in which it set out the Ofcom’s approach to supervision and enforcement.191 In this report
Ofcom has laid down three regulatory principles to guide how they operate. First, the Ofcom prefers
not to intervene, but is willing to intervene ‘firmly, promptly and effectively where required’.192
187 Hampton Review (n 185) 5. 188 ibid 8. 189 HM Government, ‘One‐in, One‐out: Statement of New Regulation’ (2011) <http://www.bis.gov.uk/assets/biscore/better‐regulation/docs/o/11‐p96a‐one‐in‐one‐out‐new‐regulation.pdf> accessed at 6 July 2011, 5. 190 ibid 3. 191 Ofcom, ‘Enforcement Report. A Report On Ofcom’s Approach to Enforcement and Recent Activity’ (2009) http://stakeholders.ofcom.org.uk/enforcement/enforcement‐report/enforcement_report.pdf accessed 6 July 2011. 192 ibid 1.
39
Secondly, the Ofcom strives to ensure their interventions will be ‘evidence‐based, proportionate,
consistent, accountable and transparent in both deliberation and outcome’.193 Thirdly, the Ofcom
lways seeks the ‘least intrusive regulatory mechanism’ to achieve their policy objectives.194
ent capacity to those areas where the
a
The Ofcom can either start an investigation at its own initiative, or in response to complaints or
disputes filed by companies.195 It seeks to give industry sufficient freedom to operate, but will take
decisive action when rules are deliberately or persistently violated. The Ofcom uses a risk‐based
approach to supervision, which means it allocates its enforcem
risk of non‐compliance is the highest.
5.2.2 The Office of the Gas and Electricity Markets (Ofgem)
The Office of the Gas and Electricity Markets (Ofgem) is the regulator of gas and electricity markets in
the UK. Effective enforcement of the relevant gas and electricity legislation is of great importance to
ake the markets work well.
n based on a complaint filed, a referral from another
gulatory body or on its own initiative.196
e greatest harm to consumers or competition or may
m
In September 2007 the Ofgem published the ‘Enforcement Guidelines on Complaints and
Investigations’ in order to give greater clarity and transparency to Ofgem’s enforcement policies and
practices. Ofgem may start an investigatio
re
Just like the Ofcom, the Ofgem has a risk‐based approach to supervision. It aims to prioritise those
infringements which are most likely to cause th
give rise to the greatest concerns.197
5.2.3 The Financial Services Authority (FSA)
The Financial Services Authority (FSA) is the principal regulator of financial services in the UK. It aims
to protect consumers, maintain confidence in the financial system, maintain financial stability and
duce financial crime.198
re
In January 2009 the FSA published ‘The Enforcement Guide,’ setting out the FSA’s approach to
exercising its main enforcement powers.199 The FSA’s approach to exercise its enforcement powers is
based upon four principles. First, the effectiveness of the regulatory regime depends on maintaining
an open and cooperative relationship between the FSA and those it regulates.200 Secondly, the FSA
will exercise its enforcement powers in a way that is ‘transparent, proportionate, responsive to the
issue, and consistent with its publicly stated policies’.201 Thirdly, the FSA will seek ‘to ensure fair
193 Ofcom, ‘Enforcement Report’ (n 191) 1. 194 ibid. 195 ibid 11. 196 Ofgem, ‘Enforcement Guidelines On Complaints and Investigations’ (2007) <http://www.ofgem.gov.uk/About%20us/enforcement/Documents1/Enforcement%20Guidelines%20post%20consultation.pdf> accessed 6 July 2011, 1. 197 ibid 12. 198 FSA, ‘The Enforcement Guide’ (2011) <http://fsahandbook.info/FSA/extra/5550.pdf> accessed 6 July 2011, 5. 199 ibid. 200 ibid. 201 ibid.
40
treatment when exercising its enforcement powers.’ Fourthly, the FSA aims to change ‘the behaviour
of the person who is the subject of its action, to deter future non‐compliance, and where
ppropriate, to remedy the harm caused by the non‐compliance.’202
, the FSA may take enforcement measures with regard to the original
fringement of the law.
is responsible for the
misconduct themselves, the FSA can bring a case against those individuals.207
quired to conduct a proper bottom‐up analysis. This Chapter has
nly served as a first exploration.
f NRAs had to be used more effectively. This led to the following approaches to supervision.
mendations, guidance and other compliance‐
ased methods are widely used among Dutch NRAs.
a
The FSA uses a risk‐based approach to supervision. This means that the FSA prioritises its resources in
those areas which pose the biggest threat to its regulatory objectives.203 When an infringement of
the law is found, the FSA may find it appropriate to deal with this without a formal enforcement
measure. However, in such cases, the FSA will expect the corporation or person to take promptly
action to deal with the concerns of the FSA.204 If the corporation or person concerned does not take
the necessary measures
in
The FSA’s approach to regulation is a combination of high‐level principles and detailed rules and
guidance.205 However, the FSA is moving towards a more principle‐based approach to regulation. It
believes that it will achieve its regulatory objectives in a more efficient way if its approach to
regulation is less focused on detailed rules. To supplement their principles, the FSA uses guidance
and other materials, to help corporations understand how they can comply with the principles.206
Guidance is not legally binding and should be considered as a tool to illustrate how corporations can
comply with the principles. Another feature of the enforcement practices of the FSA is that it can
bring cases against corporations and persons. When the senior management
5.3 Conclusion
Extensive empirical research is re
o
In the past decade the Dutch and UK government realised that regulation and supervision can be a
significant barrier to economic growth. Both countries were looking for methods to reduce the
regulatory burdens on businesses. In order to reduce regulatory burdens, the enforcement capacity
o
In the Netherlands, the so‐called ‘high trust’ approach to supervision is used by the Independent
Post and Telecommunications Authority (OPTA), the Netherlands Competition Authority (NMa) and
the Dutch Consumer Authority (CA). Within this approach, the NRAs assume that corporations
comply with the law spontaneously. However, if a NRA finds an infringement of the law, it will
impose tough, punitive sanctions. All three NRAs emphasise the importance of compliance‐based
enforcement tools. Compliance‐programmes, recom
b
202 FSA, ‘The Enforcement Guide’ (2011 (n 198) 5. 203 ibid. 204 ibid. 205 ibid 9. 206 ibid 10. 207 ibid 11.
41
The Dutch Central Bank (DNB) and the Netherlands Authority for the Financial Markets (AFM) also
make use of compliance‐based mechanisms to make corporations comply with the law. The AFM and
the DNB use a risk‐based approach to supervision. This means that both supervisors use their
supervisory and enforcement capacity in those areas where the risk of non‐compliance is the highest.
Although the Dutch NRAs have incorporated the enforcement pyramid into their enforcement
policies, the administrative fine is not really imposed in a responsive manner.208 Fines are
determined regardless the motivation and attitude of the violator. Other factors are deemed more
important, such as the duration of the violation, the seriousness of the violation and recidivism.
Above all, it is questionable whether the Dutch NRAs can enforce responsively, since this requires
frequent interaction between the supervisor and the supervisee. This is generally not the case within
the Dutch supervisory landscape.209
In the UK the risk‐based approach to supervision is very popular among NRAs as well. Following the
Hampton Review 2005 all NRAs must use the principle of risk assessment in order to make sure that
the highest administrative burdens fall on the highest‐risk corporations.210 Therefore, the Office of
Communications (Ofcom) also uses a risk‐based approach to supervision. It prefers not to intervene
in the market, but is willing to intervene firmly when required. The Ofcom always seeks the ‘least
intrusive regulatory mechanism’ to achieve their policy objectives.211
Just like the Ofcom, the Office of the Gas and Electricity Markets (Ofgem) uses a risk‐based approach
to supervision. Ofgem aims to prioritise those infringements which are most likely to cause the
greatest harm to consumers or competition or may give rise to the greatest concerns.212
Finally, the Financial Services Authority (FSA) uses a risk‐based approach to regulation and
supervision. The FSA is moving towards a more principle‐based approach to regulation.213 It believes
that it will achieve its regulatory objectives in a more efficient way if its approach to regulation and
supervision is less focused on detailed rules.
208 H van de Bunt, J van Erp and K van Wingerde, ´Hoe stevig is de piramide van Braithwaite?’ (2007) 49 TvCr 4, 391. 209 ibid 395. 210 Hampton Review (n 185) 8. 211 The Ofcom Enforcement Report (n 191) 1. 212 The Ofgem Enforcement Guidelines (n 196) 12. 213 The FSA Enforcement Guide (n 198) 9.
42
Chapter VI European Supervisory Authorities (ESAs)
In the previous two Chapters, the impact of European secondary legislation on national enforcement
of Union law and the NRAs’ visions on enforcement in the UK and the Netherlands have been
discussed. However, the ´Europeanisation’ of market supervision also takes place on an institutional
level. This Chapter aims to provide an overview of the recently established European Supervisory
Authorities (ESAs) and their influence on the enforcement practices of NRAs. First, the European
Supervisory Authority in the energy sector will be discussed before examining the ESA in the
electronic communications sector. Finally, the development of ESAs in the financial services sector
will be dealt with. Special attention will be devoted to the recently published Regulation (EU)
513/2011.
6.1 The Energy Market
Energy is essential for the functioning of Europe.214 The European energy policy aims to complete the
internal markets in electricity and natural gas. On 10 January 2007 the Commission published a
Communication entitled ‘An Energy Policy for Europe’ in which it emphasised the importance of
completing the internal markets in electricity and natural gas.215 The Commission stated that Europe
was facing three challenges: combating climate change, limiting the EU’s external vulnerability to
imported hydrocarbons, and promoting growth and jobs. Improving the regulatory and supervisory
e objectives.216 framework at Union level was identified as a key measure to achieve thos
6.1.1 The European Regulators Group for Electricity and Gas (ERGEG)
When the Commission stated that the regulatory framework at Union level had to be improved, it
was referring to the European Regulators Group for Electricity and Gas (ERGEG). ERGEG was
established by Commission Decision (EC) 2003/796 to give regulatory cooperation a more formal
status, in order to facilitate the completion of the internal energy market.217 The aim of ERGEG was
not only to facilitate consultation, coordination and cooperation amongst the energy NRAs, but also
between energy NRAs and the Commission. These measures should ultimately lead to a more
consistent application of the European Energy Directives across the Member States. ERGEG
contributed positively to the internal markets of electricity and gas, but it did not provide the
governance required. It was widely recognised that voluntary cooperation between energy NRAs
should take place within a Union structure with clear competences and with the power to adopt
individual decisions.218 Therefore, in March 2007 the European Council invited the Commission to
propose measures to set up an ‘independent mechanism’ for energy NRAs to cooperate.219 The
Commission concluded that an ‘Agency for the Cooperation of Energy Regulators’ (ACER) should be
established to improve the effective functioning of the internal energy market.
214 Commission, ´An Energy Policy for Europe´ (Communication) COM (2007) 1 final 1. 215 ibid. 216 Council Regulation (EC) 713/2009 establishing an Agency for the Cooperation of Energy Regulators [2009] OJ L 211/1 (Regulation Establishing ACER) recital 1. 217 Commission Decision (EC) 2003/796 on establishing the European Regulators Group for Electricity and Gas [2003] OJ L296/34 (Commission Decision Establishing ERGEG) recital 5. 218 Regulation Establishing ACER (n 216) recital 3. 219 ibid recital 4.
43
6.1.2 The Agency for the Cooperation of Energy Regulators (ACER)
The Agency for the Cooperation of Energy Regulators (ACER) was established by Regulation (EC)
713/2009 in order to fill the regulatory cap at Union level and is responsible for the cooperation
between energy NRAs.220 The ACER should guarantee that both regulatory and supervisory functions
that are carried out by energy NRAs will be properly coordinated and performed at Union level when
necessary. In this way, the ACER contributes to the effective functioning of the internal markets in
electricity and natural gas and enables NRAs to improve their coordination at Union level.221 To
achieve these objectives, the ACER can issue opinions and recommendations to transmission system
operators, NRAs, the European Parliament, the Council and the Commission.222 In addition, it can
take individual decisions on not only certain technical issues,223 but also on regulatory issues where
NRAs have not been able to reach an agreement224, and decide to grant certain exemptions.225
The ACER is more powerful than its predecessor ERGEG. The power to take individual decisions on
technical issues and the strengthening of the advisory function with respect to the EU institutions
and NRAs resulted in a considerably more influential agency than the ERGEG has ever been.226 It is
important to note that these powers, however, still fall within the boundaries of the Meroni
doctrine.227 In the Meroni case, the Court held that the Commission could legitimately delegate
clearly defined executive powers. However, it was also ruled that the Commission was not allowed to
delegate powers with a wide margin of discretion, since this would bring about an actual transfer of
responsibility. Therefore, the increased powers of the ACER were balanced by the provision of a
number of powers of the Commission.228 The Commission is the only body which is permitted to take
decisions implying the use of discretionary powers. The ACER performs an advisory and preparatory
role and can only adopt binding decisions for specific technical issues as laid down in the Directives.
The powers of the ACER certainly have an impact on the enforcement practices of NRAs. First of all,
the ACER can issue opinions on the compatibility of NRA decisions with European energy legislation.
Secondly, it can recommend best practices to NRAs. Thirdly, it can take binding individual decisions
on technical issues or decide on regulator issues with regard to cross‐border infrastructure when: i)
the competent NRAs have not been able to reach agreement and; ii) upon a joint request from the
competent NRAs. Although these powers may seem fairly limited, they should not be
underestimated. By issuing opinions and recommendations, the ACER can have a large impact on
draft legislation. Moreover, issues and recommendations are likely to be taken into account in the
decision‐making of NRAs.
220 AT Ottow, ‘Europeanisering van het markttoezicht’ (2011) 1 SEW 16. 221 Regulation Establishing ACER (n 216) recital 5. 222 ibid art 4. 223 ibid art 7(1). 224 ibid art 8(1) (a) 225 ibid art 9. 226 E. Chiti, ‘An Important Part of EU’s Institutional Machinery: Features, Problems and Perspectives of European Agencies’ (2009) CMLR 46, 1430. 227 Case 9/56 Meroni and Co. Industrie Metallurgiche SpA v. ECSC [1957‐58] ECR 133. 228 Chiti (n 226) 1430.
44
6.2 The Electronic Communications Market
Within the electronic communications sector, the creation of a European Supervisory Authority was
slightly more complicated. The Commission proposal for the Body of European Regulators for
Electronic Communications (BEREC) was just as ambitious as in the energy sector, but eventually did
rs Group (ERG).229 not go beyond a reinforced European Regulato
6.2.1 The European Regulators Group (ERG)
The European Regulators Group (ERG) was established by Commission Decision (EC) 2002/627 to
advise and assist the Commission in the electronic communications field. It provided an interface
between the Commission and NRAs, in order to contribute to the development of the internal
market for electronic communications networks and services.230 The ERG contributed positively to
the development of the internal market, in particular by facilitating cooperation among NRAs, and
between NRAs and the Commission.231 However, still more cooperation between NRAs was required,
since more cooperation leads to greater consistency among NRAs. This ultimately contributes to the
development of the internal market for electronic communications networks and services. This
conclusion played a major role in the eventual call for strengthening the ERG and formally
recognising the importance of coordination in the EU regulatory framework.
6.2.2 The Body of European Regulators for Electronic Communications (BEREC)
This call to strengthen the ERG and its recognition in the EU regulatory framework led to the
establishment of the Body of European Regulators for Electronic Communications (BEREC).232 The
BEREC was established by Regulation (EC) 1211/2009 in order to continue the work of ERG and
develop the cooperation between NRAs, thereby contributing to the development of the internal
market. It should assist NRAs and the Commission in exercising its responsibilities, ensure the
consistent application of the EU regulatory framework in all Member States and serve as a body for
reflection, debate and advice for the European institutions.233 In order to achieve these objectives,
the BEREC can deliver opinions to NRAs on draft measures, draft recommendations, guidelines and in
various other procedures.234 Nevertheless, the powers of the BEREC still fall within the boundaries of
the Meroni doctrine. Following the Meroni‐judgment, the Commission is not allowed to delegate a
margin of discretion to the BEREC, but only clearly defined executive powers. Therefore, the BEREC
remains a pure advisory body which has no power to take binding decisions.
Even though the powers of the BEREC are limited, it certainly exerts influence on the enforcement
practices of NRAs. Firstly, NRAs must take the utmost account of any opinion, recommendation,
guidelines, advice or regulatory best practice adopted by the BEREC.235 Secondly, NRAs are required
229 L Hancher and P Larouche, ‘The Coming of Age of EU Regulation of Network Industries and Services of General Economic Interest’ in P Craig and G De Búrca (eds), The Evolution of EU Law (Oxford University Press 2011) 777. 230 Commission Decision (EC) 2002/627 establishing the European Regulators Group for Electronic Communications Networks and Services [2002] OJ L200/38 (Commission Decision Establishing ERG) recital 5. 231 ibid. 232 Council Regulation (EC) 1211/2009 establishing the Body for European Regulators for Electronic Communications (BEREC) and the Office [2009] OJ L337/1 (Regulation Establishing BEREC) recital 6. 233 ibid recital 6‐8. 234 ibid art 3. 235 ibid art 3 (3).
45
to notify market analysis measures to the BEREC, the Commission and individual NRAs. Within this
procedure, the BEREC can review whether the proposed measure complies with the best practices as
endorsed by the BEREC members and make comments when necessary. Thirdly, the BEREC may exert
significant influence on (draft) legislation by issuing opinions and recommendations.
6.3 The Financial Services Market
In October 2008, following the financial crisis, the Commission summoned Jacques De Larosière to
propose recommendations on how to strengthen the European financial supervisory system. The
financial crisis had exposed serious gaps in the cooperation, coordination, consistency and trust
between NRAs, leading the Commission to take steps to reform European financial supervision.236
De Larosière concluded that effective, convergent sanctioning regimes are of paramount importance
for a new supervisory system:
‘Supervision cannot be effective with weak, highly variant sanctioning regimes. It is essential that
within the EU and elsewhere, all supervisors are able to deploy sanctioning regimes that are
sufficiently convergent, strict, resulting in deterrence.’237
The De Larosière group recommended a major reform in the institutional landscape of financial
supervision in Europe. Firstly, it proposed that a new body ‘called the European Systemic Risk Council
(ESRC), to be chaired by the ECB President, should be set up under the auspices and with the
logistical support of the ECB.’238 This body should form judgments and make recommendations on
macro‐economic developments within the financial system as whole. Secondly, it proposed the
establishment of a European System of Financial Supervision (ESFS).239 The ESFS comprises an
integrated network of national financial supervisors and the three newly established European
Supervisory Authorities (ESAs). The ESFS should safeguard the financial soundness at the level of
individual financial firms and protect consumers of financial services.240 The Commission
subsequently proposed to put forward draft legislation to implement the proposed reforms. The
draft legislation was consequently adopted, and the three newly established European Supervisory
Authorities, i.e. the European Banking Authority (EBA), the European Insurance and Occupational
Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA) replaced the
three existing Committees of Supervisors, each having legal personality.
The Commission has chosen a sectoral approach to supervision, so that it could build upon the
existing structures. Within this system, day‐to‐day supervision remains at a national level, while
overseen by the European Supervisory Authorities in the ESFS.241 The three newly established
financial European Supervisory Authorities and their influence on the enforcement of NRAs in
Member States will be discussed in the following paragraphs.
236 Commission, ‘European Financial Supervision’ (Communication) COM (2009) 252. 237 Report of the High‐level Group on Financial supervision in the EU chaired by Jacques de Larosière (25 February 2009) 50. 238 ibid 46. 239 ibid 47. 240 Commission, ‘European Financial Supervision’ (Communication) COM (2009) 252, 3. 241 Ottow (n 220) 14.
46
6.3.1 The European Banking Authority (EBA)
The European Banking Authority (EBA) was established by Regulation (EU) 1093/2010 in order to
‘improve the functioning of the internal market, in particular by ensuring a high, effective and
consistent level of regulation and supervision taking account of the varying interests of all Member
States and the different nature of financial institutions.’242 The EBA has replaced the Committee of
European Banking Supervisors (CEBS) and has assumed all of the tasks and powers of its
predecessor.243 The EBA will contribute to the establishment of common regulatory and supervisory
standards by providing opinions to Union institutions and by developing guidelines and
recommendations.244 In addition, it will contribute to the consistent application of Union law, in
particular by contributing to a common supervisory culture and ensuring effective and consistent
supervision of financial institutions.245 In order to achieve these tasks, the EBA has been given
various powers. Firstly, it can develop draft regulatory and implementing technical standards in
specific cases.246 In addition, it can issue guidelines and recommendations in certain procedures.
Furthermore, it can take individual decisions addressed to NRAs in specific cases.247 Moreover, in
cases concerning directly applicable Union law, it can take individual decisions addressed to financial
institutions directly.248 Finally, it can issue opinions to the European Parliament, the Council and the
Commission.249
The competences of the EBA certainly have an influence on the enforcement of Union law by NRAs.
First of all, the EBA plays a large role in the development of regulatory and implementing technical
standards. When the European Parliament and the Council delegate powers to the Commission to
adopt regulatory technical standards, the EBA may draft regulatory or technical standards which
subsequently will be sent to the Commission for endorsement.250 These regulatory and
implementing technical standards need to be respected by the NRAs. Secondly, the EBA can issue
guidelines and recommendations addressed to NRAs and financial institutions in order to establish
efficient and effective supervisory practices within the Union.251 The NRAs and financial institutions
must make every effort to comply with these guidelines and recommendations.252 Thirdly, the EBA
can address a recommendation to a NRA when the NRA concerned does not apply Union law, or has
applied it in such a way that it appears to be a breach of Union law.253 Fourthly, the EBA can take
individual decisions requiring NRAs to take the necessary action to address situations which may
seriously jeopardise the orderly function of the financial system in the Union.254 Fifthly, the EBA can
take individual decisions requiring a NRA to take specific action in order to settle a cross‐border
242 Regulation (EU) 1093/2010 establishing the European Banking Authority, amending Decision No 716/2009/EC and repealing Commission Decision 2009/78/EC [2010] OJ L331/12 (Regulation Establishing EBA) recital 11. 243 ibid. 244 ibid art 8(1) (a). 245 ibid art 8(1) (b). 246 ibid art 8(2) (a) (b). 247 ibid art 8(2) (e). 248 ibid art 8(2) (f). 249 ibid art 8(2) (g). 250 ibid art 10 (1). 251 ibid art 16 (1). 252 ibid art 16 (3). 253 ibid art 17. 254 ibid art 18 (3).
47
dispute between NRAs.255 Sixthly, when NRAs do not comply with a decision or formal opinion of the
EBA, it can take individual decisions. 256 Finally, the EBA can issue opinions to the European
Parliament, the Council or the Commission. By issuing high‐quality opinions these opinions can have
a large impact on future (draft) legislation.
6.3.2 The European Insurance and Occupational Pensions Authority (EIOPA)
The European Insurance and Occupational Pensions Authority (EIOPA) has replaced the Committee
of European Insurance and Occupational Pensions Supervisors (CEIOPS) and has assumed all of the
tasks and powers of its predecessor.257 The EIOPA was established by Regulation (EU) 1094/2010 in
order to achieve the same objectives as the EBA. The EIOPA also needs to ‘improve the functioning of
the internal market, in particular by ensuring a high, effective and consistent level of regulation and
supervision taking account of the varying interests of all Member States and the different nature of
financial institutions.258 Just like the EBA, the EIOPA should also contribute to the establishment of
high‐quality common regulatory and supervisory standards and practices, in particular by providing
opinions to the Union institutions and by developing guidelines, recommendations and draft
regulatory and implementing technical standards.259 Furthermore, it should contribute to the
consistent application of legally binding Union acts, in particular by contributing to a common
supervisory culture and take over all the existing and ongoing tasks from the CEIOPS. Additionally,
the powers conferred on the EIOPA are similar to those conferred on the EBA. The EIOPA can both
draft regulatory standards and implement technical standards,260 but can also issue guidelines and
recommendations.261 It can furthermore issue opinions to the Union institutions262 and is, in specific
cases, even allowed to take individual decisions addressed to NRAs and financial institutions.263
The tasks and powers of the EIOPA are very similar to those of the EBA; they only apply to a different
sector. Therefore, the way both ESAs can exert influence on the enforcement practice of NRAs is also
very similar. First of all, the EIOPA plays an important role in both the development of draft
regulatory and the implementation of technical standards. Since the NRAs need to comply with these
standards, the EIOPA can influence the enforcement practice of NRAs. Secondly, the EIOPA can issue
opinions and guidelines addressed to NRAs and financial institutions.264 NRAs and financial
institutions must make every effort to comply with these guidelines and recommendations.265
Thirdly, the EIOPA may adopt individual decisions requiring NRAs to take the necessary action when
the orderly functioning and integrity of financial markets or the financial system may be jeopardised.
Furthermore, when NRAs fail to reach an agreement with regard to a cross‐border dispute, the EIOPA
255 ibid art 19 (3). 256 ibid art 8(2) (f). 257 Regulation (EU) 1094/2010 establishing the European Insurance and Occupational Pensions Authority, amending Decision No 716/2009/EC and repealing Commission Decision 2009/79/EC [2010] OJ L331/48 (Regulation Establishing EIOPA) recital 9. 258 ibid recital 10. 259 ibid art 8(1) (a). 260 ibid art 8(2) (a) (b). 261 ibid art 8(2) (c) (d). 262 ibid art 8(2) (g). 263 ibid art 8(2) (e) (f). 264 ibid art 16. 265 ibid art 16 (3).
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may require the NRAs to take a specific action in order to settle the matter.266 In addition, the EIOPA
may issue a recommendation to a NRA when the NRA concerned does not apply Union law, or has
applied it in such a way that it appears to be a breach of Union law.267 Moreover, the EIOPA can take
individual decisions when NRAs do not comply with a formal opinion of the EIOPA. Finally, the EIOPA
issues opinions to the Union institutions. These opinions can play a large role in the development of
(draft) legislation.
6.3.3 The European Securities and Markets Authority (ESMA)
The third and last European Supervisory Authority in the financial sector is the European Securities
and Markets Authority (ESMA). ESMA has replaced the Committee of European Securities Regulators
(CESR) and has therefore assumed all of the tasks and powers of this Committee.268 The tasks and
powers of the ESMA are very similar to the abovementioned powers of the EBA and the EIOPA and
will therefore only be discussed shortly. The ESMA was established by Regulation (EU) 1095/2010 in
order to ‘improve the functioning of the internal market, in particular by ensuring a high, effective,
and consistent level of regulation and supervision taking account of the varying interests of all
Member States and the different nature of financial market participants.’269 In order to contribute to
both the establishment of high‐quality common regulatory and supervisory standards, and to the
consistent application of legally binding Union acts, various powers are conferred on the ESMA.
These powers are identical to the powers of the EBA and the EIOPA as discussed above. The ESMA
can develop draft regulatory and implementing technical standards,270 issue guidelines and
recommendations to NRAs and financial institutions,271 adopt individual decisions in specific cases272
and issue opinions to the Union institutions.273 The powers of the ESMA are identical to the powers
of the EBA and the EIOPA. Therefore, the way the ESMA can influence the enforcement practice of
NRAs is very similar to the way the EBA and the EIOPA exert influence on NRAs. The way these ESAs
exert influence on the enforcement practices of NRAs has been discussed above.
Although the roles and powers of the EBA, EIOPA and ESMA are very similar, Regulation (EU)
513/2011 distinguishes the ESMA from the other two ESAs. Regulation (EU) 513/2011 amending
Regulation (EC) 1060/2009 on credit rating agencies will be discussed in the next paragraph.
Regulation (EU) 513/2011 amending Regulation (EC) 1060/2009 on credit rating agencies
In its Communication of 27 May 2009 entitled ‘European Financial Supervision,’ the Commission
proposed to give the responsibility for the authorisation and supervision of credit rating agencies to a
European Supervisory Authority.274 In June 2011, Regulation (EU) 513/2011 on credit rating agencies
266 ibid art 19 (3). 267 ibid art 17 (3). 268 Regulation (EU) 1095/2010 establishing the European Securities and Markets Authority, amending Decision No 716/2009/EC and repealing Commission Decision 2009/77/EC [2010] OJ L331/84 (Regulation Establishing ESMA) recital 10. 269 ibid recital 11. 270 ibid 8 (2) (a) (b). 271 ibid 8 (2) (c) (d). 272 ibid 8 (2) (e) (f). 273 ibid 8 (2) (g). 274 Commission, ‘European Financial Supervision’ (Communication) COM (2009) 252 final 11.
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was adopted. Regulation (EU) 513/2011 makes the ESMA exclusively responsible for the registration
and supervision of credit rating agencies in the European Union.275 This does, however, not mean
that NRAs have been made redundant. The NRAs remain responsible for the oversight of the users of
credit ratings.276 Moreover, the ESMA is dependent upon an appropriate cooperation agreement
with the NRAs. NRAs should provide information,277 assist the ESMA,278 or carry out investigations
and on‐site inspections on its behalf.279
The exclusive responsibility of the ESMA for the registration and supervision of credit rating agencies
can be considered as the last step towards total Europeanisation of market supervision. The EU is not
merely exerting influence on the enforcement practice of NRAs anymore, but has taken over the
responsibility of supervision entirely.
Regulation (EU) 513/2011 has two interesting aspects. First, it sets aside the responsibility of NRAs
and gives an exclusive responsibility of registration and supervision of credit rating agencies to the
ESMA. The second interesting aspect of the Regulation is the enforcement methodology of the ESMA
in this Regulation. Recital 25 of the Regulation states that the ESMA should be empowered to take a
range of supervisory measures:
“In the case of an infringement committed by a credit rating agency, ESMA should be empowered to
take a range of supervisory measures, including, but not limited to, requiring the credit rating agency
to bring the infringement to an end, suspending the use of credit ratings for regulatory purposes,
temporarily prohibiting the credit rating agency from issuing credit ratings and, as a last resort,
withdrawing the registration when the credit rating agency has seriously or repeatedly infringed
Regulation (EC) No 1060/2009. The supervisory measures should be applied by ESMA taking into
account the nature and seriousness of the infringement and should respect the principle of
proportionality. Before taking a decision on supervisory measures, ESMA should give the persons
subject to the proceedings the opportunity to be heard in order to respect their rights of defence.”
The Responsive Regulation280 model of Ayres and Braithwaite is easily recognisable in this recital. At
the bottom of the regulatory pyramid of ESMA you can find an apparently compliance‐based
measure: the ESMA will persuade the credit rating agency to stop the infringement. At the top of the
regulatory pyramid you can find the withdrawal of the registration of the credit rating agency, as a
last resort. However, if one continues reading the Regulation, it becomes clear that the Council has
adopted a very punitive version of the responsive regulation method. Recital 25 of Regulation (EU)
513/2011 implies that ESMA should start with requiring a credit rating agency to stop the
infringement of the Directive. However, article 36b (1) (a) of the same Regulation explains that this is
not done by persuasion, but by imposing periodic penalty payments.
275 Regulation (EU) 513/2011 amending Regulation (EC) 1060/2009 on credit rating agencies [2011] OJ L 145/30 (Regulation Credit Rating Agencies) recital 6. 276 ibid recital 9. 277 Regulation (EU) 513/2011 (n 275) art 27. 278 ibid art 23c (4) and 23d (5). 279 ibid art 23d (6). 280 I Ayres and J Braithwaite, Responsive Regulation: Transcending the Deregulation Debate (Oxford University Press 1992).
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Another feature which makes this enforcement method fairly punitive can be found in the articles
concerning penalties. When the Board of Supervisors finds that a credit rating agency has,
intentionally or negligently, committed an infringement related to conflicts of interest, organisational
or operational requirements, it must impose a fine.281 The ESMA has no margin of discretion to
choose what remedy is best. When the Board of Supervisors has found an infringement that is listed
in Annex III of the Regulation, it must impose a fine in accordance with the limits as laid down in the
Regulation. The minimum and maximum amount of the fine are fixed, the ESMA cannot exceed these
limits. This shows that the European legislator has chosen to adopt a very ‘deterrence‐based’
approach to the Responsive Regulation model of Ayres and Braithwaite in this Regulation. Thus it
seems like even the bottom of the regulatory pyramid of the ESMA, which is supposed to be
compliance‐based, has a very punitive character.
6.4 Conclusion
The establishment of the European Supervisory Authorities (ESAs) should be considered in the light
of an increasing Europeanisation of market supervision. The networks of NRAs have been replaced by
ESAs in the field of energy, electronic communications and financial services. The ESAs aim to
develop administrative cooperation and do not have discretionary power. The European legislator
has chosen for a sectoral approach to supervision. Each sector has been assigned its own supervisor.
The BEREC is the new European Supervisory Authority in the electronic communications sector. The
BEREC has not the power to take binding decisions; it is purely an advisory body. The ACER, which is
the European Supervisory Authority within the energy sector, has considerably more powers. The
ACER has been established in order to ensure that the regulatory and supervisory functions of the
NRAs are properly coordinated. In contrast to the BEREC, the ACER can take its own binding decisions
in certain procedures.282
The institutional landscape of financial supervision has changed dramatically. The European Systemic
Risk Council (ESRC) has been established to monitor macro‐economic developments, while the
European System of Financial Supervision (ESFS) safeguards the financial soundness on micro‐
economic level. The European Banking Authority (EBA), the European Insurance and Occupational
Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA) have
replaced the networks of NRAs in their respective sectors.
All European Supervisory Authorities can exert influence on the enforcement practices of NRAs.
However, the level of influence strongly depends on the powers of the ESA. The powers of the ESA
range from issuing recommendations and opinions to taking binding decisions and overstepping
NRAs. Therefore, the influence of ESAs on the application of Union law by NRAs should not be
underestimated. When using their powers effectively, the ESAs can contribute to a more consistent
application of Union law across Member States. The influence of the ESAs strongly depends on the
quality of their opinions, recommendations and decisions. If their opinions, recommendations and
decisions are of high quality, it will be hard for a NRA to simply put aside such an opinion.
281 Regulation Credit Rating Agencies (n 275) art 36a. 282 Regulation Establishing ACER (n 216) art 7.
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The final step towards total Europeanisation of market supervision has been taken in the new
Regulation (EU) 513/2011 on credit rating agencies. This Regulation gives the exclusive responsibility
of registration and supervision of credit rating agencies to the ESMA. In this field the NRAs have
transferred almost all their powers to the ESMA. Cooperation between the ESMA and the various
NRAs remains, however, much needed.
52
Annex I: A new European Framework for safeguarding Financial Stability
Source: Commission, ‘European Financial Supervision’ (Communication) COM (2009) 252 final
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Chapter VII Analysis
This Chapter aims to analyse the developments as described in the previous Chapters. Various
aspects of the Europeanisation of market supervision in the fields of energy, telecommunications and
financial services will be assessed. First, the significance of the national procedural autonomy of
Member States will be assessed, before turning to the dissuasiveness requirement. Finally, the
influence of the European Supervisory Authorities on the enforcement practices of NRAs will be
discussed.
7.1 National Procedural Autonomy
Member States enjoy a considerable autonomy in terms of how they enforce and apply Union law.
However, this autonomy should be balanced with the need for effective and consistent application of
Union law.283 In this section it will be argued that the national procedural autonomy of Member
States should be preserved, but that more emphasis should be placed on the development of a
uniform European regulatory toolkit.
The principle of loyal cooperation, as laid down in Article 4 (3) TEU, states that Member States shall
take all the necessary measures to guarantee the application and effectiveness of Union law.
Member States and their authorities are entrusted with ensuring compliance with Union law and
sanctioning infringements.284 In the field of market supervision, national regulatory authorities
(NRAs) are entrusted with the supervision and regulation of markets. The work of NRAs is based on
the principle of national procedural autonomy. National procedural autonomy refers to the power of
Member States to determine what national procedures are used to enforce Union rights before
national courts. This autonomy of the Member States is limited by the case‐law of the ECJ in order to
reduce the disparities between the different enforcement regimes. In its case‐law, the ECJ has ruled
that the enforcement of Union law must be effective, equivalent, proportionate and dissuasive. In
addition, fundamental rights must be observed when enforcing Union law.
The national procedural autonomy of Member States remains of great importance today. In
European secondary legislation, provisions with regard to the enforcement of Union law often start
with emphasising the national procedural autonomy of Member States. These provisions generally
start with stating that ‘member states shall lay down rules on penalties.’285 Furthermore, the limits
placed on the national procedural autonomy of Member States are minimal and rather vague. The
Greek Maize criteria still leaves a wide discretion to the NRAs in designing their regulatory regime.
The question is whether the national procedural autonomy of Member States should be limited or
not. One the one hand, rather vague requirements with regard to the national enforcement of Union
law can lead to disparities between regulatory regimes, and subsequently regulatory competition. On
283 Commission, ‘Reinforcing sanctioning regimes in the financial services sector’ (Communication) COM (2010) 716 final 3. 284JH Jans, R de Lange, S Prechal, and RJGM Widdershoven, Europeanisation of Public Law (Europa Law Publishing 2007) 200. 285 Council Directive 2009/140/EC of 25 November 2009 amending Directives 2002/21/EC on a common regulatory framework for electronic communications networks and services, 2002/19/EC on access to, and interconnection of, electronic communications networks and associated facilities (Council Directive 2009/140/EC), art 21a.
54
the other hand, rather flexible requirements with regard to the enforcement of Union law can allow
the NRAs to choose an enforcement method which is best fit for their jurisdiction.
The principle of national procedural autonomy of Member States is reflected in European secondary
legislation. The national procedural autonomy is limited by the Greek Maize criteria, but still leaves a
wide discretion to the Member States to determine their own enforcement regime because the
limits placed on the national procedural autonomy are minimal and rather vague.
The development of a European regulatory toolkit could preserve the national procedural autonomy
of Member States on the one hand, and contribute to more convergence in the enforcement
practices of NRAs on the other. By placing more emphasis on the development of a uniform
European regulatory toolkit, disparities between the regulatory regimes across Member States will
be reduced. The European legislator should prescribe all the enforcement measures of the regulatory
pyramid, while at the same time recommend best practices for the practical enforcement of Union
law. In this way disparities between regulatory regimes will be reduced, while at the same time NRAs
remain free to choose the best fit enforcement measure to remedy violations of Union law. This is
important, because the best enforcement measures could depend on the specific characteristics of a
particular jurisdiction.
The issue of divergent sanctioning regimes across Member States was also identified in the
Communication from the Commission on reinforcing sanctioning regimes in the financial services
sector.286 A review of the financial services sanctioning regimes carried out by the Commission shows
considerable disparities between Member States. The NRAs do not always have certain important
types of sanctioning powers at their disposal, the level of fines vary considerably across Member
States and NRAs do not always take the same criteria into consideration in the application of
sanctions.287 Therefore, the Commission also suggested that a ´core set of administrative sanctions
should be provided in all Member States.´288
The procedural autonomy of Member States should be balanced with the need for effective and
consistent application of Union law.289 To reduce the disparities between the regulatory regimes
across Member States, more convergence is needed. However, this first requires more comparative
legal research. Convergence should be ensured by creating a uniform European regulatory toolkit.
This toolkit should reflect all the levels of the regulatory pyramid of Ayres and Braithwaite: from
compliance‐based to deterrence‐based measures. Within the current European legal framework,
secondary legislation places too much emphasis on deterrence‐based measures. The importance of
putting more emphasis on compliance‐based measures will be discussed in the next section.
7.2 The Dissuasiveness Requirement
Although the national procedural autonomy of Member States leaves NRAs free to design their own
enforcement regime, the Greek Maize criteria seem to point towards a deterrence‐based approach
286 Commission Communication Reinforcing Sanctioning Regimes (n 238). 287 ibid 6‐9. 288 ibid 11. 289 ibid 3.
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to supervision. In this section it will be argued that the European legislator should place more
emphasis on a compliance‐based approach to supervision in its legislation.
In its case‐law, the ECJ has laid down that the national enforcement of Union law must comply with
four requirements: effectiveness, equivalence, proportionality and dissuasiveness. These
requirements are often reiterated in European secondary legislation. Effective are those rules which
are framed in such a way that they do not make it virtually impossible or very difficult to impose an
enforcement measure. Rules are equivalent when rules governing a dispute with a Union dimension
are not treated less favourable than those governing similar domestic actions. Rules are proportional
when they are necessary for the legitimate objective pursued. Finally, rules are dissuasive when they
prevent individuals or corporations from infringing the law. This last requirement, dissuasiveness, will
be discussed in more detail.
The dissuasiveness criterion requires that Union law is enforced in such a way, that corporations or
persons will be deterred from non‐compliance in the future. Generally, two types of deterrence can
be distinguished: general and specific deterrence. The general deterrence theory is based upon the
notion that punishing one corporation will discourage others from non‐compliance. Alternatively, the
specific deterrence theory is based upon the idea that corporations which have been previously
punished for non‐compliance will make an effort to comply with the law in the future.290 However,
deterrence‐based approaches to supervision are not necessarily the best way to make corporations
comply with the law. From social studies follows that a purely deterrence‐based approach can be
very ineffective.291 It is widely recognised that a judicious mix of different enforcement styles is the
best enforcement strategy. This raises the question which enforcement strategy the European
legislator advocates. It can be argued that the Greek Maize criteria292, the dissuasiveness principle in
particular, point towards a deterrence‐based enforcement strategy. Provisions in European
secondary legislation with regard to national enforcement of Union law often mention ‘penalties’
rather than ‘measures.’293 The common definition of a penalty is a ‘punishment imposed for breaking
a law, rule or contract.’294 Thus, the use of the word ‘penalty’ implies that national enforcement
measures must have a punitive character. This conclusion is supported by various provisions in
European secondary legislation. Two examples will be provided in this place. First, Article 37 (4) (d)
Directive 2009/72 states that NRAs must have the power to impose penalties of up to 10% of the
annual turnover of the supervisee. This provision clearly shows that the European legislator
advocates a deterrence‐based approach to supervision. The second example is Regulation (EU)
513/2001 on credit rating agencies. This Regulation requires the ESMA to impose fines when
infringements of the Regulation have been found. The ESMA is not allowed to opt for another
enforcement strategy; it ‘shall’ impose a fine in accordance with the regulation. This Regulation
shows that the European legislator tends to favour a deterrence‐based approach to a compliance‐
based approach to supervision.
290 N Gunningham, ‘Enforcement and Compliance Strategies’ in R Baldwin, M Cave and M Lodge (eds), The Oxford Handbook of Regulation (Oxford University Press 2010) 122. 291 See Chapter II on enforcement styles. 292 Case C‐68/88 Commission v Greece (Greek Maize) [1989] ECR 2965. 293 For examples see Chapter III Top‐down Analysis. 294 A Stevenson (ed), Oxford Dictionary of English (Oxford University Press 2010) 1313.
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However, it could also be argued that the European legislator is not favouring one enforcement
strategy over another. It could be stated that the European legislator simply indicates the top of the
regulatory pyramid295, by summing up what punitive enforcement measures a NRA must have at its
disposal. Within this theory, NRAs are still free to use compliance‐based measures, as long as the
NRAs have a deterrent, punitive sanction as a last resort. Nevertheless, this theory cannot be upheld
when looking at the recently published Regulation (EU) 513/2011 on credit rating agencies. This
Regulation clearly illustrates the fact that the European legislator favours a deterrence‐based to a
compliance‐based approach to supervision.
It is widely recognised that tough deterrence‐based measures are necessary to make an enforcement
regime effective. Without deterrence, compliance‐based measures would not be effective.
Nevertheless, the right balance should be struck between deterrence and compliance‐based
measures. Within the current legal framework the emphasis is placed upon deterrence‐based
measures, even though it follows from policy documents that NRAs prefer compliance‐based
enforcement methods.296 This gap between the European legal framework and the enforcement
practices of NRAs must be filled. This can be done, as argued in the previous section, by developing a
uniform European regulatory framework, which explicitly qualifies the use of compliance‐based
enforcement measures as ‘effective, equivalent, proportionate and dissuasive’ measures.
7.3 The Influence of European Supervisory Authorities (ESAs)
The establishment of the European Supervisory Authorities (ESAs) will contribute to greater
convergence across Member States. In this section it will be argued that the ESAs will be able to exert
considerable influence on the enforcement practices of NRAs.
The influence of the establishment of the European Supervisory Authorities (ESAs) on the
enforcement practices of NRAs can easily be underestimated. Criticism on the power of the
European Supervisory Authorities focuses on two aspects of the ESAs: the governance structure and
the toolkit. First, critics state that ESAs have only been assigned technical and advisory powers. Only
in exceptional cases, the ESAs have the right to issue binding decisions. Second, the criticism focuses
on the governance structure of the ESAs. Critics state that the ESAs do not have a real European
dimension, because the NRAs can still exert considerable influence on the ESAs at a board level.297
Admittedly, the powers of the ESAs could have been larger. Because of the Meroni‐doctrine, the ESAs
have only been assigned technical and advisory powers and the right to issue binding decisions can
only be used in exceptional circumstances. In addition, the ESAs are not entirely independent from
the NRAs.
However, the influence of the European Supervisory Authorities on the enforcement practices of
NRAs should be seen from a different perspective. Not all the ESAs have been assigned the same
powers. Nevertheless, they all have one tool in common: the right to issue opinions and
recommendations. The right to issue opinions and recommendations is often underestimated.
Although these tools are not legally binding, they can still have a large impact on the enforcement
295 See I Ayres and J Braithwaite, Responsive Regulation (Oxford University Press 1992). 296 See Chapter IV – Bottom‐up Analysis: A First Exploration. 297 AT Ottow, ‘Europeanisering van het markttoezicht’ (2011) 1 SEW 20.
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practices of NRAs. If the European Supervisory Authorities will consistently issue high‐quality
recommendations and opinions, the influence of this tool can be significant. Although these tools are
not legally binding, high‐quality recommendations and opinions cannot simply be ignored by NRAs.
The newly established European Supervisory Authorities in combination with a uniform European
regulatory toolkit for NRAs will definitely contribute to a more consistent application of EU law
across Member States. This will bring Europe a step closer towards fewer disparities between the
regulatory regimes and eventually, the completion of the internal market.
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Chapter VIII Conclusion
This Chapter aims to draw some general conclusions from the previous Chapters in addition to the
more specific Analysis Chapter.
In Chapter II the impact of European Law on the enforcement practices of NRAs has been discussed.
In most cases the European Union relies on decentralised, indirect administration through the
Member States for enforcement.298 The ECJ confirmed in Spanish Strawberries that Member States
enjoy a margin of discretion in determining what measures are most appropriate to enforce Union
law. However, the ECJ has imposed limits on the national procedural autonomy of Member States.
Firstly, the minimum requirements of effectiveness, equivalence, proportionality and dissuasiveness
should be respected. Secondly, fundamental rights must be observed when Union law is enforced at
a national level. These limits on the procedural autonomy of Member States were developed by the
Court in conjunction with the principle of loyal cooperation, as laid down in Article 4(3) TEU. The
requirements given by the ECJ are minimum requirements and furthermore rather vague.
Chapter III has explored the most important enforcement strategies that NRAs can have at their
disposal. There is no single enforcement strategy which has proved to be the most effective or most
efficient. Both a pure compliance‐based and a pure deterrence‐based approach have many
disadvantages. Compliance‐based approaches can easily degenerate into a too lenient strategy,
which fail to deter other corporations from non‐compliance. Deterrence‐based approaches are most
effective with large, rational corporations but less effective with small incompetent corporations.
The quest for the optimal enforcement strategy will probably never end. Responsive Regulation,
Risk‐based Regulation, Sparrow’s Regulatory Craft, Smart Regulation, Self‐Regulation and Meta‐
Regulation have all been discussed in Chapter III. A judicious mix of enforcement styles and strategies
is most likely to take away most disadvantages. Responsive Regulation is an example of such a mix of
compliance and deterrence. This enforcement strategy adapts to the particular features and the
motivation of the supervisee. However, as discussed Chapter III, responsive regulation also has its
limits. This strategy works best with large corporations and frequent interaction between supervisor
and supervisee is required. It is important to note that there is no clear link between deterrence and
compliance. From social studies follows that the perception of detection plays a larger role in the
behaviour of corporations than the actual chance of detection. Furthermore, the impact of
deterrence strongly depends on the size of a corporation.
In Chapter IV, a top‐down analysis was conducted. In this Chapter the requirements of national
enforcement of Union law in European secondary legislation have been assessed. In all three sectors
(energy, electronic communications and financial services) the national procedural autonomy of
Member States is acknowledged. The national procedural autonomy is limited by the minimal and
rather vague Greek Maize criteria. These requirements are often reiterated in European secondary
legislation. The requirement that penalties shall be ‘effective, proportionate and dissuasive’ does not
provide clear guidance on how Union law should be enforced adequately. The last requirement,
298 M Acceto and S Zleptnig, ‘The Principle of Effectiveness: Rethinking its role in Community Law’ (2005) 11 EPL 381.
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dissuasiveness, seems to be of particular importance. In general, the European legislator tends to
favour a deterrent‐based approach to enforcement over a compliance‐based approach.
Occasionally, examples are given of sanctions that must be included if Union law is not complied
with. However, in general, instruction with regard to national enforcement is restricted to a basic list
of tools NRAs must have at its disposal. A balance should be sought between the national procedural
autonomy of Member States and the need for effective and consistent application of Union law. The
European legislator should develop a uniform regulatory toolkit, which sets out all the enforcement
measures a NRA must have at its disposal. However, uniform regulatory regimes do not only depend
on the powers NRAs have at their disposal, but also the way they are used. Therefore, more guidance
on the practical enforcement is required. Better guidance could be provided in two ways: first, more
and better cooperation between NRAs across Member States will contribute to a more consistent
application of Union law, second; more and better guidance from European Supervisory Authorities
will also contribute to a more consistent application of Union law.
In Chapter V, a small scale bottom‐up analysis was conducted. In this Chapter the enforcement
strategies of NRAs in the Netherlands and the UK have been briefly discussed. Extensive empirical
research is required to conduct a proper bottom‐up analysis. Only a limited number of enforcement
policies of NRAs in the Netherlands and the UK have been discussed. Therefore, this Chapter only
served as a first exploration. In the past decade, the Dutch and UK government realised that
regulation and supervision can be a significant barrier to economic growth. Both countries were
looking for methods to reduce the regulatory burdens on businesses. In order to reduce regulatory
burdens, the enforcement capacity of NRAs had to be used more effectively. This led to a new
approach to supervision. In the Netherlands, the so‐called ‘high trust’ approach to supervision is
used by the Independent Post and Telecommunications Authority (OPTA), the Netherlands
Competition Authority (NMa) and the Dutch Consumer Authority (CA). Within this approach, the
NRAs assume that corporations comply with the law spontaneously. However, if a NRA finds an
infringement of the law, it will impose tough, punitive sanctions. All three NRAs emphasise the
importance of compliance‐based enforcement tools. The Dutch Central Bank (DNB) and the
Netherlands Authority for the Financial Markets (AFM) also make use of compliance‐based
mechanisms to make corporations comply with the law. The AFM and the DNB use a risk‐based
approach to supervision. This means that both supervisors use their supervisory and enforcement
capacity in those areas where the risk of non‐compliance is the highest. Although the Dutch NRAs
have incorporated the enforcement pyramid of Braithwaite into their enforcement policies, the
administrative fine is not applied in a very responsive manner.299 Fines are determined regardless the
motivation and attitude of the violator. Other factors are considered to be more important, such as
the duration of the violation, the seriousness of the violation and recidivism. Above all, it is
questionable whether the Dutch NRAs can enforce responsively, since this requires frequent
interaction between the supervisor and the supervisee. This is generally not the case within the
Dutch supervisory landscape.300
299 H van de Bunt, J van Erp and K van Wingerde, ´Hoe stevig is de piramide van Braithwaite?’ (2007) 49 TvCr 4, 391. 300 ibid 395.
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In the UK, the risk‐based approach to supervision is very popular among NRAs as well. Following the
Hampton Review 2005, all NRAs must use the principle of risk assessment in order to make sure that
the highest administrative burdens fall on the highest‐risk corporations.301 Therefore, the Office of
Communications (Ofcom) and the Office of the Gas and Electricity Markets (Ofgem) also use a risk‐
based approach to supervision. These NRAs prefer not to intervene in the market, but are willing to
intervene firmly when required. The Ofcom always seeks the ‘least intrusive regulatory mechanism’
to achieve their policy objectives.302 Finally, the Financial Services Authority (FSA) also uses a risk‐
based approach to regulation and supervision. The FSA is moving towards a more principle‐based
approach to regulation.303 It believes that it will achieve its regulatory objectives in a more efficient
way if its approach to regulation and supervision is less focused on detailed rules.
Chapter VI has dealt with the influence of European Supervisory Authorities (ESAs) on the
enforcement practices of NRAs. The networks of NRAs have been replaced by the ESAs in the field of
energy, electronic communications and financial services. The ESAs aim to develop administrative
cooperation and do not have discretionary power. The European legislator has adopted a sectoral
approach to supervision. This means that each sector has been assigned its own supervisor.
The BEREC is the new European Supervisory Authority in the field of electronic communications. The
BEREC is a purely advisory body; it has no power to take binding decisions. The ACER, the ESA within
the field of energy has considerably more powers. In contrast to the BEREC, the ACER can take its
own binding decisions in certain procedures. 304 The institutional landscape of financial supervision
has changed dramatically. The European Systemic Risk Council (ESRC) has been established in order
to monitor macro‐economic developments, while the European System of Financial Supervision
(ESFS) safeguards the financial soundness on micro‐economic level. The European Banking Authority
(EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European
Securities and Markets Authority (ESMA) have replaced the networks of NRAs in their respective
sectors. All European Supervisory Authorities can exert influence on the enforcement practices of
NRAs. However, the level of influence strongly depends on the powers of the ESA. The powers of the
ESAs range from issuing recommendations to taking binding decisions. Thus, the possible influence of
ESAs should not be underestimated. Nevertheless, the influence of the ESAs will strongly depend on
the quality of their recommendations, opinions and decisions. If the quality of these measures is high
enough, NRAs cannot simply set non‐binding opinions aside. The ESAs will definitely contribute to
more consistent application of Union law across Member States.
A very big step towards full Europeanisation of market supervision has been taken in the new
Regulation (EU) 513/2011 on credit rating agencies. This Regulation gives the exclusive responsibility
of registration and supervision of credit rating agencies to the ESMA. In this field the NRAs have
301P. Hampton, Reducing administrative burdens: effective inspection and enforcement, <http://www.berr.gov.uk/files/file22988.pdf> accessed 15 June 2011 8. 302Ofcom, ‘Enforcement Report. A Report On Ofcom’s Approach to Enforcement and Recent Activity’ (2009) http://stakeholders.ofcom.org.uk/enforcement/enforcement‐report/enforcement_report.pdf accessed 6 July 2011 1. 303 FSA, ‘The Enforcement Guide’ (2011) <http://fsahandbook.info/FSA/extra/5550.pdf> accessed 6 July 2011, 9. 304 Council Regulation (EC) 713/2009 establishing an Agency for the Cooperation of Energy Regulators [2009] OJ L 211/1 (Regulation Establishing ACER) art 7.
61
transferred almost all their powers to the ESMA. However, cooperation between the ESMA and the
various NRA remains of great importance.
62
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