Since the foundation of the European Union in 1992, the claim of a ‘rising regulatory state’ in Western Europe has become an important feature of public policy research. The creation of a single market by the Treaty of Maastricht forced European governments to change their traditional modes of governance in response to developments like increasing international competition and deepening economic and monetary integration within the European Union. Strategic adaptation to these new realities has been linked to two key trends: one is the reduced role for the positive, interventionist state and a corresponding increase in the role of the regulatory state, using legal authority over the tools of taxing and spending. The second trend is the European Commission’s ambitious attempts to maximise its influence over policy content, and the increased interest of member states in transnational policy responses to the issues arising from the Single European Market. One of the main institutional features of this ‘rising regulatory state’ has been the creation of European regulatory agencies with the primary aim to provide policy-makers with objective and independent information. An interesting but also controversial feature of this development is the fact that governments were apparently willing to abandon some of their regulatory competencies in favour of institutions that are not democratically accountable, and that are to a large extent insulated from political influence.
The relevance of this topic becomes accessible when looking at the developments in fi-nancial services regulation between 1999 and 2011. The eruption of the financial crisis in 2007 significantly changed the institutional architecture of regulation at the European level and led to the creation of a new European financial supervisory framework, centred around three supervisory authorities with defined legal powers. The aim of this paper is to outline these developments and to put them into an explanatory theoretical context. How can the development from regulatory agencies with only an auxiliary role in the process of European policy-making to supervisory authorities with defined legal powers be explained? Even more important, is there really a qualitative leap from one regulatory body to the other?
Table of contents
1. Introduction
2. In theory: regulatory patterns in the European Union
2.1 Regulation by networks in the European Community– the origins
2.2 Regulation by information – a functionalist logic
3. Financial services regulation in Europe – an institutional analysis
3.1 Four-level approach of financial services regulation
3.2 Regulation with ‘teeth’ – the creation of supervisory authorities
3.3 The consequences of enhanced powers
4. Process tracing: the power of belief systems
4.1 Advocacy Coalition Framework – the basic principles
4.2 Advocacy coalitions in financial services regulation
4.3 A qualitative leap?
5. Conclusion
6. References
How has financial regulation in Europe changed since 1999?
Regulation has evolved from a network-based approach with auxiliary agencies to a more centralized system of supervisory authorities with direct legal powers, especially following the 2007 financial crisis.
What are the three new European financial supervisory authorities?
Created to strengthen the framework, they are tasked with overseeing banking (EBA), securities and markets (ESMA), and occupational pensions and insurance (EIOPA).
Why did member states give up regulatory power to the EU?
Governments sought to increase the credibility and objectivity of information. Deepening economic integration and the need for a unified response to international competition made transnational regulation more efficient.
What is the 'Advocacy Coalition Framework' in this context?
It is a theoretical model used to explain policy change by analyzing groups of actors (coalitions) who share belief systems and compete to influence the institutional architecture of financial regulation.
Is there a 'qualitative leap' in the new supervisory framework?
The paper examines whether the shift from advisory agencies to authorities with legal powers represents a fundamental change in governance or merely an incremental expansion of existing structures.
