Brussels’ rules of etiquette

The on-going flood of new regulations and directives coming out of Brussels continues. With all its consultation papers, drafts, technical or implementing standards, recitals and articles, it is hard to keep your head above the waterline. Here are a few pointers to help you structure that paper flood into some more manageable channels.

European laws and legislations are formally referred to as acts. An act is a collective term for a regulation or a directive (it also includes a decision, a recommendation or an opinion, but let’s ignore that for the sake of simplicity). A Directive requires individual member states to pass a law to achieve a particular result, while a Regulation comes into effect immediately without member states’ actions.

The structure of all acts is as follows:

Title: short, concise and precise;
Citations: setting out the legal basis of the act and the main steps in the procedure leading to its adoption;
Recitals: setting out reasons for the act. Most importantly, they shall not contain political opinions or be prescriptive, rather they should use non-mandatory and descriptive language;
Articles: Finally, the actual act starts. An act comprises many different articles. Usually, Article 1 discusses the scope and Article 2 provides the definition of any relevant term used in the subsequent law.

The process to pass an act is rather lengthy, as the example of the MiFID review described in a previous blog illustrates. In general, the act can be referred to as Level 1 text. Following that, the Level 2 text digs into the details and provides more practical instructions. ESMA, the regulator for European financial markets, usually drafts these Level 2 texts. These drafts are called regulatory standards or technical standards. In order to draft the standards, ESMA initiates another round of market consultations, similar to the European Commission when they wrote the initial Level 1 text.

At the moment EMIR is at exactly this stage of the process. The Level 1 text has been agreed and ESMA has until 30th September 2012 to draft the technical standards. When ESMA has a final draft of the technical standards, it will submit this to the European Commission. The Commission may then decide to endorse the draft and to declare it a delegated act. That act then becomes legally binding. A good example of this can be seen with the recently finished European Short Selling Regulation and its four different implementing /delegated acts.

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