EU financial markets regulator to ‘scale up data capabilities’

The European Securities and Markets Authority (ESMA) has published a data strategy for 2023-2028 setting out its plans to ‘scale up data capabilities’ and ‘facilitate the use of new data-related technologies’.

The Paris-headquartered authority, which is the financial markets regulator and supervisor across the 27-member European Union (EU), is looking to cut reporting compliance costs by regulated entities, enable the effective use of data at EU and national level, and make data more broadly available to the public.

Structural changes include the creation of a ‘data intelligence and technology’ department to ‘cover the full set of competences related to the entire data lifecycle by the establishment of centres of excellence supporting internal and external stakeholders’.

The new strategy is a successor to its previous data strategy, which was developed in 2017, and reflects EU regulatory developments such as the recently approved Markets in Crypto Assets (MiCA) regulation and the European Commission’s strategy on supervisory data in EU financial services (published in December 2021); and technological developments, for example in fields such as distributed-ledger technology (DLT) and artificial intelligence (AI).

Its publication comes about eight months after the publication of ESMA’s strategy for 2023-2028, which included ‘facilitating technological innovation and effective use of the data’ as one of two ‘thematic drivers’ (the other was ‘enabling sustainable finance’).

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Moving beyond ‘opportunistic’

The strategy’s publication follows an assessment of the ESMA data capabilities undertaken at the end of 2021 that concluded that although data was a ‘strategic driver’ for the authority it was ‘mostly on an “opportunistic” maturity level’.

‘Initiatives and efforts to exploit data are not systematically co-ordinated internally, and capacity to analyse, integrate, organise and access data could be more advanced. ESMA data governance is also too complex and not clearly defined enough, which strains resources in co-ordination efforts,’ the 26-page strategy document, which was published on 15 June, acknowledges.

Part of the strategy is a ‘data vision’, which has three underlying drivers: improving data efficiency (‘reducing compliance costs of market participants and streamlining the use of data’); improving data capabilities for both ESMA and national competent authorities (NCAs); and putting data ‘at the core’ of ESMA (‘providing evidence based on data to support ESMA decisions and activities, including outcome-driven supervision’).

There are six strategic objectives: to enhance ESMA’s role as a ‘data hub’; to improve access to data ‘of public interest’; to enable ‘cutting-edge, smart and effective data-driven supervision’; to pursue ‘thought leadership’; to promote ‘efficiency, transparency and co-operation in data policy and reduce reporting burdens’; and to ‘systematically’ use data for evidence-based policy development, supervision and risk assessment.

The new data intelligence and technology department, which is being overseen by Fabrizio Planta, needs to ‘overhaul’ ESMA’s data governance, with the authority ‘aiming to leverage industry best practices and frameworks’ as it looks to become ‘more efficient and nimbler as an organisation, while ensuring transparency and clear communication with its stakeholders’. Planta has previously held roles including head of ESMA’s markets and data reporting department, and head of its post-trading unit.

RELATED ARTICLE SupTech on the rise: financial supervisors explore innovative technology – write-up of SupTech session at the Global Government Fintech Lab 2023 (the session featured representatives from Norway, Croatia and Bermuda describing how their authorities are using supervisory technology and barriers to greater uptake)

More modern tools and collaboration

Sitting under the objectives is a plan to ensure ‘efficient use of modern analytical tools’ for both ESMA’s direct supervision and within NCAs, ‘in particular by carrying out projects using novel technologies, such as AI and web scraping, that will allow gathering knowledge and experience and the joint development of supervisory tools’. Reference is made to ‘advanced machine learning’ and natural language processing (NLP).

ESMA plans to facilitate pilot projects and ‘experimental environments’ in order to increase collaboration with and between NCAs and to develop joint expertise around new data-related technologies such as regulatory technology (RegTech) / supervisory technology (SupTech) and facilitate their day-to-day adoption.

As an example of work in this area, the strategy mentions a study, conducted by ESMA in the context of the EU’s DLT pilot regime, on how ‘on-chain’ data can be retrieved (the final report was published in September 2022; ‘on-chain’ means a transaction carried out on a blockchain). The EU regulation on a pilot regime for market infrastructures based on DLT aims at developing the trading and settlement for ‘tokenised’ securities. It started start applying on 23 March 2023.

Further planned activity includes greater collaboration with the Frankfurt-headquartered European Central Bank (ECB) on common data initiatives, ‘particularly on SupTech, RegTech and technological innovation, including in the area of crypto assets’.

RELATED ARTICLE ECB looks to ‘Project Olympus’ to transform banking supervision using SupTech – an article (20 September 2022) on European Central Bank Supervisory Board member Elizabeth McCaul describing an ambition to “transform banking supervision in the next five years”

Mapping out the future

The strategy includes a roadmap, divided into about three pages-worth of actions, milestones and outputs.

Among these is the development of a proof-of-concept for the detection of potential market abuse cases using AI techniques, to be achieved during ‘2023-2024’.

In a further section on resourcing, ESMA states that it intends to explore possible alternative approaches to co-ordination of joint projects with NCAs.

The document states that the proof-of-concept project for detection of potential market abuse cases using AI techniques is ‘already a good example of a project that will be developed within a group of 16 NCAs, with facilitation by ESMA, and where it is expected that the outcomes of the project will be shared with all NCAs’.

‘In collaboration with NCAs, ESMA will explore the possibilities of similar projects done by groups of NCAs, with participation or facilitation by ESMA, with the view to share the deliverables and experience with the entire supervisory community,’ according to the strategy.

It mentions that joint procurements for tools and data ‘could also be considered’.

Set up in 2011, ESMA has about 330 staff in total, as well as employing trainees and consultants in some areas. All staff are based in the French capital.