The institutional landscape of financial regulation in the United States (US) and the European Union (EU) is currently undergoing a divergent transformation, where the traditional paradigm of independence of financial supervision is being redefined by distinct political and constitutional pressures. While both the US and the EU once shared a normative commitment to the arm’s length model of technocratic governance, their current trajectories reveal a fundamental rift. The central argument of this article is that while the EU’s adoption of constitutional and quasi-constitutional safeguards fosters stable and predictable supervisory outcomes, the US model’s increasing responsiveness to political shifts, though arguably more democratic, inherently risks supervisory volatility. In the EU context, independence has evolved into a functional, supranational solution to the problem of governing a fragmented financial system. Conversely, in the US, this independence has devolved into a constitutional battleground over the legitimacy of administrative power and democratic control.

The constitutional entrenchment of independence for financial supervisors and central banks is fundamental to preserving monetary stability, regulatory and supervisory credibility in modern financial systems. By insulating these institutions from political pressures, constitutional and quasi-constitutional rules ensure that decisions on monetary policy and financial regulation and supervision, are guided by technical expertise and long-term economic objectives rather than political considerations, which may be short term and not in line with long term sustainability goals. Constitutional safeguards, such as secure mandates, protected appointment procedures, financial autonomy and statutory immunity, help prevent regulatory capture and ensure that supervisory decisions are based on prudential risk assessments rather than national political or commercial interests.

The independence of central banks and financial supervisors also serves to balance technocratic authority with democratic accountability. While these institutions exercise significant power that affects the public at large, constitutional frameworks define their mandates, transparency obligations, and ethics policies. The necessity of these safeguards was underscored by the Wirecard scandal, where revelations that national supervisory employees were trading the very shares they were tasked with investigating exposed a profound breakdown in institutional integrity. In response, modern directives have institutionalised stricter staff cooling-off periods and absolute trading prohibitions to prevent such conflicts of interest. This combination of autonomy and accountability preserves the rule of law and public trust. Ultimately, constitutional and quasi-constitutional safeguards of independence are essential, not only for effective governance but also for ensuring that monetary policy and financial regulation remain stable, credible, and legitimate within democratic constitutional orders.

It is essential to recognise that the independence of financial supervisors is not merely a domestic preference but a cornerstone of the global financial architecture. This is deeply rooted in international standards, most notably the Basel Core Principles for Effective Banking Supervision, as well as the objectives and principles set forth by the International Organization of Securities Commissions (IOSCO) and the International Association of Insurance Supervisors (IAIS). Additionally, within the IMF FSAP framework, financial independence is treated as a core institutional prerequisite for effective supervision. By benchmarking national supervisory architecture against international standards, the IMF evaluates both financial supervisors in terms of funding autonomy, budgetary control, and resource adequacy.

These bodies have long maintained that for supervision to be effective, authorities must possess operational independence, transparent processes, and sound governance. By adhering to these standards, jurisdictions signal their commitment to financial stability, investor protection and market integrity. However, as the US, the historical progenitor of many of these norms, begins to contest the autonomy of its own regulators, the ripple effects are likely to be felt globally. Both the Federal Reserve and the Consumer Financial Protection Bureau (CFPB), have become the subjects of intense political contestation and Presidential executive orders that seek to reduce the independence of regulatory agencies, raising concerns about their ability to operate autonomously. Such a shift threatens to undermine the normative force of international standards, providing a convenient precedent for regimes in jurisdictions, where supervisory independence is already fragile or disregarded, potentially leading to a broader erosion of global financial oversight.

In stark contrast, the EU has moved toward a multi-level regulatory framework that prioritises independence at supranational and national levels, as a means of upholding international standards and ensuring high-level financial supervision. Following the great financial crisis, the EU established the European Supervisory Authorities (ESMA, EBA, and EIOPA), and in the aftermath of the sovereign debt crisis, the Single Supervisory Mechanism (SSM), to harmonise regulation and strengthen supervision. The SSM, housed within the European Central Bank, benefits from a treaty-based independence, that is far more robust than the statutory protections found in other European agencies. Independence of financial supervision within the EU is further reinforced by the 2023 European Supervisory Authority’s criteria on the independence of supervisory authorities (‘the ESA criteria’), a soft law instrument that stipulates the conditions for supervision that is free from the influence of national governments or market participants.

The ESA criteria came about as a result of the revised ESAs Regulations, which inter alia  require the European Supervisory Authorities to foster and monitor supervisory independence. By reference to the European Securities and Markets Authority (ESMA) Regulation, article 8(1)(b) requires ESMA to promote a common supervisory culture that supports consistent application of EU law and supervisory independence. In addition, Article 30(3) provides that peer reviews shall assess the degree of independence and governance arrangements of competent authorities.  Structured around four key pillars, operational, personal, and financial independence, alongside accountability and transparency, these standards seek to ensure that supervisors have the governance and internal controls in place for decision making, which is independent from industry or government influence. Specifically, the criteria mandate operational independence, ensuring authorities possess the legal powers and resources to function without undue interference; personal independence, which requires transparent rules for the appointment and removal of staff and governing bodies; financial independence, guaranteeing sufficient resources to fulfil mandates; and accountability and transparency in decision-making processes.

By embedding the ECB’s independence at the treaty level, which extends to the supervisory work within the SSM, and the adoption of the ESAs criteria, the EU has sought to ensure that supervision is shielded from inter alia the immediate pressures of national electoral cycles, thereby fostering independent decision making in financial supervision. The EU’s emphasis on independence of financial supervision should also be assessed in light of the provisions of Capital Requirements Directive (CRD), which reinforce the need for financial supervisors to act independently in the exercise of their supervisory powers.

The introduction of Article 4a into the EU Capital Requirements Directive marks a pivotal shift toward a more robust and unified European financial architecture by codifying the supervisory independence of competent authorities through a comprehensive framework of structural and ethical safeguards. In practice, this article establishes a “firewall” between regulators and external pressures by prohibiting supervisors from seeking or taking instructions from national governments, EU bodies, or private interests, while simultaneously mandating objective appointment criteria, clear term limits, and stringent cooling-off periods to neutralise the “revolving door” risk and prevent conflicts of interest. By harmonising these standards, the directive seeks to ensure that oversight is rigorous and free from capture. Therefore, it may be argued that the CRD further reinforces the broader constitutional commitment to preserving financial supervision from political and industry influence, by translating the principle of independence into a legal guarantee of stable and credible financial supervision.

Nonetheless, while the EU has successfully adopted a constitutional and quasi-constitutional safeguards for independence of financial supervision, the practical application of these standards across a diverse union remains a complex endeavour. National supervisors are often situated within domestic political and administrative contexts, relying on national budgets and maintaining close interactions with local industry stakeholders. This may at times pose a challenge to independent financial supervision. It was precisely these structural weaknesses that were exposed by the Wirecard AG case. The scandal revealed how national political and institutional constraints could undermine effective oversight. Arguably, this episode generated strong political momentum for reform, prompting the EU to strengthen supervisory independence. In this regard, the reforms adopted in the context of the CRD review require Member States to impose cooling-off periods for supervisory staff moving to supervised entities, prohibit the trading of financial instruments issued by supervised institutions, and require annual declarations of financial interests by supervisory personnel. These provisions were introduced against the backdrop of governance failures, such as in the Wirecard case, including instances in which supervisory staff were found to have traded shares in institutions they were responsible for supervising, highlighting the need for stronger ethical and conflict of interest safeguards within financial supervision.

It follows that constitutional and quasi-constitutional safeguards alone may not always ensure consistent independence of financial supervision across the EU. To address this challenge, the ESAs are mandated to conduct supervisory convergence work. In this regard, the ESAs have the power to carry out peer reviews, which seek to ensure that independence criteria are not merely legal abstractions but that they are being followed in practice at the national level. This review and monitoring of autonomy stands in stark opposition to the current climate in the US, where the very foundations of supervisory independence are being systematically attacked.

Ultimately, the widening gap between these two systems underscores a fundamental trade-off between institutional stability and direct democratic accountability. The US model’s increasing susceptibility to shifting political tides ensures that financial regulation remains a site of active public contestation, yet this responsiveness invites a “pendulum effect” where regulatory regimes are periodically dismantled and rebuilt according to partisan priorities. In contrast, the EU has leveraged constitutional and quasi-constitutional “firewalls” to move decision-making into a technocratic sphere, offering a global benchmark for predictability and expertise at the potential cost of perceived accessibility. As the US litigates the very legitimacy of the administrative state and the EU struggles to bridge the gap between supranational standards and national realities, the tension between functional independence and democratic control remains the defining challenge. In the final analysis, the fragility of independent financial supervision lies in this escalating tension, while the US risks eroding its regulatory credibility through political volatility, the EU risks its democratic legitimacy through technocratic insulation, leaving the global financial architecture caught between the search for stability and the demand for accountability.

Reference

Buttigieg CP, Witzel LG and Zimmermann BB, ‘Soft Regulatory Capture and Supervisory Independence: A Case-Study on Wirecard’ (2023) 20(4) European Company and Financial Law Review 623

European Supervisory Authorities, ‘Joint ESAs criteria on supervisory independence’ (JC 2023 17, 25 October 2023).

Exec Order No 14215, 90 Fed Reg 10447 (18 February 2025).

Updated 19.03.2026

The opinions expressed in this paper are solely those of the authors at the time of writing and do not necessarily reflect those of the MFSA, EBA or ESMA.

Prof. Christopher P. Buttigieg, is the Chief Officer responsible for Supervision at the MFSA, has over 25 years of experience in regulation and supervision, is a member of the Board of Supervisors of the European Banking Authority (EBA) and European Securities and Markets Authority (ESMA), a member of the ESMA Management Board, was the Chair of the ESMA Data Standing Committee (until December 2022) and is currently the Chair of the ESMA Proportionality and Coordination Committee. He is an Associate Professor in the Banking, Finance and Investments Department of the University of Malta. Prof Buttigieg is a member of the Board of Trustees of ERA, the academy of European Law. LinkedIn Profile: https://mt.linkedin.com/in/christopher-p-buttigieg-1242a839?trk=public_post_feed-actor-name

Ivan Carl Saliba is a Technical Advisor to the Chief Officer Supervision at the Malta Financial Services Authority (MFSA). He coordinates engagement with the European System of Financial Supervisors (ESFS) and provides technical support for MFSA’s representation on the ESMA and EBA Boards of Supervisors. Prior to joining the MFSA in 2022, Ivan Carl spent nearly a decade at the Ministry for Finance as Director of the Research Unit. He holds an MSc in Finance and Economics and has lectured at the University of Malta’s Institute for European Studies for nearly twenty years.