Luxembourg Financial Regulatory News:
5 Procedural Rights that Govern ESMA Investigations under Commission Delegated Regulation (EU) 2025/754 in Luxembourg and EU, supplementing Regulation (EU) 2023/2631
1.0 Introduction: Peeking Behind the Curtain of Financial Regulation under Commission Delegated Regulation (EU) 2025/754 in Luxembourg and EU, supplementing Regulation (EU) 2023/2631
Financial regulators often seem like an intimidating and unassailable force. Bodies like the European Securities and Markets Authority (ESMA) are tasked with maintaining market stability, a mission that grants them significant power to investigate and penalize individuals and firms. Their rulebooks are perceived as complex, dense, and designed solely to empower the enforcer.
But what really happens when ESMA investigates someone? Is it a one-sided affair where the subject has little recourse? A close look at the procedural rules that govern these investigations reveals a different story. By examining a specific EU regulation governing ESMA’s investigations into external reviewers of European Green Bonds (Commission Delegated Regulation (EU) 2025/754), we can uncover a system built on surprisingly fair, reasonable, and even counter-intuitive principles. This article pulls back the curtain to reveal five of the most impactful takeaways from this rulebook, showing how ESMA’s power is balanced with clear procedural rights.
For more details, please refer to the official link by CSSF at https://www.cssf.lu/en/Document/commission-delegated-regulation-eu-2025-754-of-16-april-2025/
2.0 Takeaway 1: Your Right to Defence is Formally Protected under Commission Delegated Regulation (EU) 2025/754 in Luxembourg and EU, supplementing Regulation (EU) 2023/2631
A core principle embedded in the regulation is the guaranteed “right to be heard.” An investigation is not a secret process where a decision is made behind closed doors. Individuals and firms subject to an investigation by ESMA are granted a formal and structured opportunity to defend themselves.
The regulation details several specific rights that form the foundation of this defence:
• The right to comment: After an investigating officer completes their inquiry and drafts a statement of findings, the person subject to the investigation has the right to make written comments within a reasonable time limit of at least four weeks.
• The right to counsel: Throughout the entire process, the person under investigation is allowed to be assisted by a legal counsel of their choice.
• The right to access the file: To adequately prepare their defence after receiving the investigator’s findings, the subject is entitled to access the investigation file.
This structured due process is significant because it provides crucial checks on regulatory power. Access to the file prevents a “trial by ambush,” ensuring the subject can see the evidence against them. The right to counsel helps level the playing field against a powerful regulatory body. These mechanisms ensure that ESMA’s final decision is based on a complete factual record—one that includes the subject’s perspective—rather than solely on the investigator’s initial conclusions.
3.0 Takeaway 2: The Clock is Ticking—Regulators Don’t Have Forever
The threat of regulatory action cannot hang over a person or company indefinitely. The regulation establishes a “limitation period,” which acts like a statute of limitations for ESMA’s enforcement powers and provides essential legal certainty.
ESMA’s power to impose fines and penalties is subject to a five-year limitation period. This clock starts ticking from the day the infringement occurred or, in the case of an ongoing infringement, from the day it ceased. Furthermore, the power to enforce a decision—that is, to actually collect a fine—has its own separate five-year limitation period, which begins only after the decision becomes final.
However, this five-year clock doesn’t run unchecked. The rules specify that any investigative action taken by ESMA interrupts the period, effectively restarting the five-year clock from the date of that action. Conversely, if a decision is appealed to ESMA’s Board of Appeal or the Court of Justice of the European Union, the limitation period is suspended, pausing the clock for the duration of the proceedings. This demonstrates a sophisticated balance, preventing indefinite threats while giving the regulator the necessary time to conduct thorough investigations and navigate the appeals process.
4.0 Takeaway 3: In an Emergency, They Act First—But You Get Heard Second
The regulation acknowledges that there are times when immediate action is necessary to prevent “significant and imminent damage to the financial system.” In these urgent situations, ESMA is empowered to adopt an “interim decision” without first giving the subject an opportunity to be heard.
However, this emergency power is only the first half of the story. The regulation immediately balances this with a crucial second step. As soon as possible after the interim decision is made, ESMA must give the person the opportunity to make submissions and be heard. A final, confirmatory decision can only be adopted after this has occurred.
This two-part process is a fascinating compromise. It provides the regulator with the speed needed to protect the market in a crisis while ensuring that the fundamental right to defence is not eliminated, but simply deferred until the immediate threat has been contained.
5.0 Takeaway 4: The Penalty Stops When the Problem Does
One of the tools ESMA can use is a “periodic penalty payment,” which is essentially a fine calculated per day of non-compliance. While this may sound severe, the regulation clarifies its ultimate purpose: to compel action, not just to punish.
The rule’s design is focused on correcting behavior and restoring compliance. The rule makes it clear that once the external reviewer or other person under investigation complies with the decision, the penalty stops. As Article 3(4) puts it:
ESMA shall no longer impose a periodic penalty payment once the external reviewer or the person subject to the proceedings has complied with the relevant decision…
This provision is a clear signal that the goal is resolution. As soon as the person or firm takes the required action and rectifies the issue, the daily financial penalty ceases. This transforms the penalty from a purely punitive measure into a direct incentive for compliance.
6.0 Takeaway 5: Fines Are Held in Escrow, Not Cashed Immediately
What happens to the money once a fine is paid? The regulation ensures the process is deliberate and respects the full legal process, including appeals. The money does not go directly into ESMA’s operating budget.
Instead, the funds collected from fines and penalties must be placed in a separate, interest-bearing account. They remain there while any appeals are pending. Only after the decision is final and all rights to appeal have been exhausted or the time limit has lapsed are the funds transferred to the general budget of the European Union.
This procedure reveals a system built on prudence and fairness. It underscores the principle that decisions are not final until the judicial review process is complete. This demonstrates that the imposition of fines is not a “cash grab” for the regulator but a formal process that fully respects an entity’s right to challenge the decision before the penalty becomes an irreversible part of the EU’s budget.
7.0 Conclusion: Power, Balanced with Procedure
Under Commission Delegated Regulation (EU) 2025/754 in Luxembourg and EU, digging into the procedural rules that govern a powerful financial regulator like ESMA uncovers a foundational commitment to due process. The five takeaways explored here—the right to defence, limitation periods, balanced emergency actions, compliance-focused penalties, and the careful handling of funds—all point to the same theme: power is balanced with procedure.
Even in the high-stakes world of financial oversight, the system is structurally designed to incorporate fairness, transparency, and the rights of the individual. It serves as a clear model of accountable authority. This leaves us with a final thought: in an increasingly complex world, how can we ensure that all powerful institutions have such clear checks and balances built into their own rulebooks?
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The pre-filled example templates for multiple CSSF Circulars and EU regulations applicable to small to medium sized financial institutions in Luxembourg should be available at https://ratiofy.lu/templates/ from Christmas 2025.
