5.1. Draft cost-benefit analysis / impact assessment

Article 16(2) of the EBA and ESMA Regulations provides that the EBA and ESMA should carry out an analysis of 'the potential related costs and benefits' of any Guidelines they develops. This analysis should provide an overview of the findings regarding the problem to be dealt with, the solutions proposed and the potential impact of these options.

A. Problem identification

Weaknesses in corporate governance, including inadequate oversight by and challenge from the supervisory function of the management body in a number of credit institutions and investment firms, have contributed to excessive and imprudent risk-taking in the financial sector which has led in turn to the failure of individual institutions and systemic problems.

The global financial crisis that broke out in 2008 has provided evidence of the adverse consequences of deficiencies in financial institutions' management and internal controls, amongst other conditions. The scale and cost of that crisis indicate the systemic effects that insufficient risk management and failures of individual institutions can have on the integrity of the broader financial market and ultimately on the stability of the financial system.