Soft rulemaking through multi-level administrative practice: replicating the aesthetics of law

ABSTRACT The complexity and the dynamic evolution of global finance require forms of transnational regulation that do not rely solely on traditional lawmaking and call for the participation of actors at multiple levels. One of the examples of these forms is regulation through legally non-binding guidelines and recommendations produced by the European Supervisory Authorities and enforced by national authorities. Even if these soft law acts cannot be considered as law in the traditional sense, their real impact is very much law-like. The only distinction from traditional legal acts seems to be the non-mandatory wording and the lack of direct enforceability or judicial control. Otherwise, these acts replicate the aesthetics of law. This article argues that the entire transnational administrative practice, which consists of soft rulemaking and the effective enforcement of such rules, is powerful because it successfully mimics law-making and law enforcement procedures.


Introduction
The global dynamics of banking and finance present regulators with extraordinary challenges.Financial markets and financial institutions are major players in the global economy and their activities have a significant impact on states, companies, and individuals.As the financial and economic crisis of 2008 has demonstrated, effective financial supervision is necessary, because the lack of an adequate regulatory framework negatively affects the stability of the global financial system as a whole.Moreover, the dynamic development and constant changes in this sector require rapid and appropriate regulatory responses.The ability of the global finance to cross state borders without significant obstacles, together with the dynamism and the speed of the whole field, indicate that the regulation through traditional lawmaking in the hands of national legislators is neither sufficient, nor adequate.On the contrary, the complexity of the field calls for alternative forms of transnational regulation, which go beyond the state, do not rely solely on traditional lawmaking and involve actors at multiple levels.This includes regulation made by informal networks, 1 and through coordination or cooperation between national and international authorities. 2oncrete non-traditional regulatory tools usually appear in a form of legally non-binding recommendations, suggestions, guidance, guidelines, standards, advisory prescriptions, best practices, reports or opinions, and they can be subsumed under the umbrella term 'soft law'. 3Soft rulemaking in the field of finance and banking is not marginal.As already described in the literature, 4 global financial regulation has made extensive use of soft law techniques.The reason seems to be the fact that compliance with legally nonbinding rules can be more efficiently achieved through market pressure or other alternative ways of enforcement, such as peer pressure, naming-andshaming, or networking deliberation, 5 and that the legitimacy of such rules is derived from the expertise of various global actors. 6n example of the response to the transnational challenges posed by financial regulation and of the use of non-traditional regulatory tools is financial supervision in the EU where traditional lawmaking through binding legislation is complemented with soft law instruments made through administrative cooperation at both EU and national levels.At the EU level, there are three independent European Supervisory Authorities (ESAs), namely EBA (European Banking Authority), ESMA (European Securities and Markets Authority) and EIOPA (European Insurance and Occupational Pensions Authority). 7They adoptwith the involvement of national competent authorities (NCAs)legally non-binding guidelines and recommendations.Consequently, these soft law acts are applied at the national level when the NCAs enforce them on financial institutions as their ultimate addressees.
The soft law rules made and enforced within the cooperation between EU agencies 8 (supranational public bodies) and national competent authorities (national public bodies) fits perfectly into what Avbelj describes as the public cluster of administrative transnational law: It consists of the activities of state organs, organs of international organisations and organs of supranational organisations, and helps to administer and implement policies contained in more general rules. 9In particular, rather general rules of EU financial regulation are contained in legally binding directives or regulations, 10 and the ESAsin the cooperation with the NCAselaborate them further into more detailed non-binding guidelines and recommendations.
Formally, ESA guidelines and recommendations are not lawbecause they have not been adopted by a proper legislator, 11 and, above all, because they have no binding legal force and have solely persuasive authority. 12However, even if their purpose is merely to suggest ways in which binding rules contained in EU directives or regulations should be followed in practice, their detail and depth show that they are capable of proposing specific new rules based solely on the binding EU acts.In this sense, they are a result of 'shadow rulemaking', 13 which is not marginal.The total production of ESA soft law acts is counted in the hundreds. 14oreover, national authorities effectively enforce these shadow rules from financial institutions under their supervision. 15In this scenario, guidelines and recommendations remain relatively voluntary vis-à-vis national authorities but become de facto binding on financial institutions as their ultimate addressees.Within the regulatory practice and depending on the enforcement approach of the national authorities, the mere suggestion, recommendation, or invitation is transformed into a (legal) obligation.
Cooperation between the EU authorities and national authorities through soft rulemaking shows a significant regulatory impact of administrative transnational law.This article aims to unravel the main cause and the driving force behind such a significant impact.It argues that although the production of guidelines and recommendations cannot be considered as lawmaking in the traditional sense, these regulatory instruments are law-like, and their actual influence is very much law-like.
The article examines the ESA soft rulemaking through the concept of the technical aesthetics of law, which was proposed by Michaels and Riles, 16 and elaborated and applied by other scholars in the field of critical legal studies, 17 legal sociology, 18 or legal anthropology and ethnography. 19The concept refers to the aesthetics as look or appearance and focuses on the legal technique. 20It provides a framework that emphasises the legal form and its agency, and helps to unravel how 'law' is materialised, known, and recognised as 'law', and in what aspects it differs from 'non-law'. 21Most importantly, it offers a perspective, which appears to be useful especially in the context of transnational law and governance, because it illuminates how particular forms shape the legal knowledge and how power or power relations function through the 'aesthetic dimensions' of law. 22gainst this background, the article asserts that the ESA soft regulation mimics the technical aesthetics of law: ESA soft law acts are adopted through a process that resembles the legislative process.Except for the use of non-binding language, they look like binding legal acts.They take rather abstract and general provisions of binding acts (EU directives or regulations) as their legal basis and develop them into more concrete and detailed rules.Moreover, national competent authorities effectively enforce these soft law acts as if they were law.Thus, the article seeks to show that the whole multi-level administrative practice consisting of soft law-making, and the effective enforcement of such rules is powerful because it successfully mimics lawmaking and law enforcement procedures.

Technical aesthetics of guidelines and recommendations
By their respective founding regulations,23 ie, legally binding EU acts, the ESAs are explicitly empowered to adopt guidelines and recommendations24 in order to establish consistent, efficient and effective supervisory practices within the European System of Financial Supervision, and to ensure the common, uniform and consistent application of Union law.These acts are addressed both to the national competent authorities and to the financial institutions under their supervision. 25By definition, guidelines and recommendations are supposed to be without binding legal force. 26nless a further examination of concrete acts proves otherwise, both guidelines and recommendations issued by the ESAswhen taken in isolationcan be considered as not producing binding legal effects27 and hence as pure and genuine soft law. 28However, this categorisation is not capable of accurately capturing their real regulatory power.The mere fact that guidelines and recommendations are usually worded in non-mandatory terms and not followed by direct legal sanctions in the event of non-compliance does not mean that they are harmless or insignificant.There are specific aspects of their content and normative context that may explain why the impact of these soft law acts is very much law-like.

The content of ESA guidelines
The structure and the general appearance of ESA guidelines 29 suggest that, although they use a non-mandatory language, these acts seek to look and to function like standard binding legal acts of general application.When assessing the content of guidelines, two techniques of law mimicking can be identified: First, ESA guidelines take general binding legal rules as their legal basis and elaborate them into more concrete rules of conduct.Second, their overall appearance is reminiscent of binding legal acts.
The first technique is the natural repercussion of the overall regulatory setting and the conditions and purpose of soft rulemaking as embedded in the founding regulations of the ESAs.As already mentioned above, the objective of ESA guidelines is to contribute to the efficient supervisory practices within the European System of Financial Supervision and to ensure the common, uniform and consistent application of Union law. 30 In the light of this objective, together with the rules on (non-)delegation, 31 which prohibit the delegation of legislative powers to EU agencies, the ESA guidelines can only further elaborate on existing hard law rules (contained in EU directives and regulations), and they cannot include separate rules that would differ from these EU hard law rules.In other words, ESA guidelines cannot substitute binding EU legislation, but only complement it.They can be considered as an attachment or accessory to the existing binding rules, and they serve rather as tools helping with the interpretation, implementation, and application of the binding rules usually contained in EU directives or regulations.
The founding regulations define the scope of action of each of the ESAs in Art.1(2), which includes a list of binding EU acts that can be interpreted or elaborated upon in guidelines.Sometimes the provisions of the directives or regulations contain an explicit invitation to the ESAs to set out the details in guidelines. 32In general, however, each ESA is empowered to produce 29 Since both guidelines and recommendations under Art.16 of the founding regulations have the same basic legal quality and they differ only in the potential scope of their addressees, the following text will, for the sake of brevity, refer only to guidelines. 30Art. 16 of the founding regulations. 31 guidelines on any subject or on any provision contained in the acts, which delimit its scope of competence.However, looking at the text of the guidelines, it is apparent that they do not usually provide mere guidance on how to interpret a particular term or rule included in an EU directive or regulation. 33They do not serve as an explanatory tool, which would only help to understand the text of binding provisions, or which would suggest how to interpret certain terms used in such provisions in binding acts.On the contrary, they use the provision of the directive (or a regulation) as a legal basisas an authorisation on the basis of which they suggest particular steps to be taken in practice, usually by national competent authorities or financial institutions, in order to comply with (usually vague or general) requirements contained in the binding EU acts.
A good example of this is provided by Directive 2013/36/EU. 34Its Art.74 requires financial institutions to have 'robust governance arrangements, including a clear organisational structure with well-defined, transparent and consistent lines of responsibility'.This is a rather abstract, vague, and open obligation, which can be interpreted and consequently implemented in a variety of ways.At the same time, however, paragraph 3 of this provision gives the EBA a mandate to issue guidelines that would elaborate on such arrangements, processes, and mechanisms.
In its 'Guidelines on internal governance under Directive 2013/36/EU', 35 the EBA further elaborates on the requirements of Art.74 and other provisions of the Directive.The document explicitly admits that these provisions present a 'legal basis' for the Guidelines, and it suggests, eg, rules on the role and responsibilities of the management body, the risk committee, and the audit committee.It also elaborates on the governance framework and recommends rules on risk management or on internal control.
These rules are very detailed and rather technical.For example, the Guidelines articulate the following suggestions: The management body in its management function should constructively challenge and critically review propositions, explanations and information received when exercising its judgement and taking decisions.The management body in its management function should comprehensively report, and inform regularly and where necessary without undue delay the management body in its supervisory function of the relevant elements for the assessment of a situation, the risks and developments affecting or that may affect the institution, eg, material decisions on business activities and risks taken, the evaluation of the institution's economic and business environment, liquidity and sound capital base, and assessment of its material risk exposures. 36e risk committee should collaborate with other committees whose activities may have an impact on the risk strategy (eg, audit and remuneration committees) and regularly communicate with the institution's internal control functions, in particular the risk management function. 37stitutions should develop and maintain a culture that encourages a positive attitude towards risk control and compliance within the institution and a robust and comprehensive internal control framework.Under this framework, institutions' business lines should be responsible for managing the risks they incur in conducting their activities and should have controls in place that aim to ensure compliance with internal and external requirements.As part of this framework, institutions should have internal control functions with appropriate and sufficient authority, stature and access to the management body to fulfil their mission, and a risk management framework. 38ese are just a few examples out of more than two hundred (suggested) rules contained in the given EBA Guidelines.They demonstrate well how a short and rather general obligation contained in the binding directive is elaborated upon and transposed into hundreds of detailed steps and recommended measures to be taken by the financial institutions.Rather than being an interpretative tool, the Guidelines provide suggestions as to how the (rather vague) duty contained in a binding provision should be implemented in the practice.While the given provision of the Directive sets out a rather vague standard or a mere principle, the Guidelines include more concrete rules that give better guidance to financial institutions on how exactly the binding standard should be complied with.
This example of the interplay between the EU directive and the EBA guidelines is a good illustration of the whole regulatory technique in the hands of the ESAs.In this respect, the relationship between a binding provision of a directive and subsequently adopted guidelines of an ESA replicates the differentiation between rules and standards (or rules and principles) as elaborated mainly by legal philosophers. 39Albeit being worded in non-mandatory terms, ESA guidelines appear to do the same as binding provisions of specific rules of a lower legal value, which build and elaborate upon rather abstract and vague rules of a higher legal value.
It is not only the technique of developing general rules into more specific rules that seems to mimic traditional lawmaking.The second technique lies in the overall aesthetics of ESA soft law documents that recalls the content and the structure of binding acts of EU law.
A first glance at the text of ESA guidelines inevitably reveals that they are visually indistinguishable from EU directives or regulations. 40Firstly, ESA guidelines refer to provisions of EU directives or regulations as to their 'legal bases'.This is a straightforward replication of the rule that both directives and regulations must indicate the Treaty provision on which they are based.As follows from the requirements of the rule of law, all acts of secondary legislation must be based on a specific empowerment contained in the Treaties.Similarly, ESA guidelines refer to their legal basis in secondary legislation.
Secondly, under the heading of 'background' or 'rationale and objective' or similar, the ESA guidelines usually explain their (factual and normative) context and the reasons for their adoption.This part of the given document is very similar to the preambles or recitals of binding EU acts, whichafter the introductory 'Whereas'include the same type of information.
Thirdly, the text of ESA guidelines explicitly includes a description of their subject-matter, their scope of application and a section on definitions.This isagainsomething that is typically included also in EU directives or regulations.
Last but not least, there is no lack of 'technical' information, which mostly appears in binding acts under 'final provisions', namely guidance on compliance and reporting,41 information regarding implementation and the timeframe for application, transitional provisions or information on the repeal of previous soft law acts. 42Interestingly, and unlike the suggested rules of conduct that make the core of guidelines, these technical provisions are worded imperatively: 'These guidelines specify … '; 'These guidelines are addressed to … '; 'These guidelines apply from … '; '[Previous guidelines] are repealed with effect from … ' If a reader looks only at these provisions, they cannot be distinguished from the provisions of legally binding acts.
In summary, the appearance of texts of ESA soft law is very much law-like.The only visually recognisable aspect that distinguishes these soft law acts from binding acts of EU law, is the non-mandatory wording of actual rules.The ESA guidelines are not binding and cannot be made to appear so.In practice, this means that they do not contain obligations, but rather suggestions, invitations, or recommendations.Usually, the addressees 'should' take a certain step or 'should' follow a certain rule: All members of the management body should be informed about the overall activity, financial and risk situation of the institution, […] 43 Institutions should ensure a clear allocation and distribution of duties and tasks between specialised committees of the management body. 44e management body should be responsible for the approval of sound strategies and policies for the establishment of new structures. 45ceptionally, it is possible to find provisions of guidelines that are worded in more mandatory terms, using 'shall' or 'must'. 46Sometimes the text of a soft law document recalls the duties expressed in mandatory terms that are present in binding acts ['In accordance with Article 88(1) of Directive 2013/36/EU, the management body must have ultimate and overall responsibility for the institution … ' 47 ].But otherwise, the texts of guidelines follow the principle that one of the markers of non-bindingness of an act, 48 and hence an indicator of 'genuine' soft law, is the use of non-mandatory language. 49Therefore, the concrete steps for implementing the duties stemming from binding provisions are usually expressed using the modal verb 'should'.However, as explained below, the use of non-mandatory language does not imply that compliance with ESA soft law acts is purely voluntary and free from external factors.

Normative context and complementary duties
The mere law-like appearance of ESA guidelines would not explain their true regulatory power.Their ability to shape the normative reality is further reinforced by the overall normative context and the duties of their addressees, which are embedded in binding legal acts.
The founding regulations specify that the addressees of ESA guidelines are both the national competent authorities and the financial institutions, which are under their supervision (usually banks and other entities providing for financial services or products).In other words, the rules contained in ESA soft law are intended for both public actors (intermediaries) and private entities (ultimate addressees).
The precise formulation of the rules with regard to specific addressees may vary.Sometimes the guidelines focus on national competent authorities and tell them what exactly they should dousually what exactly they should enforce from financial institutions.For example, the ESMA Guidelines on Cross-Selling Practices 50 are addressed to national competent authorities and articulate the following advice: Competent authorities supervising firms which distribute a tied or a bundled package should require firms to ensure that clients are provided with information on the price of both the package and of its component products. 51nancial institutions are not the direct addressees; the given guidelines do not recommend anything specific to financial institutions themselves.However, by recommending what national supervisors should require, the guidelines indirectly apply to financial institutions that should, or possibly must provide clients with information on the price of the package and its individual components.
Sometimes, on the contrary, as illustrated by the examples in the previous section, the text of the guidelines is addressed directly to financial institutions, suggesting what they should implement in practice.In such a case, the compliance required of national competent authorities is rather indirect: it is suggested to them what exactly they should require from the financial institutions.
If it were only for the texts of the guidelines themselves, which are usually worded in non-mandatory terms and do not provide any direct sanction for non-compliance, the addressees would have an unlimited leeway to decide whether or not they want to follow the suggestions contained therein.However, the guidelines are accompanied by duties stemming from the binding provisions.
The founding regulations enshrine the 'comply-or-explain' principle with regard to ESA soft law.First, they impose on addresseesboth national competent authorities and financial institutions under their supervisionthe obligation to make 'every effort to comply' with guidelines or recommendations.Although 'every effort' is difficult to define and, in practice, it may be hard to assess whether it has been made, this provisionat least formally limits the discretion of the addressees.When new guidelines are adopted, 50 The ESMA Guidelines which help to clarify the expected standard of conduct and organisational arrangements for those firms engaged in cross-selling practices in order to mitigate any associated investor detriment, 11 July 2016, ESMA/2016/574. 51ESMA/2016/574, Guideline 1, point 12.
their addressees have a legal duty to try to comply with them.For national competent authorities, the duty usually means an effort to enforce the content of the guidelines, while for the financial institutions, the duty can be translated as an effort to implement the proposed rules into their internal systems.Nevertheless, the duty to make every effort to comply does not equal with the duty to comply, so there is scope for not following the suggested steps. 52owever, there are other mechanisms in the founding regulations, which encourage compliance rather than non-compliance.The national competent authorities are obliged to report to the respective ESA whether or not they have decided to comply with the guidelinesand they must do so within two months.Financial institutions have the same obligation, but only if the guidelines themselves contain such a requirement.In any case, the mere duty to inform about the decision within one's own discretion functions as an obstacle to the complete ignorance.Once there is a duty to inform about the decision on compliance, the addressees must inevitably deal with the content of the document in order to be able to make the discretionary choice.
In addition, the notification of non-compliance must be reasoned.If the national competent authority decides not to comply with the guidelines, it must explain the reasons for the refusal to comply.This is the most powerful aspect of the comply-or-explain principle.The addressees (usually the national competent authorities) have to provide for justification why they have decided to exercise their discretion and to abstain from enforcing the rules contained in the concrete guidelines.This mechanism further reduces the national authorities' margin of discretion: If they have a duty to articulate the reasons for non-compliance, they must have solid reasons for doing so.If there are no reasonable obstacles preventing the given authority from complying, the authority is naturally compelled towards compliance.
Another aspect that motivates national competent authorities towards compliance is a 'naming-and-shaming' mechanism, 53 or rather a 'soft' variant of this mechanism. 54The ESAs publish so-called compliance tables indicating which national competent authorities have opted for non-compliance and why. 55Those national competent authorities that choose not to comply are not, strictly speaking, 'shamed' for their decision.However, in view of the awareness that the reasons for non-compliance will be made 52 Cf Niamh Moloney, EU Securities and Financial Markets Regulation (Oxford University Press, 3rd edn 2016) 930. 53Cf Judith van Erp, 'Naming and Shaming in Regulatory Enforcement' in Christine Parker and Vibeke Nielsen (eds), Explaining Compliance (Edward Elgar, 2011). 54Cf Terpan (n 40) 74-75. 55Cf van Rijsbergen (n 15) 124.public, the authorities either have to articulate the justification very carefully, or it seems easier to notify compliance.As a result, national authorities are rather limited vis-à-vis potential non-compliance.The comply-or-explain mechanism has the capacity to make them comply with the guidelines.In practice, this means that the authorities are motivated to enforce the content of the guidelines on the financial institutions under their supervision.
Consequently, the financial institutions' room for manoeuvre is even narrower and, in fact, dependent on the decision of the respective national competent authority.If an authority decides to comply, and hence to enforce the concrete guidelines, the initial duty of financial institutions to 'make every effort to comply' is effectively transformed into a practical duty to comply. 56Failure to do so may expose them to (indirect) sanctions.
For example, the Dutch authority (AFM) applies ESMA guidelines directly within its supervisory tasks, in particular when monitoring whether the supervised financial institutions comply with the Dutch or EU binding rules. 57Similarly, the Czech competent authority (CNB) may require from the supervised entities to submit information and documents demonstrating compliance with legally binding Czech and EU provisions, and the non-compliance with the ESA guidelines may be considered a deviation from the binding legal provisions.As the case may be, if the CNB finds any deficiencies in the internal management of the financial institution that violate the guidelines, it may require the financial institution to take remedial action.Failure to respond to the invitation may result in sanction proceedings.Non-compliance with the guidelines could also result in the financial institution not being granted a banking license. 58Likewise, the French competent authority (ACPR) considers the ESA guidelines to represent best practices.By law, the best practices ought to be adhered to by financial institutions.If these institutions do not follow the guidelines, it means that they do not follow the best practices, which could be perceived as bad practice on their part.On this basis, the ACPR could issue individual warnings, the non-respect of which would essentially expose these financial institutions to disciplinary proceedings. 59It is plausible to expect that other national competent authorities use similar strategies within their supervision and enforcement.
In any event, these examples show that, in practice, financial institutions are not directly sanctioned for non-compliance with ESA guidelines, but the enforcement strategies of national competent authorities are capable of bringing them into compliance.In the hands of national authorities, the content of the ESA guidelines becomes effectively binding on the entities under their supervision.In other words, while the ESA guidelines formally remain soft law, they are enforced by national competent authorities as if they were hard law.
It follows that although the ESA guidelines are worded in non-mandatory terms, and they are not formally equipped with legal sanctions for non-compliance, their normative context and the complementary duties contained in the binding provisions of EU regulations lead to a situation where all actors on the domestic scene must act almost as if the ESA soft law instruments were classic legally binding acts. 60While national competent authorities retain the discretion to opt for non-compliance, the position of financial institutions under their supervision is dependent on the initial administrative choice.If a national authority decides to enforce concrete ESA guidelines, the requirement to comply with them becomes a legal duty for financial institutions.

Uncovering the powers behind: cooperation between EU agencies and national authorities
The inner power of ESA guidelines seems to lie in their successful replication of the technical aesthetics of law.Since they look like (traditional) legal acts, they are treated as if they were binding legal acts.This finding confirms the argument that the most important factor for the practical influence of soft law lies in its sole existence: 61 Once rules appear in a black-and-white form in a document, they are likely to be followed and to have an impact.Nonetheless, this internal power is boosted by an external power, which consists of the administrative cooperation between the ESAs and the national competent authorities.Together, these actors are capable of converting (weak) soft law into (powerful) transnational administrative law. 62he ESAs are responsible for the formal part of the cooperation.They articulate and issue the concrete guidelines.However, they do not have the power to put the guidelines into practice.This role is entrusted to the national competent authorities.It is their engagement that conditions the real life of ESA soft law.There is nothing unusual about such a 60 Cf Schemmel (n 6) 494. 61 framework.In fact, EU law as a whole generally operates in this way.The real and day-to-day enforcement of EU legal rules mostly depends on the national application by national authorities, as it stems from the duty of sincere cooperation. 63What is distinctive in the context of the ESA guidelines, is the fact that the given rules are both created and enforced by administrative authorities and their effectiveness depends on the cooperation of these actors.
The cooperation starts already at the level of rulemaking itself.It is worth noting that it is not unusual within EU law that the Member States or their authorities have their voice when creating EU law rules.After all, the representatives of the Member States form the Council of the EU, which is one of the co-legislators in the EU, and the working groups within the Council of the EU are composed of national officials.A similar principle is employed with regard to soft rulemaking of the ESAs.
Formally, guidelines are adopted by and in the name of the ESAs.The EBA, the ESMA or the EIOPA act as the issuing authorities putting their 'rubber stamp' on the text of the guidelines.Nonetheless, the process behind this is mostly in the hands of the NCAs and their officials.
First, national officials participate in the working groups, which draft the guidelines.Therefore, the NCAs can influence already the text of the guidelines.Second, and most importantly, the NCAs, in fact, approve the final text: The decision to adopt guidelines is taken by one of the ESA bodiesnamely the Board of Supervisors.The Board of Supervisors of each ESA is composed of a chairperson and all national supervisory authorities, which send their representatives having the voting rights.There are other members of the Board with non-voting membership, such as representatives of the EFTA Surveillance Authority, the European Commission, the ECB, the European Systemic Risk Board (ESRB), and two other ESAs.However, the voting rights are exclusively in the hands of the representatives of the national competent authorities, which adopt decisions upon guidelines by qualified majority similarly to the standard voting procedure within the Council of the EU under Article 16(4) TEU. 64he national competent authorities are thus not mere stakeholders, which would be consulted when guidelines are being drafted or adopted, but they participate in the process of drafting, and they compose the decisionmaking body within the ESAs.They express the will of the respective ESA when adopting guidelines.Once adopted by the Board of Supervisors and promulgated as an act of the respective ESA, guidelines remain a legally non-binding EU act, which is formally endowed with the power 'to exhort and to persuade'. 65But the question arises of whom such guidelines should persuade.If a concrete national authority has voted in favour of the guidelines within the Board of Supervisors, the act is using its persuasiveness on an addressee, which is already persuaded.With regard to the comply-or-explain principle, as recalled above, the possibility of non-compliance by national competent authorities is significantly reduced.As the compliance tables published by the ESAs show, 66 the non-compliance is only chosen in a small number of casesand usually because the given national authority does not have the competence under national law to enforce the specific content of the guidelines, because there are several NCAs in the Member State and only one of them has the competence to enforce the subject matter of the given guidelines, or because there are legal or practical obstacles at the national level. 67here are also cases where non-compliance concerns only a specific provision of the guidelines, but the NCAs envisages to comply with the rest. 68n the vast majority of cases, national competent authorities opt for compliance and pledge to enforce the guidelines from financial institutions under their supervision.As noted above, national authorities employ strategies on how to enforce ESA guidelines at least indirectly.Non-compliance by a particular financial institution is usually assessed as non-respect of binding 'root' provisions, which are only 'elaborated' in the guidelines.In other words, the disregard of the detailed rules contained in non-binding acts is translated as the breach of the standards stemming from the binding acts (regulations or national acts implementing directives).Again, the translation takes place within the practice of the administrative authorities.From the perspective of financial institutions, the result is a kind of game: Everyone knows that guidelines present only non-binding soft law, and at the same time everyone knows that it is necessary to implement them into practice.Otherwise, the relevant national authority is able to find a way to impose indirect sanctions.have also published overview tables showing compliance/non-compliance with all guidelines adopted so far, where it is visible that compliance has been notified in a vast majority of cases. 67The legal obstacle may consist of the lack of implementing legislation; the practical hurdles may include the lack of sufficient human and financial resources, which prevents the NCA from fulfilling the content of the guidelines (see, eg, the reason notified by Bulgaria vis-à-vis the ESMA Guidelines on the enforcement of financial information, ESMA32-50-218, 23 November 2020). 68For example, the Czech NCA vis-à-vis ESMA Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector, JC/GL/2016/01, 20 December 2016.

Lawmaking through the transnational administrative practice
As explained above, the ESA guidelines are not adopted as lawat least not as law in the sense of 'legislation'.The ESAs as agencies, to which certain regulatory tasks have been delegated by the EU secondary legislation, cannot adopt legislative or quasi-legislative acts. 69They cannot replace existing binding rules or fill in gaps between such rules.What they are only empowered to do is to elaborate upon the existing binding provisions, which usually contain vague rules, principles or rather 'standards', and to offer suggestions of steps, which should be taken in practice in order to breathe life into such vague standards.Because they remain non-binding, guidelines lack the quality of law in the traditional sense.In practice, however, their effect is very much law-like.They do not merely suggest how to interpret the terms of binding provisions.They refer to binding provisions as to their legal basisand they set out entirely new and very detailed rules, which should be implemented in the internal systems of the financial institutions, or steps to be followed by them.
In assessing the quality and the impact of the ESA guidelines, the difference from 'law' in the traditional sense seems to be twofold.The first is authorship and the manner of adoption.The guidelines are not created by the legislator, but by an administrative authority, or, in fact, rather through cooperation between administrative authorities at EU and national level.However, the sole involvement of executive bodies in rulemaking is not a distinctive feature that would draw a sharp line between law and non-law.It is not uncommon in national legal orders for executive or administrative bodies to be empowered to adopt binding acts of general application, which are based on and limited by law.Subordinate legislation, sub-legislative normative acts, or delegated rulemakingall these types of rulemaking are a standard part of legal systems of democratic countries.Within the EU, however, agencies have been established by secondary legislation and represent a rule-maker of the third grade (the first one includes the Member States and the one second covers original institutions established by primary law).According to the doctrine of (non-)delegation, agencies cannot adopt legally binding acts of general application. 70When it comes to normative, prescriptive and generally applicable acts, EU agencies can only adopt soft law acts.The ESAs, on the basis of their respective founding regulations, are only allowed to adopt such acts in the form of guidelines or recommendations.This is the second and the most important difference 69  from law.The acts adopted by the ESAs are not legally bindingat least formally and from the point of view of EU law.However, the non-binding character of ESA guidelines is a feature of such acts only if they are considered in complete isolation.In practice, the non-bindingness is rather an illusion or an illusory component of the regulatory game: Formally, the ESA guidelines are only accompanied by the comply-or-explain mechanism, whichat least at first sightforesees an opportunity to disregard such acts.However, such an opportunity is genuine only for national competent authorities and it is rarely used.National competent authorities have the discretion to decide not to comply and to explain the reasons for such a decision, but once they decide to comply and start enforcing given rules from financial institutions under their supervision, the latter have no choice but to play the game accordingly: to implement and to follow the ESA guidelines. 71lthough the ESAs are not empowered to make hard law, all participants in the game treat the guidelines as if they were hard law.In practice, the use of soft law is more like 'law-mimicking'both at the level of adoption and at the level of enforcement.First, the guidelines are adopted by qualified majority of the Member States representatives, which copies the same system of voting that is used in case of the legislative decision-making within the Council of the EU.Second, they are being effectively enforced by national authorities as if they were standard binding legal rules.
The binding effect of ESA guidelines on financial institutions, as their ultimate addressees, or the law-likeness of the regulation are not an accidental result.The techniques used within the given regulatory system show that the practical bindingness or the effort to make financial institutions comply to the largest extent possible are deliberate features of the system.The ESAs, as third-level EU actors, cannot make law, but law emerges from administrative practice and the cooperation of all actors in the process chain: The ESAs adopt legally non-binding acts based on the will of the national competent authorities.If the national competent authorities agree to comply with these acts, the financial institutions under their supervision begin to regard these soft law acts as binding legal rules that must be implemented in their internal systems or business practices, otherwise there is a risk that the relevant national authority will enforce implementation through indirect sanctions.All these steps and reactions are required by law and embedded in hard law.But the rules to be followed are not formally law.They are treated as law by all actors because they employ a successful mimicking of law.While the ESAs cannot, de iure, replace the EU legislator, they appear to be a de facto legislator. 72

Conclusion
As Michaels and Riles argue, '[l]egal technique is an aesthetic that calls forth replication'. 73The soft rulemaking of the ESAs may hide in the shadow of law, but as it replicates the technical aesthetics of law, it is treated like law, and therefore, it benefits from the power of law.Although the guidelines and recommendations adopted by the ESAs do not possess the attributes of traditional and directly enforceable legal forms, they are powerful legal artefacts capable of changing the behaviour of their addressees or even third parties.
The involvement of the administrative agencies in the process of making prescriptive rules, albeit in a 'soft' and non-mandatory way, affects the shape of the rules that financial institutions are expected to follow.The final impact of these acts is the result of a combination of an internal force of guidelines and external forces, which are embedded in the whole multi-level regulatory context and the practice at both EU and national level.
Although ESA soft law acts do not have the legitimacy of law, they try to mimic law in as many aspects as possible.With the exception of the nonmandatory language, the structure and the content of ESA guidelines do not differ from classic binding legal acts of general application.The process of adopting these soft law acts borrows elements from classical law-making.Last but not least, these soft law acts are followed by financial institutions and effectively enforced by national competent authorities as if they were proper legal acts.The relevant actors are aware that the regulatory products 74 of the ESAs are not proper law, but, within their mutual interaction, they treat them as law anyway.This finding supports the idea that law as such is a vehicle of power and that law as a technique has agency in its own right. 75
European Constitutional Law Review 1. 32 Eg, Art.74 of Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/ EC, OJ L 176, 27.6.2013,p. 338-436.
Tomer Broude and Yahli Shereshevsky, 'Explaining the Practical Purchase of Soft Law: Competing and Complementary Behavior Hypotheses' in Harlan Grant Cohen and Timothy Meyer (eds), International Law as Behavior (Cambridge University Press, 2021) 114.