The European Commission has presented a broad set of legislative proposals aimed at reducing fragmentation in EU financial markets. ESMA, which published its own position paper on the topic earlier this year, says the package reflects several of its recommendations and confirms it is prepared to take on new supervisory duties.
The Commission describes current EU capital markets as fragmented and comparatively small, citing differing national rules and supervisory practices as barriers to cross-border activity. According to the proposal, the new measures are intended to remove obstacles in trading, post-trading and asset management.
Among them are enhanced passporting options for regulated markets and CSDs, a “Pan-European Market Operator” status to enable operators to consolidate licences, and streamlined rules for the distribution of UCITS and AIFs across the Union. The Commission argues that these changes could help reduce cost differences between domestic and cross-border transactions.
“For too long, Europe has tolerated a level of fragmentation that holds back our economy. Today we are making a deliberate choice to change course. By building a real Single Financial Market, we will give people better opportunities to grow their wealth, and we unlock stronger financing for Europe’s priorities. Market integration is not a technical exercise — it is a political imperative for Europe’s prosperity and global relevance.” comments Maria Luís Albuquerque, commissioner for Financial Services and the Savings and Investments Union.
Supervision shifts partly to the EU level
A prominent element is the proposed transfer of direct supervision over certain large cross-border infrastructures – in some cases trading venues, CCPs and CSDs – as well as all crypto-asset service providers, to ESMA.
ESMA states it is ready to assume these responsibilities and underlines that it would continue working closely with national competent authorities. The Commission links the supervisory changes to its broader aim of increasing consistency and reducing complexity created by national divergences.
The plans for central supervision of financial market infrastructures have been discussed recently in a recent PostTrade 360° interview with Karel Lannoo, head of Brussels-based think tank Centre for European Policy Studies (CEPS).
DLT Pilot Regime
The package also includes amendments to the DLT Pilot Regime, with the stated intention of increasing proportionality, flexibility and legal certainty for distributed-ledger-based activities.
In parallel, several directives would be converted into regulations and national options reduced, in an effort to limit divergent implementation.
The proposals will now be negotiated by the European Parliament and the Council. Both institutions describe today’s package as a central component of the Savings and Investments Union strategy, intended to support a more integrated EU market across the full investment chain.
