On Thursday 4 December, the European Commission is due to present a wide-ranging legislative package designed to advance the integration of European capital markets by adapting the EU rules governing market infrastructure, particularly in terms of financial supervision. According to a working document obtained by Agence Europe, the Commission plans to revise seven regulations and two directives.
This includes MiFIR, EMIR, CSDR, CBDR, DLTPR, MiCA and the regulation governing the European Securities and Markets Authority (ESMA). The MiFID Directive and the Settlement Finality (SFD) Directive would also be amended, with the aim of transforming the SFD Directive into a regulation to harmonise its application across the EU. These reforms will be presented to the EU’s co-legislators on Thursday in the form of a new master regulation and a new master directive.
Among the European Commission’s key proposals is a major simplification of the European passport for investment funds. Under this, funds would be able to operate immediately within the single market as soon as they were authorised, without having to go through the multiple national authorisations that currently lengthen the lead times. This reform would cover both UCITS funds – the most heavily regulated retail funds in the EU – and alternative investment funds aimed primarily at professional investors, so that they all benefit from direct and harmonised access to the EU market.
The European Commission also intends to modernise the back office of the financial markets by improving the connection between the key players who settle transactions, in order to reduce the persistent fragmentation that hampers cross-border trading. A proposal for greater interoperability between central securities depositories is also expected.
Furthermore, the EU institution wishes to extend the existing experimental framework dedicated to solutions based on distributed registries (Distributed Ledger Technology – DLT), in order to better adapt the EU regulatory framework to technological innovation. This extension of the DLT pilot scheme would give more players the opportunity to test new ways of issuing, exchanging or settling securities on distributed registers, particularly by using blockchain-type technologies.
Reinforced European supervision. Lastly, the Commission wants to go further in terms of supervision, going beyond simple convergence and proposing a greater role for the EU, an approach that could upset some EU Member States, given their national sensitivities regarding this issue (see EUROPE 13641/20; 13668/12; 13657/22).
“The use of supervisory convergence tools remains sporadic, [these tools] have limitations, they are not used consistently, and they can be difficult to use due to procedural constraints, and lack of enforceability”, noted the EU institution following ex-post evaluations, consultations with stakeholders and impact assessments.
According to the draft text, the European Commission wants to give ESMA a stronger role in directly supervising the most important infrastructures and financial players that are linked to crypto-assets (see EUROPE 13714/13).
However, centralised supervision would vary from one player to another. Service providers of crypto-assets would be supervised by ESMA irrespective of their size, while trading platforms, central depositories and central counterparties would only be supervised at European level above a certain threshold or where there is a cross-border issue.
Read the European Commission’s working document: https://aeur.eu/f/jtb (Original version in French by Bernard Denuit)