On Thursday 4 December, the European Commission presented 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.
The Commission proposes to transfer direct supervisory powers over major market infrastructures – such as certain trading platforms, central counterparties (CCPs), central securities depositories (CSDs) and all crypto-assets service providers (CASPs) – to the European Securities and Markets Authority (ESMA), and to strengthen ESMA’s coordinating role for the asset management sector.
Enhanced European supervision is one of the key components of the legislative package presented by the EU institution, which aims to revitalise the Union’s economic power and give it the means to pursue its strategic priorities in terms of long-term competitiveness.
However, the centralisation of certain national supervisory powers does not meet with unanimous approval among the EU27. Several small EU Member States – notably Luxembourg, Ireland and Belgium – are reluctant to transfer more prerogatives in this area to the European level.
“This is not about taking it from the smaller Member States; it is about connecting them to the European pool of resources and opportunities”, stressed Maria Albuquerque, European Commissioner for the Savings and Investment Union, at a press conference on Thursday. “The ‘loss’ of powers is not exactly a loss: it’s about integrating a new model that will deliver better results for everyone”, she added.
Asked about a possible blockage in the EU Council on this aspect of the reform, the Commissioner reiterated the urgency of collectively achieving a Savings and Investment Union (SIU). “I have heard huge support [from EU Member States] for the SIU. (...) Supporting the concept means supporting the measures. Otherwise, it’s void”, said Ms Albuquerque.
Recalling the difficulty the EU has in retaining its innovators, who are attracted by more competitive markets outside Europe, the Commissioner stressed the need to develop a regulatory framework that is lacking. “The problems identified with supervision keep coming up again and again, that it is very difficult to operate across borders. Even if you have more scale, you are not allowed to offer your services across the border, because national competent authorities will impose additional restrictions”, she lamented.
Removing barriers to market integration. As announced on Wednesday by Agence Europe (see EUROPE 13765/17), in addition to enhanced European supervision, the European Commission also wants to make it easier for investment funds to operate across borders within the single market. The aim is to reduce the operational obstacles and national divergences that still affect the distribution of UCITS and alternative investment funds (AIFs).
The Commission also wants to reduce the persistent fragmentation of market infrastructures, particularly in clearing and settlement services. The measures are designed to improve integration and coordination between players such as central counterparties (‘CCPs’) and central securities depositories (‘CSDs’) in order to promote economies of scale and facilitate cross-border transactions.
Innovation. The Commission is also proposing to remove the regulatory obstacles to the adoption of distributed ledger technologies (‘DLT’). The institution proposes that the ‘DLT Pilot Regime’ be made more flexible and adapted to offer greater flexibility, legal certainty and proportionality. This reform should enable a wider range of players to test the issuance, trading and settlement of securities using innovative technologies, including blockchain technologies.
Simplification. Finally, the EU institution has promised to further simplify the capital markets framework by transforming directives into regulations, streamlining ‘level 2’ authorisations (delegated acts and technical standards) and reducing national options and room for manoeuvre in order to avoid regulatory ‘gold-plating’.
A total of 18 EU legislative texts are covered by the reform, including a master regulation and a master directive.
Towards difficult interinstitutional negotiations? In a statement sent to Agence Europe on Thursday, MEP Markus Ferber (EPP, German) described it as an “ambitious step forward” by the Commission, but stressed that centralising supervision should not lead to a regulatory overload, but to a reduction in redundant national regimes.
“I expect very tough negotiations, especially with the Council, but this is exactly the kind of proposal that must not be watered down if we truly want deeper, more competitive and more innovative capital markets in Europe”, he said.
See the official communication from the European Commission: https://aeur.eu/f/ju0; the proposal for a master regulation: https://aeur.eu/f/ju1; and the proposal for a master directive: https://aeur.eu/f/ju2 (Original version in French by Bernard Denuit)