The European Commission is exploring proposals to grant the European Securities and Markets Authority (ESMA) enhanced authority over critical financial sectors. This initiative is part of a larger strategy to establish a singular European regulator responsible for overseeing stock exchanges, cryptocurrency trading platforms, and clearing houses.
According to a report from the Financial Times, the Commission intends to unveil this proposal in December. It will be included within a broader “markets integration package” designed to address the persistent issue of fragmentation within Europe’s financial markets.
Currently, the oversight of exchanges and trading systems is distributed among numerous national regulators. This fragmented approach increases the cost of cross-border trading and hinders the expansion of companies across the continent.
European Union Eyes its Own Securities and Exchange Commission
Europe is moving closer to establishing a unified financial watchdog, a concept that has been debated extensively but never fully implemented. The proposed European regulator is intended to operate similarly to the U.S. Securities and Exchange Commission (SEC).
The primary functions of the SEC include supervising trading platforms, clearing systems, and cryptocurrency service providers. This ensures consistent regulatory frameworks, protects investors, and promotes market transparency across different jurisdictions. Additionally, the SEC mandates that public companies regularly disclose financial reports and other essential information, ensuring investors have equitable access to reliable data.
Drawing inspiration from the SEC model, Europe's proposal aims to centralize regulatory oversight across its markets as a means to advance the region’s “capital markets union.”
This plan has garnered significant support, notably from European Central Bank (ECB) President Christine Lagarde and former ECB head Mario Draghi. Last year, they advocated for increased financial integration to enhance Europe's global competitiveness.
Implications of the New Supervision Plan
Under the proposed plan, the European Securities and Markets Authority (ESMA) would assume responsibility for supervising key cross-border entities. These include major stock exchanges, cryptocurrency trading platforms, and clearing or securities depository systems. The objective is to replace the current system of fragmented national oversight with a standardized and consistent regulatory framework across Europe.
The Commission also plans to empower ESMA with a dispute-resolution role concerning large asset managers. In instances where national supervisors reach differing conclusions, ESMA would be authorized to issue binding decisions. This structure is intended to mitigate regulatory conflicts and redundancies among member states.
However, the proposal has encountered opposition from some countries. While France and the European Central Bank have expressed support, citing potential improvements in Europe's financial competitiveness, Germany, which has historically resisted centralized supervision, is now showing signs of agreement. Conversely, Luxembourg and Ireland have voiced their objections, expressing concerns that a regulator based in Paris could increase costs for smaller nations and diminish local regulatory authority.
Industry associations have also raised concerns regarding potential increases in compliance costs and administrative burdens. Marin Capelle of Efama, an association representing the fund industry, stated, "Expanding ESMA’s responsibilities would mean higher fees paid by the industry."
The European Commission indicated in the report that it is "still exploring the potential of EU level supervision in relation to some critical infrastructures, such as central counterparties, central securities depositories and trading venues, as well as in relation to big cross-border entities such as asset managers."
ECB's Digital Euro Development
The European Central Bank (ECB) recently advanced its digital euro project into its subsequent phase, establishing the foundation for a potential launch in 2029. This decision follows a two-year preparatory period that commenced in November 2023, during which the ECB and national central banks conducted studies on the operational feasibility of a digital euro.
The ECB will focus on constructing the technical infrastructure for the digital euro. This will involve testing the system with banks, payment service providers, and retailers, as well as providing support to lawmakers in developing the necessary legal framework for its implementation. If European legislation receives approval by 2026, the ECB anticipates commencing pilot testing as early as 2027.