EU signals point towards major financial reforms for a centralised market

The European Union is planning major financial reforms to ten different market regulations to unify its disparate markets and increase its global competitiveness.

Sources told Politico that the European Commission plans to propose new laws or legal revisions spanning regulation of investments, rules on cryptocurrencies and its flagship financial market rules MiFID and MiFIR.¹
They said that changes to the rules would be proposed in December.

The tip-off follows a speech from Alexandra Jour-Schroeder, Deputy Director General of Directorate General for Financial Stability, Financial Services and Capital Markets Union, at a conference earlier in October that emphasised “harmonisation” and competitiveness for European financial markets.²
Jour-Schroeder spoke about technological innovation and managing digital transformation in the markets, before turning to regulation.

“Technological advancement must go hand in hand with regulatory reforms that provide clarity, harmonisation and investor protection. We must ensure that our regulatory framework evolves alongside innovation. This is not just a necessity but a strategic imperative for the EU’s competitiveness,” she said.³

She first referenced the EU’s savings and investments union strategy, which aims to unlock the potential in the large savings deposits held across European countries and channel it towards investments.⁴

But she added; “We are now working with high speed on a package of proposals on market integration and supervision. The market integration package aims to remove fragmentation in EU capital markets. This is an area where we need to act swiftly with our competitiveness goal in mind. The current fragmentation drives up costs, reduces liquidity and hinders cross‑border investment. The aim is to cover trading, post‑trading, and asset management.”⁵

Her speech went on to give only hints about what the EU might consider, but said that “Integration efforts at the trading layer have proved insufficient in reducing liquidity fragmentation.”⁶

Divided opinions on centralisation

According to the Politico report, the Commission is planning a package that will amend around ten pieces of existing legislation, including MiFID and MiFIR, the EMIR rules for clearinghouses, the AIFMD and UCITS Directive for investments, CSDR rules for central securities depositories, the MiCA rules for crypto assets and adjustments for the markets watchdog ESMA (European Securities and Markets Authority).

The EU, and particularly France, has sought in the last few years to integrate Europe’s financial markets more closely. The argument is that a more centralised financial market could harness much larger volumes of capital, making Europe much more attractive to companies and stopping the drain of companies to the US.

However, discussions on the single market have seen significant rifts between EU members.⁷
In a summit in April, many smaller EU states pushed back against the idea of reforms, which is championed by France, Italy, Spain, the Netherlands and Poland. Many smaller economies are concerned about handing over national control, oversight and regulatory powers to Brussels.⁸
In addition, countries like Ireland and Luxembourg with strong financial sectors fear that firms will relocate to Paris, where ESMA is based, if the market is more centralised.⁹

Germany’s position is somewhat unclear, as the country has spoken out against central supervision of crypto assets, but in recent weeks, has talked more positively about the idea of a single EU stock exchange.¹⁰

Chancellor Friedrich Merz said in a speech to the Bundestag that: “We need a kind of European stock exchange so that successful companies such as biotech firms from Germany do not have to go to the New York Stock Exchange. Our companies need a sufficiently broad and deep capital market so that they can finance themselves better and, above all, faster.”

However, Germany has also opposed shifting supervision from BaFin, which is based in Bonn, to ESMA. Former European Central Bank chief Mario Draghi prioritised the creation of a body that mirrors the US Securities and Exchange Commission (SEC) in his report on gaining a competitive advantage over the US and China.¹¹

Merz was speaking as his government agreed to intensify talks with France on how to advance an EU capital markets union (CMU), suggesting that Berlin is ready to accept some shifting of regulatory powers.¹²

Stéphane Boujnah, chief executive of Euronext, the stock exchange federating seven EU countries including France and the Netherlands, told the FT he welcomed Merz’s proposal, saying Euronext was “ready to contribute to the next level of consolidation of markets in Europe”.¹³

He added that a central authority in ESMA would address “the divergence in regulation and supervision”, adding: “we need a decisive move towards single supervision.”¹⁴

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