Integrated supervision crucial for Europe's capital market integration
A new ECB paper highlights the fragmented supervisory architecture for EU capital markets, which is increasingly misaligned with cross-border market realities. It proposes an integrated EU-level supervision to enhance effectiveness, efficiency, and reduce complexity for firms.
Europe's fragmented supervisory patchwork
The EU's capital market supervisory landscape is highly fragmented, characterized by a wide variety of national supervisory models and numerous authorities operating across the Union.
The paper documents 52 national authorities and 16 different organizational setups, reflecting historical choices that no longer match today's integrated financial markets.
While regulatory harmonization has progressed through the Single Rulebook, supervisory responsibilities for most capital market players remain largely national, with limited and uneven EU-level powers.
This institutional fragmentation is increasingly misaligned with market realities, as capital markets have become more cross-border and integrated, albeit with important differences across sectors.
ESMA primarily plays a regulatory and supervisory convergence role, with direct supervision over only a limited set of entities, contrasting with the more unified banking supervision.
Unlocking cross-border market potential
EU capital markets have grown significantly in size, complexity, and cross-border relevance.
National supervisors often lack a full overview of cross-border spillovers, and divergent practices increase compliance costs for firms.
Integrated EU-level supervision would strengthen risk identification and mitigation by aligning mandates with the cross-border footprint of key market players.
It would also enhance efficiency through improved coordination and data sharing, contribute to simplification by harmonizing practices and streamlining reporting, and enforce consistent application of the single rulebook across jurisdictions, removing barriers to market integration.
Targeted integration is key
While not a panacea, integrated supervision is crucial for overcoming Europe's fragmented capital markets.
A targeted approach focusing on key cross-border entities, like large CCPs and asset managers, can deliver significant benefits.
This balanced strategy, combining EU-level oversight with national expertise, is vital for financial stability and advancing the Savings and Investment Union.