Europe’s capital markets need fewer barriers and workable rules

Europe wants its capital markets to do more: finance growing businesses, mobilise investment and compete internationally. Achieving that requires rules that make cross-border activity easier. Moving supervisory responsibilities to a European authority may help in some cases. It is no substitute for examining which barriers actually prevent markets from working.

That distinction runs through the ABBL’s engagement on the Market Integration and Supervision Package, or MISP. The package brings together three legislative proposals covering market infrastructure, investment services, fund management and digital finance. Its ambition is considerable. So is the importance of getting the details right.

On 9 October, EU finance ministers agreed the key elements of the Council’s negotiating position. This is a political milestone, rather than a finished reform: the Council’s texts still require finalisation and formal adoption, and the European Parliament must establish its own position before negotiations between the institutions can begin.

For the ABBL, three issues deserve particular attention.

Supervision should follow the risks

The ABBL supports deeper market integration and more consistent supervision. It opposes broad centralisation as the default means of achieving them. National authorities bring knowledge of local legal frameworks, business models and the institutions they oversee. Transferring responsibilities should therefore require a demonstrable supervisory benefit.

The Association’s approach starts with convergence: more consistent application of common rules, stronger cooperation and clearer responsibilities. Direct European supervision should be reserved for entities whose cross-border and systemic significance justifies it.

The Council’s direction offers some encouragement. It envisages direct supervision by the European Securities and Markets Authority, ESMA, for the most significant cross-border trading and post-trading entities. For crypto-asset service providers, it would narrow the Commission’s proposed blanket transfer to the most significant cross-border operators.

Those criteria will determine whether proportionality survives implementation. Thresholds, the division of responsibilities and the involvement of national authorities matter more than an institutional chart. A reform intended to reduce complexity should avoid creating overlapping instructions, duplicated reporting or uncertainty over who is accountable.

Cross-border depositary arrangements need clear safeguards

The Council envisages an optional cross-border depositary framework. Member states would retain the choice to permit funds established in their jurisdiction to appoint a depositary located in another member state. This approach preserves national discretion while offering additional flexibility where national authorities consider it appropriate.

The practical implications will depend on the final conditions and safeguards. Depositaries perform essential safekeeping and oversight functions, making clear supervisory responsibilities and liability arrangements particularly important when those functions are exercised across borders.

The ABBL continues to advocate a cautious, evidence-based approach. Any evolution of the current framework should preserve robust investor protection, effective oversight and appropriate proximity between funds, depositaries and competent authorities. The potential benefits of additional flexibility should be assessed alongside its legal, supervisory and operational implications.

At this stage, the Council’s political agreement sets a direction. The detailed provisions will need careful assessment once the final texts are available.

Digital markets need room to grow

On distributed ledger technology, the ABBL sees a clearer opportunity. Tokenisation can improve trading and settlement, but its commercial usefulness depends on whether institutions can operate at meaningful scale within a predictable framework.

The Association supports the package’s DLT reforms and has contributed practical proposals to the discussions. Wording proposed by the ABBL has been taken up in the evolving DLT text, an encouraging sign that member expertise is informing the legislative work, although the eventual outcome remains open.

The priorities extend beyond allowing larger pilots. Firms need legal certainty over settlement, workable links between conventional and DLT infrastructures, proportionate operational requirements and clear supervisory expectations. Without interoperability, digital finance risks reproducing the fragmentation that the package seeks to reduce.

This is where the three debates meet. Integration should make markets easier to use, supervision more effective and innovation commercially viable.