ABBL response to the EU Market Integration and Supervision Package (MISP)

The ABBL has submitted its response to the European Commission’s Market Integration and Supervision Package (MISP), a key legislative initiative that will shape the future of EU capital markets, supervision and digital market infrastructures. Our contribution reflects the priorities and concerns of the Luxembourg banking and fund servicing community and underlines both our support for deeper integration and our call for pragmatic, proportionate reforms.

We would like to thank our members for their key contributions, which are at the core of this position. As the voice of its members, the ABBL conveys the collective views and expertise of the Luxembourg financial centre.

A convergence-first approach to supervision

ABBL supports stronger, more consistent supervision across the EU, but stresses that better outcomes should be achieved through supervisory convergence and cooperation, not through broad structural centralisation. National competent authorities (NCAs) retain essential proximity to markets, expertise on local legal frameworks and long-standing knowledge of business models. These are critical features in a complex cross-border hub such as Luxembourg.

We therefore advocate a “convergence-first, not centralisation-first” approach. Direct EU level supervision should be strictly limited to entities of systemic relevance at EU level, based on clear and transparent criteria. Where structural changes are envisaged, they should include transitional hybrid models, precise delineation of competences and review clauses to reassess impacts after implementation.

No reopening of the EU wide depositary passport debate

ABBL welcomes the balanced outcome of AIFMD II and UCITS, where policymakers decided against creating a horizontal EU depositary passport. The existing targeted derogation under AIFMD II already offers a pragmatic tool to address specific, proven capacity issues, with a review foreseen in 2029.

Reopening the debate on an EU wide depositary passport at this stage would, in our view, introduce unnecessary uncertainty and risk undermining the diversity and resilience of the European fund ecosystem.
It could encourage market concentration in a limited number of jurisdictions, increase operational and systemic risk, and ultimately lead to higher costs for end investors.

Maintaining proximity between the fund, its depositary and its home supervisor remains essential for legal certainty, effective liability frameworks and investor protection.

ESMA centralisation: risks for efficiency and innovation

ABBL recognises the important role of ESMA and the European Supervisory Authorities in driving convergence and promoting high supervisory standards. However, the broad transfer of direct supervisory powers to ESMA over a wide range of entities and infrastructures (CSDs, CCPs, trading venues, CASPs and others) raises serious concerns.

A dual supervisory layer risks overlaps, unclear responsibilities, slower decision-making and higher compliance costs, without clear evidence of systemic failures at national level. It may also weaken innovation, as NCAs are often closer to emerging business models and better placed to assess new products and structures quickly. For ABBL, any extension of direct EU level supervision must be justified by robust evidence, remain risk based and preserve a meaningful operational role for national authorities.

CASP supervision under MiCA: keep it national at this stage

MiCA implementation is still in its early phase and supervisory practices are only beginning to take shape. ABBL therefore opposes the current proposal to transfer a broad category of crypto asset service providers (CASPs) to direct ESMA supervision at this stage of the process.

Many CASPs operate within groups that are already supervised as payment institutions or electronic money institutions, often by the same national supervisor. Keeping supervision at national level allows for a holistic, group wide risk assessment and avoids duplication or conflicting instructions. Any future move towards EU level supervision for specific CASPs should be based solely on objective systemic thresholds, preceded by a formal review of MiCA after several years of full application, and maintain an active role for NCAs.

DLT and the digital transition: from pilot to scale

A core part of our response focuses on the digital dimension of MISP, in particular the evolution of the DLT Pilot Regime. ABBL is strongly supportive of distributed ledger technology as a driver of more efficient post trade processes, tokenisation and innovative market infrastructures. Luxembourg is well positioned to play a leading role in this area, given its expertise in securities, funds and post trade services.
However, the current pilot remains too constrained to support true institutional scale tokenisation. ABBL calls for:

• A rapid and targeted amendment of the DLT Pilot Regime to move from a narrow experimental tool to a credible, scalable framework.
• A move towards a risk based scaling framework, or, failing that, a significantly higher aggregate cap combined with staged calibration and periodic reviews.
• A clear transition path from pilot to permanent authorisations to avoid cliff edge uncertainty for market participants.

Settlement assets, liquidity and interoperability in DLT markets

For DLT based market infrastructures to be credible and scalable, the availability of robust, euro denominated settlement assets is crucial. ABBL supports a cascading, risk tiered framework that:

• Prioritises wholesale central bank money as the anchor settlement asset where available.
• Recognises prudentially regulated commercial bank money, including tokenised deposits and tokenised commercial bank money issued by supervised credit institutions.
• Allows MiCA authorised e money tokens as a complementary option where settlement grade safeguards are met.
• Only admits other settlement arrangements (such as MMF based solutions) where stringent requirements on stability, liquidity, governance and supervision are fulfilled.

We also emphasise that settlement and liquidity models must be operationally efficient. A strict prefunding only approach would lock up liquidity and damage market viability. The framework should therefore allow both prefunded and properly safeguarded lending based or intraday liquidity models, provided they remain fully anchored in existing prudential and risk management standards.

Interoperability is another key priority. Without outcome based interoperability requirements, there is a real risk of creating new silos across DLT networks, settlement rails and tokenisation platforms. ABBL advocates technology neutral, proportionate rules focused on minimum interoperability outcomes such as portability and operational compatibility.

Finally, ABBL believes that fully licensed regulated markets and MTFs should be able to admit DLT based financial instruments into their normal trading environment, provided that necessary settlement and interoperability conditions are met. This is essential to integrate DLT into the mainstream of EU capital markets.

This is only the beginning of the process

This response marks only the beginning of the legislative journey on the MISP.

The proposals will now be discussed and amended in the European Parliament and the Council, and the details will evolve through negotiations and subsequent technical work.

ABBL will continue to engage actively throughout this process, based on the priorities and expectations defined by its membership. We will keep members informed of key developments and stand ready to refine and deepen our positions as the legislative text progresses and as new measures are tabled.

For further information, or questions regarding this response, please contact:

• Marilyn Rinck
• Andrey Martovoy