Esma warns EU market integration risks dilution in supervisory reform

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ESMA warns on EU market integration

Highlights

EU proposals would expand Esma’s authority over large cross-border stock exchanges, market infrastructure, and crypto firms, facing potential dilution from national exemptions.
A compromise could allow Germany to exempt most of Deutsche Börse from direct Esma supervision unless certain market share thresholds are reached, pending EU finance ministers' decision on October 8–9.
Extending Esma's powers as proposed could double staff to around 700 and impact entities like Deutsche Börse, while fragmented legal frameworks continue to hinder EU digital asset market integration.

Supervisory overhaul faces resistance

As reported by the Financial Times, Ross says negotiations over a major overhaul of EU financial supervision risk going too far if national compromises strip out the coherence of the European Commission’s original plan.

The Commission presented proposals this year to expand Esma’s authority by giving it responsibility for supervising large cross-border stock exchanges, market infrastructure providers and crypto companies that are currently overseen by national regulators across the EU’s 27 member countries. Ross says more integrated markets require supervision that matches the increasingly cross-European nature of financial activity.

She says the issue goes beyond whether a single trading venue falls inside or outside the new regime. In her view, cross-border groups need greater consistency instead of receiving slightly different instructions from multiple national supervisors, and she warns that compromises should not undo the wider objective of market integration.

A compromise seen by the FT would allow Germany to exempt most of Deutsche Börse, operator of the Frankfurt Stock Exchange, from direct Esma supervision unless specific market share thresholds are met. The proposal needs support from a majority of EU countries at a meeting of EU finance ministers scheduled for October 8 and 9, while Sweden is also seeking carve-outs for stock exchanges owned by larger multinational groups.

Implications for European market competitiveness

Ross has pushed for stronger Esma powers since joining the authority at its launch in 2011, and says one of her main regrets from 15 years at the watchdog is that the EU does not move faster to reduce fragmentation in its financial markets. She says there is no single solution, but rather a need to remove many barriers that continue to hold back integration.

If the EU extends Esma’s powers as far as the Commission initially envisages, the Paris-based authority is expected to double its staff to about 700. The debate also carries weight for large market groups such as Deutsche Börse, Europe’s third-largest exchange operator by market capitalisation at more than 50 billion euros, whose businesses include Luxembourg-based Clearstream and Denmark-based SimCorp.

Ross also points to digital assets and the tokenisation of bonds and equities as a major opportunity for the EU, but says the region still lacks a sufficiently harmonised legal framework. She argues that Europe remains highly fragmented in this area and needs common rules, including a broader EU-level regime, if it wants to capture the benefits of blockchain-based financial markets.

In our earlier report on weakening international regulatory cooperation, we explained how rising geopolitical tensions are making it harder for banking supervisors to share information and manage risks that spread across multiple jurisdictions. The article also noted that fragmented oversight can fuel regulatory arbitrage and complicate the implementation of global standards such as Basel III, especially as some major jurisdictions continue to lag on full adoption.

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