European Commission publishes capital market integration package

The European Commission (EC) has published a Communication to the European Parliament, the European Council, the Council, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions on further development of capital market integration and supervision within the Union, announcing a set of major legislative reforms. The package seeks to address obstacles to innovation and barriers to integration resulting from divergent rules, duplicative requirements and inconsistent supervision. The EC proposes a suite of amendments to key EU financial services and capital markets legislation in a package described as a central component of the savings and investments union (SIU), specifically a:

• Regulation which will amend: (i) the European Securities and Markets Authority (ESMA) Regulation; (ii) the European Markets Infrastructure Regulation (EMIR); (iii) the Markets in Financial Instruments Regulation (MIFIR); (iv) the Central Securities Depositories Regulation (CSDR); (v) the Distributed Ledger technology Pilot Regulation (DLTPR); (vi) the Markets in cryptoasset Regulation (MiCAR); and (vi) the Cross-Border Distribution of Funds Regulation (CBDR). It also includes targeted amendments, in line with the changes proposed to the ESMA regulation aimed at making EU supervision more efficient, to: (a) the Central Counterparties Recovery and Resolution Regulation (CCPRRR); (b) the Securities Financing Transactions Regulation (SFTR); (c) the Credit Ratings Agency Regulation (CRAR); (d) the Benchmark Regulation (BMR); (e) the simple, transparent and standardised (STS) securitisation Regulation; (f) the European Green Bond Regulation (EuGB Regulation); (g) the Environmental, Social and Governance (ESG) rating Regulation.
• Directive which will amend: (i) the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive; (ii) the Alternative Investment Fund Managers Directive (AIFMD); and (iii) the Markets in Financial Instruments Directive (MiFID).
• Regulation replacing the Settlement Finality Directive and amending the Financial Collateral Directive (FCD).

The proposed changes relate to:

• Supervision: Transferring direct supervision of significant trading venues, CCPs, CSDs, and all cryptoasset service providers to ESMA, strengthening supervisory convergence tools, and introducing a new Executive Board for impartial EU-level decisions.
• Market integration: Removing barriers to cross-border trading and settlement, streamlining passporting for funds and infrastructure, and introducing an optional Pan-European Market Operator license to simplify operations across Member States.
• Simplification: Converting directives into directly applicable regulations, reducing gold-plating and duplicative requirements, and harmonising authorisation and reporting processes to cut compliance costs and improve legal certainty.
• Innovation: Modernising rules to support Distributed Ledger Technology (DLT), expand the scope and flexibility of the DLT Pilot Regime, and ensure technological neutrality in settlement and collateral frameworks to foster digital finance.

The proposals must now be reviewed, negotiated and approved by the European Parliament and the Council.

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