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Just as it was five and ten years ago 1 , the dominant challenge for the European Union’s new financial services commissioner – or to give the full title, commissioner for financial services and the savings and investments union – will be to advance the ongoing transition from 27 national financial systems towards a single European financial system (Merler and Véron, 2024). That is desirable on grounds of economic efficiency, investment capability and, as the euro-area crisis demonstrated, financial stability in the euro area and by implication in the EU as a whole.
Recent EU parlance refers to this ambition as the Savings and Investments Union 2 , encompassing both the completion of the banking union – defined as breaking the bank-sovereign vicious circle, initiated a decade ago, already transformative but still unfinished (Véron, 2024a) – and the establishment of a capital markets union (CMU), a loosely defined expression coined by then Commission president Jean-Claude Juncker in 2014.
CMU is arguably the most immediate issue on the commissioner’s agenda. The associated legislative projects so far have been either of limited impact or overly ambitious, such as attempts to harmonise policies that member states have not yet opted to pool at European level, including taxation, insolvency law, pension finance and housing finance, not to mention steps towards fiscal union.
As suggested a year ago by European Central Bank President Christine Lagarde, capital markets supervision is the one area of CMU in which transformative reform is achievable and should be prioritised (Lagarde, 2023). A reform of the European Securities and Markets Authority (ESMA) was unsuccessfully attempted by the Juncker Commission, but a renewed effort now would be more promising (Véron, 2024b). It should be focused on ESMA and not its sister agencies for banking and insurance, to prevent a coalition of opponents driven by concerns not directly related to CMU. Lagarde summarised that vision as a “European SEC” with reference to the US Securities and Exchange Commission, a broadly effective supervisor that has shaped American capital markets since its establishment in the 1930s.
Implementing that vision of capital markets supervisory integration should combine the broadening of ESMA’s scope of authority with root-and-branch reform to transform ESMA into an independent, effective and market-conscious supervisor, which it currently is not to a sufficient extent. This should include governance and financing arrangements broadly aligned with those adopted for the new EU Anti-Money Laundering Authority (AMLA) 3 , currently in build-up phase. It should also include a new supervisory concept which, given the wholesale nature of most areas of capital markets supervision, must be less dependent on national authorities than those adopted for AMLA or for European banking supervision.
In line with the new Commission’s aim of reducing complexity and better serving the day-to-day needs of business, the best design would be one in which the reformed ESMA is the only supervisor of the areas of capital markets for which it is empowered, avoiding the pitfalls of over-centralisation by operating through a network of offices in the relevant member states. Given the multiplicity of supervisory mandates that ESMA would gradually assume, some of these offices could take an EU-wide lead for a given mandate.
This unitary but decentralised design has been recommended in July in a joint report by the French Council of Economic Analysis and German Council of Economic Experts (Landais, Schnitzer et al, 2024). It would combine the best of both worlds: consistency and predictability of practice, in contrast to the present divergence of national approaches that perpetuates market fragmentation; and appropriate familiarity and proximity with local market realities, legacies and practices. ...
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