European Commission publishes proposed reforms to foster CMU and financial integration

21 September 2017

The European Commission has published proposed reforms to foster Capital Markets Union and financial integration. The proposed reforms were accompanied by a Commission communication and an impact assessment.

Key features of the proposed reforms are;

Stronger coordination of supervision across the EU

The ESAs will set EU-wide supervisory priorities, check the consistency of the work programmes of individual supervisory authorities with EU priorities and review their implementation. They will monitor authorities' practices in allowing market players - such as banks, fund managers and investment firms - to delegate and outsource business functions to non-EU countries, to ensure that risks are properly managed and to prevent circumventions of the rules. 

The proposals extend direct capital markets supervision by ESMA

The Commission is proposing to make ESMA the direct supervisor over certain sectors of capital markets across the EU:

• Capital market data: ESMA will authorise and supervise the EU's critical benchmarks and endorse non-EU benchmarks for use in the EU.
• Capital market entry: ESMA will now be in charge of approving certain EU prospectuses and all non-EU prospectuses drawn up under EU rules.
• Capital market actors: ESMA will authorise and supervise certain investment funds, namely European Venture Capital Funds, European Social Entrepreneurship Funds and European Long-Term Investment Funds.
• Market abuse cases: ESMA will have a greater role in coordinating market abuse investigations. It will have the right to act where certain orders, transactions or behaviours give rise to well-founded suspicion and have cross-border implications or effects for the integrity of financial markets or financial stability in the EU.

Improved governance and funding of the ESAs

The ESAs will take decisions more independently from national interests. Under the new governance system, newly-created Executive Boards with permanent members will be established. The reform will also make the funding of the ESAs independent from national supervisors - while the EU budget will continue to contribute a share of the ESAs' funding, the rest will be funded by contributions from the financial sector. 

Promoting sustainable finance and FinTech

As the EU steps up efforts to complete the Capital Markets Union, supervision has to keep pace with new market developments, notably:

• The ESAs will promote sustainable finance, while ensuring financial stability. They will take account of environmental, social and governance-related factors and risks in all the tasks they perform.
• The ESAs will prioritise FinTech and will coordinate national initiatives to promote innovation and strengthen cybersecurity. They will take account of technological innovation in all the tasks they perform.

The proposals – the main Regulation and the subsequent changes to a number of sectorial Directives – will now be discussed by the European Parliament and the Council. 

We will assess the proposed reforms and engage with member firms and stakeholders to ensure industry’s views are relayed to policy makers as part of the legislative process.