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The EU prepares a major shift in financial oversight, aiming to unify fragmented markets and boost global competitiveness
Just over a decade ago, the European Union undertook a historic transfer of sovereignty by entrusting the European Central Bank with centralized banking supervision. Today, the bloc is considering a similarly transformative step—this time in the realm of financial market oversight. In December, the European Commission is expected to present a legislative proposal that would significantly strengthen the powers of ESMA, the European Securities and Markets Authority, shifting important supervisory functions from national regulators to the European level.
The initiative marks a critical phase in the EU’s long-standing ambition to build a genuine Capital Markets Union. Despite the single currency and decades of integration efforts, Europe’s financial landscape remains fragmented. Cross-border investments are allowed, but the systems that support trading—market infrastructures, settlement mechanisms, and regulatory oversight—still operate largely within national boundaries. The EU currently hosts 14 clearing markets and 32 securities depositories, most owned by national stock exchanges and supervised domestically. This patchwork of rules and authorities has hindered the emergence of a single, deep, and liquid European financial market capable of channelling capital efficiently toward companies and innovation.
As global competition intensifies, the cost of this fragmentation has become increasingly evident. A harmonized legal and supervisory framework is now seen as essential for making European markets more attractive, especially for international investors. Centralizing supervision, however, is politically sensitive, as it involves transferring sovereignty from national watchdogs—such as Italy’s Consob—to a federal authority. For many governments, this represents not just a technical reform but a fundamental shift in the balance of power.
According to information circulating in Brussels, the Commission’s upcoming proposal aims to reinforce ESMA’s authority by relocating certain supervisory powers from national to European hands. The reform centers on the creation of a streamlined executive board responsible for day-to-day supervision, complemented by an oversight council composed of representatives from national agencies. The council would retain the ability to challenge ESMA’s major decisions, ensuring that member states remain involved in strategic oversight.
This hybrid model would resemble structures already functioning in other areas of EU financial governance, such as the Single Resolution Board (SRB), the banking supervision mechanism (SSM), and the recently created anti–money laundering authority (AMLA). “We want to move market supervision toward the centre,” explained a senior EU official. Yet internal resistance remains strong. Countries like Ireland and Luxembourg—major hubs for investment funds and financial services—fear that greater centralization could erode their competitive appeal.
Supporters of the reform counter that stronger, more unified supervision would enhance the EU’s credibility abroad. International investors, they argue, are more likely to invest in a market governed by consistent rules and backed by a solid supervisory authority. “The existence of federal market oversight in the United States does not prevent Delaware from being a financial centre, nor does it force all American banks to be headquartered in New York,” noted the same official.
Skepticism is not limited to financial hubs. Several member states have historically pushed back against transfers of authority in financial matters. Germany, for example, accepted centralized banking supervision in 2012 only when the global financial crisis revealed weaknesses in its own system. Today, as Berlin confronts a broader rethinking of its economic model, parts of its establishment acknowledge that structural change in financial oversight may not only be beneficial but necessary.
Meanwhile, Europe’s fragmented market continues to benefit large American banks, which operate seamlessly across the Atlantic and can bundle services that European financial institutions must procure piecemeal. The Commission’s proposal also foresees expanding ESMA’s budget and workforce—currently under 400 employees—to reflect its broader responsibilities. Negotiations with the Council and the European Parliament, however, are expected to be challenging.
The stakes extend far beyond the technical details of supervision. Europe’s economic weight is shrinking on the world stage. In 2000, the EU’s economy stood at 95% of the size of the U.S. economy; today it is just 65%. Without decisive measures, projections suggest that in ten years Europe could represent barely half the size of the American economy. Strengthening ESMA and building a true Capital Markets Union may not be sufficient to reverse this trend on their own—but they may well be indispensable steps toward preventing further decline.
Alessandro Fiorentino