The Future of EU Market Supervision

In a report published last week, the Securities and Markets Stakeholder Group (SMSG) at the European Securities and Markets Authority (ESMA) set out recommendations for the future of EU market supervision.

The European Commission’s draft Market Integration and Supervision Package (MISP) proposes expanding ESMA’s direct supervision to significant trading venues, central counterparties, central securities depositories, and crypto-asset service providers, alongside broader powers to promote supervisory convergence. The SMSG, an advisory body that brings together perspectives from across EU financial markets, acknowledges the case for stronger EU-level supervision. However, it argues that any expansion should be proportionate and accompanied by clear divisions of responsibility between ESMA and national competent authorities. It further warns that poorly designed centralization could create overlapping supervision, higher administrative costs, diluted accountability, and legal uncertainty.

The Group makes a number of recommendations to ensure the success of these reforms, including suggesting that ESMA makes full use of joint supervisory teams (JSTs) and other mechanisms to coordinate with national authorities. It also proposes a formal “Competitiveness and Attractiveness Check” for new ESMA standards and guidance. However, the SMSG emphasizes that investor protection and market integrity should remain ESMA’s primary objectives. As such, it suggests that the competitiveness check be paired with a Retail Investor Impact Assessment to evaluate the effect of proposed changes on investors’ costs, level of protection, and access to redress.

The European Commission estimated that implementing the MISP as proposed would require 240 to 400 additional ESMA staff and €45 million to €75.5 million in additional annual budget needs, increases of roughly 65% to 110% in headcount and 50% to 90% in spending. The SMSG stresses the need for greater transparency around supervisory costs to accompany any such expansion, and says any transfer of responsibilities to ESMA should, over time, be matched by lower costs and complexity at the national level.