European policymakers are undertaking reforms to integrate the region’s financial markets in an effort to make its capital markets more efficient and competitive.
On Thursday, the European Commission (EC) adopted a comprehensive package of measures that are intended to simplify and streamline the regulatory framework, and enable greater scale, by eliminating barriers to integrating markets in trading, post-trading and asset management.
The reforms — which include passports for regulated exchanges and securities depositories, and streamlining licensing for trading venues — are intended to help industry firms operate more seamlessly throughout the EU, reducing cost differences between domestic and cross-border transactions. They also aim to streamline the cross-border distribution of investment funds.
At the same time, the reforms aim to remove regulatory barriers to innovation involving distributed ledger technology. They seek to eliminate inconsistencies and simplify supervision, as well as to reduce national discretion in the capital markets rules to avoid added complexity and improve harmonization.
For instance, the proposals would transfer the job of directly supervising certain cross-border infrastructures and crypto-asset service providers from national regulators to the EU level.
“Simplified access to capital markets reduces costs and makes the markets more appealing for investors and companies,” the EC said in a release.
The European Securities and Markets Authority welcomed the proposals, saying that the reforms, “represent a major step towards deeper and more efficient EU capital markets.”
“The proposal directly addresses fragmentation stemming from divergent national rules and supervisory practices,” the regulator said, adding that removing regulatory barriers and harmonizing supervision will “support scale, efficiency and better outcomes for investors and businesses.”
As it stands, the European financial markets remain fragmented, small and uncompetitive, relative to the U.S.
According to the commission, in 2024, the total market capitalization for Europe’s stock exchanges amounted to 73% of GDP, compared to 270% in the U.S.
Among other things, these reforms aim to address that discrepancy and unlock more of the regional market’s potential.
“For too long, Europe has tolerated a level of fragmentation that holds back our economy. Today we are making a deliberate choice to change course. By building a real single financial market, we will give people better opportunities to grow their wealth, and we unlock stronger financing for Europe’s priorities,” said Maria Luís Albuquerque, commissioner for Financial Services and the Savings and Investments Union, in a release.
“Market integration is not a technical exercise — it is a political imperative for Europe’s prosperity and global relevance,” she added.
The proposals still have to be negotiated and approved by the European Parliament and Council. The EC said it’s dedicated to collaborating closely with policymakers and other stakeholders “to ensure the swift and effective implementation of these measures.”
“More integrated capital markets are essential for fortifying the EU’s economic strength and achieving strategic priorities such as competitiveness, digital and green transitions, defence and security,” the commission said.