ABSTRACT
This article examines the EU’s evolving approach to capital markets supervision in the context of the Savings and Investments Union (SIU) Strategy and the Market Integration and Supervision Package (MISP) of December 2025, as updated in June 2026. It analyzes the tension between national supervisory autonomy and centralized European oversight, assessing arguments on both sides. The article situates these proposals within the competitive and geopolitical pressures facing European capital markets, including Capital Market Union (CMU) fragmentation, the Draghi and Letta reports, and postBrexit reconfiguration. Particular attention is given to the Irish Council Presidency, which commenced 1 July 2026 and its potential to broker compromise. The article concludes with strategic considerations for market participants navigating an increasingly integrated - yet politically contested supervisory landscape.
1. Introduction: a debate entering its decisive phase
The EU finds itself in the midst of a consequential institutional debate. Few questions in European financial regulation have proven as enduring, or as politically charged, as the question of who should supervise its capital markets. Should oversight remain firmly in the hands of national competent authorities (NCAs), each operating within their own legal and institutional traditions, or should the EU move decisively towards a single, centralized supervisor capable of enforcing a truly uniform rulebook across twenty-seven Member States? Or is the answer, as is so often the case in European integration, some carefully negotiated middle ground?
This question re-emerged with force in 2025. Two landmark European Commission publications - the Savings and Investments Union (SIU) Strategy (March 2025) and the Market Integration and Supervision Package (MISP), published in December 2025) - have placed supervisory architecture at the center of the EU’s capital markets agenda. Together, these represent the most significant reconsideration of European financial supervision since the establishment of the European Supervisory Authorities (ESAs) following the 2008 financial crisis.
This debate is no longer theoretical. Legislative negotiations are underway. Political lines are visible. By the time this article is published in September 2026, Ireland will have assumed the Council Presidency, positioning it to broker compromise. The supervisory question - national autonomy versus centralized European oversight - unfolds within the broader SIU framework: mobilizing European savings, deepening capital markets, and strengthening the Union’s global competitiveness.
This article examines these proposals, the forces driving them, and the arguments on both sides of centralization. It proceeds in seven parts: context; the SIU Strategy; the MISP; the centralization debate; political dynamics and stakeholder positions; Ireland’s Council Presidency; and implications for market participants.
2. Context — why now?
2.1 The unfinished business of CMU
The idea that Europe needs deeper, more integrated capital markets is not new. The CMU project launched in 2015 under Jean-Claude Juncker aimed to create a single market for capital across all Member States. The diagnosis was straightforward: European businesses, particularly small and medium-sized enterprises (SMEs), were excessively reliant on bank lending. Capital markets were fragmented along national lines, with different rules, supervisory practices, and infrastructures creating barriers to cross-border investment. European savings were not being efficiently channeled to European investment opportunities and European capital markets lagged far behind their American counterparts in depth, liquidity, and dynamism.
A decade on, the results have been disappointing. While important legislative measures have been adopted - including reforms to prospectus requirements, securitization frameworks, and fund regulation - fundamental fragmentation has persisted. Cross-border capital flows remain modest. NCAs continue applying harmonized rules divergently. The gap between European and American capital markets has, in several respects, widened. By 2024, US equity market capitalization exceeded the EU’s by roughly four times, according to World Federation of Exchanges and ESMA data - reflecting not merely economic differences but fundamental differences in the depth and efficiency of capital allocation. Critics may reasonably ask whether this gap is attributable primarily to supervisory fragmentation or to other structural factors - such as tax regimes, corporate governance traditions, equity culture, and risk appetite - that would persist regardless of supervisory architecture.
The divergence in supervisory practices manifests concretely. Consider the application of the Markets in Financial Instruments Directive (MiFID II) product governance requirements. While the Directive establishes a harmonized framework for target markets and distribution strategies, NCAs have adopted markedly different enforcement approaches. Some interpret requirements narrowly, focusing on documentation; others take a more interventionist stance, scrutinizing distribution arrangements and imposing expectations beyond the Level 1 text (the primary legislative Act adopted by the European Parliament and Council) or Level 2 text (delegated and implementing acts adopted by the Commission).
Similarly, authorization of alternative investment fund managers (AIFMs) under the Alternative Investment Fund Managers Directive (AIFMD) reveals significant supervisory disparities. Timeframes vary from weeks in some jurisdictions to many months in others. Application requirements, due diligence on key personnel, and substance expectations differ materially. For cross-border fund managers, these differences translate directly into costs, delays, and strategic decisions about where to establish European operations.
Prospectus supervision offers another illustration. Despite the directly applicable EU Prospectus Regulation, NCAs retain discretion in review and approval processes. Market participants consistently report that the same prospectus submitted to different NCAs elicits different comments, scrutiny levels, and approval timelines. One NCA may focus on risk factors while another prioritizes financial information. These inconsistencies increase crossborder capital raising costs and undermine the purpose of a single European prospectus regime.
Enforcement practices present perhaps the starkest divergence. ESMA’s data on administrative sanctions under MiFID II and the Market Abuse Regulation (MAR) reveal wide disparities in the frequency, nature, and severity of enforcement actions. Some NCAs pursue significant fines and public censures; others favor informal engagement, reserving formal enforcement for egregious cases. The European Parliament’s June 2026 draft acknowledges this problem, noting that “divergent national supervision creates an uneven playing field and supervisory arbitrage risk” and proposing ESMA as single competent authority for market abuse enforcement under the Markets in Crypto-Assets Regulation (MiCAR).2 For market participants, consequences of non-compliance depend as much on the supervising authority’s identity as on the breach itself.
2.2 The Draghi and Letta Reports
Political impetus came from two influential 2024 reports. The first, by former Italian Prime Minister Enrico Letta, argued forcefully that the EU’s failure to integrate capital markets was undermining European competitiveness and its ability to finance long-term investment needs, such as climate transition, digital infrastructure, defense, and strategic autonomy. Letta called for renewed commitment to breaking down barriers to capital flows and a more integrated supervisory approach. The second, by Mario Draghi, was more consequential. Draghi’s diagnosis was stark: Europe faced an “existential challenge” to competitiveness, driven by underinvestment in innovation, regulatory fragmentation, and failure to mobilize private capital at scale. Among his recommendations was far-reaching reform of capital markets supervision, including a substantially enhanced role for ESMA. It bears noting that this competitiveness framing is itself contested. Some scholars question whether “depth and liquidity” are the appropriate metrics for capital market success, or whether the US model produces better outcomes for firms, investors, and society, as opposed to merely larger markets. The “existential challenge” rhetoric may reflect political positioning as much as analytical rigor.
These reports landed in a political environment shaped by growing concern about Europe’s global position. The energy crisis from Russia’s invasion of Ukraine, accelerating technological competition with the US and China. and the investment needs of green and digital transitions had all contributed to the urgency. If Europe was to finance its future, it needed capital markets that worked - confronting structural barriers, including supervisory fragmentation.
2.3 The institutional baseline
The current debate builds on an existing hybrid model. Since January 2011, the ESAs - ESMA, the European Banking Authority (EBA), and the European Insurance and Occupational Pensions Authority (EIOPA) - have promoted supervisory convergence across sectors. Yet primary supervision remains national in most areas. In banking, the 2014 introduction of the Banking Union’s Single Supervisory Mechanism (SSM) with the European Central Bank (ECB) at its helm demonstrated that centralization is feasible where systemic stability requires it. Capital markets supervision has remained largely decentralized. The SIU debate, therefore, asks whether elements of Banking Union logic should extend - selectively and proportionately - to capital markets.
To view the full article click here
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
[View Source]