Background
The European Commission’s release of a comprehensive reform package on 4 December 2025 represents a major step forward in the European Union’s drive to create a unified financial services market. Building on proposals first introduced in June 2024, the reform package aims to transform the EU's fragmented capital markets into a seamless, integrated system that will enhance the EU's economic competitiveness and strategic autonomy.
As outlined in the impact assessment this initiative aims to address barriers to the cross border provision of services in order to improve the functioning of EU capital markets for the benefit of investors, businesses and the wider EU economy and facilitate investors’ access to a wide range of investment opportunities while enabling companies to raise capital across borders.
Overview of the legislative package
The legislative package includes the following:
- Proposal for a regulation regarding the further development of capital market integration and supervision within the Union – Master regulation (2025/0383(COD)) and amending various regulations including SFTR, CSDR and MIFIR.
- Proposal for a directive regarding the further development of capital market integration and supervision within the Union – Master directive (2025/0382(COD)) and amending the UCITS, AIFMD and MIFID II Directives.
- Proposal for a regulation of the European Parliament and of the Council on settlement finality (2025/0381(COD)) repealing Directive 98/26/EC and amending Directive 2002/47/EC on financial collateral arrangements (SFR)
Key proposals for reform at a glance
Achieving market integration
The legislative package introduces three key measures in view of promoting economies of scale and enhancing the competitiveness of EU capital markets infrastructure:
- Expanded passporting regime: regulated markets and Central Securities Depositories (CSDs) would use their home state authorisation more effectively across the EU, reducing duplicate authorisations and supervisory conflicts.
- Pan-European Market Operator (PEMO) status: thanks to this licence, one ESMA authorisation would allow trading venue operators to be active in multiple jurisdictions as host Member States would have the obligation to permit operation via services or a branch without additional requirements or authorisation.
- Streamlined distribution requirements: the proposal would establish a more uniform framework for fund distribution across the EU through:
- An EU depositary passport enabling funds to appoint depositaries located anywhere in the Union;
- Accelerated timeframes for procedural deadlines for authorities to process notifications when a management company (the “ManCo”) or an AIFM wishes to provide services in another Member State: home Member State will have to communicate the notification to the host Member Sates within 1 month for UCITS ManCo and 15 days for AIFMs.
- Removal of divergent national authorisation practices and discretions – to be achieved through ESMA engaging with national authorities and stakeholders and making use of its coordination and intervention powers;
- Streamlined delegation requirements within EU groups and elimination of duplicative compliance obligations: intra-group arrangements for the sharing of resources, such as human and technical resources, will no longer be subject to delegation requirements and will only be subject to an obligation to inform the competent authority.
- Recognition of EU groups of management companies which shall include authorised management companies, AIFMs, credit institutions and investments firms. These groups would facilitate the sharing of capabilities, enabling asset managers to leverage group-wide infrastructure for distribution activities
Simplifying innovation through removal of barriers
The legislative package addresses regulatory obstacles that currently prevent the adoption of Distributed Ledger Technology (“DLT”) in financial market infrastructures. The reforms expand the existing DLT Pilot Regime to provide greater flexibility and legal certainty for blockchain-based solutions.
These amendments significantly broaden the scope of permissible DLT activities and DLT-based market infrastructures:
- Under the proposed legislative package, former asset-class limitations have been removed. Consequently, all financial instruments may be included in the DLT Pilot Regime, no longer restricting participation to shares, bonds, or UCITS meeting specific size or market-value criteria. Crypto-asset service providers (CASPs) can also now participate in the pilot framework.
- Increased capacity threshold: the maximum value of financial instruments that DLT market infrastructure may handle has increased from €6 billion to €100 billion, enabling commercial-scale operations rather than just experimental projects.
These changes strike a better balance between fostering innovation and maintaining regulatory oversight.
Streamlining and enhancing supervision
Under the proposed legislative framework, ESMA would directly supervise critical financial market infrastructures and service providers whose operations are deemed significant for EU-wide economic stability or financial system integrity. This would include major central counterparties (CCPs), central securities depositories (CSDs), key trading venues and the new pan-European market operators. All crypto-asset service providers (CASPs) would also fall under ESMA's direct authorisation and supervision, reflecting the sector's growing importance and cross-border nature. In addition and in cooperation with national competent authorities, ESMA would conduct annual reviews of the largest asset management groups to identify inefficient, redundant, or inconsistent practices and to facilitate their operations within the single market.
However, this proposal has generated significant debate, particularly regarding the transfer of supervisory powers from national authorities to ESMA. Some Member States and national supervisors have expressed concerns about centralising oversight at the European level, raising questions about national regulatory autonomy, and the implications of such a fundamental shift in the supervisory architecture.
The proposal also considers internal reform of ESMA, including the establishment of a new Executive Board and a refocused mandate on regulatory policy development and supervisory convergence across national authorities.
Benefits for investors, companies and market participants
The legislative package helps the EU address key challenges, from financing the green and digital transitions to strengthening defence capabilities and long-term economic security. The core objective is to break down barriers between national markets, creating economies of scale and easier access to capital across the 27 Member States.
The Commission expects deeper integration to create a positive cycle: more efficient capital markets deliver better returns for savers and investors, encouraging greater investment in the European economy. This provides businesses with easier access to funding for growth and innovation. This is particularly important as a press release from the European Commission dated 19 March 2025 stated that approximately €10 trillion of EU retail savings currently sit in bank deposits earning low returns.
The benefits are significant: enhanced competitiveness, stronger economic growth, and job creation across the Union. By improving capital markets, the EU aims to channel investment towards urgent priorities including climate action, digital infrastructure, and security whilst giving European citizens better opportunities to grow their savings.
Next steps
The next steps include securing approval from the European Parliament and the Council in late 2026, followed by an expected implementation period between 2027 and 2029. Member States would also be required within at least 18 months of the entry into force of the new legislation to ensure that their domestic frameworks align with the new EU requirements.
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