European Commission introduces Market Integration and Supervision Package

On 4 December 2025, the European Commission adopted the Market Integration and Supervision package, which aims to remove barriers and create an integrated financial market within the EU. 

The package includes:

1. Proposal for a regulation regarding the further development of capital market integration and supervision within the Union - Master regulation
2. Proposal for a directive regarding the further development of capital market integration and supervision within the Union - Master directive
3. Proposal for a Settlement Finality Regulation (SFR)

The European Commission’s helpful Q&A document can be found here.

Summary of some of the changes

Rather than retain the current structure, this comprehensive package will shake up the status quo. It aims to reduce fragmentation within the single market to aid growth within the EU. The package intends to ensure simplification whilst reducing regulatory burden. The aim of reducing national discretion should ensure a better integrated market. The package aims to streamline regulatory requirements, such as changing the Settlement Finality Directive into a regulation, making cross-border activities more cost-effective.

This comprehensive and extensive package addresses around eighteen existing pieces of legislation.

The package aims to remove barriers to integrate capital markets which arise from differences in regulator approaches. This will enable companies to more easily raise capital and provide better access for investors to a wide range of investment opportunities.

This package also aims to ensure that passporting functions efficiently to facilitate operations across Member States. Currently, there are inconsistent applications of the rules across Member States. Improvements in passporting could ensure regulated markets and central securities depositories can provide their services more easily across the EU. The proposals seek to create a Pan-European market operator status allowing the operation of several trading venues on a single license.

The package also intends to support distributed ledger technology (DLT) innovation within the financial sector to improve financial services for people and businesses across the EU. The package will reform the DLT Pilot regime which is aimed at helping with experimentation of DLT and modernising post-trade legislation to better accommodate new technologies.

A significant change also includes supervisory reform, which will include transferring direct supervisory responsibilities to ESMA for certain significant and cross-border entities in trading and post-trading, as well as for entities in new areas like crypto-asset service providers. National authorities would be expected to support ESMA in performing its direct supervisory tasks. ESMA would be equipped with new convergence powers to ensure effective supervision of cross-border financial services and increase trust in the passporting system. The new powers will also allow ESMA to require competent authorities to seek its opinion and require corrective actions in case of serious supervisory shortcomings and to suspend the rights of an entity to provide services on a cross-border basis if it has committed a serious infringement of EU law.

1. Proposals to Market Integration Regulation

ESMA Regulation Reform

On the basis of the proposals, ESMA would undergo a fundamental transformation to become the EU's central financial supervisor. 

ESMA would gain direct supervisory powers over significant market infrastructure entities and all crypto-asset service providers, improving the current fragmented national supervision model. To support this expanded mandate, ESMA's current Management Board would be replaced with a new Executive Board comprising independent full-time members who will make supervisory decisions. The reforms also introduce enhanced supervisory convergence tools, allowing ESMA to require national authorities to seek its opinion where serious supervisory failures have been identified and to mandate corrective actions. A new cross-border enforcement mechanism will enable mutual recognition and recovery of administrative fines across EU Member States, addressing the current situation where recovering penalties in other jurisdictions is extremely difficult or impossible. In addition, ESMA will have the power to issue “no action letters” to cater for circumstances where applying a law or regulation could create legislative issues for market participants. These changes are designed to create more consistent, transparent and accountable supervision across the EU, fostering greater market integration, generating efficiency gains, and ultimately increasing investor confidence in the single market.

ESMA will further assume direct supervisory responsibility for all Central Counterparties (CCPs) deemed "significant" based on their importance to the EU economy or their size and cross-border dimension.

Trading Venues and Market Operators (MiFIR)

Currently, trading venues are supervised nationally under rules set out in the Markets in Financial Instruments Directive (MiFID II), which has led to a varied approach across national supervisors. The reforms will transfer these rules into a Regulation, creating a true "single rule book" that applies uniformly across all Member States and removing the scope for divergent national gold-plating. Supervision of significant trading venues will transfer to ESMA, ensuring consistent oversight of the most important market infrastructure. A new "Pan-European Market Operator" status would be created, allowing firms to operate multiple trading venues across several Member States under a single licence, dramatically simplifying cross-border operations. 

Central Securities Depositories Modernisation

The regulatory framework for central securities depositories would be modernised to explicitly permit the provision of Central Securities Depositories (CSDs) using distributed ledger technology, with amended definitions and new provisions covering DLT-related risks. 

Settlement of the cash leg of securities transactions will be permitted using certain e-money tokens authorised under the Markets in Crypto-Assets Regulation (MiCAR). On the supervisory side, ESMA will assume direct supervision of CSDs deemed "significant". The passporting regime would be simplified, with CSDs only needing to provide ex-post notification when offering services to issuers in other EU Member States.

Investment Funds Cross-Border Distribution

Significant barriers to the cross-border marketing and distribution of investment funds would be removed through targeted amendments to the Cross-Border Distribution Regulation (CBDR). The rules on marketing communications are being clarified and harmonised, with host Member States prohibited from imposing additional requirements beyond those specified in the regulation, eliminating the current patchwork of divergent national rules. ESMA will have powers to identify and address divergent, duplicative or deficient supervisory actions that hinder cross-border marketing, and will gain the power to intervene directly or suspend cross-border marketing in certain cases. These reforms aim to create a genuinely integrated market for investment funds across the EU.

DLT Pilot Regime Enhancement

The EU's pilot regime for market infrastructures based on DLT is being significantly expanded and made permanent to support innovation in financial markets. The maximum aggregated market value of DLT financial instruments that can be traded or recorded is being raised from current levels to €100 billion. A new simplified regime is being introduced for smaller operators handling no more than €10 billion, with proportionate requirements tailored to their scale of activities. The range of entities eligible to operate DLT market infrastructures is being expanded to include crypto-asset service providers (CASPs) authorised to operate trading platforms.

Operators will be able to obtain exemptions from a wider range of provisions in MiFID II, MiFIR and CSDR where these rules are incompatible with or highly disproportionate to the use of DLT. New models for settlement are being introduced, including settlement using commercial bank money and e-money tokens.

Crypto-Assets Supervision Centralisation

Supervision of crypto-asset service providers would be fundamentally restructured through the transfer of authorisation, monitoring, and supervisory powers from national authorities to ESMA. For financial entities authorised under other EU legislation that also provide crypto-asset services, supervisory responsibility would shift to ESMA where those services constitute their primary activity, ensuring consistent oversight irrespective of corporate structure. ESMA would assume responsibility for the enforcement of crypto-asset–specific market abuse rules. To support effective cross-sector supervision, cooperation agreements would be established with other competent authorities. Credit institutions providing crypto-asset services would remain subject to the centralised banking supervision framework to preserve regulatory coherence.

Transitional provisions are envisaged to ensure a smooth handover of supervision from national authorities to ESMA, including for applications currently being assessed.

Procedural Harmonisation Across Sectors

A comprehensive harmonisation of supervisory procedures would be implemented across multiple sectors currently under ESMA's direct supervision. The Securities Financing Transactions Regulation, Credit Rating Agencies Regulation, Benchmarks Regulation, Securitisation Regulation, European Green Bonds Regulation and ESG Ratings Regulation would all be amended to remove duplicative and sometimes inconsistent sector-specific procedural provisions. These scattered rules governing investigatory powers, information requests, on-site inspections, fines, periodic penalty payments and related decision-making processes are being deleted and replaced with references to a new consolidated procedural toolbox established in the ESMA Regulation itself. This creates a single, coherent and predictable set of supervisory procedures that will apply horizontally across all sectors under ESMA's supervision. Fee-setting provisions are being harmonised through a cross-cutting regime based on turnover, ensuring consistency and transparency in how supervised entities are charged. Sector-specific substantive powers are being preserved where these remain essential to the particular characteristics of each market, but the procedural framework through which these powers are exercised is being unified. This reform reduces fragmentation, improves legal clarity for supervised entities who may operate across multiple sectors, enhances operational efficiency for ESMA, and ensures that cross-sector supervision is exercised under consistent procedural standards whilst maintaining necessary sectoral specificities.

2. Proposals for a Market Integration Directive

The Market Integration Regulation shall be accompanied by a Market Integration Directive. The proposals create a more integrated Savings and Investments Union by removing barriers to cross-border operations and harmonising supervisory practices across EU Member States. The Market Integration Directive shall include amendments to the Undertakings for Collective Investment in Transferable Securities Directive (UCITSD), the Alternative Investment Fund Managers Directive (AIFMD), and the MiFID II. 

3. Proposals for a Settlement Finality Regulation (SFR)[1]

This document represents a fundamental change in the legal instrument governing settlement finality protections across the EU.

Converting the Settlement Finality Directive (SFD) to a Regulation will make it directly applicable to Member States improving cross-border efficiency and certainty as well as regulatory burden.

The proposal introduces several options, such as for updating definitions and concepts to ensure they work with new technologies, particularly DLT and tokenised securities. 

The proposal harmonises how EU entities can participate in payment and settlement systems located outside the EU. Currently, the rules vary significantly between EU Member States. Under the new framework, there will be a centralised registration process through ESMA and the European Banking Authority (EBA), with clear and consistent requirements. 

And the proposal for the scope of who can participate in these systems is being expanded to include non-bank payment service providers, modernising the framework to reflect changes in EU retail payment infrastructure.

The proposed SFR shall establish clear, harmonised rules for determining three critical moments: when a transfer order enters the system, when it becomes irrevocable, and when settlement is final. This would make it much easier for businesses to operate across borders.

Timeline

The proposals will now go through trilogue negotiations with the European Parliament and Council and should continue throughout 2026 until an agreement is reached. No official start date has been published. However, when negotiations do start, we anticipate this process to be lengthy due to the complexity and scope of the package.

Although trilogue negotiations can be concluded within months, their duration frequently exceeds a year. We therefore anticipate negotiations to last a year or more. After a provisional agreement is reached and the text has had the necessary adjustments made, it will go through formal approval by Parliament and adoption by Council. Once adopted, the package could become directly applicable after a 12–24 month transitional period; market participants could expect this between 2027–2029.

Conclusion

These Market Intergration Package proposals should introduce greater harmonisation across Member States bringing benefits to firms in the form of market access to investment funds, regulator efficiency and reduced compliance costs. Legal certainty should create a smoother operational consideration when it comes to cross-border operations. 

Further advances in DLT should also introduce greater benefits to businesses and consumers. 

The direction in which the negotiations regarding the proposals will evolve is currently unclear. The proposals have a wide scope and could have a significant impact, so we expect various stakeholders to provide input on them during the legislative process. For instance, several national supervisory authorities have already stated that they do not support centralised supervision by ESMA due to the associated disadvantages. More clarity on this issue is likely to emerge in the coming months.  To be prepared for the proposed changes, the legislative process should be monitored.

Our Financial Regulation team will be monitoring next steps and will keep you up-to-speed with the latest developments. Please do get in touch with the team if you have any questions or would like any assistance with exploring a gap analysis on existing processes or training on how to prepare to ensure compliance with the new regime.