The European Commission’s new reform package, the Market Integration and Supervision Package (MISP), aims to reduce the fragmentation of EU financial markets and enhance the functioning of the single market. By strengthening the role of ESMA (the European Securities and Markets Authority), reshaping the supervision of market infrastructures and reducing regulatory divergences, the proposal would support the development of a more competitive and integrated European capital market. If adopted, the package could have a material impact on the cross-border operations, compliance obligations and supervisory environment of financial institutions.
Why is MISP important for European financial markets?
The Market Integration and Supervision Package (MISP) is a comprehensive package of proposed measures published on 4 December 2025 by the European Commission’s Directorate-General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA). The package aims to remove barriers to the EU single market for financial services and to unlock its full potential. MISP is one of the cornerstones of the Savings and Investments Union (SIU), which the Commission presented in March 2025.
The strategy aims to:
- channel European savings more effectively towards productive investments,
- improve financing opportunities for businesses, and
- offer EU citizens a broader range of investment opportunities.
To this end, it seeks to create a financing ecosystem that supports the European Union’s competitiveness, digitalisation, green transition and defence objectives.
A more deeply integrated financial system is essential to achieving the European Union’s strategic priorities. No single Member State has a financial market large enough on its own to play a defining role globally, whereas an integrated European market could create a deeper and more liquid capital market. This could connect savings with productive investments more efficiently, thereby supporting economic growth.
Why is the fragmented European financial market a problem?
Despite measures taken in recent years, EU financial markets remain highly fragmented. Market fragmentation prevents financial institutions from fully benefiting from the single market, increases costs and reduces competitiveness. According to 2024 data from the European Commission, the market capitalisation of European stock exchanges amounted to only 73% of EU GDP, while in the United States the corresponding figure reached 270%.
One of the most important manifestations of fragmentation is the fragmented structure of market infrastructures. There are more than 300 trading venues, 14 central counterparties (CCPs) and 32 central securities depositories (CSDs) operating in the European Union. The large number of infrastructures makes it more difficult to benefit from economies of scale and to achieve the market size needed for international competition. By contrast, in the United States, securities settlement services are provided by 2 CSDs and 8 CCPs, while nearly three quarters of trading volume is handled by the 5 largest trading venues.
Fragmentation is further reinforced by the differing rules and interpretative practices of individual Member States. Financial institutions often face national requirements that go beyond EU regulation or arise from its divergent application. In particular, differing interpretations of the MiFID II framework (the Markets in Financial Instruments Directive), AIFMD (the Alternative Investment Fund Managers Directive) and UCITS (the directive coordinating laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities) may hinder the free movement of capital, restrict cross-border activities and narrow market opportunities.
The fragmentation of the supervisory system poses an additional challenge. Divergent national supervisory practices increase compliance costs, may weaken the consistent application of investor protection and make it more difficult to supervise market participants operating cross-border at European level. National authorities are not always able to effectively address the risks and challenges arising from institutions operating on a European scale. An effective and consistent supervisory system is therefore one of the fundamental prerequisites for creating an integrated financial market. The free movement of capital can be facilitated by a supervisory structure that ensures more uniform treatment for market participants, supports cross-border activities more effectively and responds more quickly to emerging risks. Stronger supervisory convergence can enhance financial stability, market integrity and investor protection, while increasing investor confidence and promoting the further integration of the European financial system.
Innovation may also be hindered by the current regulatory framework. Technologies such as distributed ledger technology (DLT) could significantly improve the efficiency of trading and settlement processes; however, the limited scope and size constraints of the DLT Pilot Regime have so far held back their broader adoption.
How would MISP reshape EU financial markets?
The MISP package seeks to address these structural issues. Its objective is not only to reduce regulatory, market and supervisory barriers, but also to create a more unified, efficient and competitive European financial market capable of supporting the development of the EU economy, the digital and green transitions, and the strengthening of the EU’s strategic autonomy.
These objectives are supported by the package’s specific legislative proposals. The European Parliament’s Committee on Economic and Monetary Affairs (ECON) published its draft reports relating to the three pillars of the MISP package in June 2026. The package consists of a Commission communication and three legislative proposals.
The Omnibus Regulation, which forms the first pillar, contains amendments to EU legislation such as the ESMA Regulation (European Securities and Markets Authority), the EMIR Regulation (European Market Infrastructure Regulation), MiFIR (the Markets in Financial Instruments Regulation), CSDR (the Central Securities Depositories Regulation), DLTPR (the pilot regime for market infrastructures based on distributed ledger technology), MiCA (the Markets in Crypto-Assets Regulation), and CBDR (the regulation facilitating cross-border distribution of collective investment undertakings).
The proposal’s main objectives include:
- strengthening EU-level supervision of trading and settlement infrastructures,
- more uniform interpretation of rules,
- simplified reporting,
- and supporting cross-border operations.
In this context, one of the most important elements of MISP is the transformation of ESMA’s role. ESMA currently primarily has a coordinating role and supports convergence in the application of rules; however, if the package is adopted, it would become a stronger European authority with partially direct supervisory powers. The European Commission would strengthen ESMA’s role in relation to significant market infrastructures with cross-border relevance, while ECON’s 2026 amendment proposals go even further and support direct ESMA supervision of all EU CCPs and CSDs.
The second pillar, the Omnibus Directive, aims to amend UCITS, AIFMD and MiFID II. The main focus of this pillar is the further harmonisation of the rules governing investment services and asset management activities, responding to the interpretative divergences that currently limit cross-border activities and contribute to market fragmentation.
The third and final pillar is the Settlement Finality Regulation (SFR), which would replace the current Settlement Finality Directive (SFD) and simultaneously amend the provisions of the Financial Collateral Arrangements Directive (FCD) in order to create a more uniform, modern legal framework that is also suitable for DLT-based infrastructures.
Taken together, the three pillars aim to promote more concentrated and efficient market infrastructures, reduce regulatory divergences, establish more uniform supervision and support innovation. Through this, MISP could contribute, as one of the central instruments of the Savings and Investments Union, to the creation of a more deeply integrated, more competitive and more resilient European financial system.
Where does the legislative process stand now, and what could the debates focus on?
The adoption of the reform package is currently ongoing. In June 2026, ECON published its draft reports and amendment proposals relating to the three legislative proposals, which are more ambitious than the Commission’s original plans in several respects, particularly in strengthening ESMA’s role and supporting DLT-based infrastructures. The proposals are currently under parliamentary negotiation, with the final compromise text expected to be developed in 2027. Once adopted, the Omnibus Regulation and the SFR will be directly applicable, while the Omnibus Directive will need to be transposed by Member States into their national law.
Although the fundamental objectives of the MISP package enjoy broad support, several issues can be identified that are expected to become key points of debate in the legislative negotiations. The most significant debate is likely to arise around the expansion of ESMA’s powers and the degree of centralisation of EU supervision. The reform would, in several areas, partially elevate national supervisory tasks to EU level. In this context, the future supervisory framework for CCPs and CSDs, as well as the division of responsibilities between ESMA and national authorities, may become contentious issues. During the negotiations, the application of the principle of subsidiarity is also expected to receive particular attention, especially in determining for which institutions direct EU-level supervision is justified.
Significant attention may also focus on the further development of the DLT Pilot Regime. While one of the aims of the package is to encourage digital financial innovation and facilitate the wider use of DLT-based trading and settlement systems, the reform also raises operational, cybersecurity, legal and financial stability risks. During the negotiations, the supervisory framework for crypto-asset service providers (CASPs) is also expected to remain on the agenda, as will the assessment of certain technical details of the SFR, particularly in relation to the treatment of third-country settlement systems.
Some market participants, however, also point out that a more integrated market and a more uniform regulatory environment may primarily benefit larger institutions with an international presence. At the same time, smaller service providers typically operating in national markets may face stronger competition, while adapting to the new rules and meeting compliance requirements may also entail additional costs in the short term.
Overall, in the longer term the reform package could make a meaningful contribution to the integration of the European financial system and to strengthening its competitiveness. The harmonisation of regulatory and supervisory frameworks may reduce barriers to cross-border operations, while the strengthening of ESMA’s role and the integration of market infrastructures may improve legal certainty, liquidity and market efficiency. In addition, the broader use of digital innovations and more uniform supervisory practices may support investor protection and financial stability, helping to achieve the objectives of the Savings and Investments Union.
Contributors to the preparation of this newsletter: Ákos Pintér and Szilvia Lengyel
Sources:
https://finance.ec.europa.eu/publications/market-integration-and-supervision-package_en
https://financialregulations.eu/blog/eu-market-integration-supervision-package-2025
https://ec.europa.eu/commission/presscorner/detail/en/qanda_25_2894 https://finance.ec.europa.eu/document/download/fbdaf6be-22c3-4c5c-85a1-b6376f6280b2_en?filename=factsheet-market-integration-package_en.pdf
