When Mario Draghi delivered his 2024 report on European competitiveness, one message landed with particular force in financial circles: Europe does not suffer from a lack of savings, but from an inability to channel those savings efficiently into productive investment. The European Commission’s response has been the Savings and Investments Union, or “SIU”, a broad policy agenda designed to connect household wealth, capital-market financing and Europe’s strategic investment needs more effectively. Within that agenda, the “Market Integration Package”, adopted by the Commission on 4 December 2025, is one of the most consequential building blocks.
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The Commission’s diagnosis is stark. EU capital markets remain fragmented, relatively shallow and structurally less competitive than those of the United States and the United Kingdom. Based on the European Commission’s own figures[1], stock-exchange capitalisation in 2024 stood at 73% of EU GDP, compared with 270% in the US and 130% in the UK; EU investment funds are also much smaller on average than their US peers. For Brussels, that fragmentation is not just a technical inconvenience. It is a competitiveness problem, a scale problem and, increasingly, a strategic autonomy problem.
Against that background, the Market Integration Package seeks to remove long-standing barriers in trading, post-trading, asset management and supervision. It sits squarely within the SIU timeline launched in March 2025 and consists of three legislative proposals:
- A “Master Regulation” as regards the further development of capital market integration and supervision within the Union;
- A “Master Directive” as regards the further development of capital market integration and supervision within the Union; and
- A “Settlement Finality Regulation” on settlement finality.
A package built around integration, simplification and supervisory convergence
The package will not reinvent the financial regulation framework of the EU from scratch. Instead, it will target some key features in need of reform most notably the authorisation rules, passporting processes, supervisory architecture and post-trade framework that continue to split the single market into 27 partially connected national compartments. The Commission presents the package as a practical effort to integrate the various national markets by reducing national divergences, converting key rules from directives to regulations where appropriate, and making cross-border business easier for market operators, investment funds and infrastructures.
These market integration efforts raise a politically sensitive question, which we will illustrate with an example at the end of this article: how much supervision and rules should remain at the national level and how much should be harmonised as well as centralised at the EU level?
The Master Regulation: fewer national hurdles, more harmonised rules and more supervisory duties for ESMA
The Master Regulation is the most ambitious part of the Market Integration Package. It amends a broad range of existing EU financial services regulations and is explicitly designed to remove barriers created by divergent rules and supervisory practices.
One of its flagship ideas is the creation of a Pan-European Market Operator (PEMO) status. The Commission’s factsheet[2] explains the proposal in simple terms: rather than forcing groups to obtain separate market authorisations in each Member State, PEMO status would allow them to operate trading venues[3] across multiple countries under one licence. In policy terms, that is a major shift. It aims to reduce organisational duplication, lower market-entry friction and encourage exchanges and trading-platform groups to adopt a more European approach in their activities.
The Master Regulation should also contribute to a safer and more efficient post-trading landscape in the EU. As an example, the Master Regulation aims to fluidify cross-border processes for central securities depositories (“CSDs”), most notably by introducing a more flexible ex-post notification to the financial authority of a host country when a CSD begins to offer to issuers located in said host country. The Master Regulation also modernises the current regulation of CSDs by allowing CSDs to provide their services via distributed ledger technology (“DLT”).
The Master Regulation also strives to centralise supervisory duties at the European level and is consequently giving more supervisory duties to ESMA and increasing the efficiency of its internal governance. The Master Regulation introduces a new Executive Board and expands direct oversight over significant market infrastructures and certain crypto-asset service providers. The new duties created by the Master Regulation for ESMA clearly shows the intention of the European Commission to place ESMA at the centre of its current integration strategy. The decision to increase the supervisory duties of ESMA is coherent with the drive for market integration. Cross-border businesses need more predictable supervision and investors need greater confidence that EU rules will be interpreted consistently.
The Master Directive: making passporting more efficient
If the Master Regulation tackles market structure and supervision at the level of regulations, the Master Directive focuses on the remaining directive-based architecture, especially regarding investment fund management and “MiFID II”[4]. Its purpose is to reduce the space for diverging national implementation and to make passporting mechanisms operate more efficiently across borders.
For the investment funds industry, this is likely to be one of the package’s most closely watched elements. The Commission’s summary materials indicate that the Master Directive is intended to make it easier for investment funds to enter and be marketed in the single market, and that it will simplify passporting and harmonise operating rules. A notable change brought by the Master Directive is the planned transfer of cross-border marketing rules from the UCITS Directive[5] and AIFM Directive[6] into Regulation (EU) 2019/1156[7], thereby reducing scope for national gold-plating and procedural divergence.
The same philosophy extends to MiFID II, where the Market Integration Package seeks further migration of directive-based rules into directly applicable regulations. As an example, the rules on authorisation of trading venues will be transferred from MiFID II to MiFIR[8].
It is clear that the European Commission takes the approach that where fragmentation persists because national transposition leaves too much room for divergence, directives should simply be replaced by regulations with direct implementation into national laws.
The Settlement Finality Regulation: ensuring legal certainty for settlement systems
The proposed Settlement Finality Regulation will replace the existing directive-based settlement-finality regime with a directly applicable regulation, precisely because fragmentation in national transposition has long created legal uncertainty in cross-border securities settlement. The Commission’s main objectives are to improve legal certainty especially with regard to systems[9] and the approach to collateral security in case of insolvency, as well as ensuring technological neutrality, including for DLT-based systems and records.
Most notably, the Settlement Finality Regulation will create a more coherent framework for EU and certain third-country systems, by creating harmonised rules applicable to the designation of EU “designated systems” and the registration of third country “registered system”.
The Settlement Finality Regulation also clarifies the rules applicable to collateral securities, including collateral securities provided in connection with participation in a system. As a general rule, the law applicable to collateral securities shall be the law where the financial instruments are located, or in the case of collateral securities granted in connection with participation in a system, the law applicable in the Member State where the register or the account of the collateral security is recorded.
Criticisms of the EU’s move towards more centralised supervision
As mentioned at the beginning of this article, the level to which financial rules and supervisions should be centralised at the EU level is debated amongst Europeans policy makers.
The Commission’s position is straightforward: deeper markets require stronger EU-level consistency, and ESMA must therefore play a greater direct role, at least for the most significant cross-border infrastructures and service providers. ESMA itself welcomed the proposal, describing it as a major step and emphasising that, under the Commission’s model, the shift would concern a limited subset of actors in the capital markets, with national competent authorities still playing a major role for the broader market.
The Commission’s position, however, is not necessarily shared by every policy maker. A good example of criticism comes from policy makers in Luxembourg, whose financial sector is structurally exposed to any move away from national supervision. According to reporting in December 2025, Luxembourg’s Finance Minister Gilles Roth warned that “more centralisation will not, in our view, unlock additional funding for the EU economy” and would also impose time and implementation costs on businesses through the creation of a new institutional structure.
That criticism should not be brushed aside as mere national self-interest, as it embeds at least three serious objections.
First, there is a proportionality concern. The EU’s capital markets are fragmented, but not every fragmentation problem is supervisory in origin. Tax rules, insolvency regimes, company law, withholding-tax procedures and retail-investor behaviour all matter as much as supervisory structure. A more powerful ESMA may improve consistency, but it cannot by itself create a European equity culture or erase the legal diversity embedded elsewhere in Member States’ systems.
Second, there is an institutional-efficiency concern. Centralisation can reduce duplication, but it can also generate a more distant and layered bureaucracy if competences are transferred without adequate operational design. In sectors such as investment funds, trading and post-trading, local expertise and day-to-day supervisory familiarity still matter.
Third, there is a political legitimacy concern. A centralised supervisor for capital markets would, in practice, shift influence away from smaller financial centres. Even where that shift is justified on efficiency grounds, it raises obvious questions about whether ESMA has the legitimacy to centralise powers previously exercised by national financial authorities.
An ambitious and awaited regulatory package with potential shortcomings
Overall, the December 2025 Market Integration Package is one of the most serious attempts in years to make the EU single market for financial services more efficient. Its proposals on PEMO status, cross-border fund activity, DLT accommodation, settlement systems and ESMA’s increased role all point in the same direction: fewer frictions, more scale, and a more credible European market architecture.
But its success will depend on discipline in the legislative process. If the package is diluted beyond recognition, it will become another incremental reform with limited market impact. If, by contrast, the centralisation agenda is pushed too far without sufficient regard to proportionality, operational design and political buy-in, it may provoke the very resistance that has slowed the European financial sector for years. The challenge for the co-legislators is therefore not simply to be ambitious, but to be precise.
The potential benefits of the Market Integration Package have already been recognised by actors of the EU’s financial sector. Professional associations, including those representing private capital providers have already expressed the hope that the Market Integration Package will have a positive effect on simplifying authorisations of investment fund managers, as well as harmonising conditions for marketing and managing investment funds across Europe.
For more information about the Savings and Investment Union; https://paytechlaw.com/en/spotlight-on-the-savings-and-investments-union/; https://paytechlaw.com/en/savings-and-investments-union-eu-wants-to-redirect-capital-alles-legal-112/
[1] More specifically its December 2025 factsheet
[2] See the December 2025 factsheet
[3] “trading venue’ means a regulated market, an multilateral trading facility or an organised trading facility.
[4] Directive 2014/65/EU on markets in financial instruments
[5] Directive 2009/65/EC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities
[6] Directive 2011/61/EU on Alternative Investment Fund Managers
[7] Regulation (EU) 2019/1156 on facilitating cross-border distribution of collective investment undertakings
[8] Regulation (EU) No 600/2014 on markets in financial instruments
[9] In the Settlement Finality Regulation, a system: “means a formal arrangement, other than an interoperability arrangement, with common rules and standardised procedures, including a securities settlement system, a clearing system or a payment system, which provide for the settlement, clearing or execution of transfer orders between participants.“
