EU Capital Markets Overhaul: European Commission Publishes Market Integration Package

KEY TAKEAWAYS

1. To follow the recommendations of the Draghi report on EU competitiveness and as part of its ongoing efforts to implement the Savings and Investment Union Strategy, the European Commission adopted on 4 December 2025 the Market Integration Package.
   
   
2. The objective of the package is to address the persistent fragmentation of EU capital markets, by creating a more integrated and efficient financial system that channels private investment toward strategic priorities such as the green, digital, and innovation transitions.
   
   
3. The package consists of three legislative proposals, which seek to implement targeted reforms of specific areas of the capital market ecosystem:

• Trading and post-trading integration: easier cross-border access for trading venues and central securities depositories.
• Asset management harmonisation: removal of barriers for investment funds and improved passporting rules.
• Innovation enablement: regulatory flexibility for DLT-based solutions.

4. The package also aims to achieve more general objectives, in particular:
   
   
   • simplification and harmonisation: conversion of directives into regulations.
   • centralisation of supervision: direct supervisory powers of ESMA over major infrastructures and crypto service providers.
     
     
5. Next steps: the proposal will now be assessed by the Council of the EU and the European Parliament. 

INTRODUCTION

The European Commission (EC) has published the Market Integration Package as part of its broader efforts to strengthen the EU’s financial ecosystem. This package is a key part of the EC's Savings and Investments Union (SIU) strategy, aiming to improve investment options for citizens and facilitate business access to funding by integrating and scaling capital markets. The SIU strategy also features other measures to integrate and scale markets, such as legislation to improve the distribution of EU-authorised funds and a 28th legal regime framework for innovative companies.

The package is composed of:

• a Master Regulation amending key regulations, including the ESMA Regulation, European Market Infrastructure Regulation (EMIR), Markets in Financial Instruments Regulation (MIFIR), Central Securities Depositories Regulation (CSDR), DLT Pilot Regime, Markets in Crypto-Assets Regulation (MiCA), and the Cross-Border Distribution of Funds Regulation (CBFD). It also makes targeted adjustments to related legislation such as the Benchmark Regulation and the Securities Financing Transactions Regulation (SFTR);
• a Master Directive revising key directives, notably the Directive on Undertakings for Collective Investment in Transferable Securities (UCITSD), Alternative Investment Fund Managers Directive (AIFMD), and Markets in Financial Instruments Directive (MiFID II); and
• a Regulation replacing the Settlement Finality Directive and amending the Financial Collateral Directive to modernise settlement and collateral frameworks.

The EC has also published a Q&A on the package.

In this briefing, we highlight some key aspects of the package and its implications for market participants.

KEY ASPECTS

Asset Management (UCITSD & AIFMD)

Although the UCITSD and the AIFMD were designed to create a harmonised framework for marketing investment funds across the EU, the EC notes that the practical rules governing notifications, de-notifications, and pre-marketing remain complex and inconsistent between Member States. These procedural divergences slow down cross-border operations and prevent asset managers from fully leveraging the benefits of the Single Market.

To address these inefficiencies, the Market Integration Package proposes measures to harmonise rules and simplify cross-border operations. This includes streamlining passporting and marketing procedures to reduce operational burdens for managers serving clients in multiple jurisdictions. To prevent national divergences, these new rules have been moved to the Cross-Border Distribution Regulation.

Furthermore, the Market Integration Package proposes a new definition of “EU Group” where intra-EU group allocation of resources will no longer be treated as delegation. It implies that management companies would be allowed to use human and technical resources across different entities within the group, without this amounting to delegation and entailing the application of the delegation regime, which can be unnecessarily burdensome in an EU intra-group context.

The package also creates an EU Depositary Passport, enabling AIFMs and UCITS to appoint depositaries in any Member State and allowing depositaries to provide cross-border services.

Enhanced Role of ESMA

i) CASPs Supervision

Disparities in the authorisation of Crypto-Asset Service Providers (CASPs) across the EU have raised concerns. Recently, the French national competent authority (AMF) highlighted the risk of regulatory arbitrage under MiCA and, together with Italian and Austrian national competent authorities (CONSOB and FMA), called for stronger ESMA-led centralised supervision to ensure consistency and safeguard the integrity of the single market.

This concern is directly addressed by the package, which proposes to transfer the authorisation, monitoring, and supervision duties over all CASPs, including market abuse oversight, from national authorities to ESMA via a new Chapter 6 in MiCA. However, regulated financial institutions (such as MiFID investment firms, electronic money institutions or fund managers) that offer crypto services under MiCA’s equivalence regime would continue to operate under the supervision of the national competent authorities, unless crypto-service provision becomes their main activity (i.e. the entity’s turnover for crypto assets related services exceeds 50% of their global turnover for two consecutive year). In such cases, exclusive supervision would also shift to ESMA, which would have to establish cooperation agreements with the previous EU national competent authority. This regime would not apply to credit institutions, which are already subject to a centralized system of banking supervision.

ii) Market Infrastructure Supervision

In parallel, ESMA will assume direct supervisory control over major market infrastructures, including trading venues, central counterparties and central securities depositories (CSDs), addressing the inconsistent application of supervision across Member States. The package also strengthens ESMA’s oversight of large asset managers and gives it a formal coordination role when disputes arise between home and host national authorities.

To support these changes, a new Executive Board will be created to streamline decision-making and reinforce regulatory consistency. By centralising these supervisory responsibilities, the package aims to improve efficiency, reduce opportunities for regulatory arbitrage, enhance investor protection, and enable more responsive supervision in the context of emerging risks.

The creation of a powerful EU financial supervisor has long been supported by France and the European Central Bank (ECB) leaders but faces resistance from several Member States. Some argue that national regulators better understand local markets and fear centralisation could add complexity rather than harmonise rules. Others see centralisation as a potential loss of influence to ESMA.

Trading, Post-Trading Integration and DLT Innovation

The Market Integration Package proposes the creation of a Pan-European Market Operator (PEMO) status, allowing trading groups to operate under a single license across the EU, and simplifies membership processes for brokers accessing multiple trading venues.

The package also modernises settlement systems, removes barriers for CSDs (e.g. fragmentation in trading and post-trading infrastructures), and converts the Settlement Finality Directive into a regulation to ensure uniformity across Member States.

In addition, the package introduces changes to the DLT Pilot Regime whose success so far has been limited, notably because its entry criteria and operational thresholds are too restrictive for market infrastructures. Concretely, the package proposes to expand the scope of eligible instruments to all financial assets, to raise the activity thresholds from €6 billion to €100 billion, and to introduce simplified requirements for smaller players. It would also remove time limits on authorisations, providing greater certainty for long-term investment. These adjustments could lead to a large-scale adoption of DLT in EU financial markets.

Together, these measures aim to create a more liquid, transparent, and competitive EU trading environment while supporting the adoption of cutting-edge technologies.

NEXT STEPS

The Market Integration Package has been submitted to the European Parliament and the European Council, with the legislative process expected to take at least until the end of 2026. Given the proposed changes and the existing divergences among Member States concerning the new attributions of ESMA, negotiations are expected to be complex and possibly contentious.

Our European Financial Services Regulatory Team is happy to assist you with any questions on the package and its implications for your organisation.