As Europe strives to finance its economy through stronger and more unified capital markets, one critical issue is at risk of being left behind: the fragmentation of supervision.

At the French market regulator Autorité des Marchés Financiers (AMF), we advocate an ambitious approach to tackle this issue — the existing European Securities and Markets Authority should be granted direct supervisory power over large cross-border entities, such as pan-European market infrastructures, global cryptoasset service providers and large asset management groups. 

It is certainly not the easiest piece of the EU’s Savings and Investment Union initiative, yet it is a key one. It is not easy, because historically it takes a financial crisis to reform the architecture of supervision, especially when it involves giving up on some national competences. But let us hope that real progress can be achieved without a crisis.

Why? Because the current system is largely sub-optimal.

Where financial stability is concerned, it is never good to split responsibilities among several supervisors. Since market-based finance now accounts for half of international finance, it matters more than ever to make sure that someone is clearly in charge of overseeing the largest entities through consolidated supervision.

The current system also contributes to the European red-tape problem that undermines the collective efforts towards a more principle-based and agile regulatory framework.

One of the main reasons why EU regulations are so detailed and prescriptive is the lack of regulatory convergence among market regulators. Today, national supervisory authorities can operate with widely divergent regulatory interpretations, undermining investor protection, regulatory coherence, a level playing field across the EU and the competitiveness of European capital markets. Hence the need for detailed and prescriptive rules that might limit these effects.

Take the rapidly evolving cryptoasset sector. Cryptoasset distribution is inherently cross-border and fast-moving. But ESMA has no direct powers while each of the 27 regulators has to develop its own competences, and can decide to grant a licence and the passport to address clients throughout the EU.

The experience we have collectively gained with the first authorisations under the pan-European Markets in Crypto-Assets Regulation Act (MiCA) shows that upholding a uniform application across 27 national regulators is challenging to say the least.

This is despite co-ordination efforts by ESMA and national authorities. Cryptoassets platform operators can typically « shop around » national regulators, fuelling damaging « regulatory forum shopping ». ESMA needs direct supervision of global pan-European cryptoasset service providers as a matter of urgency.

Moreover, by entrusting ESMA with direct supervision of the largest cross-border entities, Europe would send a clear signal of its willingness and ability to enforce its rules in a consistent way. This approach would also create a more predictable and stable environment that fosters trust.

The idea that more powers for ESMA would necessarily undermine the role of national regulators is a myth. Not only are national regulators bound to play a central role in ESMA’s governance, but they would continue to be best placed to supervise products and detect market abuse.

The recent reports by Enrico Letta and Mario Draghi emphasising the need to improve European competitiveness through measures such as supervisory simplification perfectly align with the AMF’s call. Indeed, large EU asset managers and market infrastructure providers see their competitiveness hindered by a fragmented regulatory and supervisory landscape. This often prevents the cost-efficient rationalisation of their group functions.

Some might argue that much can already be accomplished through ESMA’s co-ordinated efforts to foster convergence, which, as part of its core mission, can ultimately strengthen the EU rule book. This vision, however, fails to recognise that supervisory convergence initiatives in a landscape of 27 regulators is extremely time- and resources-consuming.

A streamlined supervisory architecture under direct supervision of ESMA will enable faster, more effective responses, safeguarding financial resilience.

Europe should now seize the chance to build a financial market that is effective, secure and globally competitive. Granting Esma direct supervisory authority is essential to achieve a more integrated, efficient and investor-centred financial system across Europe.