EFAMA publishes recommendations for capital market integration
The European Commission is currently working to identify and remove barriers to further integration of EU capital markets, as part of their broader Savings and Investment Union plan. This is an important goal that would benefit EU citizens and the economy, and their focus on simplification and proportionality in their recent consultation on the topic is a move in the right direction.
In addressing the various issues outlined in the consultation, it is crucial to evaluate whether EU action is necessary (whether legislative or non-legislative) and at which level of the regulatory process. New European Commission proposals are not always the most suitable option for eliminating some of the remaining barriers. Therefore, the Commission should be cautious in proposing bold and immediate actions without conclusive evidence that this approach is the most effective way to achieve the desired outcomes.
Vincent Ingham, Director of Regulatory Policy at EFAMA, said: “Policymakers and supervisors need to prioritise the uniform implementation of EU rules across member states and remove frictions in the functioning of our capital markets, without adding another layer of legislative measures. Reopening of legal texts, with all the complexities, costs and delays typically involved, should only be considered as a last resort. This is particularly true for core sectoral regulations, such as UCITS and AIFMD, that have been under review very recently.”
EFAMA's key recommendations for further capital market integration are listed below:
Asset management and funds: The UCITS regime is recognised globally for its security, diversification, liquidity, and transparency. To preserve its status as a regulatory export brand, legislative changes to core provisions should be avoided, and the focus should be on guidance and less invasive measures. However, there is potential for better codification, harmonisation, and supervisory dialogue when interpreting UCITS and AIFMD, especially in areas like regulatory approval timelines, supervisory fees, and reporting obligations, which vary across jurisdictions. Additionally, addressing inefficiencies in intra-group delegations could help asset management companies maximise the benefits of a group structure.
Supervisory framework: Granting ESMA direct supervision over asset managers with significant cross-border activities would not lead to more integrated markets. Additionally, supervisory colleges chaired by ESMA or national supervisors would further complicate asset management supervision. ESMA could achieve similar outcomes more effectively by utilising existing supervisory convergence tools and should serve as the supervisory data hub for capital markets, which would enhance data sharing among public authorities.
Best-execution: In Europe, best execution is based on a total consideration approach that evaluates price, costs, speed, and other factors to optimise outcomes for clients. We don’t believe the EU should adopt a US-style order protection rule and mandatory order routing (Regulation NMS). A mandated interconnectivity structure between trading venues would increase costs without guaranteeing better results for investors.
Consolidated Tape: Reviewing the coverage of the pre-trade Equities/ETF tape is a great step. A pre-trade equities/ETF tape that, from the outset, contains attributed European Best Bid and Offer (EBBO) and five layers of quotes would greatly enhance the commercial viability of the tape and address some of the fragmented liquidity issues in the ETF market.
Integration of market infrastructures: To address the fragmented EU post-trade market, promoting central counterparty (CCP) choice and central securities depository (CSD) interoperability is a realistic approach. While this may not achieve the efficiency of a single utility, it would enhance competition and reduce friction in cross-border transactions.
Distributed Ledger Technology (DLT): The Commission highlights the transformative role of DLT for post-trading market infrastructures, emphasising the need for regulatory reforms to support a tokenised ecosystem. We support revising the DLT Pilot regime, as the current thresholds for market capitalisation and issuance size are too low. Doubling these thresholds would attract more participants and enhance secondary market trading through increased DLT-based platforms.
Investor disclosures: The PRIIPs framework requires urgent simplification, however any changes must be carefully considered to avoid additional implementation costs and to present a coherent picture to retail investors. The simplest way to achieve this is through the deletion of unnecessarily complex provisions such as:
Implicit transaction costs: The current methodology is complex and prohibitively expensive to calculate, while only representing a very small portion of the overall costs for investors.
Future performance scenarios: It is not possible to predict the future accurately. Therefore, funds should only disclose past performance, in accordance with the UCITS framework.
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Notes to Editors
Read our full SIU market integration policy paper here.
Access the European Commission consultation here.
For further information, please contact:
Hayley McEwen
Head of communications and member development
