COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT REPORT Accompanying the documents Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulations (EU) No 1095/2010, No 648/2012, No 600/2014, No 909/2014, 2015/2365, 2019/1156, 2021/23, 2022/858, 2023/1114, No 1060/2009, 2016/1011, 2017/2402, 2023/2631 and 2024/3005 as regards the further development of capital market integration and supervision within the Union Proposal for DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directives 2009/65/EC, 2011/61/EU and 2014/65/EU as regards the further development of capital market integration and supervision within the Union Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on settlement finality and repealing Directive 98/26/EC and amending Directive 2002/47/EC on financial collateral arrangements
Date: 2025-12-04
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: European Securities and Markets Authority, capital markets union, financial control, financial legislation, financial market, financial services, financial solvency, investment, investment company, single market

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 4.12.2025  SWD(2025) 943 final  COMMISSION STAFF WORKING DOCUMENT  IMPACT ASSESSMENT REPORT    Accompanying the documents   Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulations (EU) No 1095/2010, No 648/2012, No 600/2014, No 909/2014, 2015/2365, 2019/1156, 2021/23, 2022/858, 2023/1114, No 1060/2009, 2016/1011, 2017/2402, 2023/2631 and 2024/3005 as regards the further development of capital market integration and supervision within the Union        Proposal for DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directives 2009/65/EC, 2011/61/EU and 2014/65/EU as regards the further development of capital market integration and supervision within the Union        Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on settlement finality and repealing Directive 98/26/EC and amending Directive 2002/47/EC on financial collateral arrangements           {COM(2025) 941 final} - {COM(2025) 942 final} - {COM(2025) 943 final} - {SEC(2025) 943 final} - {SWD(2025) 944 final}  
 
 
Table of contents 

1. 

INTRODUCTION........................................................................................................................................... 8 

POLITICAL CONTEXT ...................................................................................................................................... 9 
1.1. 
1.2.  LEGAL CONTEXT .......................................................................................................................................... 10 
Trading, post-trading, asset management and innovation .................................................................................... 11 
Supervision ............................................................................................................................................................ 14 
1.3.  MARKET CONTEXT ....................................................................................................................................... 16 

1.2.1. 
1.2.2. 

2. 

PROBLEM DEFINITION ........................................................................................................................... 22 

2.1.1. 
2.1.2. 
2.1.3. 

2.1.  WHAT ARE THE PROBLEMS? ......................................................................................................................... 23 
Lack of market integration and scale .................................................................................................................... 23 
Fragmented, less efficient and ineffective supervision .......................................................................................... 33 
Obstacles to innovation and uptake of new technologies ...................................................................................... 36 
2.2.  WHAT ARE THE PROBLEM DRIVERS? ............................................................................................................ 39 
Barriers to cross-border operations and innovation ............................................................................................. 39 
Non-aligned supervisory practices and weak tools and powers at EU level ......................................................... 44 
2.3.  CONSEQUENCES ........................................................................................................................................... 48 
2.4.  HOW LIKELY ARE THE PROBLEMS TO PERSIST? ............................................................................................ 51 

2.2.1. 
2.2.2. 

3.  WHY SHOULD THE EU ACT? ................................................................................................................. 52 

3.1.  LEGAL BASIS ................................................................................................................................................ 52 
SUBSIDIARITY: NECESSITY OF EU ACTION................................................................................................... 52 
3.2. 
SUBSIDIARITY: ADDED VALUE OF EU ACTION ............................................................................................. 53 
3.3. 

4. 

OBJECTIVES: WHAT IS TO BE ACHIEVED? ...................................................................................... 53 

4.1.  GENERAL OBJECTIVE ................................................................................................................................... 53 
SPECIFIC OBJECTIVES ................................................................................................................................... 53 
4.2. 

5.  WHAT ARE THE AVAILABLE POLICY OPTIONS? ........................................................................... 54 

5.1.  APPROACH TO DESIGN OF POLICY OPTIONS .................................................................................................. 54 
5.2.  WHAT IS THE BASELINE FROM WHICH OPTIONS ARE ASSESSED? ................................................................... 54 
5.3.  DESCRIPTION OF THE POLICY OPTIONS ......................................................................................................... 55 
Policy options to address Barriers to cross-border operations and innovation .................................................... 55 
Policy options to address Non-aligned supervisory practices and weak tools and powers at EU level ................ 64 
5.4.  OPTIONS DISCARDED AT AN EARLY STAGE ................................................................................................... 68 

5.3.1. 
5.3.2. 

6.  WHAT ARE THE IMPACTS OF THE POLICY OPTIONS AND HOW DO THEY COMPARE? ... 68 

6.1. 

POLICY OPTIONS TO ADDRESS BARRIERS TO CROSS-BORDER ACTIVITIES AND INNOVATION ........................ 69 
Broad review of the functioning of capital markets............................................................................................... 69 
Far-reaching review of the functioning of capital markets ................................................................................... 79 
How do the options on addressing barriers to cross-border activities and innovation compare .......................... 83 

6.1.1. 
6.1.2. 
6.1.3. 

6.2.  NON-ALIGNED SUPERVISORY PRACTICES ACROSS MEMBER STATES AND WEAK TOOLS AND POWERS AT EU 
LEVEL    .................................................................................................................................................................... 88 
Improved supervisory convergence and an enhanced role for ESMA in supervision ........................................... 88 
6.2.1. 
6.2.2. 
ESMA as a supervisor for all EU trading venues, CSDs, CCPs, asset managers and crypto asset service 
providers    ............................................................................................................................................................................   92 
6.2.3. 
EU level compare ................................................................................................................................................................... 94 
PREFERRED OPTION ............................................................................................................................... 96 

How do the options on non-aligned supervisory practices across Member States and weak tools and powers at 

7. 

1 

 
 
 
IMPACTS AND ASSESSMENT OF THE PREFERRED OPTION............................................................................... 96 
7.1. 
7.2.  REFIT ......................................................................................................................................................... 98 
7.3.  APPLICATION OF THE ‘ONE IN, ONE OUT’ APPROACH .................................................................................... 98 

8. 

HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED? ....................................... 98 

ANNEX 1: PROCEDURAL INFORMATION .................................................................................................... 101 

1. 
2. 
3. 
4. 

LEAD DG, DECIDE PLANNING/CWP REFERENCES ..................................................................................... 101 
ORGANISATION AND TIMING ...................................................................................................................... 101 
CONSULTATION OF THE REGULATORY SCRUTINY BOARD ........................................................................... 101 
EVIDENCE, SOURCES AND QUALITY ........................................................................................................... 105 

ANNEX 2: STAKEHOLDERS CONSULTATIONS........................................................................................... 108 

1. 
2. 

3. 

CALL FOR EVIDENCE ................................................................................................................................. 108 
STAKEHOLDER TARGETED CONSULTATION (SYNOPSIS REPORT) ................................................................ 109 
2.1. 
INTRODUCTION ...................................................................................................................................... 109 
2.2.  OVERVIEW OF RESPONDENTS ................................................................................................................. 109 
SUMMARY OF KEY MESSAGES .................................................................................................................... 115 
SIMPLIFICATION AND BURDEN REDUCTION ............................................................................................ 115 
3.1. 
TRADING ................................................................................................................................................ 118 
3.2. 
3.3. 
POST-TRADE .......................................................................................................................................... 121 
3.4.  HORIZONTAL BARRIERS TO TRADING AND POST-TRADING INFRASTRUCTURES ...................................... 126 
3.5.  ASSET MANAGEMENT AND INVESTMENT FUNDS .................................................................................... 131 
3.6. 
SUPERVISION ......................................................................................................................................... 134 
3.7.  HORIZONTAL QUESTIONS ON THE SUPERVISORY FRAMEWORK ............................................................... 139 

ANNEX 3: WHO IS AFFECTED AND HOW? ................................................................................................... 144 

1. 
2. 
3. 

PRACTICAL IMPLICATIONS OF THE INITIATIVE............................................................................................ 144 
SUMMARY OF COSTS AND BENEFITS ........................................................................................................... 145 
RELEVANT SUSTAINABLE DEVELOPMENT GOALS ....................................................................................... 152 

ANNEX 4: ANALYTICAL METHODS ............................................................................................................... 153 

1. 

OVERVIEW OF EMPLOYED ANALYTICAL METHODS..................................................................................... 154 
ENGAGEMENT WITH STAKEHOLDERS: CONSULTATION AND TARGETED INTERVIEWS ............................. 154 

1.1. 
1.2.  MARKET STUDIES ON MARKET DEVELOPMENTS AND INTEGRATION IN TRADING, POST-TRADING AND 
ASSET MANAGEMENT ......................................................................................................................................... 154 
1.3.  DESK RESEARCH .................................................................................................................................... 155 
FURTHER INFORMATION ON COSTS AND BENEFITS ESTIMATES ............................................................... 155 
1.4. 

ANNEX 5: COMPETITIVENESS CHECK ......................................................................................................... 158 

1. 
2. 
3. 

OVERVIEW OF IMPACTS ON COMPETITIVENESS .......................................................................................... 158 
SYNTHETIC ASSESSMENT ........................................................................................................................... 158 
COMPETITIVE POSITION OF THE MOST AFFECTED SECTORS ........................................................................ 159 
ANNEX 6: SME CHECK ....................................................................................................................................... 160 

1. 

OVERVIEW OF IMPACTS ON SMES ............................................................................................................. 160 

ANNEX 7: SECTORAL ANNEX ON TRADING ............................................................................................... 163 

1. 

2. 

DESCRIPTION OF THE CURRENT TRADING ENVIRONMENT IN THE EU .......................................................... 163 
1.1.  DESCRIPTION AND EVOLUTION OF EUROPEAN MARKETS IN FINANCIAL INSTRUMENTS ........................... 163 
1.2.  CURRENT REGULATORY APPROACH TO CROSS-BORDER OPERATIONS OF TRADING INFRASTRUCTURE.... 167 
1.3.  ACCESSING LIQUIDITY POOLS IN THE UNION: CURRENT MARKET PRACTICES ......................................... 168 
ASSESSMENT OF PROBLEMS IN THE TRADING AREA ................................................................................... 171 
IDENTIFIED PROBLEMS IN THE TRADING AREA ....................................................................................... 171 
2.1. 
IDENTIFIED PROBLEM DRIVERS IN THE TRADING AREA ........................................................................... 172 
2.2. 
2.3.  OBJECTIVES IN THE TRADING AREA ....................................................................................................... 177 

2 

 
 
3. 

POLICY OPTIONS AND ASSESSMENT OF THE OPTIONS ................................................................................. 177 
3.1.  DESCRIPTION OF POLICY OPTIONS .......................................................................................................... 177 
3.2.  ASSESSMENT AND COMPARISON OF THE OPTIONS .................................................................................. 180 
FLANKING MEASURES ............................................................................................................................ 193 
3.3. 

ANNEX 8: SECTORAL ANNEX ON POST-TRADE ........................................................................................ 195 

1. 
2. 

3. 

4. 

5. 

6. 

7. 

3.1. 
3.2. 

INTRODUCTION .......................................................................................................................................... 198 
DESCRIPTION OF MARKET AND ENVIRONMENT .......................................................................................... 199 
2.1.  OVERVIEW OF POST-TRADE SERVICES .................................................................................................... 199 
LEGAL CONTEXT .................................................................................................................................... 201 
2.2. 
2.3. 
THE ROLE OF CSDS ............................................................................................................................... 203 
2.4.  CSDS IN THE EUROPEAN UNION ............................................................................................................ 205 
ASSESSMENT OF PROBLEMS AND NEED TO ACT .......................................................................................... 217 
PROBLEM DEFINITION AND DESCRIPTION OF CURRENT STATE-OF-PLAY ................................................. 217 
PROBLEM DRIVERS................................................................................................................................. 219 
OBJECTIVES ............................................................................................................................................... 240 
4.1.  GENERAL OBJECTIVES ........................................................................................................................... 240 
SPECIFIC OBJECTIVES ............................................................................................................................. 240 
4.2. 
POLICY OPTIONS AND ASSESSMENT ........................................................................................................... 242 
POLICY OPTIONS RELATED TO THE CSDR .............................................................................................. 242 
POLICY OPTIONS RELATED TO THE SFD ................................................................................................. 247 
IMPACT OF THE POLICY OPTIONS ................................................................................................................ 251 
IMPACT OF THE POLICY OPTIONS REGARDING THE CSDR ...................................................................... 251 
IMPACT OF THE POLICY OPTIONS REGARDING THE SFD ......................................................................... 265 
MONITORING ............................................................................................................................................. 280 

6.1. 
6.2. 

5.1. 
5.2. 

ANNEX 9: SECTORAL ANNEX ON ASSET MANAGEMENT ...................................................................... 282 

1. 
2. 

INTRODUCTION .......................................................................................................................................... 282 
THE EU ASSET MANAGEMENT SECTOR AND LEGAL FRAMEWORK .............................................................. 283 
SIGNIFICANT GROWTH BUT RELATIVE DECLINE GLOBALLY.................................................................... 283 
2.1. 
2.2.  UNEVEN DEVELOPMENT OF FUND MARKETS ACROSS THE EU ................................................................ 285 
LIMITED CROSS-BORDER PROVISION OF INVESTMENT FUNDS ................................................................. 286 
2.3. 
FRAGMENTED INVESTMENT FUND MARKETS .......................................................................................... 287 
2.4. 
LARGE PARTS OF DEPOSITARY SERVICES MARKETS ARE UNDER-SERVED OR HIGHLY CONCENTRATED .. 290 
2.5. 
FRAGMENTATION IN THE EU ASSET MANAGEMENT MARKET STRUCTURE AND OPERATIONS ................. 290 
2.6. 
ASSESSMENT OF PROBLEMS AND NEED TO ACT .......................................................................................... 291 
3.1. 
PROBLEM DEFINITION – BARRIERS TO CROSS-BORDER ACTIVITIES OF THE EU FUND VALUE CHAIN ...... 291 
3.2.  BARRIERS TO CROSS-BORDER ACTIVITIES OF INVESTMENT FUNDS ......................................................... 292 
3.3.  BARRIERS TO CROSS-BORDER ACTIVITIES FOR DEPOSITARY SERVICES ................................................... 296 
3.4.  BARRIERS TO CROSS-BORDER ACTIVITIES FOR ASSET MANAGERS .......................................................... 298 
3.5.  OTHER BARRIERS TO THE GROWTH OF INVESTMENT FUNDS ................................................................... 300 
OBJECTIVES: ENABLE MARKET INTEGRATION AND SCALE EFFECTS IN CROSS-BORDER ACTIVITIES FOR THE 

4. 
EU FUND MARKET VALUE CHAIN ........................................................................................................................... 300 
4.1.  REDUCTION OF COSTS AND BURDENS STEMMING FROM THE UNNECESSARY ADMINISTRATIVE BARRIERS

3. 

300 

5. 

5.1. 
5.2. 
5.3. 
5.4. 

6. 

6.1. 
6.2. 
6.3. 
6.4. 

POLICY OPTIONS ........................................................................................................................................ 305 
POLICY OPTIONS FOR INVESTMENT FUNDS ............................................................................................. 305 
POLICY OPTIONS FOR DEPOSITARIES ...................................................................................................... 309 
POLICY OPTIONS FOR ASSET MANAGERS ................................................................................................ 310 
POLICY OPTIONS FOR OTHER BARRIERS TO THE GROWTH OF THE INVESTMENT FUND SECTOR................ 313 
IMPACT OF POLICY OPTIONS ....................................................................................................................... 314 
IMPACT OF THE POLICY OPTIONS REGARDING INVESTMENT FUNDS ........................................................ 314 
IMPACT OF THE POLICY OPTIONS REGARDING DEPOSITARY SERVICES .................................................... 316 
IMPACT OF THE POLICY OPTIONS REGARDING ASSET MANAGERS ........................................................... 317 
IMPACT OF THE POLICY OPTIONS REGARDING OTHER BARRIERS TO THE GROWTH OF INVESTMENT FUNDS
321 

3 

 
 
 
 
APPENDIX A – LIST OF NATIONAL DISCRETIONS ................................................................................................ 323 

ANNEX 10: SECTORAL ANNEX ON INNOVATION (DLTPR) ..................................................................... 327 

1. 
2. 
3. 

4. 

5. 

3.1. 
3.2. 

INTRODUCTION .......................................................................................................................................... 327 
DESCRIPTION OF MARKET AND ENVIRONMENT .......................................................................................... 327 
ASSESSMENT OF PROBLEMS AND NEED TO ACT .......................................................................................... 329 
PROBLEM DEFINITION AND DESCRIPTION OF CURRENT STATE-OF-PLAY ................................................. 329 
PROBLEM DRIVERS................................................................................................................................. 337 
OBJECTIVES ............................................................................................................................................... 341 
4.1.  GENERAL OBJECTIVE ............................................................................................................................. 341 
SPECIFIC OBJECTIVES ............................................................................................................................. 342 
4.2. 
POLICY OPTIONS AND ASSESSMENT ........................................................................................................... 344 
5.1. 
SPECIFIC OBJECTIVE 1: ENSURE THAT DLTPR LAYS DOWN PROPORTIONATE AND FLEXIBLE REGULATORY 
REQUIREMENTS FOR BUSINESSES PARTICIPATING IN THE PILOT ......................................................................... 344 
5.2. 
AND ACTIVITIES UNDER THE PILOT .................................................................................................................... 347 
5.3.  COMPARISON OF POLICY OPTIONS .......................................................................................................... 352 

SPECIFIC OBJECTIVE 2: REMOVE REGULATORY BARRIERS TO ACHIEVING SCALE AND SCOPE OF PROJECTS 

ANNEX 11: SECTORAL ANNEX ON SUPERVISION ..................................................................................... 356 

1. 
INTRODUCTION .............................................................................................................................................. 356 
2.  DESCRIPTION OF MARKET / ENVIRONMENT .................................................................................................... 357 
3.  ASSESSMENT OF PROBLEMS AND NEED TO ACT .............................................................................................. 359 
3.1.  DESCRIPTION OF CURRENT STATE OF PLAY ............................................................................................ 359 
PROBLEM DEFINITION – FRAGMENTED, LESS EFFICIENT AND INEFFECTIVE SUPERVISION ....................... 366 
3.2. 
3.3. 
PROBLEM DRIVERS (WHAT CAUSES THESE PROBLEMS) .......................................................................... 368 
3.4.  OBJECTIVE (WHAT DO WE WANT TO ACHIEVE) ....................................................................................... 379 
4.  POLICY OPTIONS AND ASSESSMENT ............................................................................................................... 380 
4.1.  OPTION 1 – NO POLICY ACTION .............................................................................................................. 381 
4.2.  OPTION 2 - IMPROVED SUPERVISORY CONVERGENCE AND ENHANCED ROLE FOR ESMA IN SUPERVISION

383 

4.3.  OPTION 3 – ESMA SINGLE SUPERVISOR FOR ALL EU TRADING VENUES, POST TRADING, ASSET MANAGERS 
AND CRYPTO ASSET SERVICE PROVIDERS ........................................................................................................... 396 
4.4.  ASSESSMENT OF THE IMPACT OF OPTION 2 ............................................................................................ 397 
4.5.  ASSESSMENT OF THE IMPACT OF OPTION 3 ............................................................................................ 403 
5.  MONITORING ................................................................................................................................................. 405 

ANNEX 12: MEMBER-STATE-SPECIFIC EVIDENCE ON MARKET CONTEXT .................................... 407 

1.1 
SAVINGS-INVESTMENTS BALANCE IN THE EU/EA ..................................................................................... 408 
1.2  MEMBER STATE SPECIFIC EVIDENCE ON CAPITAL MARKETS ....................................................................... 410 
AUSTRIA .................................................................................................................................................... 410 
1.3 
BELGIUM ................................................................................................................................................... 413 
1.4 
BULGARIA ................................................................................................................................................. 416 
1.5 
CROATIA .................................................................................................................................................... 419 
1.6 
CYPRUS ..................................................................................................................................................... 423 
1.7 
CZECH REPUBLIC ....................................................................................................................................... 427 
1.8 
1.9 
DENMARK .................................................................................................................................................. 431 
1.10    ESTONIA .................................................................................................................................................... 435 
1.11    FINLAND .................................................................................................................................................... 439 
1.12    FRANCE ...................................................................................................................................................... 443 
1.13    GERMANY .................................................................................................................................................. 446 
1.14    GREECE ...................................................................................................................................................... 450 
1.15    HUNGARY .................................................................................................................................................. 453 
1.16    IRELAND .................................................................................................................................................... 456 
1.17    ITALY ......................................................................................................................................................... 460 
1.18    LATVIA ...................................................................................................................................................... 463 
1.19    LITHUANIA ................................................................................................................................................. 466 

4 

 
 
 
1.20    LUXEMBOURG ............................................................................................................................................ 470 
1.21    MALTA....................................................................................................................................................... 473 
1.22    NETHERLANDS ........................................................................................................................................... 476 
1.23    POLAND ..................................................................................................................................................... 479 
1.24    PORTUGAL ................................................................................................................................................. 482 
1.25    ROMANIA ................................................................................................................................................... 485 
1.26    SLOVAKIA .................................................................................................................................................. 489 
1.27    SLOVENIA .................................................................................................................................................. 492 
1.28      SPAIN ......................................................................................................................................................... 495 
1.29    SWEDEN ..................................................................................................................................................... 498 

5 

 
 
 
 
 
 
 
Glossary 

Term  

AIF 

AIFM 

AIFMD 

AuM 

CBDD 

CBDR 

Meaning or definition 

Alternative Investment Fund 

Alternative Investment Fund Manager 

Directive 2011/61/EU of the European Parliament and of the Council of 8 June 
2011 on Alternative Investment Fund Managers  

Assets under Management 

Directive  (EU)  2019/1160  of  the  European  Parliament  and  of  the  Council  
of 20 June 2019 amending Directives 2009/65/EC and 2011/61/EU with regard 
to cross-border distribution of collective investment undertakings 

Regulation  (EU)  2019/1156  of  the  European  Parliament  and  of  the  Council  
of 20 June 2019 on facilitating cross-border distribution of collective investment 
undertakings 

CBD framework  Refers collectively to the CBDD and the CBDR 

Central 
counterparty 
(‘CCP’)  

CRD 

CSD  

CSDR  

Distributed 
ledger 
technology 
(‘DLT’)  

DLT pilot 
regulation 
(‘DLTPR’) 

DORA 

EFAMA 

ELTIF 

that 

interposes 

An  entity 
in  one  or  more  markets,  between  
the counterparties to  the contracts  traded, becoming  the buyer to  every seller 
and the seller to every buyer and thereby guaranteeing the performance of open 
contracts.  

itself, 

Directive 2013/36/EU of the European Parliament and of the Council of 26 June 
2013  on  access  to  the  activity  of  credit  institutions  and  the  prudential 
supervision of credit institutions and investment firms. 

Central  Securities  Depository.  A  legal  person  that  operates  a  securities 
settlement system and provides at least a notary service or a central maintenance 
service.  

Regulation (EU) No 909/2014 of the European Parliament and of the Council 
on  improving  securities  settlement  in  the  EU  and  on  central  securities 
depositories.  

Distributed ledger is used to describe a decentralised dataset architecture which 
allows the keeping and sharing of records in a synchronised way, while ensuring 
their  integrity  through  the  use  of  consensus-based  validation  protocols  and 
cryptographic signatures.  

Regulation  (EU)  2022/858  of  the  European  Parliament  and  of  the  Council  
of 30 May 2022 on a pilot regime for market infrastructures based on distributed 
ledger technology 

Digital Operational Resilience Act 

European Fund and Asset Management Association 

European Long Term Investment Fund 

6 

 
 
 
 
ESMA  

EuSEF 

European Securities and Market Authority  

European Social Entrepreneurship Fund 

EuVECA 

European Venture Capital Fund 

MiCA 

MiFID 

MiFIR 

Multilateral 
trading facility 
(‘MTF’) 

Regulation  (EU)  2023/1114  of  the  European  Parliament  and  of  the  Council  
of 31 May 2023 on markets in crypto-assets. 

Directive 2014/65/EU of the European Parliament and of the Council of 15 May 
2014 on markets in financial instruments. 

Regulation (EU) No 600/2014 of the European Parliament and of the Council 
of 15 May 2014 on markets in financial instruments. 

A  multilateral  system,  operated  by  an  investment  firm  or  a  market  operator, 
which  brings  together  multiple  third-party  buying  and  selling  interests  
in 
accordance  
in 
with non-discretionary rules – in a way that results in a contract. 

instruments  – 

financial 

system 

and 

the 

in 

NAV 

NCA 

Net Asset Value 

National Competent Authority 

Organised 
trading facility 
(‘OTF’) 

A multilateral system which is not a regulated market or an MTF and in which 
multiple  third-party  buying  and  selling  interests  in  bonds,  structured  finance 
products, emission allowances or derivatives are able to interact in the system 
in a way that results in a contract. 

PEMO 

Pan-European Market Operator 

Regulated market 
(‘RM’) 

A  multilateral  system  operated  and/or  managed  by  a  market  operator,  which 
brings together or facilitates the bringing together of multiple third-party buying 
and selling interests in financial instruments – in the system and in accordance 
with its non-discretionary rules – in a way that results in a contract, in respect 
of the financial instruments admitted to trading under its rules and/or systems, 
and which is authorised and functions regularly. 

SIU 

T2S  

Savings and Investments Union 

Target2 Securities. The Eurosystem's single technical platform enabling CSDs 
and  national  central  banks  to  provide  core,  borderless  and  neutral  securities 
settlement services in central bank money in Europe.  

UCITS 

Undertakings for Collective Investment in Transferable Securities 

UCITSD or 
UCITS Directive 

Directive 2009/65/EC of the European Parliament and of the Council of 13 July 
2009  on  the  coordination  of  laws,  regulations  and  administrative  provisions 
relating to undertakings for collective investment in transferable securities. 

7 

 
 
 
 
 
1.  INTRODUCTION 

In the rapidly evolving global landscape, the European Union should strengthen its competitive 
edge, bringing widespread benefits to its citizens and businesses. Revitalising the EU’s economy 
and strengthening its international position are central to the European Commission’s mandate. 
Europe's  economy  has  been  underperforming  in  recent  years  due  to  structural  barriers  and 
weaknesses that hold it back.  To address these challenges, it is crucial to reform how Europe’s 
capital markets operate. 

In  March  2025,  the  Commission  unveiled  its  Savings  and  Investments  Union  (SIU)  strategy1            
to make it easier for citizens to grow their wealth by investing in capital markets, to increase the 
investment  capacity  in  the  EU,  and  to  integrate  the  EU’s  capital  markets.  By  breaking  down 
barriers in financial markets and facilitating cross-border capital flows, the strategy can support 
the EU economy, stimulate job creation, and enhance competitiveness.2  

Implementing  the  Savings  and  Investments  Union  involves  comprehensive  policy  measures 
impacting various aspects of the EU’s financial system, with a holistic approach that encompasses 
capital  markets  and  the  banking  sector.  These  measures  are  grouped  into  four  interconnected 
pillars: citizens and savings, investments and financing, market integration and scale, and efficient 
supervision.  

Measures on “citizens and savings” seek to enable EU citizens to build their wealth by investing 
in capital markets, thereby also increasing funding for the EU economy. Measures on “investment 
and  financing”  aim  to  make  it  easier  for  companies  to  access  diversified  sources  of  finance, 
including  cross-border  options  in  the  EU,  so  that  they  can  raise  the  funds  they  need  to  grow  
and  create  jobs  in  Europe.  The  effectiveness  of  both  these  pillars  requires  well-functioning 
financial markets and supervision. Deeper and more integrated capital markets will also enable 
companies operating under the upcoming 28th regime to fully benefit from accessing finance across 
the Single Market. 

Therefore,  this  initiative  and  impact  assessment  focus  on  the  market  integration  and  scale  
and efficient supervision pillars of the SIU strategy. Challenges arising from market fragmentation 
are  significant,  as  shown  by  various  prior  analyses  and  impact  assessments3,  with  differences  
in regulatory and supervisory practices across Member States identified as key barriers hindering 
EU capital market integration.   

This initiative focuses on three essential sectors for the smooth and efficient functioning of EU 
capital markets: trading, post-trading, and asset management. Trading is where buyers and sellers 
meet, setting prices, providing liquidity, and channelling capital to its most productive use. Post-
trading  encompasses  activities  after  a  trade  is  executed:  clearing,  settlement,  and  custody.                   
It ensures the actual transfer of financial instruments and the discharge of associated obligations 
(e.g. payment in cash against the delivery of securities), manages counterparty risk, and maintains 

1 COM/2025/124 final 
2 It is therefore considered to be a key enabler of EU economic competitiveness in the Commission’s Competitiveness 
Compass. 
3 See for example Giovannini reports and the European Post-trade Forum (EPTF) report, the impact assessments on 
the cross-border distribution of funds initiative, the 2020 COM “Study on the costs of compliance for the financial 
sector”, the 2025 “Study on consolidation and reducing fragmentation in trading and post-trading infrastructures in 
Europe”. 

8 

 
 
 
 
accurate records of ownership and asset servicing. Asset management enables investors to pool 
and allocate their money into these markets to grow wealth and achieve  investment objectives. 
Together,  these  three  sectors  form  the  backbone  of  our  capital  markets.  Achieving  a  more 
integrated and efficient capital market will require removing the existing cross-border regulatory 
and supervisory barriers in the trading, post trading and asset management sectors.  

The initiative also  emphasises the importance of innovation  in the financial sector, specifically 
through  Distributed  Ledger  Technology  (DLT),  which  underpins  crypto  asset  markets  
and the tokenisation of assets. These innovations have the potential to improve financial services 
for citizens and businesses. Therefore, it is crucial to remove barriers and complexities hindering 
the uptake of these innovations in the EU financial sector. 

Beyond regulatory barriers, it is also important to address supervisory barriers that are hindering 
market integration. An integrated capital market requires integrated EU supervision. Existing non-
aligned supervisory approaches and weak governance tools at EU level add to the costs of doing 
business, create legal uncertainty and an unlevel playing field, and make investing in the EU more 
difficult and more expensive. 

By  removing  regulatory  and  supervisory  barriers  that  are  hindering  the  integration  of  and 
innovation in capital markets, this package aims to enable financial market participants to grow 
efficiently  across  the  EU,  lower  costs  of  financial  services  for  businesses  and  citizens,  while 
ensuring strong supervision, and safeguarding the stability and integrity of EU capital markets. 

The scope of this impact assessment is complex and multifaceted. To assist the reader, the impact 
assessment is organised with a main part presenting the overall summary assessment and analysis 
of the most significant problems, options and impacts, further supported by Annexes 1 to 6, which 
enrich  the  overall  analysis.  Additionally,  sector-specific  Annexes  7  to  11  provide  in-depth 
examinations of the key sectors and areas covered in this impact assessment: trading, post-trading, 
asset management, innovation, and supervision. Annex 12 provides country-specific information 
as regards the state of capital markets across different EU Member States. 

1.1.  POLITICAL CONTEXT 

The Commission’s Competitiveness Compass4 outlines a comprehensive plan to enhance the EU’s 
economic  strength  and  fully  harness  its  vast  potential.  The  SIU  is  one  of  the  five  horizontal 
enablers of the Compass, as achieving this vision requires significant financing.  

In her State of the Union address, Commission President Ursula von der Leyen highlighted the 
opportunity  cost  Europeans  face  due  to  gaps  in  the  single  market.  The  President  specifically 
identified finance as a key area where persistent barriers are holding back progress.  

The EU has vast investment needs in strategic sectors such as defence, space, biotech, cleantech, 
and artificial intelligence. While rich in talent and ideas, the EU lacks the financing ecosystem 
needed  to  transform  these  assets  into  global  champions.  The  issue  is  not  capacity  –  EU 
entrepreneurs are among the best in the world – but rather opportunity. Too often, insufficient risk 
capital forces innovators to rely on foreign investors and relocate abroad. This results in the EU 
losing businesses, jobs, innovative capacity, and overall competitiveness. 

4 COM(2025) 30 final 

9 

 
 
 
 
The urgency to act has been widely recognised at the highest political level. In 2024, at the request 
of the European Council and the President of the European Commission respectively, Enrico Letta 
and Mario Draghi delivered landmark reports recommending measures to improve capital market 
integration and supervision.5 In addition, the Eurogroup6 and the European Council7,8 have urged 
steps  towards  integrated  EU  capital  markets  accessible  to  all  citizens  and  businesses  across  
the EU. This objective is shared between across EU institutions and enjoys widespread support 
throughout EU capitals.  

For example, the Euro Summit of March 2025 emphasised the urgency and shared responsibility 
for rapid progress on creating the SIU.9 The European Parliament asserted that capital markets 
integration is a necessary pillar of the EU's investment strategy and supported the Commission's 
intention  to  propose  measures  to  strengthen  supervisory  convergence  tools  and  achieve  more 
unified direct supervision of capital markets.10 The European Central Bank (‘ECB’) has also been 
vocal in its support for the project.11  

Beyond Europe, international organisations such as the International Monetary Fund (‘IMF’)12, 
and  the  Organisation  for  Economic  Cooperation  and  Development  (‘OECD’)13  have  called  
for action to address remaining barriers to EU financial market integration.  

In summary, calls from both within and outside the EU point to the same response: creating a more 
integrated EU capital market is now a necessity, not just a desirable goal.  

1.2.  LEGAL CONTEXT 

This section presents the legal context and current EU legal framework of the trading, post-trading 
asset  management  sector  and  innovation  (1.2.1),  as  well  as  on  the  supervision  of  these  sectors 
(1.2.2). 

5 E. Letta “Report on the Future of the Single Market”. Available here: https://single-market-
economy.ec.europa.eu/news/enrico-lettas-report-future-single-market-2024-04-10_en; Mario Draghi, ‘The Future of 
European Competitiveness,’  2025. https://commission.europa.eu/topics/eu-competitiveness/draghi-report_en 
6 https://www.consilium.europa.eu/en/press/press-releases/2024/03/11/statement-of-the-eurogroup-in-inclusive-
format-on-the-future-of-capital-markets-union/ 
7 https://www.consilium.europa.eu/media/m5jlwe0p/euco-conclusions-20240417-18-en.pdf  
8 https://www.consilium.europa.eu/media/viyhc2m4/20250320-european-council-conclusions-en.pdf 
9 “We underline the sense of urgency and the shared responsibility for fast and decisive progress on a Savings and 
Investments Union with a particular focus on the Capital Markets Union to mobilise savings and unlock the financing 
of necessary investments to support EU competitiveness”. See EU Summit meeting (20 March 2025) – Statement – 
page 1, https://www.consilium.europa.eu/media/ce3fkikz/20250320-euro-summit-statement-en.pdf 
10 https://www.europarl.europa.eu/doceo/document/TA-10-2025-0185_EN.pdf 
11 European Central Bank: “Capital markets union: a deep dive”. Revised May 2025. Available here: 
https://www.ecb.europa.eu/pub/pdf/scpops/ecb.op369~246a103ed8.en.pdf?503a501a41fd4b4659d3b0616c405190  
12  International  Monetary  Fund:  “A  Recovery  Short  of  Europe’s  Full  Potential”,  24  October  2024.  Available 
here:   https://www.imf.org/en/Publications/REO/EU/Issues/2024/10/24/regional-economic-outlook-Europe-october-
2024 
13  OECD,  Economic  Surveys:  European  Union  and  Euro  Area  2025,  July  2025,  Available  here: 
https://www.oecd.org/content/dam/oecd/en/publications/reports/2025/07/oecd-economic-surveys-european-union-
and-euro-area-2025_af6b738a/5ec8dcc2-en.pdf  

10 

 
 
 
 
 
 
 
1.2.1.  Trading, post-trading, asset management and innovation  

In the trading sector, the EU has developed a comprehensive legislative framework to regulate 
financial  markets,  enhance  investor  protection  and  ensure  market  transparency  and  stability. 
Central  to  this  framework  are  the  Markets  in  Financial  Instruments  Directive  II  (‘MiFID  II’)  
and the Markets in Financial Instruments Regulation (‘MiFIR’). These two legislative instruments 
are  the  cornerstone  of  EU’s  legislation  for  trading  venues  and  investment  firms.  MiFID  II  and 
MiFIR  regulate  the  provision  of  investment  services  and  activities  by  investment  firms14  and 
govern the operation of trading venues.  

Under MiFID II, there are three types of trading venues: regulated markets (‘RMs’/exchanges), 
multilateral  trading  facilities  (‘MTFs’)  and  organised  trading  facilities  (‘OTFs’).  All  are 
multilateral systems that bring together multiple third-party buying and selling interests. RMs are 
operated by a market operator. RMs are essentially regulated as a market infrastructure, as opposed 
to the operation of an MTF or an OTF, which is an investment activity under MiFID II. MTFs and 
OTFs there can also be performed by an investment firm. The MiFID II rulebook only explicitly 
foresees the possibility for RMs to set up ‘trading arrangements’ to accommodate remote access 
of members through trading screens to facilitate access to and trading on those markets by remote 
members  or  participants.15  However,  unlike  for  investment  firms  operating  MTFs  or 
OTFs who benefit  from  a  comprehensive  passporting  mechanism  under  MiFID  II,  which  is 
supporting their freedom to provide services (Article 34 for investment firms) or the establishment 
of a branch (Article 35 for investment firms), beyond the above mentioned ‘trading arrangements’, 
the framework applicable to RMs does not contain any explicit provisions relating to the rights    
of RMs as regards the provision of cross-border services in the EU on the basis of their initial 
licence.  In  addition,  the  current  MiFID  II  framework  requires  each  RM  to  be  subject  to  an 
individual  licence  in  the  Member  State  where  it  is  operated,  and  therefore  to  be  subject  to  the 
supervision of each individual competent authority. There is currently no possibility for a market 
operator,  to  operate  several  trading  venues  in  different  Member  States  on  the  basis  of  a  single 
licence. 

MiFID  II  establishes  organisational  requirements  for  trading  venues,  notably  to  ensure  fit-for-
purpose  governance,  investor  protection,  solid  processes  and  effective  risk  management.  In 
addition, the Directive mandates that trading venues must operate under a system that promotes 
fair  and  orderly  trading  and  ensures  non-discriminatory  access  to  market  participants.  Further, 
MiFIR  governs  how  trading  works  in  the  EU,  mainly  focusing  on  trade  transparency  and 
transaction reporting.  

While trading venues constitute multilateral trading systems under MiFID II/MiFIR, it is worth 
mentioning that trading also takes place in the bilateral/off-venue space. Under MiFID II/MiFIR, 

14 An investment firm is a legal person (and in certain cases other undertakings that are not legal person) whose regular 
occupation or business is the provision of one or more investment services to third parties and/or the performance  
of one or more investment activities on a professional basis. The list of investment services and activities includes: 
reception and transmission of orders in relation to one or more financial instruments; execution of orders on behalf  
of clients; dealing on own account; portfolio management; investment advice; underwriting of financial instruments 
and/or placing of financial instruments on a firm commitment basis; placing of financial instruments without a firm 
commitment basis; operation of an MTF; operation of an OTF. 
15 See Article 53(6) MiFID: “Member States shall, without further legal or administrative requirements, allow RMs 
from other Member States to provide appropriate arrangements on their territory so as to facilitate access to and trading 
on those markets by remote members or participants established in their territory”. 

11 

 
 
 
 
most  bilateral/off-venue  execution  by  investment  firms  is  regulated  as  an  investment  service.  
Since MiFID I, investors also have the possibility to trade with ‘systematic internalisers’ (‘SIs’), 
i.e.  investment  banks  that  act  as  dealers  and  trade  bilaterally  using  their  own  funds.  Annex  7 
provides  a  more  detailed  analysis  of  the  legal  framework  and  the  specific  provisions  
of relevance to this initiative.   

In the post-trading sector, clearing is governed by the European Market Infrastructure Regulation 
(‘EMIR’),  which  aims  to  make  derivatives  markets  safer  and  more  transparent,  in  particular 
mandating  standardised  over-the-counter  (‘OTC’)  derivatives  to  be  centrally  cleared  through 
central  counterparties  (‘CCPs’),  imposing  risk  mitigation  rules  for  non-cleared  trades,  and 
mandating reporting of derivatives activity to trade repositories (‘TRs’).16 Settlement in the EU    
is governed by a legislative framework mainly composed of the Central Securities Depositories 
Regulation  (‘CSDR’),  the  Settlement  Finality  Directive  (‘SFD’)  and  the  Financial  Collateral 
Directive  (‘FCD’).  These  measures  collectively  address  the  legal,  prudential,  operational,  and 
systemic risks associated with securities settlement (i.e. the completion of a securities transaction 
through the transfer of cash, securities, or both) and collateral arrangements (i.e. the use of assets 
as security to support financial transactions) in the EU’s financial system. 

The CSDR establishes uniform requirements for the settlement of financial instruments and the 
operations  of  central  securities  depositories  (‘CSDs’)  across  the  EU.  A  CSD  is  a  specialized 
financial institution that executes transfer orders in relation to securities transactions and provides 
at  least  one  of  the  following  two  services:  initial  recording  of  securities  and  provision  and 
maintenance of securities accounts. CSDs play a crucial role in financial markets by enabling the 
transfer  of  securities  and  ensuring  the  finality  of settlement.  The  CSDR  sets  out  the  procedure       
of  authorisation  and  supervision  of  CSDs  and  imposes  prudential,  organisational,  and  conduct       
of business requirements. It also contains rules on access and interoperability between CSDs and 
trading  venues,  thereby  fostering  competition  and  integration  in  the  trading  and  post-trading 
markets. In addition, it provides a passporting regime that allows authorised CSDs to offer services 
in other Member States.  

The SFD plays a key role in the legal certainty of payment and securities settlement systems within 
the EU. It  aims  to  minimise systemic risk arising from  the insolvency of a participant in  those 
systems. It does so by ensuring that transfer orders entered into systems designated by Member 
States  are  legally  enforceable  and  irrevocable  once  correctly  entered  into  such  systems.  
It  also  safeguards  the  netting  and  collateral  arrangements  within  those  systems  from  being 
unwound  or  affected  by  insolvency  proceedings.  This  legal  certainty  is  vital  for  maintaining 
confidence in settlement processes, particularly during periods of financial stress. For participants 
in  such  systems,  this  means  they  can  trust  that  their  transactions  entered  into  the  system  
will be executed and settled as planned, even if one of the parties involved in the transactions faces 
financial difficulties, thereby reducing the risk of financial loss for the participants protected under 
the SFD and promoting stability in the financial market. 

The  FCD  complements  the  SFD  by  providing  a  framework  for  the  use  of  financial  collateral  
in transactions between market participants (e.g. between two banks), thereby reducing complexity 
and costs for the parties engaged in  such transactions. Overall, the FCD  simplifies the process  
of  taking  and  enforcing  collateral  in  the  form  of  cash,  financial  instruments,  or  credit  claims.  
It also eliminates certain formal requirements, such as notarisation, and ensures the enforceability 

16 The scope of the proposals related to clearing outlined in this document are limited to the supervision of CCPs. 

12 

 
 
 
 
of  close-out  netting  arrangements  and  title  transfer  collateral  agreements.  Annex  8  provides  
a detailed overview of the legal framework for post-trading and the relevant provisions for this 
assessment.  

The  EU  asset  management  sector  is  largely  governed  by  the  Alternative  Investment  Fund 
Managers  Directive  (‘AIFMD’),  the  Undertakings  for  Collective  Investment  in  Transferable 
Securities  Directive  (‘UCITSD’  or  ‘UCITS  Directive’),  and  the  Cross-Border  Distribution  
of  Funds  Regulation  (‘CBDR’).  Together,  these  instruments  aim  to  ensure  investor  protection, 
market integrity and the efficient functioning of the single market for investment funds.  

The  UCITS  Directive  provides  a  regulatory  regime  for  collective  investment  undertakings  
(mutual funds) that invest in transferable securities17 and provides common rules covering inter 
investor  protection,  supervision,  diversification  and  risk  management.  
alia  marketing, 
UCITS  funds  are  primarily  meant  as  retail  investment  vehicles,  though  also  in  demand  
by institutional investors and are subject to restrictions and transparency requirements to safeguard 
retail  investors’  interests.  UCITS  management  companies  must  meet  detailed  organisational, 
conduct and risk management requirements. These include obligations to act in the best interests 
of investors, maintain adequate capital and implement the necessary internal control mechanisms. 
It also imposes strict rules on liquidity management and leverage, and mandates comprehensive 
disclosure requirements to investors, including through the provision of a key investor information.  

The  UCITSD  grants  management  companies  and  UCITS  funds  a  passport,  allowing  them  to 
manage and market UCITS across the EU once authorised in one Member State, without the need 
for  additional  local  licenses.  However,  in  practice,  the  notification  process  and  review  of  fund 
marketing documents by the host Member States where the UCITS is marketed can be a heavy 
process, with divergences in Member State requirements. The depositary regime ensures that each 
UCITS  appoints  a  single  independent  depositary  responsible  for  the  safekeeping  of  assets, 
oversight of fund operations, and monitoring cash flows to protect investors. 

In  parallel,  the  AIFMD  regulates  managers  of  alternative  investment  funds  (‘AIFs’),  which 
encompass  a  wide  variety  of  non-UCITS  funds,  including  hedge  funds,  private  equity  funds,  
real  estate  funds  and  infrastructure  funds.  Unlike  UCITS  funds,  AIFs  are  typically  targeted  at 
professional investors, though some AIFs may also be sold to retail investors if Member States 
decide so. The AIFMD establishes requirements for the authorisation, operation and transparency 
of AIF managers (‘AIFMs’), particularly in the areas of risk management, valuation, delegation  
of AIFM functions to third parties, such as portfolio or risk management to specialised service 
providers  or  external  asset  managers,  liquidity  management  and  remuneration  policies.  AIFMs 
must also disclose detailed information to both investors and regulators, including data on portfolio 
composition,  leverage  and  systemic  risk  indicators.  While  the  AIFMD  does  not  harmonise  
the  structure  or  marketing  of  AIFs  themselves,  it  grants  authorised  EU  AIFMs  a  passport  
to  manage  EU  AIFs  and  market  EU  AIFs  to  professional  investors  across  the  EU  subject  
to a notification process. The depositary regime also applies to AIFs. 

17 According to Article 2(1)(n) of the UCITS Directive, transferable securities are (i) shares in companies and other 
securities equivalent to shares in companies (shares), (ii) bonds and other forms of securitised debt (debt securities) 
or (iii) any other negotiable securities which carry the right to acquire any such transferable securities by subscription 
or exchange. 

13 

 
 
 
 
 
To  complement  these  frameworks,  the  CBDR  aims  to  facilitate  the  smoother  cross-border 
marketing  of  UCITS  funds  and  AIFs.  The  CBDR  introduced  principle-based  requirements  
for  marketing  communications,  ensuring  that  they  are  fair,  clear  and  not  misleading.  
It also enhanced transparency regarding regulatory fees and streamlined notification procedures 
for cross-border marketing. Annex 9 presents the legal framework and the related specific issues 
for the asset management sector in more detail.  

In  the  area  of  innovation,  distributed  ledgers  are  a  key  technology  which  is  being  developed  
to  lower  the  costs  and  realise  efficiencies  in  trading  and  post-trading.  The  Distributed  Ledger 
Technology Pilot Regulation (‘DLTPR’), which aims to create a legal framework to foster the use 
of  this  technology  in  financial  markets,  came  into  force  in  March  2023.  It  enables  market 
participants  to  derogate  from  certain  provisions  applicable  to  trading  venues  and  CSDs.  
The  main  objectives  of  the  DLTPR  are  to  support  innovation  in  DLT  by  attracting  businesses  
to  deploy  their  solutions  within  an  adapted  and  clearly  delimited  framework,  and  to  integrate  
the learnings obtained from the industry into further changes to the common rulebook.    

The CSDR was devised  before DLT or other disruptive technologies were developed  and thus 
relies  on  “legacy”  systems  at  its  core.  For  example,  the  assumptions  about  intermediary  roles  
and functions, definitions of certain key notions and other requirements embedded in the CSDR 
may act as a barrier to the uptake of this technology. The aim of the DLTPR is precisely to create 
an  adapted  framework  within  which  participants  can  test  and  develop  their  solutions  
for the issuance, recording, trading and transfer of financial instruments using DLT. 

In addition, the Markets in Crypto-Assets Regulation (‘MiCA’) has created a comprehensive legal 
framework for crypto-assets, including stablecoins and e-money tokens.  MiCA’s primary goals  
is to improve consumer protection, enhance market integrity, and provide legal clarity for issuers 
and service providers.18 MiCA entered into full application on 30 December 2024 but crypto-asset 
service  providers  (‘CASPs’)  that  were  providing  services  in  accordance  with  the  applicable 
national  law  before  that  date  may  continue  to  provide  their  services  without  additional  MiCA 
authorisation until 01 July 2026, in accordance with various transitional periods set by the Member 
States  to  improve  consumer  protection,  enhance  market  integrity,  and  provide  legal  clarity  
for issuers and service providers. 

1.2.2.  Supervision   

The  supervision  of  entities  and  activities  in  trading19,  post-trading20,  asset  management21  and 
crypto-asset  services22  in  the  EU  is  carried  out  by  national  competent  authorities  (‘NCAs’), 

18 The scope of the measures related to MiCA outlined in this document are limited to the supervision of CASPs. 
19  In  general,  each  Member  State  designates  one  national  competent  authority.  However,  in  some  Member  States 
multiple supervisors co-exist for different reasons. 
20 There are 25 CSDs authorised in the EU under the CSD Regulation (‘CSDR’). CSDR Refit introduced a college  
of supervisors for CSDs of substantial importance in at least two host Member States, which is comprised of NCAs, 
ESMA and of relevant authorities, including the European System of Central Banks (ESCB). There are 14 CCPs that 
have  been  authorised  in  the  EU  under  the  European  Market  Infrastructure  Regulation  (EMIR).  For  key  decisions 
(authorisation, risk model changes, etc.), NCAs must consult a college of supervisors. 
21  Each  UCITS  fund  must  be  authorised  and  supervised  by  the  NCA  of  the  Member  State  where  it  is  domiciled.  
The home NCA of the UCITS is responsible for supervising the management company in relation to the UCITS. 
22  Beyond  its  regular  coordination  role,  ESMA  has  a  limited  role  in  the  supervision  of  CASPs  designated  
as “significant” (i.e. having at least 15 million users in the EU). 

14 

 
 
 
 
sometimes including the National Central Banks (‘NCBs’). More details on supervisory set up can 
be found in the Annex on Supervision. 

At EU level, the European Securities Markets Authority (‘ESMA’)23 is responsible for ensuring 
the integrity, transparency, and efficiency of financial markets and fostering consumer and investor 
protection.24 ESMA’s founding regulation25 sets out ESMA's objectives, tasks, and powers as well 
as its responsibility for coordinating the supervision of EU financial markets and the enforcement 
of EU market and investment rules.26  

ESMA plays a key role in promoting consistency and convergence in supervision across the EU 
and  has  a  range  of  tools  at  its  disposal,  such  as  issuing  guidelines,  making  recommendations, 
conducting peer reviews, investigating suspected breaches of Union law by national authorities 
and resolving disputes between supervisors through binding mediation.27 Most of these powers 
are,  however,  soft  in  nature  and  therefore  do  not  allow  ESMA  to  fully  ensure  supervisory 
convergence. As a result, significant divergences and national supervisory approaches prevail (see 
problem definition). 

While  the  other  European  Supervisory  Authorities  (‘ESAs’),  such  as  the  European  Insurance  
and Occupational Pensions Authority (‘EIOPA’) and the European Banking Authority (‘EBA’) 
also  play  a  role  in  integrating  capital  markets,  they  are  not  directly  overseeing  the  sectors  that  
are in scope of this impact assessment.28 For this reason, this impact assessment focuses on ESMA. 
This  does  not  preclude  the  possibility  that,  in  the  future,  broader  reforms  may  also  consider  
the roles of the other ESAs as part of further efforts to strengthen financial supervision in the EU 
if specific problems are identified. 

respectively, 

insurance/pensions, 

23 See  Article  1  REGULATION  (EU)  No  1095/2010  of  24  November  2010  establishing  a  European  Supervisory 
Authority (European Securities and Markets Authority), (OJ L 331 15.12.2010, p. 84). 
24 ESMA, together with the European Banking Authority (‘EBA’), the European Insurance and Occupational Pensions 
Authority  (‘EIOPA’),  and  the  European  Systemic  Risk  Board  (‘ESRB’),  form  the  European  System  of  Financial 
Supervision (‘ESFS’), a framework for supervising and regulating the EU's financial system. Within this framework, 
ESMA's competences are focused on financial markets, including securities and investment services, while EBA and 
expertise  
and 
EIOPA  oversee  banking 
and a coordinated approach to financial supervision across the EU. 
25 Regulation (EU) No 1095/2010 of the European Parliament and of the Council. 
26  In  certain  limited  areas,  ESMA  exercises  direct  supervisory  powers,  i.e.  with  regard  to  credit  rating  agencies  
and  trade  repositories,  CCPs  established  in  third  countries  deemed  to  be  of  substantial  systemic  importance  
and operating in the EU (such as LCH Ltd (UK CCP) and ICE EU (UK CCP)), recognised third-country benchmark 
administrators and third-country benchmarks endorsed in the EU, securitisation repositories, and EU Green Bonds 
external  reviewers  and  ESG  rating  providers.  Under  the  MiFIR  framework,  ESMA  is  also  granted  direct 
responsibilities regarding the authorisation and supervision of certain Data Reporting Services Providers.  
27 Binding mediation is a conflict-resolution mechanism used when there is a dispute between two or more NCAs 
particularly in cases specified in legislative acts. ESMA resolves disputes by issuing a legally binding decision that 
all parties must follow and may eventually also adopt individual binding decisions applicable to market participants 
(Article 19 ESMA Regulation). 
28  In  case  of  MiCA,  EBA  has  been  given  direct  supervision  of  issuers  of  significant  asset-referenced  tokens  
and e-money tokens. 

specialized 

allowing 

for 

15 

 
 
 
 
1.3.  MARKET CONTEXT 

As confirmed by a large body of literature, EU capital markets are underdeveloped in both size 
and depth,29,30 and there are significant differences in capital market development across Member 
States (see Annex 12 for Member State specific evidence on capital market developments).  

Figure  1  illustrates  that  total  (traded  and  untraded)  equity  market  capitalisation  amounted  
to  73%  of  GDP  in  the  EU  in  2024,  compared  to  130%  in  the  UK  and  270%  in  the  US  
(see also e.g. ECB (2025)31). Over the past 15 years, major stock markets have grown significantly 
but unevenly across jurisdictions: the US S&P 500 index increased by more than 350%, the Asia 
Nikkei 225 by more than 200%, the STOXX Europe 600 by about 100% and the UK FTSE 100 
by about 50%. The US share of global free-float market capitalisation therefore rose from about 
40% after the global financial crisis to over 60% by early 2025.32  

Other indicators also show the relative underdevelopment of EU capital  markets. For example,  
the  number  of  IPOs  (initial  public  offerings)  in  the  US  has  been  more  than  triple  the  number  
in  the  EU  over  the  last  decade  (on  average  107  IPOs  in  the  EU  annually  versus  360  IPOs  
in  the  US)  (Figure  2).  However,  EU  IPOs  still  exceeded  the  number  of  IPOs  in  the  UK  
(59  on  average).  A  significant  number  of  EU  companies  have  moved  their  primary  listing  
to  the  US  market,  where  new  listings  –  including  IPOs,  direct  listings,  and  listing  via  Special 
Purpose Acquisition Companies (SPACs) – account for nearly 90% of relocations.33  

29  Market  depth  refers  to  the  ability  of  a  market  to  absorb  large  orders  without  significantly  impacting  the  price  
of a security, hence showing strong liquidity. 
30  See  for  example:  IMF,  September  2019,  “A  Capital  Market  Union  for  Europe”;  New  Financial,  January  2024, 
“Searching for Growth: the Future of EU Capital Markets”; New Financial, January 2019, “The New Financial Global 
Capital Markets Growth Index: Analysis of the size, depth & growth potential of capital markets in 60 economies 
around the world”; AFME, November 2024, “Capital Markets Union – Key performance indicators seventh edition”; 
Bruegel, June 2021, “Europe should not neglect its capital markets union”; European Investment Bank, March 2025, 
“Investment Report 2024/2025: Innovation, integration and simplification in Europe”. 
31 Capital markets union: a deep dive  - Five measures to foster a single market for capital, ECB Occasional paper 
Series, May 2025. 
32 See pages 22-23 of European Financial Stability and Integration Review 2025. The sector composition of the EU 
and US indexes diverges significantly. DG FISMA calculations illustrate that sector weighting alone does not account 
for  the  return  disparities.  Even  if  the  EU  index  would  match  the  US  index's  sector  composition,  it  would  still 
significantly underperform. 
33 The proportion of European IPOs listing in the US has tripled since 2015 to 22% of all IPOs by European companies 
by  value.  In  particular  in  the  biotech  sector,  over  a  quarter  of  European  biotech  companies  that  did  an  IPO  
over the past decade listed in the US market, representing nearly two thirds of the value of IPOs by European biotech 
companies. New Financial, April 2025, “A reality check on international listings”. 

16 

 
 
 
 
Figure 1: Total market capitalisation relative to 
total domestic GDP in 2024 

Figure 2: Number of IPOs by region of IPO 
exchange – 2015-2024 average 

Source: S&P Capital IQ, OECD, DG FISMA calculations 
Note:  Company 

traded  or  non-traded. 

level  market  capitalisation 

is  calculated  
as aggregate market capitalization of all issues of common 
If  pricing  
equity  whether 
is  not  available  for  secondary  classes,  the  price  of  the 
primary  class  is  applied.  Total  market  capitalisation  is 
calculated  as 
level  market 
the  sum  of  company 
capitalisation  of  all  companies  with  their  domicile  in  the 
respective  region  at  end-of  year  2024.  Relative  market 
capitalisation 
the  values  
is  calculated  by  dividing 
by the regional GDP.  

Source: S&P Capital IQ, DG FISMA calculations 
Note:  Number  of  IPOs  by  location  of  IPO  stock  exchange 
(indicates  the  best  of  exchange  where  the  company  
got  listed/will  list  pursuant  to  the  IPO  or  the  exchange 
where  it  is  currently  trading.  If  there  is  no  exchange 
indicated  in  the  IPO  filings,  it  will  indicate  the  current 
exchange for the primary listing of the company.). 

The  lack  of  capital  market  development  also  shows  in  corporate  funding  structures.  European  
non-financial corporations (‘NFCs’) are much more reliant on bank loans than market funding,  
i.e.  debt  securities  and  listed  shares,  compared  to  NFCs  in  the  UK  and  the  US.  As  shown  
in  Figure  3,  debt  securities  and  listed  shares  make  up  just  3%  and  14%  of  NFC  liabilities  
in  the  EU  whereas  they  respectively  account  for  7%  and  31%  in  the  UK  and  6%  and  38%  
in the US. 

While the development of capital markets depends on many different demand and supply factors, 
one key driving factor is the market fragmentation which is at the heart of this impact assessment. 
Figure 4 illustrates the development of financial integration in the euro area between 2000-2025. 
Financial  integration  indicators  fell  sharply  due  to  the  combined  impact  of  the  2008  Global 
Financial Crisis (‘GFC’) and 2010-2012 euro-area sovereign debt crisis. Since reaching a low point 
in 2012, both the price-based and quantity-based composite indicators of financial integration have 
been slowly recovering. By the end of 2024, the quantity-based indicator of financial integration, 
which  reflects  increased  cross-border  holdings  of  financial  assets,  has  finally  reached  its  2006  
pre-crisis  value  again.  The  more  volatile  price-based  index,  which  increases  with  reduced 
dispersion  in  asset  prices  or  returns  across  borders,  indicates  that  financial  markets  have  been 
gradually pricing assets more uniformly across the euro area, but has not yet reached its pre-GFC 
level.  The  slow  progress  and  protracted  recovery  towards  past  levels  of  financial  integration 
suggests that persistent fragmentation continues to hinder efforts to fully integrate the financial 
system, thereby preventing the EU from fully realising the advantages of the single market. 

17 

 
 
 
 
 
 
Figure 3: NCF financial liabilities breakdown as 
share of total liabilities in 2024 

Figure 4: Price-based and quantity-based 
composite indicators of euro area financial 
integration 

Source: Eurostat, OECD, DG FISMA calculations 
Note: NFC financial liabilities based on non-consolidated annual 
sector accounts. The following categories are not included: 
currency  and  deposits, 
investment  fund  shares/units, 
unlisted  shares,  life  insurance  and  annuity  entitlements, 
pension  entitlements,  claims  of  pension  funds  on  pension 
managers  and  entitlements  to  non-pension  benefits,  other 
equity,  non-life  insurance  technical  reserves,  provisions  
for  calls  under 
financial 
derivatives and employee stock options and other accounts 
receivable/payable. 

standardised  guarantees, 

Source: ECB 
Note:  The  price-based  composite  indicator  aggregates  10 
indicator 
indicators.  The  quantity-based  composite 
aggregates  5  indicators.  A  value  of  1  corresponds  
to  the  highest  degree  of  integration.  The  quantity-based 
indicator  uses  quarterly  data  between  Q1 1999  
and Q4 2024. The price-based indicator uses monthly data 
into  quarterly  values)  between  Q1 1999  
(converted 
and Q4 2024. 

Against this wider context, this impact assessment specifically looks at fragmentation in the EU 
trading, post-trading and asset management sector.  

The  “Study  on  consolidation  and  reducing  fragmentation  in  trading  and  post-trading 
infrastructures in Europe” (henceforth referred to as the “study on trading and post-trading”)34,  
has been prepared for the Commission to support this assessment (see also Annex 4 and references 
throughout  this  report).  It  analyses  the  evolution  of  the  structure  and  ownership  of  EU  market 
infrastructures over the past 50 years until today. As shown in Figure 5, taken from the study, there 
is no common pattern in the development of EU capital market infrastructure. Two main types  
of  market  structure  emerged  at  national  level:  horizontal  (where  stock  exchanges  and  CSDs  
are  under  different  ownership),  and  vertical  (where  stock  exchanges  and  CSDs  share  common 
ownership).  There  is  also  a  distinct  difference  between  northern  and  western  Europe,  
which features numerous cross-border groups and operations, and eastern and southern Europe, 
where market infrastructures operate almost entirely within national borders (indicated by grey 
areas). 

34 https://op.europa.eu/en/publication/doi/10.2874/2649452. 
18 

 
 
 
 
 
 
 
Figure 5: Ownership of exchanges and CSDs in Europe (end-2024) 

Source:  Study  on  consolidation  and  reducing  fragmentation  in  trading  and  post-trading  markets  infrastructures  
in Europe. 

In the EU trading sector, there is a proliferation of execution venues where financial instruments 
can  be  traded.  More  precisely,  there  are  314  trading  venues35,  of  which  119  RMs ,  165  MTFs  
and  30  OTFs.  In  addition  to  these  trading  venues,  there  are  167  authorised  SIs  in  the  EU.  
Consequently,  EU  trading  venues  remain  smaller  and  less  liquid  than  their  international  peers, 
notably in the US. The market capitalisation of trading venues in the EU was about USD 12 trillion 
(60% of EU GDP) in 2024 whereas the two largest stock exchanges in the US had a combined 
market capitalisation of USD 60 trillion, or over 200 of domestic GDP highlighting significantly 
greater  market  depth  compared  to  the  EU.  This  lack  of  depth  and  liquidity  and  fragmented 
infrastructure  discourage  company  listings  as  it  indirectly  increases  their  cost  of  financing  

35 In the context of this analysis, trading venues are identified at segment Market Identifier Code (MIC) level. Segment 
different MICs are often used to distinguish trading systems. This allows for a precise identification of trading facilities 
by market type, in instances in which the same market operator runs both a RM or a multilateral trading facility, for 
example. 

19 

EuronextEuroclearNasdaqSIS/BMEWiener BörseZagreb SEExchangeCSDNon-alignedVertical market structure (ie exchange and CSD under common ownership) Horizontal market structure (ie exchange and CSD under different ownership)  
 
 
 
 
and  deters  investors  from  investing  into  EU  markets  as  they  face  higher  transaction  costs  
and risks.36,37,38   

The  large  number  of  RMs  in  the  EU  is  a  direct  heritage  of  national  contexts,  where  each  EU 
Member State usually has a local RM providing listing services for local issuers. Despite around 
20  years  of  regulatory  changes  aimed  at  fostering  competition  in  market  operations,  primary 
listings remain highly concentrated, with 4 exchange groups accounting for over 90% of market 
capitalisation.39 Vertical integration among exchange groups is also highly prevalent, with many 
providers owning two or all three parts of the market infrastructure value chain (trading, clearing, 
settlement). Conversely, market trading has experienced substantial shifts in market structure, with 
numerous new entrants and trading flows increasingly moving to alternative venues.40 This shift 
has yielded significant benefits, in particular lower transaction fees and liquidity gains (including 
via  competition  in  the  quality  and  speed  of  matching  engines).  However,  the  resulting 
fragmentation has simultaneously increased other costs for market participants, particularly those 
associated with determining where and when the best trading opportunities exist.41             

In  the  post-trading  sector,  there  are  14  CCPs  and  32  CSDs  operating  in  the  EU.  25  CSDs  are 
authorised under the CSDR, including two international CSDs (‘ICSDs’)42, Euroclear Bank and 
Clearstream Banking SA, and 7 CSDs benefit from the public authorities’ exemption under Art. 
1(4) CSDR. In contrast, the US market is more concentrated and specialised, in particular with 
respect  to  settlement,  with  2  CSDs  and  8  CCPs.43  The  fact  that  EU  CSDs  are  the  market 
infrastructures most segmented along national lines is primarily due to historical developments 
and established practices. National CSDs were established to serve local market needs to provide 
for the safe custody of securities and for the efficient settlement of securities transactions at a time 
when cross-border transactions involving securities were limited. 

36  International  Monetary  Fund  (‘IMF’),  June  2025,  FINANCE  &  DEVELOPMENT:  “Europe’s  integration 
imperative”. 
37 Relation between liquidity and cost of equity see: Stock Market Liquidity and the Cost of Issuing Equity, A. Butler, 
G. Grullon and J. P. Weston, Journal of Financial and Quantitative Analysis, 2005, vol. 40, issue 2, 331-348 – Link 
& Liquidity and the implied cost of equity capital,  M. Saad, A. Same, Journal of International Financial Markets, 
Institutions and Money, Volume 51, 2017 – Link; et.al. 
38 Relation between liquidity and risks see: Stock Market Liquidity: A Literature Review, P. Naik, Y.V Reddy, Sage 
Open, 11(1), 2021 – Link ; Market liquidity: theory, evidence, and policy, T. Foucault, M. Pagano, A. Röell, Oxford 
University Press, 2023; et.al.  
39 ‘Capital Market Infrastructure: Preparing the Financial Railway Tracks to Unlock the Untapped Potential of EU 
Capital Markets’, Implement Consulting Group, June 2025 (pre-release version shared with COM  – to be updated 
once published). 
40 See for example ‘Evolution of EEA share market structure since MiFID II’, ESMA, October 2023 – Link   
41 Other jurisdictions are also characterised by a multiplicity of listing exchanges. In the US, the so-called ‘Reg. NMS’ 
has, twenty years ago, intended to address the inefficiencies stemming from the existence of several stock exchanges 
in the US, and (indirectly) mandated the interconnection of all such exchanges. In China, the ‘Stock Connect’ system, 
which amounts to a mutual market access program for the Shenzhen, Hong Kong and Shanghai stock exchanges, 
sought  to  make  the  Chinese  stock  markets  more  interoperable  and  reduce  effects  of  fragmentation  by  allowing 
members of one of such exchanges to trade on the other ones. In Europe, the open access provisions included in MiFIR 
pursue a similar regulatory objective. See Regulation (EU) No 600/2014 (MiFIR), Article 35&36. 
42 ICSDs are CSDs that provide services for international securities, such as Eurobonds. 
43 In the US corporate bonds and equities are settled through the Depository Trust and Clearing Corporation (DTCC) 
while government securities and related entities are settled through Fedwire Securities Service, which is operated by 
the  Federal  Reserve  System.  The  CCPs  in  the  US  are:  ICE  Clear  Credit,  ICE  Clear  US,  the  Chicago  Mercantile 
Exchange  (CME),  the  National  Securities  Clearing  Corporation  (NSCC),  the  Fixed  Income  Clearing  Corporation 
(FICC), the Options Clearing Corporation (OCC), Nodal Clear, and MIAX Futures Exchange.  

20 

 
 
 
 
In 202444, EU CSDs handled approximately 606 million securities settlement instructions worth 
over EUR 70 trillion in value of securities and representing a total turnover of securities of over 
EUR 2 770 trillion. These figures have increased annually by 20%, 25%, and 105%, respectively 
since  2020.  This  activity  however  is  not  spread  evenly  across  all  EU  CSDs.  In  fact,  in  2024,  
the four largest EU CSDs held over 76% of all securities in the EU.  

There  has  been  limited  development  in  the  provision  of  cross-border  CSD  services  within  the 
EU.45 By  2024,  the  volume  and  value  of  cross-CSD  settlement  represented,  respectively,  
only 1.61% and 3.45% of the total volume and value of settlement in TARGET2-Securities (‘T2S’) 
-  a  platform  launched  in  2015  and  operated  by  the  Eurosystem  that  offers  harmonised  
and streamlined securities  settlement  in  central  bank money to  facilitate  cross-CSD settlement. 
The volume of settlement processed in T2S averaged 700,000 transactions daily with an average 
daily value of EUR 790 billion in 2023. This was equivalent to 75% of the number of transactions 
processed by T2S-participating CSDs and 50% of their value, suggesting that T2S is not capturing 
all the settlement (including both domestic and cross-border) activity of its participating CSDs.46 

The  EU  asset  management  sector  has  grown  significantly,  with  net  assets  under  management 
almost doubling (+95%) to EUR 20.5 trillion between 2014 and 2024 (see Table 1). The EU is the 
second-largest  asset  management  market  worldwide,  accounting  for  around  29%  of  global  net 
asset  value  in  2024,  according  to  the  European  Fund  and  Asset  Management  Association 
(EFAMA).47  The  sector  is  diverse,  with  approximately  65,000  funds  (30,000  UCITS  funds  
and 35,000 AIFs) and low market concentration. Ongoing costs of investing in key EU financial 
products have gradually declined, although these costs were already at high levels and costs in the 
EU  remain  high  by  international  standards.  Although  total  assets  are  smaller  than  in  the  US  
(see Annex 12 for the share of investment funds in households’ financial asset holdings in  EU 
Member States), the EU shows a much larger number of investment funds and asset managers. 
The  average  fund  size  in  the  EU  is  correspondingly  significantly  lower  than  in  the  US  
(and the UK), as further discussed in Section 2 as part of the problem definition.  According to an 
ESMA  study  on  costs,  the  small  size  of  funds  in  the  EU  has  generally  been  associated  with  
the comparatively high levels of costs and charges, in line with the logic of economies of scale, 
i.e. larger funds may benefit from economies of scale, potentially lowering expense ratios as fixed 
costs are spread over a larger asset base.48 This is supported by data in an ESMA Market report  
on  costs,  which  provides  that  total  costs  of  smaller  equity,  bond  and  mixed  funds  are  higher  
by respectively 14%, 27% and 17% than the total costs of larger funds.49 

on 

the  ECB  securities 

trading,  clearing  and  settlement  database.  

44  Securities  settlement  statistics  on 
See: https://data.ecb.europa.eu/publications/payments-statistics/3032564  
45 “Provision of cross-border services by CSDs and handling of applications under Article 23 of CSDR from 2020  
to 2022”, European Securities and Markets Authority, ESMA74-2119945925-1568, 31 January 2024.  
46  Study 
https://op.europa.eu/en/publication/doi/10.2874/2649452  
47 EFAMA Factbook 2025, available here: https://www.efama.org/sites/default/files/fact-book-2025_lowres.pdf 
48 ESMA Study, The scale factor: Impact of size on EU fund cost structures, available here: ESMA50-524821-3575 
The scale factor: Impact of size on EU fund cost structures   
49 ESMA Market report on Costs and Performance of EU Retail Investment Products 2024, available here: ESMA50-
524821-3525 Market Report on the Costs and Performance of EU Retail Investment Products 2024  

post-trading  markets 

infrastructures 

fragmentation 

in  Europe: 

trading 

and 

in 

21 

 
 
 
 
Table 1: Characteristics of the asset management market in the EU, US, and UK 

Indicator 

EU 

EUR 20.5 trillion 
~EUR 313 million4  
~65,0003  

US 
~EUR 37.7 trillion1 
~EUR 2.3 billion 
~7,500 

UK 
~EUR 2.2 trillion2 
~EUR 660 million 
~3,300 

6,2005 

95% 

N/A (*) 

~120% 

~1000 

~110% 

Total net assets (2024) 
Average fund size (2024) 
Number of funds (2024)  
Number  of  asset  managers 
(2024) 
Growth in net assets (2014 – 
2024) 

Source: ESMA data 2024, EFAMA 2024, Morningstar data, ICI (2024 Fact Book, for US data and on the growth of the AM sector),  
the Investment Association (Investment Management in the UK 2023-2024) 
Note: 1 USD ~39.2 trillion; 2 GBP ~2.4 trillion; 3 Of which approximately 30,000 are UCITS and approximately 35,000 are AIFs; 4 ~EUR 
420 million for UCITS and ~EUR 224 million for AIFs 5 of which 1,700 are UCITS management companies and 4,500 are AIFMs. 
(*) The structure of the US financial industry is centred on financial advisors, a concept that differs substantially from that of asset managers 
in the EU regulatory framework. 

2. 

PROBLEM DEFINITION    

This initiative seeks to remove specific barriers stemming from the lack of harmonisation of EU 
rules and supervisory approaches that give rise to the fragmentation and underperformance of EU 
capital markets. These barriers hinder market-driven efforts to expand business and build scale 
across  the  single  market  in  the  area  of  trading,  post-trading  and  asset  management  services,  
also using innovative digital technologies.  

For analytical clarity, the assessment is structured around three interrelated problems, as illustrated 
in the below stylised problem tree, the assessment is structured around three interrelated problems: 
1)  the  fragmentation  and  lack  of  scale  in  the  provision  of  trading,  post-trading  and  asset 
management services; 2) the fragmented and, as a result, less efficient and effective supervision 
of  those  services;  and  3)  regulatory  obstacles  to  the  uptake  of  innovative  digital  technologies,  
in particular DLT in trading and post-trading.  

These  problems  impede  the  efficient  functioning  of  EU  capital  markets,  ultimately  resulting  
in higher costs and less investment opportunities for investors; higher costs and reduced financing 
opportunities  for  firms;  and  other  wider  consequences  that  have  long  been  associated  with  the 
underdevelopment and fragmentation of EU capital markets, such as overall lower size and depth 
of EU capital markets, lower economic growth, limited risk sharing and shock resilience.  

While the focus is on the specific regulatory and supervisory barriers (the problem drivers) that 
negatively  affect  the provision of trading,  post-trading  and asset management services, and the 
uptake of innovative technologies, there are a myriad of other factors that continue to impede EU 
capital market development and integration. Whereas some of these other factors can and are being 
addressed in other initiatives under the SIU strategy (e.g. measures on financial literacy, pensions, 
access to finance), others lie outside the financial services regulatory and supervisory framework 
(e.g. differences across Member States in tax, company and insolvency law) or are non-legal in 
nature (e.g. differences across Member States in culture, preferences, habits, risk-taking behaviour, 
language, or wider macroeconomic conditions).     

The general problems and wider consequences of the fragmentation and underdevelopment of EU 
capital  markets  have  been  well-documented.  Hence,  to  keep  this  assessment  targeted, 
22 

 
 
 
 
proportionate  and  manageable,  references  are  introduced  to  existing  studies  and  reports 
documenting the magnitude of the general problems. The assessment is focused on the specific 
problems and underlying problem drivers that are in scope of this initiative, explaining to the extent 
possible their relation to and relative impact on the wider problem.  

As further explained below and in Annex 4, quantifying the relative importance of the specific 
problems is challenging, given the many external factors at play that cannot be easily controlled 
for  and  the  data  limitations  to  model  how  the  specific  factors  influence  market  outcomes.  
The  assessment  therefore  comprises  quantitative  and  qualitative  evidence,  drawing  also  from 
various  sources,  including  the  “Study  on  trading  and  post-trading"  and  the  “Study  of  barriers  
to,  and  drivers  of,  the  scaling-up  of  funds  investing  in  innovative  and  growth  companies” 
conducted on behalf of the Commission.    

This section provides the more high-level summary assessment of the problems, with the more 
granular  and  technical  assessment  of  specific  barriers  and  resulting  problems  in  the  different 
sectors described in the separate annexes (indicated by cross-references in the text). 

2.1.  WHAT ARE THE PROBLEMS? 

2.1.1.  Lack of market integration and scale 

The provision of trading, post-trading and asset management services in the EU are fragmented 
and lack scale. This is illustrated by the larger number of entities and the smaller size compared  

23 

 
 
 
 
to other well integrated markets (e.g. the US), and indicated in Section 1.3 on the market context.50 
Operating across-borders in such a fragmented environment results into higher transaction costs 
and fees for financial market participants and, ultimately, higher costs for investors and companies 
seeking  financing.  Fragmented  markets  mean  European  firms  have  a  narrower  investor  base  
and less liquid markets, which increases their cost of issuing equity or debt, as investors demand 
a higher return to compensate for lower liquidity and higher information costs.  

The  majority  of  stakeholders  (especially  relevant  stakeholders  and  associations  of  the  sectors 
covered in this initiative) supported removing cross-border operational and regulatory obstacles 
and  duplicative  requirements,  called  for  more  interoperability  between  market  infrastructures,  
and  underlined  the  need  to  modernise  EU  rules  on  trading,  clearing  and  settlement,  to  achieve 
greater efficiency and scale. In the area of asset management, relevant industry associations and 
market  players  stressed  the  need  to  reduce  gold-plating  and  simplify  rules  on  marketing, 
disclosures  and  enhance  funds’  passporting.  Many  financial  institutions  and  market  operators 
favoured  a  technology-neutral  regulatory  approach  that  accommodates  innovation,  including 
that  harmonisation  must  
distributed 
not compromise flexibility or investor protection and cautioned that integration should preserve 
competitiveness  and  diversity  across  Member  States.  A  recurring  theme  was  the  need  
for  regulatory  coherence,  legal  certainty  and  predictability.  Other  stakeholders,  including 
importance  
professional  bodies, 
of  harmonisation  in  post-trade  processes  and  legal  clarity  in  areas  such  as  settlement  finality  
and  collateral  and  securities  law.  They  called  for  proportionality  in  regulatory  reforms  and 
alignment with accounting and tax frameworks to reduce cross-border frictions. 

law  firms  and  chambers  of  commerce,  stressed 

technologies.  Stakeholders  also  warned 

ledger 

the 

Trading in Europe exhibits a high degree of fragmentation. As noted in Section 1.3., there are more 
than 300 trading venues which offer similar or overlapping services in trade execution / matching 
(see figure 4). In addition, there is fragmentation across lit (pre-trade transparent) and dark (non-
pre-trade transparent) execution protocols. This latter split is, to a large extent, demand driven and 
arises from different priorities of market participants at different times, notably speed of execution 
(lit venues will offer faster matching) and market impact of execution (dark venues will not ‘leak’ 
information on trading interest to the market). Increased competition between trading venues has 
reduced  the  direct  costs  of  trade  execution  in  the  EU  and  benefited  liquidity.  However,  an 
excessive  degree  of  fragmentation  also  tends  to  raise  other  costs  for  market  participants.  
For example, order book data needs to be collected from multiple markets to find the best execution 
conditions.  In  addition,  increased  speed  in  order  entry  and  matching  (arising  from  competition 
effects),  while  decreasing  bid-ask  spreads,  implies  that  market  participants  require  more 
sophisticated IT and hardware (thereby increasing costs) to address quotes and act on incoming 
market data. An increased number of trading venues can also lead to more arbitrage opportunities 
and heightened adverse selection for liquidity providers. Liquidity providers engage in arbitrage 
trades  to  profit  from  small  price  differences  across  venues,  thereby  keeping  prices  aligned,  
but with a large number of venues it becomes increasingly difficult to source and aggregate pricing 

50 At the same time, it should be acknowledged that extreme forms of consolidation (e.g. where only one or two players 
remain) may lead to a worse-off outcome by reducing competitive pressure on players and, consequently, potentially 
leading to higher prices and lower quality of services. Hence, any measures seeking increasing integration should be 
taken  in  knowledge  of  their  impact  on  competition,  to  ensure  that  a  careful  balance  between  consolidation  and 
competition is preserved. 

24 

 
 
 
 
information at the high speeds necessary to compete. This in turn can lead to reduced liquidity 
provision and an increase in spreads51 thus decreasing overall market efficiency.  

Fragmentation effects are normally not linear. For instance, effects can be positive for large caps 
but negative for less traded small caps.52 This makes it difficult to determine what market structure 
would maximise downstream user benefits. Stakeholder input received, the external market study 
conducted for the Commission as well as other reports53 point to significant increases in indirect 
costs due to fragmentation in trading in the EU. This lowers efficiencies, regardless of optimal 
market structures. At the same time, there is little evidence that benefits of further fragmentation 
(e.g. lower fees) can outweigh these costs.54 Stakeholders also often note disproportionate negative 
effects of fragmentation on small and micro caps.55 Comparison with the US reveals that a high 
level of concentration enables US operators to exploit scale effects that benefit downstream users 
through lower costs and indirect liquidity effects, reducing capital costs (see also Section 2.3. on 
consequences). Data shows that   the top five US venues account for 74 % of on-exchange share 
turn-over whereas in the EU it is only the top 10 venues that capture a similar share (+-75%).56 At 
the same time, at aggregate level, the average daily value traded is more than 4 times higher in the 
US than in Europe (EUR 288bn vs EUR 65bn in 202357). According to some figures, liquidity on 
US regulated markets alone is more than double the total liquidity across all channels in Europe.58 
It is difficult to compare EU-US direct transactions costs across operators, different asset classes 
and professional / retail clients given factors such as detailed pricing schedules, rebates and trade-
external costs (e.g. one study finds that settlement costs are on average 65% higher in Europe59). 
There are however indications that indirect costs (lower bid-ask spreads due to higher liquidity) 
are lower in the US.   

EU operators are typically structured across groups and market operating entities (see Figure 5). 
This organisational structure allows operators to generate some, though limited, synergies at group 
level while navigating persistent barriers at national level. The national factor remains crucial for 
multiple  reasons,  notably  differences  in  (i)  interpretation  and  transposition  of  EU  law,  (ii) 
supervisory approaches, and (iii) other national legal frameworks (such as securities law, company 
law, transparency, and taxation). This initiative focuses only on the first two factors. Stakeholder 
feedback also points to the fact that local presence, and the perception of markets being linked to 
national ecosystems, plays a strong role in maintaining separate markets at local level, especially 

51 See for example ‘Trading in Fragmented Markets’, M. Baldauf, L. Mollner, Journal of Financial and Quantitative 
Analysis 2021;56(1):93-121, June 2020. 
52 See ‘Drivers and Effects of Stock Market Fragmentation – Insights on SME Stocks’, J. Lausen, Jens, B. Clapham, 
P. Gomber, M. Bender, SAFE Working Paper No. 367, March 2022 – Link  
53 E.g. ‘There’s No Market in Market Data’, Market Structure Partners, January 2025. 
54 Initial fragmentation (pre-MiFID national monopolies) to a structure with competing alternative venues operators 
had strong positive impacts on costs and bid-ask spreads initially but these effects tend to reduce in size with increasing 
fragmentation.   
55 One likely explanation is that low trading volumes are insufficient to attract other large market makers which could 
bridge fragmentation across markets more efficiently and would boost liquidity. Absence of efficient hedging products 
is a further factor which increases risks for market makers. Large caps tend to face less problems due to high trading 
interests.   
56 Evolution of EEA share market structure since MiFID II, ESMA, October 2023 
57 Figure for all companies above €250m market cap; Source: Demystifying the liquidity gap between European and 
US equities, Euronext, March 2024 – Link  
58Oliver Wyman, The Liquidity Matrix - Addressing fragmentation in European equity markets, July 2025 – Link 
59 See ‘Analysis of CSD Fees in Major European Markets’ – AFME – Link  

25 

 
 
 
 
for listing purposes. An additional demand-driven factor for local presence is that some investors 
(e.g. public pension funds) may wish to invest in companies on a domestic market.  

Figure 4: Fragmentation across different 
execution venues  

Figure 5: Example on-exchange market structure 

Source: Oliver Wyman, The Liquidity Matrix - Addressing fragmentation 
in European equity markets – Link 
Note:  Liquidity  fragmentation  at  the  single-stock  level  -  Share  of  total 
traded notional, %, Jan–May 2025.  

Source: ESMA 
Note:  ‘market  segments’  may be better  labelled as  ‘trading  venue’ (which 
operate multiple segments) depending on setup. 

Market  operators  have  reported  incurring  extra  costs  linked  to  diverging  practices  of  how  the 
trading platform operates, and additional procedures not required in EU legislation, amounting to 
an estimated EUR 1 million per group-level changes (e.g. approval of change of trading platform 
such as function of order types or microstructure setup / matching process). Different supervisory 
approaches and the lack of a single licence to  operate markets  cross-border in  all EU Member 
States add further administrative and other compliance costs.  

Problems  at  the trading  level  are exacerbated by  similar fragmentation  issues in  EU  post-trade 
infrastructures. Users, particularly smaller brokers, are often not able to navigate the EU trading 
infrastructure  as  a  single,  integrated  pool  of  liquidity,  which  limits  their  ability  to  operate 
efficiently and effectively across the EU.  There is a significant discrepancy in the fees brokers 
charge for executing transactions on their domestic markets, as opposed to those in other Member 
States.  A  key  reason  for  these  high  costs  is  higher  clearing  and  settlement  fees.  Clearing  and 
settlement of equity transaction across national borders have been found to be two to six times 
more expensive than an equivalent transaction cleared and settled domestically.60 Multiple brokers 
across different Member States impose fees that are up to three times higher for executing trades 
in other markets in the EU compared to their domestic market, and often these fees exceed what 
the same broker charges for trading  US  securities. Out of a sample of brokers and neo-brokers 
located in 5 Member States, it was evidenced that trading securities from another Member State 

60 From Giovannini barriers to Capital Markets Union – Bank of Finland Bulletin 

26 

 
 
 
 
 
 
 
 
 
was systematically as least as expensive, and usually significantly more expensive, than trading 
US securities.61  

These higher costs stem from the need to interact with multiple national systems and comply with 
varied procedures  and national  laws. The presence of multiple CCPs  and CSDs implies higher 
transaction  costs  for  cross-border  investors,  which  in  turn  translates  into  less  cross-border 
investment in securities. The average total settlement cost to a CSD client in Europe is EUR 0.53 
per transaction, with approximately EUR 0.10 attributed to pass-through of T2S charges. For T2S 
CSDs, the average settlement instruction fee is EUR 0.34, including T2S charges.62 This compares 
unfavourably with the US, where the average total settlement cost per transaction is EUR 0.25.63  

In  2022,  cross-border  settlement  constituted  less  than  20%  of  total  settlement.64  The  domestic 
nature of settlement  infrastructure creates technical  complexities and increased operational  risk 
because of market participants having to connect to different systems to access different national 
markets.  This  effectively  means  that  there  are  technical  and  legal  barriers  inhibiting  
the  development  of  a  truly  European  post-trade  landscape,  with  implications  for  the 
straightforward  availability  of  investment  opportunities  for  investors.  Due  to  its  operational 
complexity, the settlement infrastructure in the EU (i.e. CSDs, including T2S costs passed on by 
CSDs, but not including the ICSDs) is estimated to cost the industry around EUR 1bn annually, 
roughly double the cost of the two CSDs in the USA (DTCC for Securities, Fedwire Securities 
Services for Treasuries).65 

The market fragmentation prevents financial intermediaries from exploiting potential economies 
of  scale,  thereby  limiting  their  ability  to  achieve  efficiency  gains  by  increasing  cross-border 
activity. For example, Figure 4 from the study carried out for the Commission shows that revenue 
per  transaction,  and  consequently  costs  for  the  clients,  decreases  as  the  number  of  settled 
transactions  increases,  clearly  pointing  to  economies  of  scale.  These  economies  of  scale  occur 
when the fixed cost associated with building and maintaining the necessary technical infrastructure 
and ensuring regulatory compliance can be spread over a larger number of transactions. Currently, 
regulatory barriers hinder efficiency gains enabled by a market structure with higher concentration 
of trading and clearing activities.  

61 Information based on internal analysis of the publicly available fee schedules of a representative sample of neo-
brokers and banks active in 8 Member States. See Annex 7 ‘Trading’ for more details. 
62 AFME (2025) “Analysis of CSD Fees in Major European Markets”. 
63  Study  on  consolidation  and  reducing  fragmentation  in  trading  and  post-trading  infrastructures  in  Europe: 
https://op.europa.eu/en/publication/doi/10.2874/2649452  
64  Based  on  ESMA  data  for  cross-border  activity  (ESMA74-2119945925-1568)  and  the total  value  of  settlement 
instructions from the ECB securities trading, clearing and settlement data base.   
65 Ibid. 

27 

 
 
 
 
 
 
 
 
Figure 6:66 Economies of scale in CSDs (2023)67  

Source: ECSDA database, annual reports of DTC, DTCC and FRB 

The EU asset management sector has experienced significant growth while also reducing ongoing 
costs (see Section 1.3). As the world’s second-largest market, it holds 29% of global assets and 
encompasses approximately 65,000 funds. However, despite this growth, regulatory barriers and 
other challenges hinder its optimal development, leading to unfavourable market outcomes. 

First,  the  EU  asset  management  market  is  highly  fragmented,  which  restricts  investor  choice, 
hinders fund competition68, and prevents the creation of a true single market. Although there are 
many funds available, most are only sold in one country69 and almost none are marketed in all 27 
Member  States.  In  addition,  funds  that  are  distributed  on  a  cross-border  basis  are  typically 
available  in  only  a  few  countries  (see  Table  2).  As  a  result,  these  funds  have  limited  market 
penetration  outside  their  home  country.  This  restricts  investor  choice,  falling  short  of  what  a 
genuine  single  market  should  offer.  Furthermore,  this  fragmentation  also  affects  the  funds 
themselves,  as  being  available  in  multiple  national  markets  would  give  them  access  to  more 
investors and enable them to achieve economies of scale. 

66 Final report of the High Level Forum on the Capital Markets Union (p. 69). 
67 From the Study on consolidation and reducing fragmentation in trading and post-trading infrastructures in Europe: 
https://op.europa.eu/en/publication/doi/10.2874/2649452  
68 Economic research shows that new entry impacts incumbents through price and quantity competition, with the effect 
of new funds entering depending on competition intensity in the market. Incumbents facing high competitive intensity 
engage in price competition by reducing management fees. It should be noted that this research also concludes that 
investors did not benefit from the price competition in terms of lower fees as the lower management fees were offset 
by an increase in distribution fees. However, where funds enter the market and face low levels of competition for 
incumbents,  investors  still  profit  from  increased  diversification  opportunities.  This  is  particularly  the  case  for  the 
smaller markets that currently benefit less from the cross-border distribution of funds. For further details, see Wahal, 
S., & Wang, A. Y. (2011). Competition among mutual funds. Journal of Financial Economics, 99(1), 40-59. 
69 According to ESMA (2025), most UCITS funds are sold domestically. However, practices differ across countries. 
Some countries mainly sell domestic funds, while others predominantly market their funds abroad.  ESMA, ESMA 
Market report on costs and performance of EU Retail Investment Products 2024, ESMA50-524821-3525, 14 January 
2025. 
https://www.esma.europa.eu/sites/default/files/2025-01/ESMA50-524821-
3525_ESMA_Market_Report_-_Costs_and_Performance_of_EU_Retail_Investment_Products.pdf 

Available 

at: 

28 

 
 
 
 
 
 
Table 2: Cross-border distribution of UCITS funds in the EU 

Range  

UCITS Domicile 

More than 4 

Between 2 and 4 

Less than 2 

Luxembourg, Lithuania  
Ireland 
Estonia 
Malta 
France 
Finland 
Belgium, Netherlands, Sweden 
Austria, Germany, Latvia 
Denmark 
Italy, Poland, Portugal, Spain 

Average across EU Member 
States 

Source: Morningstar; DG FISMA calculations. 

Average number of Member 
States where UCITS funds are 
marketed cross-border 
4.8 
4.1 
3.3 
2.4 
1.7 
1.6 
1.5 
1.3 
1.1 
1.0 
2.0 

Significant obstacles to fund consolidation across Europe, including regulatory inconsistencies and 
local  distribution  agreements,  contribute  to  the  prevailing  fragmentation.70  Moreover,  funds 
marketed  in  multiple  EU  countries  tend  to  have  higher  ongoing  costs,  partly  due  to  the  local 
requirements  and  market  practices  imposed  by  host  Member  States  on  the  marketing  of  cross-
border funds.71  

These findings are corroborated by stakeholders’ feedback provided in interviews conducted in a 
recent study72 that was commissioned by the European Commission. Interview respondents often 
highlighted that national requirements on marketing and fees significantly diverge across Member 
States. Consequently, fund managers often limit marketing to home or familiar jurisdictions.  In 
addition,  in  the  targeted  consultation  accompanying  this  initiative,  a  majority  of  respondents 
(mainly large asset managers and investment associations) considered fees and charges levied by 
approximately 17 host NCAs to be a significant barrier to the distribution of investment funds. 
They  pointed  out  that  these  fees  can  discourage  fund  managers,  particularly  smaller  or  newer 
market entrants, from pursuing cross-border notifications, particularly for smaller markets. It is 
especially the cumulative effect of regulatory fees and the complexity of some fee structures that 
affect the decisions of fund managers. This issue is closely linked to the problem of fragmented 
supervision (see Section 2.1.2) where funds in the EU often have the same investment strategy, 
portfolio  composition  and  management  team,  but  are  domiciled  and  authorised/supervised 
separately in different Member States. 

Respondents  to  the  consultation  reported  that,  for  both  UCITS  and  AIFs,  regulatory  fees  are  a 
barrier to the distribution of investment funds in the single market, with almost half reporting it as 

70 EFAMA, Beyond fund consolidation: a more promising strategy for bigger funds and faster cost declines in Europe, 
Market  Insights  20,  February  2025.  Available  here:  https://www.efama.org/sites/default/files/files/market-insights-
20-beyond-fund-consolidation.pdf 
71 For further details, see Investment Company Institute (ICI), Cross-Border Frictions Within EU Capital Markets Can 
Drive Up Costs, June 2023. 
72 Study of barriers to, and drivers of, the scaling-up of funds investing in innovative and growth companies (2025). 
Annex 9 also contains case studies on costs associated with the cross-border distribution of funds.  

29 

 
 
 
 
 
 
 
 
 
 
 
 
 
a “significant” barrier73, while also noting that information on such fees is not easily available. 
One large asset manager noted that the CBDR sought to enhance transparency, particularly around 
regulatory  fees,  and  to  limit  burdensome  or  opaque  practices,  with  one  key  measure  requiring 
NCAs  to  publish  applicable  fees  online.  However,  it  noted  that  in  practice,  fee  transparency 
remains limited and, in many cases, fees are not clearly presented or easily accessible on NCA 
websites, with fund managers often only becoming aware of the full cost late in the registration 
process.  This  uncertainty  can  often  result  in  the  need  to  engage  local  counsel  for  advice.  Case 
Study 2 in Annex 9 highlights a cost of EUR 65,000 associated with the payment of regulatory 
fees for just one AIF marketing on a pan-EU basis, which includes the appointment of a local agent 
in some Member States to arrange the payment.  

In addition, individual funds in the EU asset management industry are small. The average UCITS 
fund size is EUR 420 million, significantly smaller than the average size of US funds, which is 
approximately EUR 2.3 billion. This is a long-standing issue74, with the difference between the 
EU and US industry widening over time (see Figure 5). In addition, only 13% of all UCITS funds 
(3,500 funds) manage at least EUR 2 billion, while 38% (11,400 funds) manage less than EUR 
100  million75, 
in  size.  
This lack of scale results in higher costs, with UCITS fees remaining above US levels. The asset-
weighted  average  product  cost  of  US  mutual  funds  is  significantly  lower  than  that  of  UCITS, 
0.65% for active funds and 0.05% for index equity mutual funds, according to EFAMA. 

that  many  funds 

to  be  small 

indicating 

the  EU 

tend 

in 

73 Question 34 of the consultation asked: “are fees/charges, currently levied by some host NCAs, a significant barrier 
to the distribution of investment funds in the single market?”. Of the 28 responses to this question, 13 answered yes, 
8 were neutral and 7 answered no.  Of those that answered neutral and no, many qualified their reply to say that while 
not a “significant” barrier, the fees levied by host NCAs vary considerably and can discourage some managers from 
pursuing cross-border notifications, particularly for smaller markets or limited distribution efforts. 
74 See e.g. Otten, R and Schweitzer, M. (2002), Comparison between the European and the US Mutual Fund Industry. 
Managerial Finance, 28(1), 14-35; EFAMA, Beyond fund consolidation: a more promising strategy for bigger funds 
and faster cost declines in Europe, Market Insights 20, February 2025; or Ferreira, M., Keswani, A., Miguel, A., and 
Ramos, S. (2013), The determinants of mutual fund performance: A cross-country study. Review of Finance, 17(2), 
483-525. 
75 Source: Morningstar; DG FISMA calculations. 

30 

 
 
 
 
Figure 5: Average size: EU equity UCITS vs US 
equity mutual funds 

Figure 6: EU UCITS average size: domestic vs 

cross-border distributed funds 

Source:  EFAMA,  Beyond  fund consolidation:  a  more  promising 
strategy  for  bigger  funds  and  faster  cost  declines  in 
Europe, Market Insights 20, February 2025. 

Note: Figures for equity UCITS in EUR millions. Figures for US 

equity mutual funds in USD millions. 

Source: ESMA, ESMA Market report on costs and 

performance of EU Retail Investment Products 2024, 
ESMA50-524821-3525, 14 January 2025. 

Note: Number of domestic and registered and cross-border EU27 
UCITS. Registered are funds registered to be sold beyond 
domicile’s  borders.  Cross-border  are  defined  as  funds 
distributed  at  least  in  three  countries  including  their 
domicile. Figures are in EUR million. 

The small average fund size implies that EU funds are not benefiting from economies of scale.  
In  general,  economies  of  scale  occur  when  average  product  costs  decline  as  output  increases. 
Research76  suggests  that  such  economies  may  exist  in  the  fund  industry,  as  corroborated  by 
empirical findings.77 As a result, fund size influences a fund's cost structure by spreading fixed 
costs over a broader pool of managed assets.78 To operate efficiently, funds need to attain sufficient 
scale as many funds operating costs, including accounting, IT and compliance costs, are largely 
fixed.  

A comparison of the average fund size of domestic and cross-border-marketed funds show that 
domestic funds tend to be significantly smaller (see Figure 6). In addition, fixed costs of cross-
border funds tend to be higher than for single-country funds (see Figure 8). The average ongoing 
charge for cross-border  equity funds in  2021 was 1.36 percent  compared with  1.23 percent  for 
single-country equity funds (see Figure 7), and 0.96 percent against 0.77 percent for a fixed income 
fund, illustrating that cross-border funds face cost disadvantages, among others due to additional 
marketing and registration costs.  

76 Sirri, E.R. and Tufano, P. (1993). Competition and change in the mutual fund industry, in: Hayes, S. (ed.), Financial 
Services: Perspectives and Challenges, pp. 181-214. Harvard business school press. 
77  See  e.g.,  Dermine,  J.,  &  Röller,  L.  H.  (1992).  Economies  of  scale  and  scope  in  French  mutual  funds.  Journal  
of Financial Intermediation, 2(1), 83-93; Mauerer, R., & Schaefer, A. (2009). Does size matter? Economies of scale 
in  the  German  mutual  fund  industry,  Working  Paper  201 for  Germany;  or  ESMA,  ESMA  Market  report  on  costs  
and performance of EU retail investment products 2024, ESMA50-524821-3525, 14 January 2025. 
78 Indro, D. C., Jiang, C. X., Hu, M. Y., & Lee, W. Y. (1999).  Mutual fund performance: does fund size matter?. 
Financial Analysts Journal, 55(3), 74-87. 

31 

 
 
 
 
 
 
 
 
Figure 7: Average ongoing costs: EU cross-border 

Figure 8: Fixed costs: domestic vs cross-border 

vs single-country funds 

distributed funds 

Source: EFAMA, Beyond fund consolidation: a more promising 
strategy  for  bigger  funds  and  faster  cost  declines  in 
Europe, Market Insights 20, February 2025. 

Note: Figures are for 2021 and expressed as percent. Cross-border 
funds are cross-border distributed equity funds, defined as 
those funds registered and available for sale in three or more 
countries.  Single-country  funds  are  single-country  equity 
funds and include funds registered and available for sale in 
one country and round-trip funds.79 

Source: ICI, ICI Perspective 30(10), December 2024. 
Note: Figures are expressed as percent. CB funds are cross-border 
distributed equity funds, defined as those funds registered 
and  available  for  sale  in  three  or  more  countries.  Single 
country  refers  to  single-country  equity  funds  and  include 
funds registered and available for sale in one country and 
round-trip funds. Fixed costs are estimated as the difference 
between the simple average ongoing charge and the simple 
average  management  cost.  Data  exclude  funds  with 
performance fees and exchange-traded funds.  

If funds experience economics of scale, investors benefit from incurring lower expense ratios if 
cost savings are passed on to them.80 A recent study81 by ESMA evidenced that in the EU and US 
fund markets, larger share classes and parent companies have lower expense ratios, confirming the 
impact  of economies of  scale.  Economic research thus  shows that size and economies of scale 
indeed drive down expense ratios82, in line with the more general conclusion that larger funds have 
lower costs.83 In line with this, some NCAs reported in the 2021 Common Supervisory Action  
on costs and fees84 that smaller entities constituted the largest part of the funds with extraordinarily 
high costs, attributed to the smaller amount of assets under management and the higher impact  
of fixed costs.  

79 Funds domiciled in one country but primarily intended for sale in a different country. 
80 Latzko, D. A. (1999), Economies of scale in mutual fund administration, Journal of financial research, 22(3), 331-
339. 
81 ESMA50-524821-3575 The scale factor: Impact of size on EU fund cost structures 
82 Khorana, A., Servaes, H., and Tufano, P. (2009), Mutual fund fees around the world, The review of financial studies, 
22(3), 1279-1310; ESMA, ESMA Market report on costs and performance of EU Retail Investment Products 2024, 
ESMA50-524821-3525, 14 January 2025. 
83 ESMA, ESMA Market report on costs and performance of EU retail investment products 2024, ESMA50-524821-
3525, 14 January 2025; EFAMA, The cost of UCITS available to retail investors, Markets Insights 15, March 2024; 
EFAMA, Beyond fund consolidation: a more promising strategy for bigger funds and faster cost declines in Europe, 
Market Insights 20, February 2025. 
84 ESMA, Final report on the 2021 CSA on costs and fees, ESMA34-45-1673, 31 May 2022. Available at: 
https://www.esma.europa.eu/sites/default/files/library/esma34-45-1673_final_report_on_the_2021_csa_on_costs_and_fees.pdf 

32 

 
 
 
 
 
 
 
 
 
Overall, research findings support the conclusion in ESMA (2025:11) that “[…] a single market 
with less fragmentation and larger funds can –assuming unimpaired competition – bring efficiency 
gains to the EU fund sector […]”. This will also ultimately lower investor costs and provide greater 
value for money if benefits are effectively passed on to retail investors. In addition, one  of the 
more general overall consequences is that slower growth85 in the asset management sector could 
mean less capital available for European business, potentially stifling innovation and growth and 
limiting the sector’s contribution to attaining the SIU objectives. Lack of industry-wide growth 
(industry-level scale up) hampers the benefits to the real economy that the EU asset management 
sector could bring. The EU asset management sector may thus play a smaller role in channelling 
savings into productive investments. 

2.1.2.  Fragmented, less efficient and ineffective supervision  

Companies  with  cross-border  activities  face  multiple  national  supervisors,  and  different 
supervisory  practices  and  outcomes  for  the  same  activities,  which  results  in  supervisory 
inefficiencies, adds to the costs of running a business in the EU and erodes stakeholders' trust.  
As Beck et al (2025) point out “[…] only if investors can trust governance and enforcement of 
rules, will they be willing to invest”.86 Financial market participants should receive equal treatment 
and decision-making by supervisors should be consistent, regardless of their location within the 
EU. Divergent supervisory approaches and inconsistent enforcement across the EU raise the costs 
of doing cross-border business and contribute to market fragmentation along national lines.87  

In addition, the IMF highlights that in the EU “[…]the existing supervisory ecosystem is complex 
and may lead to potential risks being overlooked, in particular, in relation to the emergence of 
cross-border  risks  which  may  not  be  fully  internalized  by  national  authorities”.88  National 
supervisors  lack  oversight  of  the  cross-border  operations  of  companies  in  the  capital  markets 
because they can only see the activity that occurs within their own jurisdiction. This means that 
national  supervisors  cannot  ensure  that  there  is  a  uniform  application  of  the  rules.  Moreover, 
companies  have  an  incentive  to  engage  in  supervisory  arbitrage  since  some  supervisors  may 
interpret rules more leniently than others. Overall, this fragmented supervisory landscape results 
in a system that does not protect investors consistently across jurisdictions despite being subject 
to a similar rulebook.  

These views are also supported by research from the landmark reports by Enrico Letta89 and Mario 
Draghi90 on the future of EU capital markets and European competitiveness, respectively. Policy 
papers and academic literature as well argue that institutional reform of capital markets supervision 
in Europe is necessary to improve financing conditions, maintain supervisory efficiency and avoid 

85 EU asset management growth is subdued compared to other markets. For instance, in the reference period (2014-
2024), the US market grew faster, by 120%, to approximately EUR 37.7 trillion compared to 95% for the EU. 
86 Beck, T., B. Bruno and E. Carletti, 2024. “Can the Banking Union foster market integration, and what lessons does 
this hold for Capital Markets Union?”, Briefing paper for the ECON Committee at the European Parliament. 
87 See OECD, OECD Economic Surveys: European Union and Euro Area 2025 July 2025 Volume 2025/19.  
88 IMF, Euro Area: Publication of Financial Sector Assessment Program Documentation-Technical Note on Capital 
Markets  Union-Implications  for  Supervision  and  Institutional  Arrangements,  IMF  Staff Country  Reports,  Volume 
2025: Issue 214, p.18. 
89 https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf.  
90 https://commission.europa.eu/topics/eu-competitiveness/draghi-report_en. 

33 

 
 
 
 
regulatory ‘racing’.91 Those policy papers also argue that the current dual national/EU supervisory 
architecture is ineffective and that only pooling supervision at the EU level offers a realistic route 
to integrated, consistent oversight for capital markets.92 

Stakeholders from the relevant sectors consistently highlight that fragmentation of EU financial 
markets,  resulting  from  inconsistent  supervision  and  varying  levels  of  implementation  
and  interpretation  of  EU  rules,  poses  significant  barriers  to  market  integration.  Some  of  these 
barriers include duplicative compliance efforts,  additional administrative costs, and uncertainty 
about how new products or business models will be treated in different jurisdictions. These issues 
are  further  underscored  by  the  consultation  feedback,  which  has  identified  a  range  of  specific 
supervision-related challenges across various sectors. 

Stakeholders from the trading venue sector complain about inconsistent supervisory expectations 
and  operational  complexity,  notably  due  to  the  divergent  application  of  MiFID  II  by  national 
authorities.  In  total,  21  respondents  explicitly  refer  to  MiFID,  all  of  whom  highlight  such 
divergences,  including  7  large  stakeholders  from  the  trading-venue  sector.93  This  results  in  an 
unlevel playing field. Duplicative or conflicting instructions from NCAs increase compliance costs  
and create uncertainty for trading  venues, in  particular for the groups operating trading  venues  
in different Member States. Moreover, the fragmented pre-approval requirements delay product 
launches and create opportunity costs, ultimately affecting the ability of trading venues to innovate 
and  compete.  According  to  stakeholders,  the  additional  cost  burden  can  amount  to  more  than  
a million euros for every new product that is launched.   

In  the  area  of  CCPs,  three  stakeholders,  including  one  large  cross-border  CCP  and  a  smaller 
national CCP, report high and varying national supervisory fees across jurisdictions, which they 
consider place EU CCPs at a competitive disadvantage.94 More importantly,  the lengthy and multi-
layered EMIR approval procedures developed by national authorities delay new product launches 
and  reduce  responsiveness.  Undefined  and  resource-intensive  pre-filing  phases,  duplicative 
reporting requirements, and national gold-plating also increase costs and complexity. With regard 
to  the  supervision  of  CSDs,  two  stakeholders  explicitly  highlight  significant  discrepancies  in 
national supervisory fees across jurisdictions, with no clear link to the size or complexity of the 

91  See  for  example  Langenbucher,  K.  (2024).  Rückgang  börsennotierter  Unternehmen:  Gründe  und  rechtliche 
Gegenmaßnahmen, Zeitschrift für Unternehmens- und Gesellschaftsrecht forthcoming, Friedrich, J. and M. Thiemann 
(2017).  “Capital  Markets  Union:  the  need  for  common  laws  and  common  supervision.”  Vierteljahrshefte  zur 
Wirtschaftsforschung  86(2):  61-75,  https://doi.org/10.3790/vjh.86.2.61  .  Bebchuk,  L.  (1992).  Federalism  and  the 
Corporation: The Desirable Limits on State Competition in Corporate Law. Harvard Law Review 105(7): 1443-1510, 
https://doi.org/10.2307/1341744 . 
92 https://www.bruegel.org/sites/default/files/2025-06/Bruegel%20Blueprint%2035.pdf  
93 Question 4 of Part 1 Simplification and burden reduction asked: Are there any barriers that could be addressed by 
turning (certain provisions of) the Alternative Investment Fund Managers Directive (AIFMD), Financial Collateral 
Directive  (FCD),  Markets  in  Financial  Instruments  Directive  (MiFID),  Undertakings  for  Collective  Investment  in 
Transferable Securities Directive (UCITSD), Settlement Finality Directive (SFD) into a Regulation? Please choose 
from 1 (strongly agree) to 5 (strongly disagree) or ‘no opinion’. If you agree, please explain which barriers and how 
a Regulation could remove the barrier. 
94 Question 19 of Section 6.4.1 asked: Please estimate the regulatory compliance costs (including administrative costs 
–  such  as  staff  costs,  facilities  costs,  travel,  IT  technology  costs;  professional  fees  –  such  as  legal,  accounting, 
consulting, etc.; and applicable fees) that arise from engagement with your current supervisor(s). Please separate any 
details on costs into fees and compliance, one-off cost and on-going costs and per supervisor. Please explain your 
answer providing, where possible, quantitative evidence and examples. 

34 

 
 
 
 
CSD.95 In addition, five stakeholders, including large cross-border CSD groups as well as smaller 
or new entrants, point to broader supervisory inconsistencies across Member States, which create 
opportunities  for  arbitrage  and  undermine  the  stability  of  the  post-trade  sector.  For  instance, 
stakeholders note that group entities may be assessed independently of the wider group, resulting 
in  differing  supervisory  expectations.  In  addition,  outsourcing  requirements  are  not  applied 
consistently among EU supervisors; for example, some supervisors consider HR outsourcing as 
outsourcing of a non-core service, while other supervisors consider it as a core service requiring 
approval.  

In the asset management sector, managers and funds operating across several Member States often 
face duplicated and divergent obligations and requests from multiple NCAs. Each entity within a 
group is treated as an independent entity, despite their integrated group structures. For example, 
risk management established in one entity of a group under the supervision of one authority might 
not be accepted or might be assessed differently by the other authorities overseeing other entities 
of the group. 

Supervisory practices, in particular fund marketing rules and how they are applied vary widely 
across jurisdictions. For example, the same fund may face different requirements for promotional 
materials across the single market. EU rules allow for national discretion in adopting such national 
provisions.  In  addition,  ESMA  does  not  have  an  operational  role  in  coordinating  the  smooth 
implementation of EU rules in this regard. in this regard. 

The supervision of CASPs is hindered by variations in supervisory practices and approaches across 
Member States. It is already evident during the authorisation phase, creating challenges for CASPs 
operating in the EU. Differences in technical expertise, supervisory capacity, and interpretation 
among  NCAs  risk  leading  to  uneven  supervisory  outcomes  once  the  framework  becomes  fully 
applicable,  which  could  in  turn  affect  market  confidence  and  development.  This  fragmented 
approach  prevents  the  emergence  of  a  coherent  supervisory  framework,  limits  cross-border 
scalability, and weakens market confidence. Ensuring supervisory consistency and a level playing 
field from the outset therefore requires a harmonised application of rules and a stronger EU-level 
set up, as the current decentralised system does not provide the necessary mechanisms to align 
supervisory practices or resolve divergences effectively. 

Current EU-level supervisory coordination tools have brought some convergence in supervisory 
practices, but significant gaps remain, due to limitations in the design and the lack of incentives 
within ESMA’s governance structure for using powers to remediate specific situations. ESMA's 
consensus-driven  model,  led  by  NCAs,  creates  conflicts  of  interest  and  discourages  decisive 
action,  as  reaching  majority  agreement  among  NCAs  is  necessary  for  converging  supervisory 
practices  of  those  same  authorities.  In  addition,  the  procedures  involved  are  often  long  

95 Question 9 in Section 6.3.1 asked Please estimate the regulatory compliance costs (including administrative costs – 
such  as  staff  costs,  facilities  costs,  travel,  IT  technology  costs  –,  professional  fees  –  such  as  legal,  accounting, 
consulting, etc. –, and applicable fees) that arise from engagement with your current supervisor(s). Please separate 
any details on costs into fees and compliance, one-off cost and on-going costs and per supervisor. Please explain your 
answer providing, where possible, quantitative evidence and examples. 

35 

 
 
 
 
and complex: for example, a breach of Union law procedure96 might take 3 or more years until the 
breach is actually stopped. The bar to use these procedures is also too high. For instance, there are 
differences across sectorial acts regarding when and how binding mediation tool is triggered, such 
as majority threshold, the nature of disagreement, and ESMA’s ability for to act on own initiative. 
As a result, supervisory convergence tools such as the breach of Union law procedure and binding 
mediation have not increased supervisory convergence. For example, binding mediation was used 
only twice since ESMA was founded. Addressing these gaps by strengthening ESMA’s powers 
and ensuring more effective use of convergence tools is crucial for achieving consistent EU-wide 
supervision, while still preserving the vital local knowledge and cooperation of NCAs. 

2.1.3.   Obstacles to innovation and uptake of new technologies 

As emphasised in the Draghi and Letta reports among others, embracing innovation is crucial for 
the  competitiveness  and  attractiveness  of  EU  capital  markets,  and  their  ability  to  deliver  the 
financing  that  the  EU  needs.  However,  innovation  in  EU  capital  markets,  and  in  particular  the 
adoption of technologies like DLT and tokenisation, faces significant hurdles. 

In the past few years, DLT emerged as one of the most impactful technologies affecting market 
structure. This technology underpins crypto-asset markets and has attracted increased interest from 
the  traditional  financial  industry  keen  on  exploiting  its  advantages.  These  include:  faster 
settlement, which means trades can be completed more quickly; easier data reconciliation, which 
helps ensure that all parties have the same information; partial disintermediation, meaning fewer 
intermediaries  are  needed  in  transactions,  which  reduces  costs;  asset  and  transaction 
programmability, which allows for more automation and customisation; flatter market structure, 
which leads to more efficient communication and interaction between market participants. DLT-
based solutions  can bring efficiencies to  capital  markets  and are therefore an important  market 
structure element of the SIU.  

Tokenisation of assets, i.e. their digital representation on distributed ledgers, is a closely linked 
trend. Tokenisation may enhance asset liquidity and accessibility by enabling fractional ownership 
and  easier  transferability.  It  makes  traditionally  illiquid  assets  more  tradable,  including  private 
debt,  corporate  bonds,  less  liquid  investment  and  real  estate  funds,  SME  debt  and  equity.97  
By lowering barriers to entry, fractionalisation expands the investor base and stimulates activity 
in  previously  under-traded  assets.98  DLT  has  the  potential  to  migrate  key  components  
of  the  financial  value  chain  –  such  as  issuance,  recording  and  transfer  of  tokenised  assets  -  
to  common  and  interoperable  platforms  (distributed  ledgers,  blockchains)  on  which  regulated 
services  are  provided.  Widespread  adoption  of  DLT  promises  to  improve  the  efficiency  
of financial markets, by reducing settlement times, establishing new markets, entering into cross-

98 Article 17 of the ESMA’s founding regulation gives ESMA the power to investigate potential breaches of Union 
law (‘BUL’) by competent authorities. This serves the goal of ensuring the application of Union law. Where ESMA 
identifies  a  BUL,  it  issues  a  recommendation  on  the  actions  to  be  taken  by  the  competent  authority  to  rectify  
the situation and may also issue a binding decision in certain cases. This may lead to further action by the European 
Commission (formal opinion and/or infringement).  
97 See: “The  Impact of Distributed Ledger Technology in Capital Markets” by GFMA:  https://www.gfma.org/wp-
content/uploads/2025/08/1.-full-report-impact-of-dlt-in-cap-mkts-final-1.pdf  
98  See  OECD  Business  and  Finance  Policy  Papers,  No.  75,  2025  Tokenisation  of  assets  and  distributed  ledger 
technologies in financial markets. 

36 

 
 
 
 
border/international  markets,  facilitating  data  reconciliation  and  increasing  programmability  
of financial market activities.99,100 

Greater  use  of  DLT  could  help  overcome  barriers  to  market  integration  by  automating  
and  streamlining  clearing  and  settlement,  reducing  costs.  Distributed  ledgers  can  also  enhance 
interoperability  between  CSDs  and  other  market  operators  where  liquidity  concentrates  across 
platforms, as they are multi-purpose platforms for asset issuance, holding, and transfer. The use of 
DLT  based  wholesale  central  bank  digital  currency  (WCBDC)  could  make  settlement  on  DLT 
platforms even more secure and coherent with existing settlement rules, which favour central bank 
money due to its credit risk-free nature, superior liquidity, and scalability. 

Although these opportunities may also bring risks that could destabilise the EU’s financial system, 
including 
increased  cyber-security  vulnerabilities  and  operational  resilience  challenges,  
most of these risks are already addressed under the Digital Operational Resilience Act (DORA). 
DORA establishes a harmonised framework requiring all financial entities to effectively withstand, 
respond  to,  and  recover  from  ICT-related  disruptions  and  cyberattacks  through  robust  risk 
management,  incident  reporting,  resilience  testing,  and  oversight  of  critical  third-party  service 
providers.  

Given  the  favourable  balance  of  benefits  to  risks,  it  is  essential  to  ensure  that  regulatory 
frameworks  do  not  pose  obstacles  to  the  adoption  of  DLT,  which  can  directly  support  greater 
integration of EU capital markets.101  

There are two main obstacles to DLT-related innovation in Europe.  

Firstly,  the  DLTPR,  launched  in  2022  to  promote  DLT  adoption  in  the  EU  financial  sector  
by  adapting  certain  rules  on  trading  and  CSD  services,  has  seen  limited  uptake  due  to  its 
shortcomings  (see  Section  2.2.1  ‘Barriers  to  cross-border  operations  and  innovation’).  Despite 
growing  industry  interest  and  engagement  with  the  technology,  there  have  been  only  four 
participants in over two years, resulting in low levels of DLT experimentation under the DLTPR. 
This  has  stifled  innovation  potential  in  the  EU.  The  adoption  of  the  DLTPR  has  already 
demonstrated the need for adaptations to the trading (MIFID) and post-trading (CSDR) rulebooks 
to  accommodate  DLT,  but  the  DLTP  restrictive  -  design  has  failed  to  attract  broad-based 
participation.  

Secondly,  stakeholders  argue  that,  beyond  the  shortcomings  of  Europe’s  bespoke  framework  
for DLT, the standard (non DLTPR) regulatory frameworks, in particular post-trade legislation, 

99 See OECD on the qualitative description of benefits: 
https://www.oecd.org/content/dam/oecd/en/publications/reports/2025/01/tokenisation-of-assets-and-distributed-
ledger-technologies-in-financial-markets_be149012/40e7f217-en.pdf  
100 The 2023 report from AFME and Boston Consulting Group gives some projections: ~$15-20 billion (USD) in 
annual global infrastructure operational cost savings, ~$100+ billion (USD) annually in freed financial collateral and 
balance sheet efficiencies. See page 11 at: 
https://www.afme.eu/Portals/0/DispatchFeaturedImages/20230512%20GFMAImpactofDLT%20FullReport%20FIN
AL%20FULL.pdf  
101 For example, a permissionless blockchain such as Ethereum represents an open IT infrastructure for recording, 
holding and transferring digital assets, including financial instruments issued in accordance with the applicable laws. 
From a purely technical perspective, Ethereum provides certain functions that are similar to that of a CSD. Ensuring 
that such platforms can be leveraged safely by market participants requires certain regulatory adaptations.  

37 

 
 
 
 
have  not  kept  pace  with  technological  advancements,  leading  to  legal  uncertainties  for  those 
wishing to use DLT outside the DLTPR. These uncertainties increase compliance risks and costs 
for market participants willing to explore innovative business models.  

Taken  together,  these  issues  significantly  weaken  the  EU’s  ability  to  foster  a  dynamic  
and  innovative  financial  sector  and  create  market  inefficiencies,  as  entities  are  prevented  
from  fully  benefiting  from  the  advantages  of  DLT.  They  also  create  higher  costs  and  less 
opportunities for investors and firms  seeking  finance, notably  because of the legal  uncertainty, 
ultimately undermining the competitiveness of EU capital markets. 

A  number  of  important  jurisdictions  have  already  made  decisive  policy  steps  in  recent  years  
to attract DLT-based innovation. Singapore102, Switzerland103, Hong Kong104 and the UAE105 have 
all developed frameworks or established targeted initiatives to attract DLT projects and markets. 
Closer  to  the  EU,  the  UK  has  set  up  FMI  sandboxes  to  support  use  of  new  technologies,  
one  of  which  is  the  Digital  Securities  Sandbox  (‘DSS’),  targeting  CSD  services.  Thanks  to  its 
flexibility  and  increased  market  interest,  it  has  attracted  15  participants  since  its  start  at  the  
end of 2024. Finally, the United States is adopting a supportive stance towards DLT, fostering  
a  regulatory  environment  that  encourages  its  development  and  use.  The  US  has  adopted  laws  
to  increase  regulatory certainty, such  as the Genius Act  on stablecoins. Banking  and securities 
regulators  are  now  taking  a  much  more  permissive  approach  to  tokenisation  and  DLT  than  
in the past.  

These  developments  point  to  an  increasingly  supportive  stance  of  global  policy  makers  
and  regulators  to  DLT  and  tokenisation.  Without  further  action,  this  could  lead  to  a  loss  of 
competitiveness  of EU capital  markets.  If DLT becomes more widely  used in  financial market 
infrastructure, a lack of homegrown DLT solutions106 may also lead to dependencies on non-EU 
providers. 

102  Project  Guardian,  convening  the  industry  to  support  the  development  of  DLT-based  infrastructure: 
https://www.mas.gov.sg/schemes-and-initiatives/project-guardian102Project  Guardian,  convening  the  industry  to 
support  the  development  of  DLT-based  infrastructure:  https://www.mas.gov.sg/schemes-and-initiatives/project-
guardian  
103 https://www.sif.admin.ch/en/blockchain-dlt-en  
104 https://gia.info.gov.hk/general/202506/26/P2025062600269_500089_1_1750909574183.pdf 
105  For  example,  Dubai has  created  a bespoke  regime  and  regulatory  authority  for ‘virtual assets’,  which  includes 
tokenised financial instruments. See https://www.vara.ae/en/  
106 Tokenisation platforms, stablecoin issuers, digital wallet providers, application providers.  

38 

 
 
 
 
 
2.2.  WHAT ARE THE PROBLEM DRIVERS? 

2.2.1.  Barriers to cross-border operations and innovation 

The barriers to cross-border operations and innovation include: (i) divergent rules and burdensome 
requirements  in  the  trading,  post-trading,  asset  management  sectors  and  in  relation  to  DLT 
innovation and (ii) limited direct interconnections specifically in post-trading.  

Divergent rules and burdensome requirements 

In  the  trading  sector,  markets  in  financial  instruments  are  governed  by  MiFID  II  (a  Directive) 
and MiFIR (a Regulation). Rules governing trading venues are not fully harmonised, and subject 
to  a  certain  degree  of  national  discretion.  This  is  notably  true  of  the  rules  regarding  
the authorisation and operation of RMs as well as certain rules regarding MTFs and OTFs. By way 
of example, national specificities and divergences in terms of procedures to approve amendments 
to  exchange  rulebooks  have  been  identified  between  Member  States.  Similarly,  national 
approaches diverge in relation to prudential requirements.107 This leads to high compliance costs 
and fails to  adequately incentivise or facilitate cross-border operation of trading  infrastructures  
in the EU. 36 respondents to the targeted consultation, including three NCAs, 11 stock exchanges 
and  10  investment  firms  consider  further  harmonisation  rather  needed  or  highly  needed.  The 
absence  of  full  harmonisation  has  also  allowed  several  Member  States  to  impose  additional 
requirements 
territory,  
and to  introduce national  laws  that require RMs  to  be operated by an  entity  with  a seat  in  and 
authorised  by  those  Member  States  (for  more  details  and  specific  examples,  see  Section  2.2.  
of Annex 7 ‘Trading’).  

that  can  operate  a  RM  on 

the  entities 

linked 

their 

to 

Another  example  is  the  passporting  rights  for  trading  venues.  Unlike  the  clear  provisions  
for investment firms operating an MTF or OTF, the framework applicable to RMs lacks explicit 
provisions about the rights of RMs to provide cross-border services in the EU based on their initial 
license. Specifically, Articles 34 and 35 of MiFID II outline the freedom for investment firms to 
provide  services  or  establish  branch,  respectively,  but  similar  clarity  is  absent  for  RMs.  
Therefore,  the  current  framework  creates  uncertainty  as  regards  the  extent  to  which  services 
relating  to  RMs  can  be  carried  out  on  a  cross-border  basis  under  a  single  licence  through  
the establishment of a branch, in particular by being silent on any other forms of arrangements, 
such as the possibility to have a local presence without setting up a subsidiary authorised in another 
Member  State.  In  addition,  beyond  the  passporting  rights  linked  to  each  trading  venue,  the 
requirement for authorisation at the level of each regulated market does not allow for the operation 
of several regulated markets on the basis of one licence. This prevents the emergence of efficient 
structures capable of operating markets in several Member States on the basis of a single licence 
and, on this basis, under a single core supervisory relationship (for more details, see Section 2.2. 
of Annex 7 ‘Trading’). 

107 Practices widely differ in that regard. Some NCAs do not require any form of ex ante approval, while others require 
pre-approval of rules changes, and others even a pre-notification of proposed changes which then go through pre-
approval. This adds to the actual divergences in appreciation of changes by different NCAs for exact same cases (the 
same change, notably in groups of exchanges, is often appreciated diversely by the various NCAs to which it needs to 
be submitted).  

39 

 
 
 
 
Finally  for  the  trading  sector,  the  current  MiFID  II  rules  governing  trading  venues  and  their 
operators  do  not  recognise  the  operational  specificities  of  group  structures.108  Intra-group 
allocation of resources is treated in the same way as outsourcing outside of the group. This in turn 
reduces the potential to exploit economies of scale and hinders market-led consolidation (Section 
2.2. of Annex 7 ‘Trading’).  

In  the  post-trading  sector,  despite  settlement  being  governed  by  a  Regulation  (the  CSDR), 
regulatory  barriers  to  cross-border  settlement  persist.  For  instance,  national  legal  regimes  may 
impose additional restrictions on the freedom of issuance beyond the CSDR provisions. Moreover, 
the  passporting109  framework,  intended  to  facilitate  cross-border  operations,  remains  costly  
and  burdensome  for  CSDs  wishing  to  operate  in  other  Member  States  as  national  authorities 
sometimes impose specific requirements that restrict the ability of CSDs to offer services across 
borders (for more details see Section 3.2.1 of Annex 8 “Post-trade”). In addition, the CSDR does 
not  adequately  account  for  market  infrastructure  groups110  from  an  operational,  regulatory,  
and supervisory perspective. This makes it difficult for these corporate entities to reap the benefits 
of consolidation and achieve economies of scale (Section 3.2.2 of Annex 8 “Post-trade”). 

This was confirmed by the majority of respondents to the targeted consultation on post-trading,  
in  particular  CSDs  and  issuers.  They  identified  a  number  of  barriers  to  market  integration  
and the cross-border provision of services, including with respect to freedom of issuance, the lack 
of  harmonized  market  practices, 
the  complexity  
idiosyncratic  national 
of  establishing  and  maintaining  links  between  settlement  infrastructures,  and  the  inability  
for corporate groups to reap the benefits of economies of scale as a result of consolidation.  

legal  regimes, 

Settlement finality and financial collateral arrangements are governed by two Directives, the SFD 
(a Directive) and the FCD (a Directive), respectively. National specificities and differences, e.g. 
regarding the scope of securities and participants that benefit from protection under the SFD, have 
led to legal uncertainty for cross-border securities transactions. The need for a more consistent  
and homogeneous approach was expressly mentioned by respondents to the consultation on the 
review of the SFD and the FCD, in particular CCPs, fintechs, and traditional financial institutions. 

In the asset management sector, the rules related to  the management  and marketing of UCITS 
funds and AIFs are not fully harmonised partly because they are mainly regulated by Directives. 
This  provides  Member  States  with  national  discretion  in  many  areas.  The  Commission  has 
identified at least 20 instances of national discretion in UCITSD and AIFMD (see Appendix A  
to Annex 9 “Asset  Management”), allowing Member States, for example, to  impose additional 

108 ‘Group structure’ means entities that do not operate on the basis of a single licence and via passporting, but rather 
operate via a number of subsidiaries in various Member States. 
109  The  EU passport  principle  is  essential  for  EU  capital market  integration  as  it  allows  financial  services  entities 
authorised in one Member State to offer their services and undertake activities in another Member State without any 
additional authorisation. 
110 Corporate entities that comprise multiple market infrastructures. 

40 

 
 
 
 
disclosure  requirements  in  fund  documentation,  permit  or  prohibit  ancillary  services,  or  apply 
different investment rules.111  

In  addition,  the  CBDR  allows  Member  States  to  diverge  in  areas  such  as  regulatory  fees  
and charges and the optionality for Member States to impose additional requirements for ex-ante 
checks  of  marketing  communications.  National  requirements  and  practices  to  appoint  local 
physical agents persist in many Member States, despite the intentions of the UCITSD and AIFMD, 
resulting in significant additional cost for passporting funds in the single market.112  

The  majority  of  asset  managers  and  professional  associations113  responding  to  the  consultation 
mentioned divergent UCITS authorisation practices across Member States and NCAs, noting that 
inconsistencies  in  procedures,  information  requirements  and  timelines  create  complexity  and 
inefficiencies. The majority also indicated that the current marketing passport provisions are not 
uniformly applied across Member States, and are not sufficiently simple or proportionate, thereby 
creating inefficiencies in the provision of the relevant services. One of the largest asset managers 
in  the  Nordic  region  specifically  mentioned  challenges  in  processing  passporting  notifications, 
necessitating a one-month timeframe before it can effectively begin marketing investment funds 
in host Member States due to frequent delays in the notification process.  

In  addition,  the  AIFMD  and  UCITSD  frameworks  allow  for  limited  cross-border  access  
of depositary services for funds in the EU, which leads to market fragmentation and particularly 
impacts smaller Member States. AIFMs and UCITS are required to appoint a single depositary 
that must be established or have its registered office in the country where the fund is domiciled. 
UCITS are not allowed to appoint a depositary in a Member State other than their home Member 
State. This may result in discouraging fund promoters from establishing UCITS in Member States 
where the depositary market is underdeveloped.  

For AIFs, the co-legislators have recently amended the AIFMD to introduce a derogation allowing 
certain AIFMs in certain Member States to appoint a depositary in a Member State other than the 
Member  State  of  the  AIF.114  However,  this  option  is  subject  to  strict  conditions:  it  depends  
on  the  discretion  of  the  AIF’s  home  Member  State  to  permit  the  appointment  of  a  depositary 
established in another Member State, and it is only available where the domestic market falls below 
a EUR 50 billion threshold of assets safekept by depositaries on behalf of AIFs. These stringent 
conditions significantly limit the possibility of appointing a depositary in another Member States 
than the AIF’s home Member State.  

111 The  UCITS Directive sets investment limits to  protect investors by promoting diversification, but stakeholders 
(mainly industry associations and some asset managers) argue some rules hinder market development. For example, 
the 10% cap on debt securities from a single issuer (Article 56(2)(b)) affects investments in securitisations, which are 
now highly regulated and diversified. Many asset managers view the rule as outdated and overly restrictive, while 
others stress UCITS’ retail nature and caution against greater exposure (for more details, see Annex 9). 
112 Information provided by a mid-sized asset manager and a prominent industry association shows an average annual 
cost of EUR 42,500 for appointing a local physical agent in one Member State, with the highest reported cost for one 
Member State being EUR 80,000. One large asset manager reported such requirements in Austria, Germany, Italy, 
Spain, Poland and Portugal and desk-based research shows that at least 11 Member States require the appointment a 
local agent in respect of UCITS and AIFs for varying reasons.  
113 The consultation asked stakeholders if divergent practices arise in the authorisation framework for UCITS across 
Member States. Of the 29 replies, 17 answered yes and 12 were neutral. No stakeholder replied no.  
114 Article 21(5a) of AIFMD, introduced by Directive (EU) 2024/927. 

41 

 
 
 
 
to 

rather 

individual  companies 

Furthermore, the UCITS and AIFMD frameworks do not recognise the group dimension in asset 
management,  as  authorisations  apply 
than  groups,  
with  organisational  requirements  having  to  be  met  at  the  level  of  each  individual  management 
company. In addition, intra-group delegations – where an asset management company delegates 
some functions or tasks within the group – are treated the same as third-party delegations, where 
an asset management company delegates those functions or tasks to third parties. This requires full 
due diligence and monitoring, which is seen by many stakeholders as disproportionate and a major 
barrier to consolidating functions within groups. Moreover, although the AIFMD and UCITSD 
frameworks  have  established  harmonised  rules  for  the  authorisation  of  fund  management 
companies and for the information to be submitted to national competent authorities, divergent 
national  practices  in  the  authorisation  process  continue  to  persist.  A  large  majority  of  asset 
managers and professional  associations that responded to  the consultation  reported facing  such 
divergences, which undermine the management passport and complicate cross-border operations. 
Of  the  stakeholders  that  replied  to  the  consultation  question  on  consistency115,  37  respondents 
(comprised mainly of fund associations and asset managers) responded negatively, i.e. suggesting 
that  the  current  authorisation  processes  /  supervision  for  management  companies  under 
AIFMD/UCITSD are not applied in a consistent way across Member States. 

One  large  asset  manager,  authorised  in  four  Member  States  and  operating  branches  in  seven 
Member States, reported that it sees merit in recognising the notion of asset management group  
in  the  specific  case  of  intra-group  delegation  arrangements  to  avoid  duplication  of  reporting, 
including to the same NCA. The asset manager noted that reporting only once, instead of twice, 
on the same matters would substantially reduce the regulatory burden. 

In the innovation area, the DLTPR imposes heavy compliance rules on small businesses and start-
ups that may not be well-adapted to the gradual scaling of operations and the specificities of DLT. 
In addition, the DLTPR lays down stringent limitations on the scope and scale of the activity that 
can  be  conducted  by  the  participants  in  the  DLTPR.  It  does  so,  for  example,  by  introducing 
aggregate limits to the activity of an infrastructure operating under the DLTPR and restricting the 
type and issuance size of assets that can be intermediated under the DLTPR. Furthermore, market 
participants  do  not  have  clarity  about  the  long-term  prospects  for  the  DLTPR,  given  
its experimental nature and certain time-limitations set out in the regulation. 

In addition, innovation in the post-trade sector is challenged by existing legislation that has become 
burdensome  as  post-trade  legislation  has  not  kept  pace  with  technological  advancements.  
For  instance,  certain  definition  and  concepts  do  not  accommodate  DLT-based  records  
and  transactions.  This  results  in  legal  uncertainties,  mainly  around  key  concepts,  definition  
and requirements in the CSDR, SFD, and FCD  (for more details on these specific barriers, see 
Section 3.2.1 of Annex 10 ‘Innovation’). 

Limited direct interconnections 

In the post-trading sector, more than 150 links between EU CSDs have been established.116 There 
were on average 4.3 links for CSDs other than ICSDs in 2022. At the same time, out of 32 CSDs 

115  Question  16  asked:  Are  the  current  authorisation  processes  /  supervision  for  management  companies  under 
AIFMD/UCITSD applied in a consistent way across Member States? No: 37, Yes: 8. 
116 See the 2024 ESMA report on the provision of cross-border services by CSDs. 

42 

 
 
 
 
operating in the EU, only 23 are connected to T2S and transactions settled through it represent less 
than 30% of the value of securities transactions settled in all CSDs.117 Consequently, the current 
level of cross-CSD settlement via T2S remains low. Costs of joining T2S range between EUR 23 
million  and  EUR  113  million,  more  than  half  of  which  can  be  attributed  to  IT  development.  
In  addition,  maintenance  costs  can  be  up  to  EUR  1  million  per  year.118  This  lack  of 
interconnectedness of EU markets and sub-optimal use of T2S continues to fragment the market 
and entails missed opportunities, also for investors (for more details, see Section 3.2.4 of Annex 8 
‘Post-trade’).  

Several stakeholders, in particular CSDs, point to a range of issues that prevent seamless cross-
border settlement, including the burden of establishing links and the refusal by CSDs to establish 
links, which in turn leads to an insufficient number of links. These links, which form the bedrock 
of the interconnectedness in the settlement landscape (along with T2S), have a cost associated with 
their establishment. Divergences in the interpretation of CSDR by authorities and in national legal 
frameworks  (also  related  to  corporate,  tax,  and  securities  laws)  require  CSDs  to  conduct  legal 
assessments to ensure that cross-border settlement complies with the laws of the relevant Member 
States. As discussed in Section 3.2.4 of Annex 8, this legal work represents a substantial portion 
of the total costs of establishing links (which are estimated to be somewhere in the range of EUR 
30 000 to EUR 60 000119). The legal work can be up to EUR 30 000120 per assessment for a given 
Member  State’s  legal  framework.  These  divergences  in  legal  regimes  therefore  have  a  direct 
implication  on  the  interconnectedness  of  the  settlement  landscape  and  weaken  the  economic 
incentive for the establishment of links, with the consequence that a higher prospective volume of 
settlement activity would be required in order to justify the expense. There must be an economic 
incentive for the establishment of a given link (i.e. its cost must be justified with an expectation 
that  sufficient  settlement  volumes  will  be  processed  through  it).  However,  once  a  link  is 
established, it offers broader benefits as it enables the participants in one CSD to seamlessly invest 
in securities that are held in custody in the connected CSD.  

As  regards  limited  interconnection,  it  is  important  to  underline  that  trading  and  post-trading 
connection arrangements are closely intertwined. For market participants to be able to trade on a 
given trading  venue, notably  an incumbent  national  exchange, they must be able to  settle such 
trades. This requires having arrangements in place to ensure a form of connection to the issuer 
CSD of the securities listed on the incumbent  exchange. Having  in  place such arrangements is 
generally a key element of the membership requirements for exchanges, as it underpins the orderly 
and efficient execution of trades. Therefore, interconnection in the trading sphere and in the post-
trading  space  are  highly  dependent  on  each  other,  and  more  seamless  trading  across  borders 
requires interconnections and the removal of barriers in post-trading. 

117  Estimates  based  on  the  data  from  ECB  Securities  Settlement  Statistics,  see:  Securities  trading,  clearing  and 
settlement. 
118 Confidential data provided to DG FISMA services. 
119  For  two  CSDs  with  similar  IT  systems,  harmonised  messaging  standards  and  minimal  divergences  in  legal 
frameworks that wish to establish a link for a narrow set of instruments and straightforward services (e.g. for settling 
government bonds with standard interest payments). 
120 Confidential information provided to DG FISMA services. 

43 

 
 
 
 
 
2.2.2.  Non-aligned supervisory practices and weak tools and powers at EU level 

Supervision  across  the  EU  remains  fragmented.  This  fragmentation  stems  primarily  from  two 
factors:  first,  non-aligned supervisory  practices  and interpretations of EU rules  among  national 
authorities; and second, the limited tools and powers available at EU level to ensure supervisory 
convergence and promote a coherent, cross-border approach. Together, these factors hinder market 
integration and scale, leading to supervision that is less efficient and less effective overall.  

Non-aligned supervisory practices and interpretations across Member States 

Supervision of financial entities is largely conducted at the national level, resulting in a fragmented 
supervisory  landscape.  Member  states  often  transpose,  interpret  and  apply  EU  law  differently, 
leading  to  inconsistent  regulatory  outcomes  and  an  uneven  playing  field.  Even  when  the  legal 
framework  is  harmonised  at  EU  level  by  Regulations,  instead  of  Directives,  the  application  of 
these harmonised rules by national authorities is not uniform and leads to divergent supervisory 
practices,  approaches and requirements. While enforcement actions, such as infringements, can 
address  specific  instances  of  non-compliance,  they  are  not  sufficient  to  address  the  underlying 
issues of non-aligned supervisory practices, as they are often reactive, time-consuming, and may 
not prevent similar divergences from arising in the future. 

In the trading sector, divergence persists in interpreting the MiFID II/MiFIR rules. For example, 
some Member States only require a notification of exchange rulebooks. In contrast, other Member 
States  require  regulatory  pre-approval  of  exchange  rulebooks,  as  well  as  of  their  subsequent 
amendments, which can delay product launches, thereby putting trading venues operating in these 
Member States at a significant competitive disadvantage. 35 respondents (including 3 NCAs, 6 
stock  exchanges  as  well  as  associations  of  asset  managers,  banks  and  retail  investors)  to  the 
targeted consultation therefore call for further harmonisation in this regard. Cross-border trading 
groups  are  burdened  with  duplicative  oversight,  often  having  to  maintain  redundant  local 
compliance  and  risk  teams  due  to  inconsistent  outsourcing  rules.  This  results  in  operational 
inefficiencies  and  missed  opportunities,  also  in  terms  of  economies  of  scale,  due  to  regulatory 
delays. 

In the post-trading sector, and specifically in the settlement space, there are inconsistencies in how 
national authorities interpret requirements under the CSDR. For example, CSD respondents to the 
targeted consultation highlighted that there are significant differences in how authorities identify 
outsourcing  arrangements  of  core  services  and  the  requirements  that  they  apply  to  these 
arrangements. In some jurisdictions staff sharing among entities within a given corporate group is 
considered outsourcing, whereas this is not the case in other jurisdictions. Authorities also differ 
on how they assess changes in a CSD’s operations or provision of services; and on how they handle 
passporting requests and cross-border provision of services. CSDs also highlighted that there are 
significant  variations  in  the  scope,  frequency  and  formatting  of  regulatory  reporting  across 
jurisdictions.  Such  divergences  particularly  affect  corporate  groups  operating  multiple  CSDs 
across borders, such as Euroclear, Euronext or Deutsche Börse, complicating efforts to achieve 
consolidation and efficiency gains. 

For CCPs, EMIR 3 established an enhanced role for ESMA in CCP colleges, which are formal 
supervisory coordination bodies composed of various authorities, including competent authorities, 
ESMA, and the ECB. Yet, actual supervisory outcomes remain fragmented. Member States differ 

44 

 
 
 
substantially in supervisory rigour and methods, such as for the approval of new services or risk 
model  validations.  One  CCP  reportedly  faces  22  separate  authorities  within  its  college,  which 
reduces efficiency and effectiveness and significantly increases supervisory complexity. Diverging 
supervisory practices, especially in response to systemic events (e.g. the energy market stress in 
2022), underscore the inefficiencies of a system dependent on coordination among NCAs without 
a single, binding supervisory outcome. 

In the asset management sector, 36 stakeholders, responding to the consultation report that there 
are  barriers  linked  to  different  national  requirements  on  marketing  documents,  while  six 
stakeholders see no such issues.121 Therefore, for the same fund, asset managers have to adapt the 
documents  based  on  national  requirements  and  NCA  requests,  which  may  often  diverge.  For 
instance,  certain  jurisdictions  require  a  country  supplement  to  the  fund  prospectus  or  country-
specific disclosures within the prospectus, and a specific format for investor notices. In addition, 
there  are  significant  variations  in  risk  management,  depositary,  and  reporting  costs  that  create 
unnecessary  administrative  barriers  and  increase  costs  for  asset  managers.  According  to  asset 
management  associations,  the  high  upfront  costs  for  launching  UCITS  and  AIF  funds,  and 
significant variations in registration costs across EU Member States, also create barriers to entry 
and distort competition. Launching a UCITS fund typically requires between EUR 300 000 and 
EUR 500 000 in upfront costs, which among other costs include legal structuring, documentation, 
registration, and compliance with local marketing rules. The administrative costs of registering a 
UCITS in one additional EU Member State can range from EUR 20 000 to EUR 60 000, depending 
on translation, legal, and agent fees. For one AIF with an EU investment strategy, these costs are 
approximately EUR 65 000, which includes regulatory fees and local agent fees (more detail in 
Case Study 2 in Annex 9 ‘Asset Management’). 

In the crypto-asset sector, supervisory fragmentation is particularly pronounced for CASPs. Some 
NCAs  began  accepting  and  processing  applications  for  authorising  CASPs  before  the  MiCA 
regulation  entered  into  force,  creating  a  “first  mover”  advantage  and  encouraging  regulatory 
arbitrage.  Other  NCAs  have  applied  more  literal  or  cautious  interpretations  and  only  started 
receiving  applications  after  the  entry  into  application  of  the  Regulation.  Additionally,  Member 
States  have  adopted  differing  transitional  periods  for  compliance  within  the  limits  allowed  by 
MICA,  ranging  from  6  to  18  months.  NCAs  had  divergent  views  on  whether  certain  proposed 
models by entities seeking authorisation were compliant with MiCA. Overall, given the novelty of 
the  sector,  supervisory  capacity  is  currently  starting  to  build  up  in  a  fragmented  way.  This 
patchwork approach encourages firms  - especially  those belonging to  third-country groups  - to 
exploit  these  fragmented  national  practices  and  engage  in  forum  shopping  to  expedite  their 
authorisation. 

Limited tools and powers at EU level to enforce convergence and adopt a comprehensive single 
market/cross-border supervisory approach 

A second core issue is the limited mandate and tools available at the EU level to enforce consistent 
application  of  EU  rules  and  adopt  a  comprehensive  single  market/cross-border  supervisory 
approach.  Although  ESMA  can  issue  guidance  and  non-binding  opinions,  and  conduct  peer 
reviews, it lacks binding convergence tools or direct supervisory responsibilities in most sectors. 

121  Question  30  of  Section  5.3  asked:  Are  there  barriers  linked  to  different  national  requirements  on  marketing 
documents? No: 6. Yes: 36. 

45 

 
 
 
 
As a result, divergent supervisory outcomes persist, especially where national interests or capacity 
gaps hinder harmonised implementation of EU rules. 

In the trading sector, ESMA has no supervisory powers for trading venues under MiFID II. While 
ESMA  can  act  under  MiFIR  in  relation  to  specific  infrastructures  like  approved  publication 
arrangements (APAs122) and consolidated tape providers (CTPs123), key areas such as transparency 
and transaction reporting remain under national  supervision.  Even new tools  introduced by the 
Listing Act124, such as ESMA’s role in coordination platform125, require Member State initiative 
and are only activated in exceptional cases. In practice, this means ESMA cannot ensure consistent 
oversight or a level playing field across trading venues. 

In the post-trading sector, for CCPs, ESMA has a limited binding role. With the exception of two 
third-country CCPs who have been identified as being of substantial systemic importance and for 
which ESMA therefore has direct supervisory powers, ESMA’s has a binding role in only to areas. 
First,  in  validating  changes  to  CCPs’  risk  models.  And  second,  in  co-chairing  the  supervisory 
colleges established under EMIR, which provide opinions and facilitate the exercise of specific 
regulatory tasks, such as authorisations of services, reviews and evaluations of compliance with 
regulatory requirements, outsourcing, and reviewing models, among others. In addition, the CCP 
Supervisory Committee, which aims to achieve convergence and coherence in the supervision of 
CCPs  across  the  EU,  is  a  permanent  internal  committee  established  within  ESMA  and  ESMA 
chairs  it.  However,  ESMA  has  no  authority  to  oversee  general  compliance  or  to  intervene  in 
supervisory decisions. At the same time, the systemic importance and interconnectedness of EU 
CCPs call for  a more centralised approach. The  failure of a CCP can negatively  affect entities 
across many jurisdictions, as neither the clearing members of the CCP nor their clients are limited 
to a single jurisdiction. This is also the case for the products cleared by many CCPs, which are not 
generally dependent  on a given jurisdiction (e.g. interest  rate derivatives). This  means that if a 
CCP fails, various entities across multiple jurisdictions can suffer substantial losses. Even in the 
absence  of  failure,  divergences  in  risk  management  practices  by  CCPs,  including  the 
implementation of anti-procyclicality measures in risk models, can result in significant issues. This 
could be seen during the recent energy crisis, when differences in how national authorities and 
CCPs  managed  risks  and  margin  requirements  caused  serious  cash  flow  problems  for  energy 
companies and revealed uneven supervision across the EU. This situation illustrated how localised 
supervision can pose systemic threats across borders. 

122 Approved publication arrangements are persons authorised to provide the service of publishing trade reports on 
behalf of investment firms, they contribute to increase transparency in the market.  
123 A consolidated tape providers is a person authorised in accordance with MiFIR to provide the service of collecting 
data from trading venues and APAs, and of consolidating those data into a continuous electronic live data stream. The 
consolidated tape provides in a single location a consolidated view of the prices and volumes available in the different 
trading venues.  
124 The Listing Act is a package of initiatives aimed at improving access to public markets for companies—especially 
SMEs—by making it easier and less costly to list on stock exchanges within the European Union. It entails changes 
to MAR, MiFIR, MiFID II and Prospectus Regulation (see Regulation (EU) 2024/2809, Directive (EU) 2024/2810 
and Directive (EU) 2024/2811). 
125 Platform established to enhance cooperation among regulators to ensure consistent implementation and supervision 
of  EU  capital  markets  rules.  In  the  context  of  the  Listing  Act,  ESMA  has  been  given  the  power  to  establish 
collaboration platform at the request of one or more NCAs in the field of securities markets when there are concerns 
about market integrity or the proper functioning of markets. 
46 

 
 
 
 
For  CSDs,  under  the  CSDR,  supervisory  colleges  now  exist  for  CSDs  whose  activities  are 
considered  of  substantial  importance  in  at  least  two  Member  States.  However,  their  function 
remains limited to information sharing and issuing non-binding opinions. ESMA has no powers to 
intervene or authorise cross-border services directly. However, authorities under the CSDR can 
refer certain cross-border matters to ESMA for binding dispute settlement under Article 19 of the 
ESMA Regulation, notably on the establishment of CSD links, and where CSDs operating in host 
Member States act in breach of CSDR provisions.  

In  the  asset  management  sector,  ESMA’s  current  role  is  to  promote  supervisory  convergence 
among  NCAs through its  general  convergence tools. However, ESMA does not  have access  to 
real-time  or  case-specific  information  held  by  NCAs.  Nor  does  ESMA  play  an  operational 
coordination role in individual cases, whether concerning the marketing of investment funds or the 
supervision of large asset managers.  

ESMA  also  lacks  a  specific  mandate  to  act  operationally  in  coordinating  NCAs’  supervisory 
approaches. This means it cannot systematically ensure that NCAs adopt consistent practices in 
day-to-day supervision, which is essential for the smooth functioning of the EU passport.  

The lack of visibility on the fund and asset manager operations makes it difficult for ESMA to 
ensure convergence of supervisory outcomes or detect and respond to market-wide risks. Cross-
border  marketing  and  intra-group  delegation  remain  subject  to  inconsistent  scrutiny  and 
duplicative oversight. 

In  addition,  ESMA’s  binding  mediation  powers  are  limited  to  some  cases  under  the  UCITS 
Directive and AIFMD, and do not cover the CBDR. ESMA also lacks the power to open mediation 
cases on its own initiative and is under no obligation to act even where barriers to cross-border 
activities are clear.  

In the crypto-asset sector, for CASPs, ESMA is tasked with maintaining registers126 and issuing 
temporary bans on products that pose serious threats, but these powers are ex-post, reactive and 
limited in scope. ESMA is not involved in the authorisation, ongoing supervision, or cross-border 
passporting  of  CASPs.  ESMA’s  supervisory  briefings  and  convergence  efforts  so  far  have 
revealed, rather than resolved, divergent national practices and have even led to tensions between 
home and host Member States.  

Together,  non-aligned  supervisory  practices  and  the  limited  supervisory  convergence  tools 
available at EU level significantly undermine the efficiency, coherence, and resilience of the EU’s 
capital markets framework. Diverging national interpretations increase compliance burdens, create 
regulatory arbitrage, and obstruct the integration of EU capital markets. ESMA’s current use of its 
toolkit—which largely relies on soft law and non-binding measures — falls short of ensuring true 
supervisory  convergence.  These  issues  are  particularly  pronounced  in  sectors  with  significant 
cross-border  activity  and  rapid  market  changes,  including  CCPs,  CSDs,  trading  venues,  asset 
managers,  and  CASPs.  Addressing  these  problem  drivers  is  essential  for  building  a  more 
integrated, efficient, and stable financial system in the EU. 

126  ESMA  must  maintain  an  EU-wide  register  listing  all  authorised  CASPs  in  the  EU,  issuers  of  asset-referenced 
tokens and e-money tokens and certain relevant information about them, as well as a register of all white papers issued 
for non-stablecoin crypto-assets offered in the Union. 

47 

 
 
 
 
2.3.  CONSEQUENCES  

Overall,  the  problem  drivers  and  problems  described  in  Sections  2.1  and  2.2  lead  to  one 
overarching consequence – a less efficient EU capital market.  

The problem drivers give rise to undue frictional costs for cross-border activities which, in turn, 
affects market structure. As noted, there are a range of out-of-scope drivers which equally impact 
market  structure  and  drive  fragmentation.  Given  stakeholder  feedback,  these  barriers,  notably 
taxation and national legal frameworks (securities, ownership/property, insolvency law etc.) act as 
significant hurdles and add to the direct regulatory barriers addressed by this initiative. Modelling 
the impacts of in-scope and out-of-scope barriers is challenging from a methodological point of 
view (see Annex 4), so the consequences described here refer to the combined impacts. 

Obstacles to cross-border activities in trading, post-trading and asset management make it more 
difficult for firms from another Member State to compete on a level playing field with local firms. 
Market entry costs will be higher and differences in on-going requirements and supervision will 
negatively impact possible economies of scale (e.g. different processes, marketing requirements 
etc. may prevent offering services in the same manner or on the same platform). This significantly 
reduces the economic incentives to expand into another market. Therefore, companies may choose 
to focus more on their domestic market rather than face the challenges and costs associated with 
cross-border  operations.  These  costs  indirectly  protect  domestic  firms  from  cross-border 
competition. As a result, the EU market structure exhibits a significant home bias (especially in 
asset  management  and  settlement  systems),  smaller  sized  providers  (focusing  on  domestic 
markets) and significant price differences across Member States.  

The consequence of this is reduced market efficiency, as less competitive actors / offers can remain 
in the market. Downstream users face higher costs (including search costs) or are unable to access 
the most suitable offer (in term of cost, quality, timing, etc.) altogether because they are not made 
available in their respective home Member State. Where cross-border offers are available, they are 
likely to cost more than in the home market, as set out in Section 2.1. For instance, stakeholders 
report in the targeted consultation that, because of the lack on interconnectivity, retail clients are 
charged higher fees for trading in markets located in a Member State different from the one of the 
broker. This is also driven by the costs associated with post-trade process and the need to establish 
longer chains of intermediation. Settlement costs were a major point of contention on the part of 
respondents,  and  an  overwhelming  majority  agreed  that  settlement  costs  in  the  EU  should  be 
reduced to improve the competitiveness of EU capital markets.  

Reduced market efficiency implies that providers of services have higher market power in their 
domestic markets and can charge more for the provision of their services, thereby extracting higher 
margins. This also explains why some stakeholders are not in favour of removing these barriers. 
In economic terms, there is increased deadweight loss which negatively affects downstream users.  

In capital markets, there are two key end users: (i) non-financial corporates seeking financing, and 
(ii)  investors  seeking  investment  opportunities.  In  addition  to  intermediating  between  those 
providing and seeking finance, another crucial function provided by capital markets, and used by 
both  corporates  and  investors,  is  to  allow  the  hedging  of  economic  and  financial  risks.  The 
regulatory and supervisory barriers under consideration lead to inefficiencies, higher costs for both 
user groups and less opportunities to finance/invest.  

48 

 
 
Currently,  the  average  external  financing  costs  for  the  non-financial  corporate  sector  vary 
considerably  (by more than 130 basis points between the lowest  and the highest127) across EU 
Member States. This difference is driven in part by external factors (e.g. local economic factors), 
but the significant discrepancy nonetheless strongly indicate that EU firms are not fully benefiting 
from the scale and synergies of a single market, with fewer financing opportunities for them, and 
not always at the best conditions. Corporates face higher direct external financing costs, as related 
processes and intermediary services cost more.  

Even  stronger  pricing  effects  are  driven  by  the  interaction  between  investors  and  companies 
seeking financing. Investors face inefficiencies in terms of higher transaction and intermediation 
costs, which will lower expected returns. This has direct implications for market valuations and 
companies’  cost  of  raising  equity.128  As  investors  require  a  certain  net  rate  of  return  on  their 
investments,  they  would  be  willing  to  pay  higher  prices  for  shares  or  bonds,  the  lower  the 
transaction costs are. Indirectly, this may also affect bank-financing channels as they compete with 
capital  market  financing  options  (i.e.  if  capital  market  financing  were  cheaper,  there  would  be 
increased price pressure also on bank financing).  

For  the  hedging  functions  of  capital  markets,  the  efficiency  effects  are  similar.  Besides  higher 
direct intermediation costs, the party offloading risks will pay more to do so as the party taking on 
risks requires a higher expected rate of return given the higher transactions costs.  

Higher  transaction  costs  also  have  implications  in  terms  of  lower  liquidity,  as  they  lower  the 
incentive to  trade. Lower liquidity  acts  as an indirect  cost  to investors as it increases the price 
slippage of transactions and execution risks (in turn impacting financing costs of corporates – see 
above). While market makers that provide most liquidity are less affected by higher cross-border 
settlement costs (most intra-day trades are not settled and the size and sophistication of market 
makers minimises additional fees), they are strongly impacted by the level of competition between 
trading venues, including membership fees.  

In this context, the regulatory obstacles for DLT systems represent missed opportunities, as these 
technologies may significantly lower trading, clearing and settlement costs. These technologies 
may not be able to overcome cross-border barriers directly, in particular legal barriers at Member 
State  level  that  remain  out-of-scope.  However,  enabling  these  technologies  could  foster  more 
vibrant competition amongst market infrastructure operators with cost and quality benefits for end 
users. Notably, DLT may enable increased fractionalisation (without the related downsides e.g. 
loss of voting rights) and trading in smaller lot sizes (e.g. for bonds), which would hold benefits 
in  terms  of  liquidity  and  would  lower  the  costs  of  diversification  and  euro-cost  averaging 
investment strategies. The overwhelming majority of respondents to the consultation indicated that 
addressing the current limits in the DLTPR would facilitate the transition of trading activity from 

127 Based on DG ECFIN data. 
128 For example, estimates by Domowitz and Steil (2001) suggest that a 10% increase in transaction costs leads to a 
1.4–1.7% increase in the post-tax cost of equity. See Domowitz, I. and Steil, B. (2001), ‘Innovation in Equity Trading 
Systems:  the  Impact  on  Transactions  Costs  and  Cost  of  Capital’,  in  R.  Nelson,  D.  Victor  and  B.  Steil  (eds), 
Technological Innovation and Economic Performance, Princeton University Press. 

49 

 
 
 
 
the current OTC framework to the DLT Pilot regime, thereby enhancing EU competitiveness in 
digital finance with respect to other jurisdictions.129 

The above-described consequences of the problems and barriers considered in this report entail 
adverse  impacts  for  the  wider  EU  economy.  Increased  financing  costs  will  reduce  economic 
growth as it reduces the investment demand of companies. Likewise, lower returns for investors 
due  to  higher  costs  entail  that  less  funds  can  be  reinvested  and  lower  investor  demand.  While 
transaction and other intermediation costs (e.g. asset management) may be small in nominal terms, 
reducing these costs carries strong compound effects over multiple transactions and would have a 
significant economic impact in the long run. For financial services overall, the IMF estimates that 
internal barriers to the single market are equivalent to a tariff of over 100 percent.130 Holste and 
Bergström’s (2025)131 analysis shows that if Europe had achieved a fully unified capital market 
over  the  past  decades,  EU  GDP  in  2024  could  have  been  EUR  7.8-8  trillion  higher.  IMF 
simulations also suggest that a capital markets union accounts for one third of the total benefits 
from the single market, i.e. one percentage point higher GDP level.132  

A true single market, with a larger and more diverse pool of market participants, would also be 
more resilient, and better able to manage external shocks. At the same time, increased cross-border 
activity  could  also  raise  contagion  risks,  which  reinforces  the  case  for  consistent  and  effective 
supervision  at  EU  level.  Reviewing  the  main  findings  from  the  empirical  literature,  the  ECB 
(2022)133  concludes  that  the  shock  absorption  capacity  of  the  euro  area  remains  significantly 
weaker  than  in  the  United  States,  with  about  70%  of  country-specific  shocks  unsmoothed 
(compared to some 40% in the US). In particular, the shock absorption provided by the capital 
channel (via income from cross-ownership of productive assets) is very limited in the euro area 
(as also confirmed by ECB (2023)134 ). Moreover, the ECB (2022)135 shows that increases in euro 
area cross-border financial portfolio holdings have relied more on intra-regional holdings than on 
inter-regional holdings in recent years, both for long-term debt and equity. Correspondingly, euro-
area income smoothing has been mainly driven by intra-regional risk sharing.     

Also, the relatively high reliance of EU NFCs on bank-based finance and, conversely, low reliance 
on capital market-based finance136, makes their financing more volatile and pro-cyclical than is 

129 Only few respondents opposed to raising the limits on the value of financial instruments traded or recorded. They 
included  one  national  insurance  supervisor,  one  large  international  bank  and  one  national  asset  management 
association.  
130 Regional Economic Outlook for Europe, October 2024: A Recovery Short of Europe’s Full Potential. 
131 “Capital Market Fragmentation and Economic Value Migration How Europe's Financial System Promotes Wealth 
Transfer to the U.S” by Bjoern Holste, Mattias Bergström, SSRN. 
 Capital  Market  Fragmentation  and  Economic  Value  Migration  How  Europe's  Financial  System  Promotes  Wealth 
Transfer 
2025,  
U.S 
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5204091 
132 IMF working paper: Lifting Binding Constraints on Growth in Europe: Actionable Priorities to Deepen the Single 
Market“.  Available  here:  https://www.imf.org/en/Publications/WP/Issues/2025/06/13/Lifting-Binding-Constraints-
on-Growth-in-Europe-Actionable-Priorities-to-Deepen-the-Single-567610 
133 Public and private risk sharing: friends or foes? The interplay between different forms of risk sharing 
134 Changing patterns of risk-sharing channels in the United States and the euro area 
135 Financial Integration and Structure in the Euro Area, April 2022. 
136 See Annex 12 for differences in average funding structures between Member States. 

Bergström, 

Mattias 

Holste, 

Bjoern 

May 

the 

by 

to 

50 

 
 
 
 
the case for US non-financial corporates.137 It is well documented that, in both the global financial 
crisis and the euro area sovereign debt crisis, bank loans to euro-area firms dropped, while their 
debt security financing expanded, relative to GDP. Firms with access to debt security markets were 
able to respond to the contraction in bank loan supply by issuing more debt securities.  

2.4.  HOW LIKELY ARE THE PROBLEMS TO PERSIST? 

Without decisive action at the EU level, the problems related to fragmentation and lack of scale 
are very likely to persist. The problems stem from regulatory and supervisory barriers that cannot 
be overcome by market forces. While other factors are affecting EU capital market development 
and  integration,  the  legal  barriers  concern  the  key  sectors  of  trading,  post-trading  and  asset 
management and can only be addressed by policy intervention. Addressing barriers to integration 
is  a  long-standing  and  ongoing  effort  in  EU  policy  making,  but  progress  has  been  slow.  The 
urgency to act now as increased and there is political momentum to take a decisive step forward 
to advance the integration and development of EU capital markets, for the wider benefit of the EU 
economy, in line with the recommendations in the Draghi, Letta and other reports (see Section 
1.1). 

Market forces have helped financial markets integrate along important dimensions, and businesses 
have  somewhat  expanded  their  cross-border  operations  despite  these  barriers.  However, 
divergences  in  legal  and  regulatory  frameworks  across  Member  States  continue  to  create  legal 
uncertainty and increase compliance costs for entities operating in the EU Single Market. These 
divergences  also  stifle  cross-border  activities,  placing  additional  burdens  on  companies  and 
limiting  their  opportunities  to  scale  up  their  business.  Without  EU  action,  these  inefficiencies 
would prevail and hinder further market-led integration.  

Moreover,  supervisory  fragmentation  would  continue,  due  to  supervisory  barriers  set  out  in 
Section  2.2.2.  Experience138  shows  that  soft  coordination  mechanisms  -  such  as  colleges  of 
supervisors  or  non-binding  opinions  -  have  not  been  sufficient  to  drive  uniform  supervisory 
outcomes, which means  that the risk of inconsistent  oversight  and inefficiencies would persist. 
Stakeholder feedback confirms that, without EU-level intervention, the status quo would cement 
existing  challenges,  deepen  fragmentation,  and  undermine  the  effectiveness  of  EU  financial 
supervision in delivering on single market objectives. 

As  regards  innovation,  technological  advancements  and  specifically  DLT  have  the  potential  to 
significantly impact market structure and deliver further efficiency and integration benefits, but 
industry take-up would continue to be hindered in the absence of a legal framework that creates 
both the flexibility and legal certainty for the market to responsibly integrate the technology in 
their service provision 

137 Langfield, S. and M. Pagano, January 2016, “Bank bias in Europe: effects on systemic risk and growth”, Economic 
Policy, Volume 31, Issue 85, pp 51–106. 
138 In the 2021 Impact Assessment accompanying the AIFM/UCITS amendments, the Commission noted that existing 
coordination tools -such as colleges of supervisors, peer reviews, and non-binding guidance -have not demonstrably 
reduced divergence in national supervisory practices.  ESMA itself lacks measurable evidence that its efforts have 
significantly aligned national supervisors’ approaches. 

51 

 
 
 
 
3.  WHY SHOULD THE EU ACT? 

3.1.  LEGAL BASIS 

The  Treaty  on  the  Functioning  of  the  European  Union  (‘TFEU’)  grants  EU  institutions  the 
competence to establish provisions for the internal market under Article 114. This initiative will 
rely on the same legal bases as the acts that it intends to amend, which may include both Article 
53  and  Article  114  TFEU,  depending  on  whether  it  concerns  amendments  to  directives  or 
regulations. For instance, Article 53 facilitates the freedom of establishment for financial firms 
and is  applicable to directives such as MiFID, AIMFD, and  UCITSD. Meanwhile,  Article 114 
serves as the legal foundation for EU Regulations, such as the ESMA Regulation. Any amending 
regulation and directive will adhere to its corresponding legal basis. 

3.2. 

 SUBSIDIARITY: NECESSITY OF EU ACTION 

According to the principle of subsidiarity (Article 5(3) of the TFEU), action on EU level should 
be taken only when the aims envisaged cannot be achieved sufficiently by Member States alone 
and can therefore, by reason of the scale or effects of the proposed action, be better achieved on 
the EU level. 

The EU acquis relating to financial service providers and financial markets consists of various EU 
regulations  and  directives.  However,  fragmentation  persists  when  it  comes  to  cross-border 
provision  of  services  or  products.  Cross-border  provision  of  services  is  hindered  by  differing 
national rules and supervisory practices implementing these EU legal acts, which can undermine 
the objective of the single rulebook. Furthermore, part of the EU acquis needs updating to better 
facilitate the provision of financial services using novel technologies.  

The  disparities  in  directives,  regulations  and  practices  across  Member  States  result  in  market 
inefficiencies,  notably  on  a  cross-border  basis.  These  inefficiencies  lead  to  higher  costs  and 
ultimately  less  financing  opportunities  for  EU  companies,  less  investment  opportunities  for 
investors,  and  other  wider  adverse  consequences  for  the  EU  economy  These  challenges  are 
inherently  transnational  and  cannot  be  adequately  resolved  through  isolated  and  uncoordinated 
national  actions.  Member  States  are  unable  to  bring  about  sufficient  improvement  to  those 
problems on their own.  

In addition, diverging national rules on how to apply the EU acquis create an uneven playing field. 
This can occur either where stricter rules are applied, thereby disincentivising domestic  market 
participants to engage in cross-border activities, or where the more lenient application of common 
rules  creates  regulatory  arbitrage.  As  these  challenges  largely  stem  from  the  EU  acquis  (or  its 
implementation), they cannot be effectively addressed by individual actions at Member State level.  

Member States’ differing legal  frameworks, supervisory traditions  and  market  structures imply 
that reforms undertaken individually would not deliver the necessary convergence of regulatory 
and  supervisory  standards  and  market  practices  that  are  needed  for  a  single  market  in  capital. 
National  policy  measures  to  develop  domestic  capital  markets  risk  intensifying  fragmentation 
instead of contributing to further integrating national markets into one large and developed capital 
market. Therefore, an approach at EU level is necessary to address these barriers, to promote the 

52 

 
 
seamless provision of cross-border financial services and products and facilitate the integration 
required to advance the Savings and Investments Union.  

3.3.  SUBSIDIARITY: ADDED VALUE OF EU ACTION 

The added value of EU action lies in its ability to remove barriers in the EU rulebook that currently 
hinder market integration. Action at EU level would also present distinct advantages over actions 
at  national  level,  which  would  exacerbate  fragmentation,  rather  than  further  integrating  the 
national markets into one large and developed capital market. Only concerted efforts at the EU 
level can achieve further alignment of rules necessary to create a single market for capital.  

The  cross-border  nature  of  certain  activities  and  the  systemic  implications  of  the  related 
supervisory decisions go beyond the capacity of any single Member States to address these aspects 
effectively. Action at EU level is justified as it aims to reduce legal and operational uncertainties 
for businesses and investors, encourage cross-border investments, and enhance market efficiency, 
consistency  and  coherence  across  all  Member  States.  It  is  also  justified  to  ensure  consistent 
supervision,  safeguard  financial  stability,  and  preserve  the  integrity  of  the  single  market. 
Moreover, such EU-level initiatives promote a level playing field and increase the attractiveness 
and  competitiveness  of  the  single  market  for  financial  services  and  their  economic  efficiency, 
which  can  only  be  achieved  through  a  coordinated  efforts  at  EU  level.  The  initiative  remains 
proportionate  as  it  ensures  the  balance  between  EU  and  national  competence,  with  respect  to 
entities  and  activities  with  material  cross-border  relevance  and  those  of  primarily  domestic 
importance. 

4.  OBJECTIVES: WHAT IS TO BE ACHIEVED? 

4.1.  GENERAL OBJECTIVE 

The general objective of this initiative is to integrate and thereby improve the functioning of EU 
capital markets for the benefit of investors, businesses and the wider EU economy. This contributes 
to  the  Savings  and  Investments  Union’s  core  objective  to  enable  access  to  a  wider  range  of 
financial  opportunities  for  investors  and  businesses  and  mobilise  savings  for  productive 
investment. 

4.2.  SPECIFIC OBJECTIVES 

The initiative will contribute to the achievement of the general objective by pursuing the following 
specific objectives: 

1.  Enable further market integration and scale effects – The initiative aims to remove barriers 
to  integration  in  the  core  sectors  of  trading,  post-trading  and  asset  management  and 
improve the  ability of market  actors in  those sectors to  operate more seamlessly across 
Member States, thereby enabling market integration and scale. As a result, gaps between 
the costs of domestic and cross-border transactions should narrow and the number of cross-
border transactions increase.            

53 

 
 
 
2.  Enable  integrated  supervision  –  The  initiative  seeks  to  address  shortcomings  and 
inefficiencies  in  the  current  supervisory  framework,  by  tackling  inconsistencies  and 
complexities  arising  from  fragmented  national  supervisory  approaches.  It  aims  to  make 
supervision more effective, more conducive to cross-border activities, and more responsive 
to emerging risks, while reducing unnecessary burdens on firms. This should also increase 
investor confidence. There is a strong link to objective (i), as effective supervision is crucial 
for  market  integration.  Well-integrated  financial  markets  rely  on  more  coordinated 
supervisory  frameworks  to  operate  efficiently,  and  a  more  common  approach  to 
supervision can promote deeper market integration.  

3.  Facilitate innovation – The initiative aims to remove regulatory obstacles to DLT-based 
innovation with the aim of creating a framework which enables the take-up of these new 
technologies  in  the  provision  of  financial  services.  For  innovation  to  thrive,  both  the 
DLTPR and the standard rulebook should allow the industry to use DLT to bring efficient 
solutions to the market while ensuring that associated risks are mitigated. Removing these 
barriers also seeks to increase competition in the area of trading and post-trading services, 
leading to improved market outcomes. 

The specific objectives will be pursued without compromising financial stability, market integrity 
or investor protection, thereby ensuring that the EU financial market remains safe and globally 
attractive. 

5.  WHAT ARE THE AVAILABLE POLICY OPTIONS? 

5.1.  APPROACH TO DESIGN OF POLICY OPTIONS 

As already highlighted, this initiative is very broad and spans the trading, post-trading and asset 
management  sectors  that  provide  the  essential  infrastructure  and  services  for  enabling  the 
intermediation  between  investors  looking  for  investment  opportunities  and  companies  seeking 
financing. The initiative covers also innovation in capital markets, and supervision of these sectors. 
Given its complexity, this report presents the options in packages that differ in terms of ambition 
and political feasibility. The separate annexes offer a more granular and technical analysis of the 
various  sectors  as  well  as  a  more  detailed  assessment  of  alternative  options  per  each  sector, 
intended for stakeholders with technical expertise in their respective sectors. 

5.2.  WHAT IS THE BASELINE FROM WHICH OPTIONS ARE ASSESSED? 

Under  the  baseline  scenario,  the  existing  frameworks,  along  with  their  divergent  national 
implementations, divergent supervisory approaches and burdensome requirements, would remain 
unchanged without legislative reforms. The lack of interconnection between entities in different 
markets would also persist. All this results in persisting higher costs for cross-border activities and 
market inefficiencies. 

Market  forces alone will not  overcome the legal  and market  practice barriers addressed in this 
initiative and drive further integration and innovation, as explained in more details in Section 2.4. 
National authorities have limited incentives to voluntarily align supervisory practices or relinquish 
discretion, making regulatory intervention necessary to ensure convergence. Stakeholder feedback 
cautions  that  failing  to  address  fragmented  supervision  could  lead  to  entrenched  regulatory 

54 

 
 
arbitrage,  legal  uncertainty,  and  reduced  competitiveness.  Member  States  would  continue 
exercising  discretion  in  the  application  of  the  rules  where  EU  harmonisation  is  minimal,  and 
limited interconnection between entities in different markets would persist. As a result, financial 
services providers in the trading, post-trading and asset management sectors will face significant 
costs when attempting cross-border operations within the EU, due to divergent implementation of 
the  rules,  divergent  national  requirements,  divergent  supervisory  approaches,  and  low  markets 
interconnections. Uptake of innovation would also be hindered. 

Under  the  status  quo,  EU  capital  markets  would  remain  fragmented,  and  progress  towards  an 
efficient EU single market for capital would be limited. Without policy intervention to tackle the 
barriers to cross-border operation and innovation, problems as described in Section 2 will continue, 
with  all  the  adverse  outcomes.  The  cross-border  provision  of  financial  services  would  remain 
costly and inefficient, and cross-border investments would be impeded (see Section 2 for more 
detail).  

This  initiative is  essential  for the success  of the SIU strategy, including  other actions for retail 
investors,  institutional  investors,  and  access  to  finance  for  companies.  Implementing  the  SIU 
strategy requires a range of policy measures, affecting various dimensions of the EU’s financial 
system. Under the baseline scenario, it will not be possible to achieve the other objectives of the 
SIU measures for retail investors, for institutional investors, for improving access to diversified 
source of financing for companies, because more integrated, deeper and efficient capital markets 
are essential for the success of those measures.      

Inefficiencies  and  higher  costs  would  damage  the  attractiveness  of  the  EU  capital  markets  and 
economy  and  its  ability  to  compete  at  a  global  level.  Given  advances  in  other  jurisdictions, 
especially  as  concerns  technology,  it  is  likely  that  competitive  disadvantages  for  EU  capital 
markets would increase over time (see also Section 2.4).  

Fragmented supervision would also weaken investor protection, affect resilience and leave the EU 
more exposed to emerging cross-border and systemic risks. 

As  already  discussed,  the  existence  of  numerous  out  of  scope  factors  that  shape  market 
developments, the data limitations and the fact that market players adjust their behaviour to market 
outcomes,  limit  the  ability  to  model  in  a  reliable  way  how  the  problem  would  evolve  without 
intervention  (see  Annex  4).  As  such,  no  further  modelling  of  the  baseline  and  how  market 
outcomes would evolve can be provided in a manner that is proportionate and in a timeframe that 
meets the political calls to act on the issues presented in this report. While rigorous analysis is 
important, it is crucial not to delay the tangible outcomes of to address the existence and negative 
impact of barriers that have already been well-documented in the past.  

5.3.  DESCRIPTION OF THE POLICY OPTIONS 

5.3.1.  Policy options to address Barriers to cross-border operations and innovation 

This section provides an overview of the two main packages of options (in addition to the “do-
nothing”  option)  to  address  the  barriers  to  cross-border  operations  and  innovation,  reflecting 
different levels of ambition. It describes the most significant measures expected to have the largest 
impact  across  the  areas  of  intervention  (trading,  post-trading,  asset  management,  innovation), 
summarised in tabular form in Tables 3 and 4. The respective sectoral annexes contain a more 

55 

 
 
detailed description and assessment of the options, including also a more granular set of options 
and the less significant measures.  

The Commission  has worked in  close cooperation with  ESMA and the ECB to  ensure that the 
preferred options would be feasible, as well as seeking to identify the required resources needed 
to implement the measures.  

Baseline scenario (Option 1) – Do nothing  

This is the baseline scenario (see Section 5.1). 

Option 2 – Broad review of the functioning of capital markets  

Trading 

Under this option, the rules regarding the authorisation and operation of RMs would be transferred 
from MiFID II (Directive) to MiFIR (Regulation) and further harmonised (thereby reducing scope 
for national discretions and gold-plating), with a view to creating a truly European single rulebook 
for trading venues. As regards MTFs and OTFs, considering that those venues can be operated by 
investment firms (and not only by market operators), only the rules that are specific to the operation 
of an MTF or OTF would be transferred to MiFIR and further harmonised. This is to ensure a level 
playing field, including from the supervisory standpoint. Incidentally, this harmonisation of rules 
would also facilitate the transfer of supervision of operators and markets with an EU dimension to 
the  EU  level  and  allow  to  enforce  a  truly  single  rulebook  for  those  operators  (as  opposed  to 
enforcing a series of national laws). 

In addition, under this option, passporting rights for RMs active cross-border would be enhanced 
and those of MTFs  and  OTFs  would be clarified along  the same lines. A new status  for ‘Pan-
European Market Operators’ would also be introduced for cross-border market operators, to allow 
for the operation of trading venues in multiple Member States on the basis of a single licence.  

In parallel, this option would allow trading venues that operate under a unified group structure, 
with  harmonised  systems  and  governance,  to  fully  exploit  group  synergies.  The  regulatory 
framework would be revised by ensuring that intra-group allocation of resources is not treated in 
the same way as outsourcing outside the group. This is with a view to simplifying the allocation 
of tasks within the group, thus reducing administrative burden and compliance costs for groups.139  

This option also entails the implementation of measures aimed at eliminating barriers that hinder 
brokers  from  becoming  direct  members  of  trading  venues.  To  achieve  this,  a  “streamlined 
membership process” would be established, enabling brokers that have been granted membership 
to one venue for one asset class to avoid duplicative checks and procedural burdens associated 
with  multiple  membership  applications.  The  granting  of  membership  would  thereby  waive  the 
requirement  for  redundant  checks  by  other  trading  venues  trading  the  same  asset  class,  thus 
streamlining the membership process. However, other aspects of membership eligibility checks, 

139 The actions linked to enhancing passporting rights for market operators and RMs, as well those on the treatment 
of groups require ensuring an appropriate supervisory set-up that considers the cross-border dimension of those entities 
and therefore they are linked to the initiatives on EU-level supervision as detailed in Section 5.2.2.  

56 

 
 
 
 
such as those pertaining to the ability to settle trades executed on venue, would remain subject to 
individual venue assessment, given the exchange-specific nature of post-trade arrangements.  

Respondents to the consultation indicated that the main drivers for inefficient integration of capital 
markets and of liquidity pools in the EU are (in order of how many respondents mention them) 
non-regulatory  and  linked  to  market  practices,  legal/regulatory  barriers  at  domestic  level, 
legal/regulatory barriers at EU level, and supervisory practices. Respondents highlighted also other 
elements that prevent smooth integration of liquidity pools, including post-trade fragmentation, 
connectivity and access barriers and investor home bias. Stakeholders saw benefits in increasing 
the level of harmonisation for certain areas, including the core principles and approval processes 
of  exchange  rulebooks,  fair  access  and  outsourcing.   Respondents  also  pointed  to  regulatory 
duplication and the lack of flexibility in applying rules across borders as limiting their ability to 
centralise operations or adopt innovative technologies such as cloud computing. Many advocated 
for greater proportionality and flexibility, with specific calls to distinguish intra-group from third-
party outsourcing in relevant EU rules.   

Post-trade 

Under this option, to facilitate the freedom of issuance, the possibility of Member States to impose 
additional requirements on issuers would be limited. Legislation would establish the right of an 
authorised CSD to automatically provide services, or set up a branch, in any Member State in the 
EU without additional requirements other than a simple notification procedure. At the same time, 
all EU CSDs that settle in a T2S-supported currency would also be mandated to connect to the 
T2S platform. Moreover, settlement operations standards would be harmonised further. 

In parallel, interconnectedness for settlement would also be improved. The notion of CSD hubs 
would be introduced. The concept would cover, in particular, CSDs providing services in several 
Member  States  and  those  processing  a  high  value  of  settlement  instructions  relative  to  all 
settlement  in  the  EU.  These  would  be  required  to  establish  links  with  one  another,  while  the 
remaining CSDs would be required to establish links with at least one CSD hub (to the extent that 
such a link is not already in place). All the aforementioned links (i.e. links between CSD hubs and 
links  between  those  CSDs  and  the  remaining  CSDs)  would  be  required  to  be  bi-directional, 
interoperable and able to settle all financial instruments available for settlement within the given 
CSD.  In  addition,  the  process  of  establishing  links  would  be  simplified  and  streamlined  with 
ESMA made the authority responsible for authorising interoperable links. The CSDR would also 
be amended to remove the possibility for the establishment of links to be refused except in the case 
that such links would threaten the smooth and orderly functioning of financial markets or cause 
systemic risk.  

The SFD would be converted into a Regulation. This change requires setting out in a more precise 
way matters related to safeguards granted by the SFD in order to achieve a harmonised approach 
across the EU, in particular with respect to conflict of law, participation of EU entities in third-
country systems, scope of participants and eligible securities covered, requirements for designating 
systems, and ensuring legal certainty to support digital innovation. 

This  option  also  entails  amendments  to  post-trade  legislation  to  strengthen  its  technological 
neutrality. This would be done by updating relevant definitions, concepts, and requirements (for 
example, updating ‘book-entry form’ and ‘securities account’) to ensure that the CSDR, SFD, and 
FCD can apply equally to CSDs irrespective of the technology used in the provision of services, 

57 

 
 
including  DLT.  Respondents  to  the  targeted  consultation  identified  barriers  to  the  freedom  of 
issuance in the EU, notably national rules requiring securities – especially government bonds – to 
be  issued  through  domestic  CSDs.  At  EU  level,  CSDR  passporting  requirements  were  seen  as 
burdensome, creating costly legal assessments and hindering cross-border issuance. In addition, 
there  was  wide  support  for  updating  CSDR  definitions  to  ensure  technological  neutrality  and 
inclusion of DLT-based assets. 

Respondents  suggested  enhancing  T2S  by  expanding  its  scope  to  more  CSDs,  currencies,  and 
services (e.g. corporate actions, collateral management), and by requiring all CSDs settling in euro 
to  connect  to  the  platform.  They  also  called  for  greater  standardisation  and  simplification  in 
establishing CSD links and within the T2S framework. 

On the SFD, respondents sought clearer  conflict-of-law rules,  consistent protection for indirect 
participants and those in third-country or DLT-based systems, as well as an expanded scope to 
cover a wider range of participants and assets.  

Asset management 

Under this option, a new “passporting upon authorisation” regime would be introduced to allow 
UCITS funds immediate single market access to their chosen Member States upon authorisation. 
This would be done by replacing current fragmented NCA bilateral notifications with a centralised 
process  coordinated  by  ESMA  (IT  system,  notifications,  and  resolving  NCA  divergences). 
Operationally, the home NCA would liaise with ESMA and the relevant host NCAs through an 
ESMA platform, ensuring information on fund authorisations and related documentation is shared 
in a harmonised and transparent manner. The same simplified procedure would apply to authorised 
AIFMs  seeking  to  market  the  AIFs  they  manage  in  the  single  market.  From  the  date  of 
authorisation, UCITS funds and AIFMs would be able to market in all designated Member States. 
This measure seeks to significantly reduce the required administration and time for UCITS funds 
and AIFMs to access other Member States’ markets. The data platform would also be utilised for 
other notifications in connection with the cross-border marketing of funds, such as the notification 
of material changes or the marketing de-notifications, as described in Section 5.1.2 of Annex 9.  

In addition, EU marketing rules would be reviewed to create a common framework and reduce 
national discretions and divergences (e.g. repealing gold-plating rules in the EU framework). This 
would involve removing national discretions in the CBDR regarding the ex-ante verification of 
marketing communications, harmonising the content of marketing communications and preventing 
Member  States  from  imposing  additional  marketing  requirements  and  national  provisions  for 
country-specific disclosures in fund documents. This fragmented framework would be replaced by 
harmonised EU rules on marketing and disclosures. In addition,  existing  rules on requirements 
concerning physical agents in the UCITSD and AIFMD will be strengthened so that host Member 
States  and  NCAs  no  longer  require  such  appointments,  through  any  means  (such  as  by  law  or 
market  practice).  This  option,  which  is  further  explained  in  Section  5.1.2  of  Annex  9,  would 
necessitate amendments to the UCITSD, AIFMD, and the CBDR.   

This option would also improve the operating conditions for asset managers by facilitating the use 
of resources and delegation of functions across different entities within the same asset management 
group in the EU. EU groups would be able to utilise and share resources with other EU entities of 
the same group without being subject to stringent delegation requirements. This option would also 
entail  harmonising  authorisation  requirements  for  asset  managers  by  clearly  defining  the 
information  that  management  companies  and  AIFMs  must  submit  as  part  of  the  authorisation 

58 

 
 
process, and by removing national divergences stemming from Member State discretions that are 
embedded  in  the  AIFMD  and  UCITSD  frameworks.  In  particular,  this  option  would  entail 
amending  the  UCITSD  and  AIFMD  to  remove  the  provisions  that  allow  Member  States  to 
interpret, supplement, or derogate from core rules and which impose barriers to the development 
of the single market. Furthermore, this option would involve greater harmonisation of the conduct 
and prudential rules for asset managers, so that each management company and AIFM would be 
subject  to  the  same  risk  management,  organisational,  and  conduct-of-business  obligations 
regardless of their home jurisdiction.  

In parallel, this option considers implementing an EU depositary passport for UCITS and AIFs, 
which would enable fund managers to appoint a depositary located anywhere within the EU, while 
allowing  depositaries  to  offer  their  services  on  a  cross-border  basis.  Considering  that  most 
depositaries are currently credit institutions or investment firms, the EU-level depositary passport 
would  build  on  the  passport  that  already  exists  for  those  institutions  under  the  Capital 
Requirements Directive (‘CRD’) and MiFID. Limiting the passport to such entities would also be 
more optimal from  a financial stability  and investor protection perspective, as they are already 
subject to harmonised EU-level authorisation, prudential requirements, and supervision, ensuring 
consistent safeguards across Member States.  

Finally,  this  option  would  entail  technical  adjustments  to  the  current  investment  limits  in  the 
UCITSD  to  allow  UCITS  greater  flexibility  to  invest  in  securitisations  and  indices  without 
undermining  the  core  principles  of  risk  diversification  and  investor  protection.  These  technical 
measures are further detailed in Section 5.4 of Annex 9.  

Stakeholders  identified  several  implementation  issues  with  the  fund  marketing  passport  across 
Member States. Issues highlighted include differing and lengthy notification processes, diverging 
national requirements for marketing and fund documents, complex structures for regulatory fees 
and  charges.  These  divergences  create  costs,  delays,  and  legal  uncertainty,  especially  for  pan-
European  distribution.  Respondents  also  noted  that  the  current  passporting  provisions  for 
management companies are not reflected in a consistent way in domestic legislation by Member 
States. This option aims to eliminate inefficiencies and duplication due to diverging national and 
supervisory frameworks. 

Innovation (DLTPR) 

Under this option, the DLTPR would be amended to relax the existing limits to its scope (in relation 
to the threshold, eligible assets, and eligible participants).  

In  order  to  enable  larger  tokenisation  projects,  this  option  would  remove  the  product-specific 
thresholds,  while  significantly  increasing  the  aggregate  threshold.  The  scope  of  eligible  assets, 
currently  limited  to  certain  shares,  bonds  and  UCITS,  would  be  extended  to  all  financial 
instruments. Finally, as regards eligible participants, small scale so-called ‘Tier 2’ businesses - that 
want to enter the market by building small scale trading and settlement solutions and have limited 
resources - would benefit from regulatory flexibility and proportionate compliance under CSDR, 
with  reduced  requirements,  thanks  to  tailored  level  2  provisions  and  potential  amendments  to 
certain non-essential level 1 provisions of CSDR, with the aim of simplifying the rulebook. The 
set of eligible participants would be expanded to include credit institutions and CASPs holding a 
licence to operate a trading venue.  

In addition, amendments to the DLTPR would be introduced to increase the regime flexibility, in 
particular to accommodate new business models. For instance, to further support diverse business 

59 

 
 
models and leverage DLT advantages for post-trading operations, eligible participants could be 
allowed to get licenced for individual CSD services, rather than pursuing a complete CSD licence. 

In parallel, under this option, neither the DLTPR nor the authorisations granted under it would 
have an expiration date, with the specific objective of providing the market with legal certainty for 
long-term investments in projects under the DLTPR. 

The  targeted  consultation  highlights  the  need  for  DLTPR  to  remain  an  adaptive  regulatory 
framework  that  evolve  with  market  developments,  with  thresholds  and  eligibility  criteria  to  be 
reviewed periodically by authorities like ESMA, to ensure the DLTPR remains competitive as the 
DLT landscape matures. Stakeholders sees the following issues as critical for the success of the 
DLTP: expanding the scope of eligible assets (from tokenized physical assets to all types of stocks 
and  all  financial  instruments  under  MiFID  II);  adapting  or  removing  the  limit  on  the  value  of 
financial instruments traded, which severely limit the scalability and economic viability of projects 
within the regime; and removing the limited duration of DLTPR licenses. 

Option 3 – Far-reaching review of the functioning of capital markets 

Trading 

The measures outlined under this option as regards trading build on Option 2 and complements it 
with one additional measure: mandatory connection between significant trading venues.  

Under this option, a subset of significant trading venues, which would also be subject to ESMA 
supervision, would be required to establish interconnections with one another. This would be with 
a view to enabling members of each of those venues to submit orders for execution on other venues 
within the interconnected network, without necessitating membership or direct connection to those 
other trading venues. 

This option would not transform the forementioned venues into executing brokers, subjecting them 
to best execution rules. Rather, venues participating in the network would serve as mere technical 
conduits, facilitating brokers' ability to directly place orders on diverse venues within the network. 
To this extent, this option differs substantially from the US 'Order Protection Rule' (also known as 
Reg NMS rule)140, which mandates exchanges to re-route orders received to the exchange offering 
the best available price (or National Best Bid and Offer, NBBO), thereby placing the onus on every 
exchange to identify the most favourable venue of execution. In contrast, under this option, brokers 
relying  on  the  interconnection  offered  by  venues  within  the  network  would  retain  full 
responsibility for selecting the venue for order execution, and would consequently remain liable 
for ensuring the best execution vis-à-vis their clients. 

Establishing this interconnection would necessitate that each concerned venue becomes a technical 
member of the other venues, and that each concerned venue implements a technical solution to 
submit orders on other venues within the interconnected network (technical connectivity). While 
the former requirement (membership) does not imply significant complexity nor cost, the latter 
(technical  connectivity)  necessitates  that  venues  ensure  they  are  capable  of  (i)  interacting  with 
each  venue's  communication  protocol,  thereby  allowing  communication  with  the  target  venue 

140 Rule 611 of the Regulation National Market System established intermarket protection against trade-throughs for 
certain shares. Due to this rule, trading venues are prevented from executing orders if a better execution price can be 
found on another exchange. 

60 

 
 
 
 
(software component), and (ii) physically conveying messages to other venues within the network 
(hardware component). 

This option would not prescribe a specific technical setup for venues in scope, as the choice of 
solution would depend on factors such as projected volumes of cross-border orders to be placed 
through the interconnection mechanism and the specific venues involved. 

Asked whether intermediaries should be obliged to connect to all venues in the EU, respondents 
to the targeted consultation were overall reluctant. The reasons for this reluctance appear to be 
mostly related to cost that would be disproportionately high, especially for smaller and mid-sized 
firms,  which  would  ultimately  be  passed  on  to  investors.  According  to  stakeholders,  limits  to 
additional connections are mainly driven by cost considerations and lack of demand. Post-trade 
fragmentation and lack of full CCP interoperability are also cited as playing a role.   

Post-trade 

The  measures  outlined  under  this  option  as  regards  post-trading  build  on  Option  2  
and complements it with two main alternative and more far-reaching measures. 

First, under this option, a CSD would be able to provide services in relation to securities issued 
according to the law of all Member States, regardless of whether there is any intention to serve 
markets in a particular Member State and without an ex-ante notification.  

Second,  under  this  option,  T2S  would  be  transformed  into  a  CSD  (‘T2S  CSD’)  and  all  CSDs  
in the EU would be required to connect to it via bi-directional links. To facilitate this arrangement, 
T2S as a CSD would be required to serve all EU currencies for settlement in central bank money 
and would be required to allow settlement in commercial bank money.  

Asset management 

The measures outlined under this option builds on Option 2 and complement it with alternative 
measures on asset management groups. As opposed to each entity in the group being authorised 
individually,  which  would  still  be  the  case  under  option  2,  under  this  option,  a  group-level 
authorisation mechanism for asset management groups under the AIFMD and UCITS would be 
introduced,  whereby,  in  cases  where  asset  managers  operate  as  part  of  a  group,  a  single 
authorisation would be granted to the parent undertaking of the group. 

Respondents to the consultation express scepticism about this measure. Most do not see the need 
for  group  level  authorisation  and  supervision,  as  asset  managers  operate  under  highly  diverse 
business models, and there is no uniform structure across the industry, and few respondents sees 
efficiency gains and cost reductions that a group perspective would bring. 

Innovation (DLTPR) 

This option goes beyond the DLTPR measures foreseen in Option 2, by removing all limits as 
regards  the  scope  and  scale  of  trading  and  settlement  activities  covered  by  this  regime.  In 
particular, this option would completely abolish activity and product limitations under the DLTPR, 
de facto converting the framework from a sandbox regime into a full-fledged regular regime.  

Under  this  option,  the  DLTPR  would  be  also  open  to  a  very  broad  range  of  financial  service 
providers, who could obtain a licence through a risk-based process to offer DLT-based trading and 
CSD services.

61 

 
 
Table 3 - Summary table on the description of options 2 and 3 on barriers to cross-border operations and innovation 

Broad review and far-reaching review of the functioning of capital markets  
Trading – Broad review under option 2 

1.  Further harmonise trading venues rules and enhance passporting opportunities for RMs and their operators are 
enhanced. Introduce a ‘Pan-European Market Operator’ status allowing single-licence operation of trading 
venues in multiple Member States. 

2.  Facilitated allocation of resources within Group comprising multiple trading venues across several Member 

States allowing effective leveraging of economies of scale. 

3.  Brokers’ direct access to trading venues would be simplified.  

Trading – Far-reaching review under option 3  

Driver/Barrier addressed 

rules,  gold  plating, 
Divergent 
barriers to cross-border operations 

Burdensome 
requirements, 
limitations  to  economies  of  scale 
within group 
Limited 
especially cross-border 

interconnectedness, 

4.  Measures 1-3, complemented with mandatory connection for re-routing orders between significant trading 

Same as above 

venues. 

Post- Trading – Broad review under option 2 

5. 

 Limit the possibility of Member States to impose additional requirements on issuers to improve freedom of 
issuance. 

Divergent rules, gold plating 

6.  Strengthen technological neutrality of post-trade legislation (updating relevant definitions, concepts, and 

Burdensome requirements 

requirements). 

7.  Right of an authorised CSD to automatically provide services, or set up a branch, in any Member State in the 

EU without additional requirements other than notification. 

8.  Mandate EU CSDs to establish a connection to the T2S platform in the case that they settle in a T2S-

supported currency.  

9.  Mandate CSDs serving as hubs to connect to each other while requiring the other CSDs to connect to at least 
one CSD hub. Such links should be bi-directional, interoperable, and able to settle all financial instruments 
available for settlement with the given CSD. The process to establish links is to be simplified and streamlined. 
ESMA is mandated to codify standards for harmonising settlement operations. 

Post- Trading – Far-reaching review under option 3  

Burdensome  requirements,  gold 
plating 
Limited interconnectedness 

Limited interconnectedness 

10.  Measures 5 and 6, with alternative measures for 7, 8, 9:  
11.  As alternative to measure 7: Right of an authorised CSD to automatically provide services, or set up a branch, 
in any Member State in the EU regardless of whether there is any intention to serve markets in a particular 
Member State and without notification. 

Same as above 

62 

 
 
 
 
 
 
 
 
12.  Measure 8, complemented with T2S legally becoming a CSD (‘T2S CSD’), allowing it to offer all CSD core 

services. 

13. As alternative to measure 9: all CSDs in the EU would be required to connect to ‘T2S CSD’ via bi-directional 

links. To facilitate this arrangement, T2S as a CSD would be required to serve all EU currencies. 

Asset management – Broad review under option 2 

14.  A new “passporting upon authorisation” regime would grant UCITS funds and AIFs (through their AIFMs) 
single market access to their chosen Member States upon authorisation. The data platform will streamline 
cooperation between home and host NCAs.  

Burdensome  requirements,  gold 
plating 

15.  The marketing rules under the CBDR would be reviewed to create a common EU framework and reduce 

Divergent rules, gold plating 

national divergences on marketing communication. 

16.  Improve the operating conditions for asset management groups by facilitating the use of intra-group resources 

Burdensome requirements 

and delegation of functions across different entities within the same group in the EU. 

17.  EU depositary passport. 

Asset management – Far-reaching review under option 3 

18.  Measures 14, 15 and 16, with alternative measure for 17 
19.  As alternative to measure 17: Group-level authorisation 

Innovation (DLTPR) – Broad review under option 2 

Burdensome requirements 

Same as above 

20.  Removal of time limits. 
21.  Scope of eligible instruments increased to include all financial instruments. 
22.  Simplification of the Pilot for small businesses. 
23.  Removal of product specific thresholds and significant increase of the aggregated threshold (currently EUR 6 

Barriers to take up of innovation 
Barriers to take up of innovation 
Barriers to take up of innovation 
Barriers to take up of innovation 

billion). 

24.  Eligible participants to include CASPs. 
25.  License for individual CSD services. 

Innovation (DLTPR) – Far-reaching review under option 3 

26.  Measures 20, 21, and 22 with alternative measures 23, 24, and 25  
27.  As alternative to measure 23: removal of all threshold. 
28.  As alternative to measure 24: In addition to CASPs and credit institutions, inclusion of asset managers, 
payments institutions, central counterparties (CCPs) and authorised crowdfunding service providers. 

29.  As alternative to measure 25: Possibility of a license through a risk-based process to offer DLT-based trading 

and CSD services. 

Barriers to take up of innovation 
Barriers to take up of innovation 

Same as above 

63 

 
 
 
 
 
 
 
 
 
 
 
 
5.3.2.  Policy options to address Non-aligned supervisory practices and weak tools 

and powers at EU level 

This section provides an overview of the options considered to address the non-aligned supervisory 
practices across Member States141 and weak tools and powers at EU level to enforce convergence. 
It describes the most significant measures expected to have the largest impact, across the areas of 
intervention (trading, post-trading, asset management and crypto assets), with a tabular overview 
provided in Table 4. More details, also on a sectoral basis, can be found in Section 4 of Annex 11 
‘Supervision’.   

Baseline scenario (Option 1) – Do nothing  

This is the baseline scenario (see Section 5.1). 

Option  2  –  Improved  supervisory  convergence  and  an  enhanced  role  for  ESMA  in 
supervision 

Under this option, non-aligned supervisory practices would be addressed by enhancing ESMA’s 
supervisory role and improving supervisory convergence. This would be done by (1) transferring 
supervisory powers over certain trading venues, CCPs and CSDs and all CASPs to ESMA, (2) by 
giving ESMA a more operational role in the supervision of large asset managers without exercising 
direct supervision, (3) by strengthening ESMA’s governance structures to ensure more efficient 
and transparent supervision, and (4) enhancing the use of existing supervisory convergence tools 
(e.g. breach of Union law procedure, no-action letters, peer reviews, emergency powers, delegation 
of tasks and responsibilities) as well as introducing new ones, such as collaboration platforms.   

The proposal for direct supervision of large trading venues, CCPs, and CSDs is justified by the 
need  to  address  fragmented  supervisory  practices  that  have  been  detected  and  which  present 
barriers to integration within the Single Market. It also simplifies the supervisory arrangements, 
notably  for  groups  operating  on  a  cross-border  basis  who  currently  face  multiple  regulators.  
In  addition,  the  proposal  aims  to  enhance  the  capabilities  to  identify  and  manage  significant 
systemic risks that the failure or malfunction of those entities could pose to the stability of the EU's 
capital market. The failure or malfunction of one of these critical market infrastructure entities can 
have a ripple effect, disrupting trading, clearing, settlement, and liquidity across all EU markets 
simultaneously. This interconnectedness and potential for contagion necessitates a single, unified 
supervisory  approach  to  ensure  the  safety  and  soundness  of  EU  capital  market  and  support  its 
development. 

To determine which entities would fall under direct supervision, a set of clear criteria would be 
established,  taking  into  account  size,  systemic  importance,  and  cross-border  activity  or  pan-
European group dimension. This would enable regulators to identify and monitor those entities 
that  pose  the  greatest  risk  to  the  stability  of  the  market.  Additionally,  to  prevent  regulatory 
arbitrage and ensure a level playing field, CSDs that are part of a group with at least one member 
subject to ESMA supervision would also be subject to ESMA supervision. Similarly, all trading 
venues  operated  within  a  group  subject  to  ESMA  supervision  would  be  subject  to  ESMA 
supervision. By centralising supervision only for those trading venues, CCPs and CSDs that are 
considered  systemic  or  have  a  significant  cross  border  presence,  this  option  addresses  the 
subsidiarity concerns expressed by several stakeholders in the public consultation. It would also 

141 While enforcement at the national level is crucial, this initiative focuses on EU-level supervision, and does not 
delve into the governance of NCAs at the national level. 

64 

 
 
 
 
preserve local supervisory expertise and proximity to national competent authorities for smaller 
entities, which many respondents considered important for effective oversight. 

Direct supervision for CASPs is proposed because this is a new market segment where supervisory 
competence is being created, therefore there is an opportunity to develop efficient and effective 
supervision  from  the start. Moreover, this is  inherently a  cross-border market  where integrated 
oversight is key to ensure adequate market monitoring. In addition to direct supervision, ESMA 
will  be  entrusted  to  conduct  market  surveillance  for  CASPs,  for  which  an  IT  tool  would  be 
developed.  

To  ensure  that  ESMA  receives  all  the  necessary  information  to  effectively  carry  out  its  new 
supervisory powers, it is necessary to redirect the reporting obligation from the NCAs to ESMA. 
These  are  not  new  reporting  requirements,  as  the  rules  already  provided  for  such  reporting  to 
NCAs. For example, in post-trading, CSDs regularly report the number and details of settlement 
fails  to  their  respective  competent  authorities.  For  CSDs  directly  supervised  by  ESMA,  this 
reporting will have to be redirected to ESMA, while for other CSDs, the reporting will remain 
toward the national authorities. The redirection of reporting flows will require investment into ITC 
systems by ESMA.     

This  option  also  entails  amendments  to  ESMA’s  governance  to  cater  for  the  new  supervisory 
powers. Supervisory decisions would be taken by a newly created Executive Board composed of 
independent members, with a non-objection procedure by the Board of Supervisors. In building 
up  supervisory  capacity  ESMA  would  rely  on  cooperation  with  NCAs  and  for  day-to-day 
supervision may rely on the cooperation with the NCAs.  

Option 2 proposes a stronger role for ESMA in promoting convergence and coordination in the 
supervision of large asset managers' groups and investment funds operating in the single market. 
Asset  management  groups  do  not  operate  market  infrastructure  characterised  by  significant 
network effects, and their activities are particularly heterogenous in terms of scale and scope, both 
in  terms  of  geographic  and  product  coverage.  Therefore,  enhanced  coordination  will  allow 
removing cross-border barriers to asset managers’ operation in the single market, without resorting 
to direct supervision. New tools and mechanisms at ESMA’s disposal to address barriers to cross-
border activities would include the mandates to organise, together with NCAs, joint assessment at 
group level  of asset managers and the creation of collaboration platforms, whilst strengthening 
ESMA’s binding mediation role, which it could also exercise on its own initiative. In addition to 
having this power at its disposal, ESMA would also be required to initiate mediation in clearly 
defined cases, ensuring its effective use. In addition, asset managers do not pose a direct systemic 
risk  to  financial  stability.  Instead,  systemic  risks  to  financial  stability  associated  with  asset 
management  are  primarily  indirect,  arising  from  potential  fire  sales,  liquidity  mismatches,  and 
excessive leverage. While these risks are still significant and warrant regulatory attention, they can 
be sufficiently mitigated through enhanced convergence and coordination of national supervisory 
practices, rather than through direct supervision by ESMA.  

In addition, this option proposes to improve supervisory convergence by ensuring that decisions 
within ESMA reflect an EU-wide perspective rather than purely national interests. For this reason, 
decisions in the area of supervisory convergence, i.e. opinions, recommendations, breach of Union 
law,  peer  reviews,  binding  mediation  etc.,  would  be  transferred  to  the  new  Executive  Board.  
At the same time, existing tools would be made more effective and easier to use, notably through 
improvements to the breach of Union law procedure (e.g. stronger enforcement powers, mandatory 
justification of inaction, and realistic deadlines) and an expanded binding mediation mechanism 
allowing financial actors and stakeholders to trigger it in cases of divergent supervisory practices. 
The toolbox would also be broadened to include proven mechanisms like collaboration platforms, 
65 

 
 
reinforcing  coordination  and  information  exchange  between  home  and  host  authorities  in 
significant cross-border cases. Notably, this option addresses the concerns expressed particularly 
by  public  authorities  in  the  public  consultation,  who  have  highlighted  persistent  supervisory 
divergences  and  limitations  in  the  practical  effectiveness  of  some  of  ESMA’s  supervisory 
convergence tools (see Problem Definition).  At the same time, ESMA requires a sustainable and 
transparent  funding  framework  to  match  its  expanding  mandate.  The  reformed  funding  system 
would ensure that new direct supervisory mandates are fully fee-funded. At the same time the legal 
architecture  for  fees  is  clarified  and  streamlined  to  enhance  ESMA’s  risk-based  approach  to 
supervision and reinforce ESMA’s transparency and accountability.  

Option 3 – ESMA single supervisor for all entities 

Under  this  option,  direct  supervisory  powers  over  all  entities,  including  trading  venues,  CCPs, 
CSDs, asset managers and CASPs, would be transferred to ESMA. With regard to governance, in 
addition to option 2, the Executive Board would take the final supervisory decisions with no Board 
of Supervisors involvement and the day-to day supervision would be carried out by ESMA without 
NCAs’ involvement. Option 3 in essence is building on option 2 in terms of ESMA governance 
but applied to all the players of the different sectors instead of a certain selected group of them.  

While  this  option  was  not  explicitly  tested  in  the  public  consultation,  the  feedback  received 
indicates that stakeholders generally do not see a clear added value in having all sectors centrally 
supervised at EU level. Respondents emphasised the importance of maintaining local supervisory 
expertise  and  proximity  to  market  participants,  as  well  as  close  cooperation  with  national 
competent authorities. Concerns relating to subsidiarity were also raised, suggesting that a fully 
centralised supervisory model is likely not supported at this stage. 

66 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Table 4 - Summary table on the description of options 2 and 3 on non-aligned supervisory practices across Member States and weak tools and powers at EU 
level   

Option 2 – Improved supervisory convergence and an enhanced role for ESMA in supervision 

1.  Improve supervisory convergence across the sectors by improving the incentives to use the tools through a more effective decision-

making system, by enhancing existing tools as well as introducing new ones. 

Driver/Barrier addressed 

Limited tools to enforce 
convergence 

2.  Transfer supervisory powers over certain trading venues, CCPs, CSDs and all CASPs to ESMA. ESMA to play a stronger role in 
the convergence and coordination of the supervision of large asset managers’ groups and investment funds operating across the 
single market. ESMA able to launch binding mediations at its own initiative. 

Adopt a comprehensive 
supervisory approach at EU 
level 

3.  Amend ESMA’s governance to ensure more agile and responsive decision-making and appropriate involvement of national 

expertise. 

Option 3 - ESMA single supervisor for all entities 

4.  Measure 1 with alternative measures for 2 and 3. 

5.  Alternative to measure 2: Transfer direct supervisory powers over all trading venues, CCPs, CSDs, asset managers and CASPs to 

ESMA. 

6.  Alternative to measure 3: The Executive Board would take the final supervisory decisions with no Board of Supervisors 

involvement. 

Adopt a comprehensive 
supervisory approach at EU 
level 

Same as above 

67 

 
 
 
 
 
5.4.  OPTIONS DISCARDED AT AN EARLY STAGE 

The option to convert all directives in the trading, post-trading and asset management sectors into 
regulations  was  discarded.  Maintaining  directives  in  certain  areas  ensures  a  balance  between 
unified policy objectives and localised implementation, in line with the subsidiarity principle. In 
addition, converting all provisions within directives could raise questions concerning their legal 
basis. The legal basis of some directives covered in this initiative was used to define conduct rules 
for financial sector professionals, such as investment firms and banks. Turning these directives 
into regulation would require changing the foundational approach to justify the use of a different 
legal basis used for regulations. While not impossible, this process would be difficult and complex, 
and not feasible within the timeframe decided at political level.  

For post-trade, the option to mandate all EU CSDs to establish bi-directional links with one another 
was discarded as too costly and inefficient.  

The  option  to  only  improve  supervisory  convergence  in  the  ESMA  regulation  and  maintain 
supervision at national level for all entities was discarded. Persisting with the current fragmented, 
nationally-focused supervisory framework would continue to affect adversely all financial sectors 
covered in the initiative. Relying exclusively on improving supervisory convergence to address 
the  challenges  in  EU  capital  markets  would  not  resolve  the  underlying  issues  of  market 
fragmentation and inefficiencies. Supervision would continue to rest primarily with NCAs, leading 
to  divergent  interpretations,  inconsistent  enforcement,  uneven  playing  field  and  regulatory 
arbitrage.  This  fragmentation  would  sustain  inefficiencies,  increase  compliance  burdens  – 
particularly  for  cross-border  entities  –  and  limit  effective  oversight,  investor  protection,  and 
financial stability. Stakeholders caution that inaction would exacerbate operational complexities, 
legal uncertainty, and an uneven playing field, ultimately hindering market integration and cross-
border business expansion, with the adverse consequences described in Section 2. In addition, the 
option of other entities besides ESMA (e.g. the ECB) taking an increased role in supervision was 
discarded. For post-trade, for example, ESMA has developed expertise in this space over the years 
leading to a logical continuation in increasing the supervisory powers granted to it, beginning with 
EMIR 2.2 in 2017 which made ESMA the supervisory authority of systemically important third-
country CCPs.  

6.  WHAT ARE THE IMPACTS OF THE POLICY OPTIONS AND HOW DO THEY COMPARE? 

This section provides an assessment of how each package of main policy options addresses the 
identified  problems  and  the  problem  drivers,  along  the  criteria  of  effectiveness,  efficiency  and 
coherence  with  EU  policies,  in  particular  the  SIU  strategy,  in  reaching  the  specific  objectives, 
compared to the baseline scenario. This assessment is mainly done horizontally across the areas of 
intervention (trading, post-trading, asset management, innovation). More detailed description of 
the different options can be found in the respective sectoral Annexes. 

This assessment is informed by the evidence collected since the publication of the SIU strategy, 
comprising calls for evidence, targeted consultation, bilateral engagements with stakeholders, and 
a “study on trading and post-trading” as well as a review of relevant literature. While the evidence 
gathered is robust, it reflects the current state of information and has some inherent limitations. 
Notably, a full quantification of impacts is often not possible given an inability of stakeholders to 
provide cost figures or estimation of benefits. It is also important to note that many of the figures 
referred in this impact assessment are based on estimates collected from select stakeholders and 
are therefore complex to extrapolate or aggregate (see also Annex 4). 

68 

 
 
This  assessment  focuses  on  the  significant  economic  impact.  The  package  of  the  main  policy 
options is  not  expected to have  any direct  significant  social,  environment or fundamental  right 
impacts. A dedicative analysis on competitiveness and SMEs can be found in Annex 5 and Annex 
6, respectively.   

6.1.  POLICY  OPTIONS  TO  ADDRESS  BARRIERS  TO  CROSS-BORDER  ACTIVITIES  AND 

INNOVATION 

6.1.1.  Broad review of the functioning of capital markets 

Effectiveness in meeting the specific objectives 

Trading  

The measures under this option would be effective in enabling further market integration and scale 
effects. 

Requirements applicable to RMs, as well as to MTFs and OTFs would be moved from a Directive 
(MiFID II) to a Regulation (MiFIR), removing differences in transposition in national laws and 
the  possibility  for  additional  gold-plating  by  Member  States.  This,  in  turn,  would  simplify  the 
overall  regulatory  landscape,  in  particular  for  cross-border  entities  or  groups,  avoid  an  uneven 
playing field among Member States, enhance legal certainty and enable market infrastructures in 
the  EU  to  scale  up  their  activities.  The  majority  of  respondents  to  the  relevant  question  in  the 
targeted  consultation,  representing  mostly  business  associations,  public  authorities  as  well  as 
trading venues, deemed an increase in the level of harmonisation of EU rules applying to trading 
venues and their operators necessary to foster cross-border operations.  

A  2020  study  conducted  for  the  Commission142  estimated  that  compliance  with  MiFID/MiFIR 
accounted  for  a  significant  portion  of  operating  costs  in  the  financial  markets  industry,  with 
average  one-off  compliance  costs  representing  1.44%  of  such  operating  costs,  and  ongoing 
compliance costs accounting for 2.2%. Notably, the study assessed that MiFID/MiFIR imposed 
the highest ongoing compliance costs and the second-highest one-off compliance costs among all 
financial services-related legislation. Although it is challenging to quantify the exact savings that 
could be achieved by simplifying the MiFID/MiFIR regulatory framework, these figures suggest 
that  any  simplification  efforts  (elimination  of  national  specificities,  gold-plating,  uniform 
application, etc.) would likely have a substantial impact on compliance cost savings for firms.  

The fully harmonised rulebook would be accompanied by enhanced passporting opportunities for 
RMs, notably through a clarification of the scope of activities that can be carried out in a Member 
State  without  establishing  a  fully-fledged  licensed  entity,  for  those  entities  that  would  like  to 
operate  on  the  basis  of  the  freedom  of  establishment  or  the  freedom  to  provide  services.  In 
particular, a new status for ‘Pan-European Market Operators’ (PEMO) would be introduced for 
cross-border market operators to allow for the operation of trading venues in multiple Member 
States on the basis of a single licence. This single PEMO licence, to be granted by ESMA, would 
allow  to  maintain  the  existence  of  ‘national’  markets,  thereby  preserving  proximity  with  local 
ecosystems,  without  the  need  for  their  operators  to  be  subject  to  individual  licenses  to  operate 
those markets. This would remove significant obstacles in cross-border operations that today result 
in  complex  operational  and  supervisory  arrangements  for  cross-border  infrastructure  operators. 

142 Study on the costs of compliance for the financial sector - CEPS 

69 

 
 
 
 
 
Ultimately, this facilitation of cross-border operations through a single license would also create 
incentives for legal consolidation, as the operations of trading infrastructure in several Member 
States would be significantly streamlined. 

The option would also simplify MiFID/R requirements and facilitate allocation of resources for 
those  entities  that  do  not  wish  to  rely  on  enhanced  passporting  opportunities  or  on  the  PEMO 
status,  and continue to operate as  a group of trading  infrastructures. According to  responses of 
trading  venues  to  the  targeted  consultation,  the  recognition  of  the  operational  specificities  of  a 
group of trading venues active in more than one Member State would create significant synergies 
within a group. By treating jointly (i.e. as a single entity) all entities comprised within a group for 
the purpose of resources allocation, rather than treating those entities as isolated units, groups can 
streamline operations, consolidate and cut resources, and eliminate redundancies. This recognition 
allows  for  shared  services,  centralised  procurement,  coordinated  decision-making,  and  better 
leverage of economies of scale.  

In  addition,  this  option  would  streamline  trading  venue  on-boarding  of  members  (i.e.  the 
application process followed by a person to become a member of such venue) through enhanced 
mutual recognition of memberships (for more details, see Section 3.2. of Annex 7 ‘Trading’.) 

It is expected that all the abovementioned measures would foster greater market integration and 
increase  cross-border  trading  activity,  as  well  as  incentivise  legal  consolidation  through  the 
facilitation  of  the  operation  of  cross-border  groups  of  trading  infrastructures.  Beyond  the 
facilitation of operations of trading  venues on a  cross-border basis, lower operational  costs for 
venues and brokers could indirectly benefit end-clients, as these savings might be passed down in 
the form of reduced brokerage fees (depending on the degree of competition in the market). This 
is particularly significant if brokers can more easily connect to a wider range of trading venues 
outside their local markets, either through streamlined membership processes, or because trading 
infrastructures  offer  more  efficient  connection  opportunities  through  enhanced  passporting  or 
intra-group synergies. This would mean that brokers could access markets they might not have 
engaged  with  under  more  cumbersome  onboarding  processes  and  ongoing  monitoring  of 
compliance  with  membership  requirements.  With  easier  access  to  a  broader  range  of  venues, 
brokers  could  enhance  their  service  offerings,  providing  clients  with  diverse  investment 
opportunities and competitive pricing, which could ultimately result in making investments more 
accessible and attracting a larger client base. 

Lastly, this option would help improve supervision by reducing fragmentation, in particular thanks 
to  the  harmonisation  of  requirements  under  MiFID/R.  For  instance,  the  harmonisation  of  rules 
applicable to the approval of changes to trading venues rulebooks would simplify the way new 
product launches are approached by supervisors.  

Post-trade 

The measures under this option would be effective in enabling further market integration and scale 
effects. They would do so notably by: reducing the burden for CSDs to provide services across 
borders  and  ensuring  freedom  of  issuance,  which  was  identified  by  36  of  49  respondents  (in 
particular CSDs and issuers) to the relevant questions in the targeted consultation as a substantial 
barrier to cross-border settlement activity; mandating all EU CSDs that settle in a T2S-supported 
currency  to  connect  to  the  T2S  platform,  a  proposal  supported  by  25  of  36  respondents  to  the 
targeted  consultation;  and  improving  inter-CSD  connectivity  via  an  increased  number  of  links 
between CSDs and the implementation of a hub and spoke model for EU CSDs by requiring CSDs 
identified as hubs to be interconnected and requiring others to connect to (at least) one CSD hub.  

70 

 
 
This option would also accomplish the objectives of the proposal by reducing the burden for CSDs 
when providing services across borders, thus reducing the costs of cross-border settlement. Legal 
clarity would also reduce costs for issuers, ensuring freedom to issue their securities in whichever 
EU  CSD  they  want  by  restricting  national  law  from  imposing  additional  requirements  that  go 
beyond EU law. This approach would reduce costs for investors as well.  

In addition, promoting the use of T2S and connecting the fragmented landscape with an increased 
number of links between CSDs would create a settlement network with several key, interconnected 
nodes at its centre, allowing participants in any EU CSD to settle securities transactions in any 
other CSD, thus increasing competition between settlement infrastructures. At the same time, this 
option  would  reduce  the  regulatory  burden  of  establishing  links  by  simplifying  the  application 
process and replacing the current regime with a more streamlined one, a proposal supported by 16 
out of 22 respondents to the targeted consultation (in particular CSDs). This option would also 
harmonise standards in settlement operations, facilitating further integration and supported by 37 
out of 41 respondents to the targeted consultation (in particular CSDs and CSD participants). 

Reducing the burden for CSDs to provide cross-border services, imposing a hub and spoke model 
for  the  settlement  landscape  and  promoting  the  use  of  T2S  will  have  the  combined  effect  of 
decreasing  existing  frictions  in  cross-border  settlement  operations  and  make  for  a  more 
interconnected settlement network in the EU. This will have implications for the transparency of 
settlement as there will be a decreased need for settlement internalisers to fill in the gaps inherent 
in the current fragmented settlement landscape. A decreased need for the services of settlement 
internalisers  would  increase  settlement  done  directly  in  CSDs,  which  would  allow  these 
infrastructures to reap further benefits from economies of scale leading ultimately to lower costs 
for CSD participants and end investors. 

Furthermore, this option would help improve supervision by reducing fragmentation, in particular 
thanks to the harmonisation of requirements for settlement in the CSDR and improvements for 
groups. For example, ESMA would be made the authority responsible for authorising interoperable 
links for all CSDs, and would only be able to refuse such a request in the case that this would 
threaten  the  smooth  and  orderly  functioning  of  financial  markets  or  cause  systemic  risk.  This 
specific  objective  would  nevertheless  only  be  partially  met,  as  divergences  between  national 
competent authorities would persist.                                                                                                   

Finally, the comprehensive review of the current framework would also facilitate innovation by 
removing  relevant  regulatory  obstacles.  This  would  be  accomplished  by  ensuring  that  the 
regulatory frameworks for settlement and settlement finality are technologically neutral and fit for 
purpose to facilitate the implementation of novel technologies. For example, key definitions and 
concepts – such as ‘book-entry form’ and ‘securities accounts’ – would be updated to ensure they 
accommodate settlement regardless of the underpinning technology. (For more details, see Section 
5.1.2.6 in Annex 8 ‘Post-trade’.) 

Asset management  

The measures under this option would effectively enable further market integration and achieve 
scale effects. The proposed measures are expected to be effective in tackling the divergent rules 
and burdensome requirements in asset management discussed in Section 2.2.1. 

Further market integration is achieved in various ways, notably by streamlining and harmonising 
the current authorisation and marketing notification procedures. 

71 

 
 
The new passporting upon authorisation regime and proposed review of the marketing rules under 
the CBDR stimulate the distribution of funds in multiple Member States, increasing market access. 
The harmonisation of the authorisation submissions for UCITS funds fosters greater supervisory 
convergence.  In  addition,  the  accompanying  centralised  notification  process  mitigates  national 
discretion  and  gold-plating,  and  the  increased  standardisation  of  processes  for  marketing  and 
business  operations  further  reduces  burdensome  requirements  and  costs.  The  measures  also 
contribute to legal certainty and more efficient fund management via shortened procedures.  

Further market integration is also supported by the measures on depositary services and delegation. 
The measures on depositary services create a more integrated market for these services, increasing 
the choice of depositaries for funds and competition in the market. The depositary passport also 
helps  to  develop  smaller  markets  in  which  depositary  services  may  currently  be  lacking  and 
limiting the growth of the investment market, notably by fostering higher quality and lower costs, 
thanks to increased competition. By building on existing EU authorisation and passporting regimes 
for  credit  institutions  and  investment  firms,  a  depositary  passport  could  be  introduced  without 
undermining financial stability or investor protection. The measures on delegation facilitate better 
use of resources within EU groups and more efficient EU-wide supervision of groups operating in 
the single market (see below). 

The proposed measures also mitigate burdensome requirements, notably by harmonising practices, 
reducing national discretion and gold-plating, and revising the rules on intra-group delegation.  

For  example,  the  proposed  measures  would  reduce  the  current  costs  associated  with  a  pan-
European strategy for an AIFM managing eight AIFs, which can be as high as EUR 500,000.143 
This is because the proposed measures would reinforce the current prohibition for the appointment 
of local physical agents, which can cost up to EUR 25,000 for one AIF with a pan-EU strategy, as 
well  as  reducing  the  overall  burden  of  complying  with  27  different  national  frameworks.  In 
addition, removing the pre-marketing ban will result in significant cost savings of approximately 
EUR 210,000 in fees payable for registration outside of the fundraising period for an AIF with a 
10-year lifespan marketing in 10 EU jurisdictions, as reported by one large AIFM. For investors, 
this would result in reduced costs and have the potential of improving investment opportunities. 

For UCITS, the costs associated with a pan-European strategy can be even higher. Moreover, the 
harmonised  procedures  and  predictable  timelines  for  UCITS  authorisations,  marketing 
notifications, disclosures in marketing communications and fund documents, limiting translation 
requirements to the key information documents, and strengthening rules on local physical agents, 
would reduce administrative uncertainty and lower legal and compliance costs. (Estimated cost 
savings are referenced below with more detail provided in Case Study 3 in Annex 9 on “Asset 
management”).  

On  top  of  the  measures  discussed  above,  burdens  are  further  reduced  by  allowing  EU  asset 
management groups to operate more efficiently. The proposed measures would remove the need 
to establish and maintain distinct resources dedicated solely to the oversight and monitoring of 
delegated activities carried out by entities belonging to the same group. In addition, the measures 
facilitate  the  efficient  centralisation  of  resources,  such  as  IT  systems,  compliance  teams,  risk 

143 For one AIF with a pan-European strategy, the annual cost is reported as EUR 65,000, broken down as follows: (i) 
total NCA fees of EUR 38,000 (which vary from EUR 800 to 1,400); use of “local agents” fees of EUR 25,000; and 
(iii) internal costs of organising ongoing arrangement of EUR 2,000).  The overall cost of EUR 500,000 excludes the 
legal costs associated with the payment of fees, those costs being much harder to estimate as they will depend on 
economies of scale, etc.  Further details are contained in Case Study 2 in Annex 9.  

72 

 
 
 
 
management functions, or administrative staff, alleviating the operational and financial burden that 
asset management groups currently face.  

Overall,  the  proposed  measures  would  be  effective  in  removing  all  the  national  discretions 
identified in the UCITSD and AIFMD (see Section 2.2.1 and Annex 9, Appendix A). 

The decision to market funds in multiple countries depends on strategic considerations such as a 
fund group risk appetite, the overall attractiveness of the target fund markets (including in terms 
of  expected  demand  and  competition)  and  associated  burdens  and  uncertainty  of  cross-border 
distribution. Due to the strategic considerations involved, aggregate impact cannot be quantified. 
However,  based  on  the  literature  reviewed  in  Section  2.1.1  and  anecdotal  evidence  from 
stakeholder outreach, the measures can be expected to have a positive effect. For instance, one of 
the largest asset managers based in the Nordic region reported that it would expand its European 
strategy  to  17  additional  Member  States  if  the  various  measures  to  remove  barriers  were 
introduced. In addition, the proposed measures could help to reduce the cost difference between 
cross-border  funds  and  single  country  funds,  which  is  on  average  estimated  to  amount  to 
EUR 400,000 additional fixed costs per cross-border fund per year (see Annex 9, Section 4.1). The 
same manager reported estimated annual cost savings of EUR 673,900 if the measures under this 
option were introduced, with considerable savings to be made where the physical local agent rules 
were reinforced (the current costs faced by that manager for local agents in three countries is EUR 
144,000). Finally, by fostering the efficient operation of funds in the single market, the proposed 
measures are expected to contribute to economies of scale, which in turn would reduce the ongoing 
costs faced by investors. As illustration, in case the measures resulted in a  10% increase in the 
share class assets, aggregate ongoing costs would decrease by EUR 521.95 million144, following 
ESMA  (2025).  However,  without  further  information  on  funds’  cost  functions  the  expected 
increase in assets cannot be estimated.  

Innovation (DLTPR)  

The  measures  under  this  option  would  be  effective  in  facilitating  innovation  by  removing 
regulatory obstacles. The broad review of the DLTPR would aim at capitalising on the growing 
increase  in  market  interest,  globally  and  in  the  EU,  in  leveraging  DLT  for  financial  services.  
It would do so through three sets of measures.  

Firstly, they would expand the scale and scope of the DLTPR to support its commercial viability, 
while  keeping  the  DLTPR  subject  to  certain  limitations  especially  in  terms  scale.  This  would 
ensure that successful participants in the DLTPR have the possibility to scale their solutions as 
their operations mature. Making thresholds more permissive and the regime more permanent has 
been  recommended  by  ESMA  to  help  projects  reach  economic  viability  and  deepen  market 
liquidity  This  would  also  attract  a  broader  range  of  participants,  especially  large  financial 
institutions  that  find  the  current  thresholds  too  limiting  to  establish  large-scale  trading  and 
settlement  platforms.  These  measures  would  address  the  current  shortcomings  of  the  DLTPR, 
thereby ensuring that it remains fit for the purpose of supporting market structure modernisation 

144 Based on Table 1, the average fund size would increase from EUR 365 million to 401.5 million. In calculating the 
aggregate cost savings due to a 10% increase in average fund size, each fund saves EUR 8,030 from lower ongoing 
costs, as per ESMA (2025) study's indication of a 0.002 percentage point reduction. With 65,000 funds in the industry 
(see  Table  1),  this  results  in  total  savings  of  EUR  521.95  million.  This  calculation  stems  from  multiplying  the 
individual  savings  with  the  total  number  of  funds,  demonstrating  significant  scale  efficiencies  across  the  asset 
management sector. 

73 

 
 
 
 
in the EU. Increasing the scale and the scope of the DLTPR would remove some of the current 
regulatory obstacles stifling innovation. 

Secondly,  measures  under  this  option  would  increase  the  regulatory  flexibility  and  compliance 
proportionality  of  the  DLTPR.  By  establishing  a  special  segment  within  the  DLTPR  aimed  at 
small-scale businesses (‘tier 2’ segment) that would benefit from a simplified rulebook, this option 
would directly deliver on the objective of ensuring proportionality and flexibility of the DLTPR 
for small innovative businesses. Evidence from supervisory sandboxes as shown by the OECD145 
indicate  that  proportionate,  principles-based  approaches  and  lighter  rulebooks  for  small  firms 
reduce  entry  barriers  while  preserving  consumer  and  market  safeguards  when  combined  with 
active  supervision.  By  establishing  a  more  general  framework  that  disapplies  parts  of  level  2 
requirements and potentially non-essential level 1 requirements, competent authorities applying 
this rulebook would rely on the principles-based obligations of CSDR to approve and supervise 
firms wanting to provide CSD services. By doing so, they may be able to better take into account 
the specific business model of a DLTPR applicant and its risk profile. This would make it easier 
for smaller businesses to deploy DLT-based trading and CSD services. It  would also allow the 
competent  authorities implementing the DLTPR to  consider  applications  based on the  risk and 
operational features of a particular project or business model, rather than adhering to a one-size-
fits-all approach. Well-designed proportionate regimes can accelerate learning for both regulators 
and  firms  while  preserving  financial  stability  as  shown  by  OECD.  In  addition,  clarifying 
ambiguities  regarding  the  long-term  viability  of  the  Pilot  regime,  along  with  a  service-specific 
approach  to  regulating  CSD  services  and  application-driven  derogations  from  the  standard 
rulebooks, would provide additional flexibility for experimenting with new business models and 
intermediary roles on DLT – not just for small entities but also large ones. Such flexibility aligns 
with  recommendations  from  the  Bank  for  International  Settlements,  which  emphasised 
proportional  innovation  pathways  as  key  enablers  for  distributed  ledger  adoption  in  regulated 
markets.146 

Thirdly,  as  neither  the  DLTPR  nor  the  authorisations  granted  under  this option  would  have  an 
expiration  date,  it  would  reinforce  investors’  confidence  and  provide  the  market  with  legal 
certainty for long-term investments in projects under the DLTPR, therefore removing a regulatory 
uncertainty of the DLTPR.  

Efficiency  

Trading  

The adaptation to a new, further harmonised rulebook will entail some costs for entities managing 
trading infrastructure because of the modification of national rules (i.e., the deletion of national 
specificities). However, these costs are expected to be mostly one-off and by no means comparable 
to the benefits that are expected to be drawn by those same entities from the simplification of the 
regulatory landscape. Therefore, while it was impossible to quantify the level of one-off adaptation 
costs nor a precise level of generated benefits, it is expected that overall infrastructure entities are 
likely to obtain a net benefit over a mid to longer term horizon.  

role  of 

sandboxes 

145  OECD  The 
https://www.oecd.org/content/dam/oecd/en/publications/reports/2020/06/the-role-of-sandboxes-in-promoting-
flexibility-and-innovation-in-the-digital-age_ddcd3d40/cdf5ed45-en.pdf?utm_source=chatgpt.com  
146  BIS  Wholesale 
https://www.bis.org/publ/othp99.htm  

flexibility  and 

bank  money 

in  promoting 

technological 

innovation 

context 

central 

the 

of 

in 

in 

the  digital  age 

innovation, 

74 

 
 
 
 
Measures such as enhanced passporting opportunities for RMs, the creation of a PEMO status to 
allow the operation of multiple trading venues in multiple Member States on the basis of a single 
licence, and harmonisation and simplification of requirements on trading venues would bring about 
significant cost savings for entities with cross-border activities. Submission of data and views of 
multiple  operators  of  trading  venues  support  this.  Exchange  groups  report  the  largest  potential 
saving from the removal of the requirement to maintain multiple legal entities to operate cross-
border as a group. Removing discretion to impose additional requirements at national level and 
removing the need to obtain approval for updates of exchange rulebooks from several competent 
authorities bring about additional cost savings. In total, the groups that contributed input reported 
expect savings between EUR 29 and 74 million per year. If all groups of trading venues that operate 
across Member States would similarly benefit from the proposed measures in proportion to the 
volume traded, one can extrapolate that expected savings would range between EUR 47 and 120 
million  per  year  across  all  trading  venues  belonging  to  a  group.  These  are  predominately 
administrative  costs  that  currently  arise  from  duplicative  compliance  functions  and  processes 
across  groups  and  their  trading  venues  operated  in  different  Member  States.  In  some  cases, 
diverging supervisory practices add further costs as procedures must be tailored to the respective 
approach taken by NCAs. Parts of the cost savings will be passed on to brokers and downstream 
investors. Downstream investors in particular are estimated to save EUR 11.25 to 30 million given 
the current market structure and expected pass-through rate (see Annex 7 for details). In addition, 
the  creation  of  a  PEMO  status  would  further  facilitate  the  streamlining  of  operational  and 
supervisory arrangements of groups of trading venues, while maintaining the existence of local 
‘national’ markets. Lastly, it is expected that the PEMO structure, by enabling a leaner operational 
structure  of  trading  venues,  would  act  as  a  first  step  towards  the  effective  pooling  of  liquidity 
across  trading  venues  operated  by  PEMOs  (while  maintaining  national  ‘entry  points’).  Those 
effects are even likelier to materialise as actions at the level of post-trade, such as the facilitation 
of cross-border CSD operations, will enhance synergies at the trading level. Therefore, brokers 
(and,  eventually,  end-clients)  will,  in  the  longer  term,  benefit  from  a  more  efficient  trading 
environment derived from the more efficient organisational and supervisory structures enabled by 
the PEMO status. 

Likewise,  enhanced  intra-group  efficiencies,  particularly  through  recognising  the  operational 
specificities of groups, would save these entities thousands of work hours annually in managing 
different regulatory requirements. Additional savings from operational efficiencies – such optimal 
allocation of resources and avoiding duplicative functions – could be substantial. For instance, one 
exchange has noted significant potential savings as a result of: 

- 

- 

rationalising compliance function teams, especially if combined with compliance function 
related to post-trading activities, where applicable; and  
rationalising resources dedicated to market operations, including market surveillance (for 
example to detect possible market abuse cases), regulatory reporting and membership, and 
reducing costs for such operations by up to 30%, which can result in savings amounting to 
figures  in  the  low  millions),  plus  additional  savings  from  the  avoidance  of  duplicative 
teams in certain Member States only. It would also facilitate more efficient use of capital 
and  human  resources  across  the  group,  reducing  duplication  of  efforts  and  enabling 
consistent policy implementation.  

Streamlining of trading venue membership processes would give rise to only small costs for venue 
operators,  while  brokers  would  be  able  to  make  significant  savings  both  in  terms  of  initial 
membership  on-boarding  processes  as  well  as  ongoing  monitoring  of  compliance  with 

75 

 
 
membership rules.  A majority of trading venues polled147 on this specific topic concur that the 
overall benefits of these measures would significantly exceed the costs. It is estimated that large 
broker active in the entire EU could save EUR 100-500 000 per year by not having to maintain 
separate memberships, should this measure lead to a total alleviation of membership fees.  

Post-trade 

This  option would ease  the regulatory burden,  reduce costs and thus  improve the  efficiency of 
providing services across borders. It would do so by: ensuring freedom of issuance; facilitating 
passporting  and  the  cross-border  provision  of  services;  simplifying  the  application  process  for 
establishing  links  between  CSDs;  and  promoting  inter-CSD  connectivity.  CSDs  would  benefit 
from a decrease in compliance costs, the benefits of which should trickle down to their participants 
and through to end investors. Legal clarity would also reduce costs for issuers, ensuring freedom 
to issue their securities in whichever EU CSD they prefer, which would also have implications for 
increased  competition,  leading  ultimately  to  a  further  decrease  in  settlement  costs  for  market 
participants along the settlement chain.  

In the case that a CSD needed to establish a connection to T2S, the CSDs would have to incur an 
initial  one-off  investment  in  the  technical  and  legal  arrangements  necessary  to  facilitate 
connectivity and the outsourcing of settlement to the T2S platform. As the nine CSDs in the EU 
that are not yet connected to T2S are relatively small, and using an estimate on the low end of the 
range for costs of connecting to T2S (see Section 2.2.1.), a total one-off cost could amount to over 
EUR 200 million. In addition, annual maintenance costs could amount to up to EUR 9 million for 
the concerned CSDs.  However, as more settlement is concentrated in the T2S platform, the cost 
of  settlement  services  should  drop  as  the  CSD  would  no  longer  need  to  maintain  its  own 
proprietary settlement infrastructure, and as the cost of settling in T2S decreases with the growing 
amount of settled transactions. Cost savings would be compounded by harmonisation of standards, 
which would streamline processes and decrease compliance costs. As a result, transaction costs 
could decrease by about 30% compared to settling in a CSD not connected to the platform. This 
would translate to a savings of at least 0.15 euro per transaction and a saving of at least EUR 86 
million in settlement fees paid by market participants if T2S was fully utilised by EU CSDs. Once 
the Eurosystem amortises the cost of the T2S platform (envisaged in 2029), it is expected that T2S 
fees will further decrease. 

Investments would also be needed for CSDs required to establish and maintain inter-CSD links. 
Cost of establishing the necessary technical and legal arrangements for an inbound link can vary 
widely. A simple link established between two T2S-connected CSDs could entail an initial cost of 
EUR 30 000 to EUR 60 000. Such costs should however be offset by the fact that a peripheral 
CSD would only be required to establish a single link to one CSD hub while most CSDs in the EU 
currently maintain up to four links. Moreover, the increased interconnectivity should reduce the 
fragmentation in the settlement landscape, promote competition, and ultimately improve access to 
investment opportunities, leading to a deeper, more liquid capital market with lower costs borne 
by market participants. Investment costs should be fully amortised within up to 5 years, allowing 
for a further decline in settlement costs (For more details, see Section 6.1.2.4 of Annex 8 ‘Post-
trade’). As a result, up to EUR 0.5 billion annually in efficiency gains could be potentially achieved 
if the cost of the two CSDs in the USA are taken as a benchmark (although it is important to keep 

147 Results from a targeted outreach to a representative set of relevant and significant stakeholders for that matter. 

76 

 
 
 
 
in mind that the settlement landscape is more complex in the EU, e.g. due to the greater number 
of settlement infrastructures in the EU)148.    

Asset management 

Measures  under  this  option  concerning  investment  funds,  asset  managers,  and  depositaries  are 
designed to directly target existing barriers to cross-border activities within the EU. By reducing 
legal and operational frictions that currently fragment the market, these measures would strengthen 
the integration of the fund sector and reduce costs caused by regulatory burden.  

In  parallel,  the  review  of  marketing  rules  would  tackle  costly  national  divergences.  Moreover, 
while the changes to existing marketing processes may entail short-term costs, these are expected 
to be outweighed by the long-term benefits. EU-wide harmonisation of marketing communications 
and disclosure requirements eliminates the burden of country-specific rules, while ending NCAs 
optionality  for  ex-ante  checks  of  marketing  communications  and  new  share  class  notifications 
would remove current delays that slow down fund distribution in the single market.  

On intra-group delegation, one large asset manager, which is authorised in four Member States 
and  has  branches  in  seven  Member  States,  reported  that  recognising  the  notion  of  asset 
management  group  in  the  specific  case  of  intragroup  delegation  arrangements  will  result  
in  avoiding  duplication  of  reporting  and  would  substantially  alleviate  the  regulatory  burden  
and associated costs. 

These measures would be further supported and reinforced by stronger supervisory coordination. 
Creating  common  rules  and  procedures  would  make  ESMA-led  cooperation  with  NCAs  more 
effective,  particularly  for  the  largest  cross-border  groups.  Enhanced  supervisory  convergence 
would  ensure  consistent  application  of  rules  across  Member  States,  preventing  protectionist 
practices and reducing compliance uncertainty. In this way, the efficiency gains from simplified 
cross-border  activity  and  lower  costs  would  be  safeguarded  by  a  more  coherent  supervisory 
framework, where harmonised rules and stronger coordination are mutually reinforcing. 

Innovation (DLTPR) 

Improving regulatory flexibility and making compliance more proportionate within the DLTPR, 
along  with  expanding  the  scale  and  scope  of  activities  carried  out  and  assets  issued  under  this 
framework, would create the conditions for a higher uptake of the regime. Greater flexibility in 
the DLTPR may increase supervisory costs of  EU and national  competent  authorities, as more 
entities are expected to apply. However, these incremental supervisory costs would likely be minor 
and manageable within existing resource frameworks., This is because most oversight is handled 
through  pre-existing  supervisory  structures,  thus  offering  a  favourable  cost-benefit  ratio  for 
broader  market  participation.  Additionally,  digitalisation  generally  reduces  per‑transaction 
oversight costs over time, meaning that potential short‑term increases in supervisory efforts should 
not be seen as a barrier to innovation or as a justification to delay the deployment of DLT‑based 
infrastructures in regulated markets.  

148 Any such comparisons and extrapolations are prone to uncertainty. The estimates need to be interpreted accordingly 
and are provided to illustrate the order of magnitude. 

77 

 
 
 
 
The Tier 2 framework for small businesses would allow for more NCA flexibility in applying the 
rulebook, hence would necessitate close ESMA involvement to ensure supervisory convergence 
across the EU.  

Service-specific licencing of CSD services could result in these services being provided by a group 
of  non-CSD  entities.  This  may  require  NCAs  to  allocate  more  resources  to  ensure  effective 
supervision of new business models which operate as networks of intermediaries across multiple 
jurisdictions. Consequently, ESMA’s closer involvement might be necessary to supervise these 
networks  of  CSD  service  providers,  where  post-trading  value  chains  may  end  up  being  more 
distributed and complex, while potentially more efficient. At the same time, easier auditability of 
blockchains – as the technology provides transparent, immutable, and cryptographically verifiable 
records – may facilitate supervision compared to non-cryptographically secured ledgers. Service-
specific licencing may increase operational risks in CSD services where networks of providers, 
rather than a centralised provider (traditional CSD), need to coordinate on DLT to ensure issuance, 
account  and transfer services. The increased operational risks could be somewhat offset by the 
heightened resilience of a distributed post-trading ecosystem.   

Expanding the scale and scope of the DLTPR, while keeping the activities subject to aggregate 
thresholds  that  can  be  revised  in  view  of  market  developments  and  based  on  concrete  DLTPR 
experience, would balance the need to allow businesses to grow under the DLTPR while keeping 
systemic  risks  from  large  scale  deployment  of  next  generation  digital  platforms  under  close 
control. 

Coherence 

This option would be coherent with the broader goals of the SIU strategy. It would also be coherent 
with  the  Commission’s priority  to  boost  Europe’s  competitiveness,  the  strategy  outlined  in  the 
Competitiveness Compass, the Single Market Strategy, the EU Start Up and Scale Up strategy,  
as well as the Communication on a Simpler and Faster Europe. 

By removing barriers to further deepening and integrating capital markets, the measures under this 
option  complement  other  EU  initiatives,  such  as  the  28th  regime.  By  streamlining  cross-border 
offering  of  trading,  post  trading  services  and  asset  management  services,  thereby  simplifying 
access  to  public  markets,  this  option  enhances  the  ability  of  companies  operating  under  a  28th 
regime to leverage the benefits of a more integrated EU capital markets even more effectively.  

Measures under this option would boost the attractiveness of EU capital markets, contributing to 
financing EU priorities. It would do so notably by increasing the harmonisation of the rulebook 
and  reducing  the  burden  for  trading  venues,  CSDs  and  asset  managers  to  operate  and  provide 
services across borders, thereby reducing the costs for all market participants and, in the innovation 
area,  by  ensuring  that  the  DLTPR  framework,  designed  to  support  DLT-based  innovation  in 
financial services, remains fit for purpose.  

Measures  under  this  option  would  also  contribute  to  the  Commission’s  simplification  agenda  
and the Single Market Strategy. It would do so notably by harmonising and streamlining certain 
parts of the rulebook in the trading, post-trading and asset management sectors. Measures in the 
trading venues sector, such as enhancing passporting opportunities, recognising the group concept 
and  streamlining  the  membership  process  would  play  a  key  role.  Similarly,  in  the  post-trading 
sector, ensuring freedom of issuance, facilitating cross-border provision of services, promoting the 
use  of  T2S and  simplifying  the  process  for  establishing  links  between  CSDs,  harmonising 
settlement  standards,  would,  among  other  benefits,  contribute  to  simplifying  regulatory 
requirements.  

78 

 
 
Finally, this option would be in  line with the Commission’s Digital Finance Strategy149, which 
explicitly  supports  the  deployment  of  new  technologies  in  financial  services,  by  ambitiously 
adapting the existing rulebook to accommodate new technologies, like DLT. It would allow service 
specialisation in line with the technology’s specificities, derogations from the established rulebook 
upon duly motivated requests by applicants. Furthermore, by increasing the activity thresholds of 
the DLTPR and the scope of eligible products, this option would support the scaling of DLT-based 
projects while still keeping the DLTPR in Pilot form. This is important to signal to the market that 
DLT-specific  rules  will  evolve  with  the  maturity  and  scale  of  DLT-based  financial  market 
infrastructures, incorporating policy learnings as they arise. This approach ensures coherence with 
the Digital Finance Strategy’s aim to accompany fast innovation cycles with regular adjustments 
to the applicable legislation. 

6.1.2.  Far-reaching review of the functioning of capital markets 

Effectiveness in meeting the specific objectives 

Trading  

The measures under this option would be effective in enabling further market integration and scale 
effects  through  increased  cross-border  activity.  In  particular,  this  option  would  be  effective  in 
addressing  the  current  challenges  faced  by  brokers  in  directly  accessing  liquidity  and  financial 
instruments, which is currently costly and complex. By eliminating the need for brokers to become 
members of multiple trading venues, or get indirect access to trading venues via intermediaries, 
this option would be more effective in addressing broker’s current needs than Option 2.  

the  currently  very  fragmented  settlement 

However, for this solution to function as envisaged, seamless interoperability in  post-trading – 
meaning  direct connectivity between all CSDs and all CCPs  – would be essential, particularly 
given 
infrastructure.  Without  comprehensive 
infrastructure  connectivity  in  post-trading,  the  effectiveness  of  this  measure  would  be  limited. 
While  connectivity  and  access  would  improve  at  the  trading-level,  cross-border  trades  would 
remain costly and less attractive, in particular for investors which trade smaller lot sizes (such as 
retail investors and small asset managers), because of the lack of economies of scale associated 
with the settlement of low volumes. Benefits for large institutional investors would also be limited 
compared to the costs, as they already have options to access fragmented liquidity pools.  

Post-trade 

By removing barriers to freedom of issuance, and by facilitating passporting and the cross-border 
provision of services, this option would increase cross-border activity, as it would reduce barriers 
to entry and allow CSDs to operate more easily across borders. By so doing, it would help meet 
the specific objective of enabling further market integration and scale effects. However, removing 
all additional passporting requirements and notifications could lead to a lack of transparency and 
accountability, as the home authority would not be notified of the intention to provide cross-border 
notary  and  central  maintenance  services  by  the  CSD.  Host  Member  States  would  also  not  be 
notified  and  hence  have  limited  oversight  and  control  over  the  CSD's  activities.  Hence,  while 
integrating the market, this option would also present potential risks to financial stability as well 
as pose a challenge to ensuring compliance with national and EU law. While turning T2S into a 
CSD and requiring all CSDs to link to it would enable further market integration and scale effects, 

149 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52020DC0591  

79 

 
 
 
 
concentrating  most  of  the  issuance  and  settlement  activity  in  T2S  CSD  could  also  reduce 
competition and would risk reducing innovation in the sector. 

Broadly speaking, removing many of the burdens for CSDs to provide cross-border services and 
mandating a fully interconnected settlement landscape with all CSDs connected to one another 
will have the combined effect of decreasing existing frictions in cross-border settlement operations 
and make for a more interconnected settlement network in the EU. 

This far-reaching review would help improve supervision by reducing fragmentation, in particular 
thanks to the harmonisation of requirements for settlement and improvements for groups, exactly 
the same way as for Option 2.  

Asset management 

The measures under this option would be effective in enabling further market integration and scale 
effects  through  increased  cross-border  activity.  This  option  would  involve  authorising  and 
regulating asset managers based on their group structure rather than at the individual entity level. 
Other measures proposed under option 2 would be kept, notably: harmonising and streamlining 
marketing requirements for UCITS funds and AIFs across the EU, such as the current fragmented 
national requirements for disclosures in fund documentation and ex-ante verification of marketing 
communications; and eliminating divergences in national laws and local regulatory practices to 
ensure consistency and reduce administrative burdens for cross-border marketing.  

However, this approach would imply a fundamental overhaul of the current authorisation regime 
for asset managers under the sectoral frameworks and would entail certain risks. First, the AIFMD 
and UCITSD license would most likely be granted to the parent entity of the group, which could 
be different from the entities that carry out regulated activities across the EU. This would require 
that  NCAs  in  the  Member  States  of  AIFMs  and  management  companies  within  the  group 
relinquish supervisory responsibilities over subsidiaries operating within their jurisdictions, raising 
concerns about the loss of local oversight. Second, there is a risk that the home supervisor may 
lack  sufficient  insight  into  the  specific  activities,  market  conditions,  or  risks  associated  with 
subsidiaries operating in other Member States, potentially undermining effective supervision and 
investor protection.   

Innovation (DLTPR) 

By increasing proportionality and flexibility of the DLTPR, based on a similar set of measures  
as under the broad review, this option would be equally effective in removing regulatory barriers 
to facilitate innovation for projects that apply for the DLTPR. 

Going beyond option 2, this option would remove aggregate and product-specific limits applicable 
to assets eligible to be intermediated by DLTPR participants. This would maximise the potential 
scale  and  scope  of  DLTPR  projects,  de  facto  abolishing  the  sandbox  nature  of  the  DLTPR 
framework,  thereby  making  it  more  effective  in  allowing  DLT  market  infrastructures  to  scale 
without  constraints  and  with  a  high  degree  of  legal  certainty.  All  this  would  support  the 
commercial  viability  of  large  and  diverse  projects,  encourage  participation  from  major  players 
such as banks and CSDs, and foster innovation and long-term investment. Under this option, a 
larger set of eligible participants to the DLTPR could attract wider variety of projects from broader 
parts of the financial industry under the DLTPR.  

However, converting the DLTPR into an unlimited framework, especially when policy learnings 
from  concrete  projects  are  still  limited,  could  result  in  rules  that  are  poorly  suited  to  this  fast-

80 

 
 
evolving area of finance, undermining the effectiveness of this option in supporting innovation by 
removing regulatory barriers. 

Efficiency 

Trading  

The option would mandate interconnection of larger trading venues. The cost-related data collected 
from stakeholders lacks consistency, making it challenging to provide a reliable estimate of the 
costs. Estimates of the average costs for setting up the network provided by stakeholders vary from 
EUR 300 000 to EUR 100 million. Additionally, the precise amount would depend on the actual 
setup, the number of venues that participate in the system, the type of connectivity (bilateral links 
versus hub system), the quality of the links used, the type of software which would be implemented 
and the trading sessions costs, among others.  

Some  trading  venues  polled150  on  this  specific  topic  provided  additional  cost  breakdown,  
as presented below. Given a wide divergence in the overall cost figures provided by stakeholders, 
the  true  costs  are  difficult  to  estimate  and  would  depend  on  the  detailed  specifications  of  the 
interconnectivity  set-up  between  trading  venues.  Direct  bilateral  connections  would  cost  
in  the  range  of  EUR  2  000-10  000  per  month,  while  in-house  software  development  and 
maintenance was estimated to cost between EUR 1.5 and EUR 3 million per year. Buying software 
from third-party vendors was estimated to be cheaper but may also create performance issues and 
operators would still need to supervise and maintain the platform. The connectivity fees would 
vary greatly depending  on number of order books access,  speed, through-put  requirements and 
type of connections. Research shows that the cost of a trading session can vary between EUR 210 
and EUR 780 per month. Respective costs for the same type of interconnection would be similar 
per exchange, i.e. there would be no effects related to the size of the exchange (for more details, 
see Section 3.2. of Annex 7 ‘Trading’). 

In terms of benefits generated by the interconnection, trading venues in scope would be expected 
to benefit in the form of increased cross-border order-flow, potentially generating higher revenue 
through execution fees. However, and despite the uncertainty linked to the estimation of the costs 
for trading venues, it is clear that for trading venues these costs will be significantly higher than 
the potential benefits. 

Brokers would not bear any direct costs with respect to the initial set-up and ongoing maintenance 
of the interconnected network. They would benefit from significantly facilitated access to markets 
on a cross-border basis, with reduced membership-related costs and burden, thereby offering their 
clients easier and broader access to markets across borders. Nevertheless, these benefits are likely 
to  materialise  only  after  implementation  costs  are  incurred,  and  they  are  contingent  upon  the 
solution being widely adopted by brokers.  

At the same time, brokers may bear indirect costs. Whether and to what extent such an increase in 
execution  fees  would  materialise  is  complex  to  determine  and  quantify,  given  the  uncertainty 
around  the  costs  borne  by  venues  to  set  up  and  maintain  the  network,  and  the  uptake  of  the 
interconnection  system  among  brokers  (the  broader  the  use,  the  lower  the  costs  per  individual 
transaction).  At  present,  brokers  are  paying  either  the  fees  for  connecting  directly  to  a  trading 
venue, or the intermediation fees charged by larger brokers.  If an interconnectivity mechanism 
were established, brokers would be able to place orders on multiple venues, while being connected 

150 Results from a targeted outreach to a representative set of relevant and significant stakeholders for that matter. 

81 

 
 
 
 
to and being a member of only one venue, thereby reducing their reliance on intermediation. Due 
to  the  absence  of  intermediation  fees  data,  which  are  very  client-specific,  it  is  not  possible  to 
provide  precise  savings  figures  for  these  fees.  Yet,  the  Commission  is  aware  that  those 
intermediation fees can be high, in particular for shares of smaller companies. 

Given  the  above,  the  Commission  can  conclude  that  the  benefits  for  the  brokers  are  likely  to 
outweigh the costs they would incur, and that this set-up would lead to a more efficient trading 
environment for them compared to Option 2.  

Overall, given the uncertainty around costs and benefits of the interconnection for trading venues, 
at  this  stage  it  is  impossible  to  estimate  with  certainty  the  net  outcome  of  this  option  when 
considering its impact on all stakeholders (trading venues, brokers, end-investors). One of the main 
advantages  of  2  option  compared  to  option  3  is  that  the  costs  to-be-incurred  are  known  with 
reasonable accuracy in advance, allowing the Commission to determine with better precision that 
the  cost-benefit  ratio  underscores  the  efficiency  of  Option  2.  By  contrast,  the  costs  for  the 
implementation  of  Option  3  cannot  be  accurately  calculated,  even  provisionally,  at  the  present 
moment, and the benefits of option 3 are contingent on many other factors (notably on changes in 
the operation of post-trade infrastructure) whose realisation is at this stage not fully certain (see 
section below for the cost-benefit analysis for Option 3). Those costs are likely to be significant 
for trading venues in particular, compared to the more market-driven solutions that would emerge 
from Option 2. Thus, as regards the efficiency criterion, based on the cost-benefit analysis of both 
Options, the Commission deems Option 2 to be the more efficient one, hence the preferred one. 

Post-trade 

This option would entail very high costs as CSDs would need to assess the compliance with all 
Member States’ laws, irrespective of whether they want to provide their services in all Member 
States. This could cost approximately EUR 30 000 per assessment of a given Member State’s legal 
framework.151  The  transformation  of  T2S  into  a  CSD  would  likely  require  a  significant  initial 
investment  to  expand  its  functionalities,  which  would  have  to  be  reflected  in  the  price  of  its 
services. CSDs would need to adapt to a new platform and those not yet connected to it would 
need to establish new links (with costs as quantified under option 2). There would also be some 
costs for market participants as they would need to adjust to the CSDs’ adaptations. At the same 
time,  using  the  T2S  CSD  as  a  settlement  hub  would  likely  reduce  the  cost  of  cross-border 
settlement,  by  making  existing  bilateral  links  obsolete  and  eliminating  the  cost  of  maintaining 
them. If all settlement activity (settlement, issuance, account maintenance) were to be concentrated 
in the T2S CSD, it could bring down post-trading transaction costs. These cost savings, however, 
would come at the expense of significant upfront costs and administrative burden on the part of 
market participants. Considering the costs associated with pursuing this option on the one hand 
and the prospective cost -savings and benefits on the other, in particular in comparison with option 
2, this option would not be the preferred way forward. 

Asset management 

This  option  would  likely  increase  costs  in  the  short  term  due  to  the  need  for  asset  managers  
to reorganize their business and organisation, including vis-à-vis the investment funds they manage 
(e.g. by replacing the current authorised fund manager with the parent company of the group). It 
would require EU financial conglomerates or standalone asset management groups to designate an 

151 Confidential information provided to DG FISMA services. 

82 

 
 
 
 
EU parent entity. The competent authorities of the parent entity would also need to effectively 
supervise and control all subsidiaries and branches for the purposes of this framework, which could 
be a complex and challenging process. Asset managers operate with very diverse business models, 
and  there  is  no  uniform  structure  across  the  industry.  Additionally,  asset  managers  are  not 
prudentially  regulated  on  a  consolidated  basis  and  do  not  typically  centralise  risk  management 
across their EU operations.  

Innovation (DLTPR) 

By removing thresholds on the DLTPR activity and broadly widening the eligible participants in 
the DLTPR, this option raises costs for regulators, in addition to introducing higher financial and 
operational risks and increased supervisory complexity. Removing the DLTPR thresholds entirely 
at this early stage of market development, when business models and supervisory responses are 
still evolving, could lead to increased risk that could jeopardize responsible innovation and hurt 
trust in DLT infrastructure. Therefore, while representing the most ambitious intervention for the 
DLTPR, this option scores lower in efficiency compared to the other option as the costs incurred 
in terms of risks and supervisory complexity outweigh the potential benefits, which can be also 
achieved through alternative means (e.g. revisable thresholds based on the assessment of risks and 
market conditions). 

Coherence 

This far-reaching review, as a package, would not be fully aligned with the objective of the SIU 
strategy  to  build  a  single  market  for  financial  services,  promoting  market  integration  
and efficiency, and supporting innovation.  

For instance, while being coherent by bringing some benefits to investors in the trading sector or 
groups  in  the  asset  management  sector,  in  the  post-trading  sector  this  option  would  present 
potential risks to financial stability as well as to ensuring compliance with national and EU law 
due to the lack of transparency on the intention of a CSD to provide cross-border notary and central 
maintenance services cross-border, as explained in the effectiveness section above. It could also 
create unintended consequences such as reduced competition.  

Converting the DLTPR into a framework with unlimited thresholds and wide market accessibility 
would not align well with the priorities of the Digital Finance Strategy and the SIU strategy, which 
both refer to the need for the regulatory framework to facilitate digital innovation in the interest of 
consumers and market efficiency. Furthermore, allowing a broad set of regulated participants in 
the DLTPR would support the comingling of DLTPR-regulated activities (trading, CSD services) 
with other financial services, increasing risks of contagion in the financial markets. This option 
would turn the DLTPR into an unlimited framework at a time when learnings from concrete DLT-
based  projects  are  still  limited,  increasing  the  risk  of  irresponsible  innovation  affecting  market 
confidence in the technology and their users. Finally, this option would be less coherent with the 
early stage of development of DLT-based markets, viewed through one other key objective of the 
DLTPR – to maximise flexibility and proportionality of the Pilot rules for participants. The latter, 
which is meant to increase experimentation with DLT, is difficult to reconcile with an unbounded 
framework, more appropriate for more mature and stable markets.  

6.1.3.  How do the options on addressing barriers to cross-border activities and 

innovation compare  

The table below provides a high-level summary of how the described packages of options compare 
(for  the  sake  of  readability,  the  labels  of  the  options  have  been  shortened).  A  more  detailed 

83 

 
 
overview of the impacts of the different  options  per area of intervention  (trading,  post-trading, 
asset management, innovation) can be found in the respective sectoral Annexes. 

Taking  into  account  the  assessment  and  explanations  provided  above,  and  in  view  of  the 
importance of integrated and efficient financial markets for the implementation of the SIU strategy, 
option 2 is considered the preferred option to address the problems identified in chapter 2. 

In  terms  of  effectiveness,  option  2  would  simplify  the  overall  regulatory  landscape,  thereby 
facilitate cross-border provision of services and the possibility for infrastructures and investments 
funds to scale up their activities. It will remove differences in national implementation of EU rules, 
enhance the passporting regime in the trading, post-trading and asset management sectors, reduce 
the  burden  related  to  provision  of  cross-border  services,  and  improve  the  interconnections  of 
entities across markets. The proposed measures on depositaries would help boost the provision of 
such  services  across  the  EU,  without  restrictions.  By  removing  these  barriers  to  cross-border 
activities and making the possibility to access other EU markets in a less burdensome and faster 
way,  option  2  will  also  increase  competition  among  entities.  Finally,  this  option  will  update 
definitions and concepts in existing rules to cover new technologies in these sectors. The DLT is 
an important part of the package because DLT can offer transformative benefits for the trading and 
post-trading value chain and can therefore enhance the efficiency of these infrastructures in the 
EU. Option 2 would address those limitation in the DLT framework to ensure that the DLT-related 
innovation in the EU is not lagging behind other jurisdictions.   

In terms of efficiency, option 2 would deliver intended benefits while containing related costs. The 
compliance  with  the  amendments  and  with  a  more  harmonised  rulebook  would  imply  costs  to 
adjust to the new requirements, but these costs are largely one-off in nature and expected to be 
small. The improved interconnections between entities would also imply initial one-off adjustment 
and investment  cost.  The consequent  relief in  the burden currently generated by the regulatory 
fragmentation for the provision of cross-border services and the improved interconnectivity would 
improve  the  efficiency  of  providing  services  cross-border  and  allow  entities  to  scale  up  their 
activities. The recognition of group entities would allow a more efficient allocation of resources 
and  cost  savings  for  group  entities  active  cross-border  in  the  trading,  post-trading  and  asset 
management sector. Legal clarity when providing services cross-border would also reduce costs. 
These benefits would reduce the costs for cross-border investors, also because competition would 
be promoted. The increased flexibility of the DLTPR would balance the need to allow the uptake 
of  DLT-based  technologies  while  keeping  systemic  risks  from  large  scale  deployment  of  next 
generation digital platforms under close control. As concerns cyber security, DLTs by virtue are 
not necessarily more prone to attacks than existing trade and post-trade infrastructure which is also 
heavily digitalised and automated. Some public DLTs have shown significant resistance to cyber-
attacks while others were left exposed due to bad coding or structural setup. In terms of regulation, 
the DORA framework should help provide additional security and raise preparedness for cyber 
incidents across all sectors concerned by the initiative. 

In terms of coherence, option 2 measures have been designed having in mind internal coherence 
among  the  various  elements  as  a  package  to  increase  the  integration  of  EU  capital  market  and 
address inefficiencies in supervision in the single market. The measures under option 2 are also 
coherent with the Commission’s priorities, as discussed in Section 6.1.1, under “Coherence”.  

The more extensive and far-reaching reform envisaged under Option 3, while potentially bringing 
greater benefits in terms of integration, would present some potential risks to financial stability 
and unintended consequences in terms of its impact on competition, innovation and trust in capital 
markets. Moreover, the costs of mandating interconnection between trading venues and mandating 
further upgrades in the post-trade infrastructures are potentially very high, according to feedback 
84 

 
 
received from stakeholders. The changes proposed for the asset management sector would require 
fundamental changes in the operations of the sector which do not seem well justified.  

Effectiveness 

Efficiency  
(Cost effectiveness) 

Coherence 

Overall score  

0 

++ 

0 

++ 

+/- 

+/- 

 Baseline 
scenario (Option 
1) 
Option 2: 
Broad review of 
the functioning 
of capital 
markets  
Option 3: 
Far-reaching 
review of the 
functioning of 
capital markets 

0 

++ 

+ 

0 

++ 

+/- 

Legend: ++ = positive + = slightly positive +/- = mixed effect 0 = no effect  - = slightly negative -- = negative  

85 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impact on stakeholder groups 

Baseline (Option 1)  
Option 2 

Trading venues 
No change 
++  Remove  differences  in 
national transpositions  

CSDs 
No change 
++  Reduce  differences  in 
national approaches  

++ Reduce compliance costs 

++ Reduce compliance costs 

Asset managers 
No change 
++  Remove  differences 
national 
between 
transpositions  

Investors 
No change 
++Diverse 
opportunities 
competitive pricing 

investment 
and 

Non financial corporates 
No change 
++  better  access  to  funding 
via larger investor base 

++Higher legal certainty 

++Foster 
cross-border 
operations/activities  thanks 
of 
enhancement 
to 
passporting 
and 
regime 
single 
for  pan-
European market operators 

licence 

++  Facilitate  allocation  of 
resources within groups  

++Economies  of  scale  and 
efficiency 
gains/lower 
operational costs 

+  Facilitated  access 
multiple venues 

to 

++Less fragmentation 

++Higher legal certainty 

cross-border 
++Foster 
operations/activities  thanks 
to 
of 
enhancement 
passporting regime 

++  Facilitate  allocation  of 
resources for group entities  

++Economies  of  scale  and 
efficiency 
gains/lower 
operational costs 

++ Reduce compliance costs 
and regulatory burden 

++Less fragmentation in the 
single market 

++  Savings  and  economies 
of  scale  partially  passed  on 
to  users  of  infrastructure, 
leading  to  lower  costs  for 
investing in capital markets 

++ Higher legal certainty 

++Increase 
cross-border 
distribution  of  investments 
funds 

++Economies  of  scale  and 
efficiency 
gains/lower 
operational costs 

++Support  market  structure 
modernisation/innovation 
(via DLTPR review) 

++Improve 
operating 
conditions  for  cross-border 
groups 

Incentives 

+ 
solutions to pool liquidity 

to  develop 

Option 3 

+/-  Same  as  Option  2  but 
implementing  costs  linked 
to  interconnection  mandate 

+/-  Same  benefits  as  under 
option 2 at the risk of higher 
financial stability risks 

+/- Disproportionate for the 
risk 
sector,  with 
of 
effective 
undermining 

+/_Same  as  option  2  in 
terms  of  access  to  more 
investment 
diverse 

+/-  Same  as  option  2  in 
terms  of 
simplicity  of 
accessing  public  markets, 

86 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
would 
higher  

be 

significantly 

+/- Reduce competition and 
innovation 
the  post-
in 
trading sector 

supervision  and 
protection 

investor 

opportunities,  but  higher 
costs could be transferred to 
investors 

but  higher  costs  could  be 
transferred to investors 

+/-  Potential  for  innovation 
and  scale  under  DLTPR 
would  be  maximised  for 
market infrastructures, but at 
lower 
the 
effectiveness 
the 
regulatory framework 

+/-  Potential  for  innovation 
and  scale  under  DLTPR 
would  be  maximised  for 
market infrastructures, but at 
lower 
the 
effectiveness 
the 
regulatory framework 
Legend:  +++ = Very positive ++ = Positive + = Slightly positive +/- = Mixed effect  
0 = no effect - = Slightly negative -- = Negative --- = very negative 

risk 

risk 

of 

of 

of 

of 

87 

 
 
 
 
 
6.2.  NON-ALIGNED  SUPERVISORY  PRACTICES  ACROSS  MEMBER  STATES  AND  WEAK  TOOLS 

AND POWERS AT EU LEVEL  

6.2.1.  Improved supervisory convergence and an enhanced role for ESMA in 

supervision 

Effectiveness in meeting the specific objectives 

This option directly targets the shortcomings stemming from divergent supervisory practices and 
weak  tools  and  powers  at  EU  level  by  enabling  a  more  coherent,  proportionate,  and  strategic 
allocation of supervisory tasks.  

This option significantly enhances the effectiveness of EU financial supervision by centralising it 
for EU CCPs, CSDs and trading venues whose size, cross-border activities/dimension or systemic 
importance warrant a more integrated approach. In general, ESMA’s oversight would allow for 
more  consistent  and  coordinated  enforcement,  particularly  in  areas  where  the  failure  or 
mismanagement of a single entity can produce ripple effects throughout the EU. Giving ESMA 
direct supervision over these entities would ensure that conduct risks are assessed with a uniform, 
EU-wide perspective. Such an approach would give ESMA full visibility over both the trading and 
post-trade operations of supervised entities across the Member States, which would enable it to 
better detect systemic risks, monitor market developments, and ensure consistent application of 
the  single  rulebook.  ESMA’s  direct  engagement  would  also  simplify  supervisory  interactions, 
provide  firms  with  a  single  point  of  contact,  and  create  a  level  playing  field  among  them.  By 
retaining the supervision of smaller, locally focused entities at national level, this option strikes 
the right balance between the need for local expertise and the advantages of centralised oversight. 
It  avoids  a  one-size-fits-all  approach  within  sectors  and  ensures  that  supervision  remains 
proportionate to the risks posed by each entity.  

More  specifically,  each  sector  would  benefit  from  ESMA’s  role  in  reducing  fragmentation, 
enforcing uniform standards, and addressing cross-border risks through EU level supervision and 
enhanced tools.  

For significant EU CCPs, supervision by ESMA would result in harmonised supervisory processes 
for  authorising  new  services,  risk  model  changes,  and  prudential  assessments.  EU  supervision 
would ensure a uniform  EU-wide perspective on  prudential  and conduct  risks, enabling timely 
detection of systemic risks.  

For  significant  EU  CSDs,  EU  supervision  would  result  in  harmonised  supervisory  processes, 
particularly in areas like intra-group outsourcing and service extensions. ESMA’s oversight would 
ensure consistent application of rules across Member States, monitoring cross-border risks from 
increased transaction volumes. This centralised approach would promote a level playing field for 
CSDs,  enhance  transparency  in  securities  services,  and  mitigate  systemic  risks  associated  with 
cross-border operations. 

In  the  trading  sector,  the  centralisation  of  supervisory  powers  as  envisaged  in  Option  2  would 
foster fair competition among trading venues and facilitate cross-border operations by reducing 
costs  and  enabling  the  synergies  which  a  friction-less  single  market  for  capital  should  offer. 
Because of the significant part of the sector falling in scope as well as the enhanced supervisory 
convergence  tools  for  ESMA  foreseen  under  this  option,  it  is  also  expected  to  support  an 
improvement  in  the  alignment  of  supervisory  approaches  towards  those  trading  venues  which, 
because of their smaller size and national dimension, would remain under national supervision.   

88 

 
 
 
For the asset management sector, this option proposes to enhance ESMA’s coordination role to 
increase supervisory convergence. This goal will be achieved by giving ESMA a mandate to (1)  
bring  together  all  the  necessary  information  that  each  NCA  holds  on  group  entities  so  that 
supervisors can have a full overview of the market and monitor all relevant risks, (2) carry out, 
together  with  NCAs,  periodical  group-wide  reviews  of  the  supervisory  approach  for  asset 
management companies, (3) coordinate the supervision of cross-border provision of investment 
funds  by  receiving  marketing  notifications  and,  through  its  role  and  powers  in  collaboration 
platforms,  ensuring  that  asset  managers  receive  a  single,  consistent  conclusion  and  set  of 
requirements on their marketing documents. 

This approach will make oversight more effective for the asset management sector, since it would 
give everyone a clearer picture of how those asset manager groups are organised and operate in 
Member States. It would also prevent duplicative information requests when different functions 
are allocated to different entities in different Member States. By ensuring that rules are applied in 
a consistent way, ESMA would help create a level playing field and make cross-border operations 
easier for firms. In addition, under the current AIFMD/UCITSD frameworks, Member States must 
still establish their own rules of conduct,  organisational  requirements, prudential  rules, product 
rules,  and  other  related  matters.  This  limits  ESMA’s  capacity  to  promote  convergence,  since 
national authorities cannot move beyond the boundaries of their national rules. Under the proposed 
changes, part of the Member States’ prerogatives would be replaced by EU rules, and discretionary 
options currently granted to Member States would be removed. 

In the case of CASPs, giving ESMA direct supervision will build a strong common supervisory 
framework from the start in a sector that is operating electronically and cross-border and where 
national authorities have less on-the ground knowledge. Direct supervision in this case would also 
be more effective because the implementation and interpretation of MiCA would fall in the hands 
on  a  single  supervisor  which  would  have  the  capacity  to  develop  strong  expertise  on  new 
technologies and ensure that the same requirements are applied across the board.  

Stakeholders perceive limitations in convergence tools as well as the incentives to use them, as 
reflected in the consultation responses: only 21 respondents consider ESMA’s current supervisory 
convergence  tools  to  be  used  effectively,  while  44  do  not,  and  only  19  respondents  feel  that 
ESMA’s governance and decision-making processes provide sufficient  incentives  for their use, 
compared  with  26  who  do  not.152  Several  stakeholders,  in  particular  those  from  the  concerned 
sectors, support enhancing ESMA’s central supervisory role in targeted areas, and emphasise the 
need  to  ensure  that  ESMA  focuses  on  areas  where  EU-level  oversight  adds  the  most  value. 
Reforms to the supervisory convergence tools would significantly improve the effectiveness of 
ESMA’s ability to tackle divergent national practices. Enhancements to existing tools – such as 
binding mediation, breach of Union law procedures, and peer reviews – would equip ESMA with 
the mechanisms to enforce uniformity where it is most needed. Furthermore, new tools that have 
proven their effectiveness in sector legislation, such as collaboration platforms, would be added to 
ESMA’s  supervisory  toolbox.  The  result  would  be  a  more  stable  and  integrated  supervisory 
framework, better equipped to address emerging financial risks and reinforce investor trust in the 
EU financial system.  

152  This  is  based  on  several  questions  in  Section  7.2  and  7.3.  Question  7  asked:  Please  rate  the  effectiveness  of 
supervisory convergence tools from 1 to 5. Question 8 asked: Do you think that the current supervisory convergence 
tools are used effectively and to the extent that is possible? Question 9 asked: Do you think that the current governance 
and  decision-making  processes  within  ESAs  provide  sufficient  incentives  for  the  use  of  supervisory  convergence 
tools? 

89 

 
 
 
 
 
Efficiency 

This option would bring substantial efficiency gains by centralising supervisory responsibilities in 
a targeted and proportionate manner. In doing so, it would reduce redundancies and remove the 
inefficiencies  associated  with  fragmented  supervision,  particularly  for  entities  operating  across 
multiple jurisdictions. While this option would entail one-off and recurring costs for supervisors 
and businesses, the benefits of this option are considered to outweigh the costs in the long-term. 
Notably,  while  transferring  supervision  of  certain  entities  to  ESMA  would  create  costs  for 
businesses, these costs are expected to be outweighed by the cost savings for NCAs.  

From  a  resource  perspective,  the  expectation  is  that  consolidation  of  supervisory  functions  for 
significant entities at the EU level will reduce the need for each Member State to independently 
maintain full supervisory capacity in all areas. This would result in economies of scale and a more 
focused  allocation  of  supervisory  expertise.  For  firms,  especially  those  with  a  pan-European 
presence, the centralisation of supervision would reduce the administrative burden and compliance 
costs  caused  by  navigating  multiple  national  supervisory  approaches.  A  single  supervisory 
authority with clearly defined competencies would reduce duplicative and sometimes inconsistent 
supervisory  requirements  and  would  enhance  the  predictability  of  supervisory  outcomes.  For 
instance, one major exchange group has estimated that full centralisation of its supervision could 
yield direct ongoing cost reductions of EUR 6-9 million annually. A key area of improvement in 
this context is data and supervisory reporting where single reporting to ESMA in the area of trading 
and  post-trading  would  improve  consistency  and  avoid  possible  data  reconciliation  issues. 
However, not all data collection would be centralised under this option, meaning that some synergy 
gains are foregone. In general, the centralisation of data collection would create one-off costs but 
would result in significant on-going cost savings. In addition to the reduction of direct cost, further 
benefits would lie in shortened approval timelines in trading and post trading, resulting in a better 
environment for innovation and shorter time-to-market for new products.  

The  governance  reforms  proposed  under  this  option  would  further  improve  efficiency  by 
introducing  a  streamlined  decision-making  process  through  a  dedicated  Executive  Board 
composed of full-time, independent  members. This  body would replace  the slower, consensus-
based model of the current Board of Supervisors, enabling quicker and more decisive supervisory 
actions.  

By  adopting  a  clear,  fee-based  approach  for  direct  supervision  –  grounded  in  the  user-pays 
principle –  ESMA’s financial autonomy and responsiveness would be reinforced. At the same 
time,  tasks  with  broader  public  value,  such  as  regulatory  development  and  supervisory 
convergence,  where  ESMA  would  not  have  direct  supervisory  powers,  would  continue  to  be 
supported  by  the  EU  budget  and  NCAs  contributions,  reflecting  their  collective  benefit  to  the 
single market. Clarifying and consolidating ESMA’s mandates to levy fees on supervised entities 
would ensure transparency, proportionality, and administrative simplicity. Taken together, these 
elements would allow the supervisory system to keep pace effectively with market developments 
and ensure that resources are aligned with risk and complexity. 

The  total  cost  of  implementing  the  proposed  option  is  comprised  of  various  components.  Cost 
figures are based on  estimates from  ESMA and the Commission  in  terms  of FTEs needed and 
expected average costs per FTE.153 In the trading sector, the cost of direct supervision is estimated 
to range from EUR 17 to 19.5 million, EUR 5.5 to 9.5 million in the post-trading sector for CCPs, 
and EUR 5.5 to 7.5 million for CSDs. Additionally, supervising the CASPs would require EUR 
12  to  30  million  annually,  while  the  enhanced  role  for  ESMA  in  the  asset  management  sector 

153 Average cost per FTE used to derive total costs was EUR 186 000 per FTE.  

90 

 
 
 
 
would need EUR 2 to 4 million for the coordination of supervision, with an additional EUR 2 to 3 
million required for the oversight of cross-border fund distribution. 

These figures include temporary setup  costs, estimated at  EUR 1 to  2  million  per sector. They 
would  be  incurred  to  prepare  ESMA  for  its  new  responsibilities.  Strengthening  supervisory 
convergence across the relevant sectors would require an additional EUR 1 to 2 million per sector 
in terms of FTEs. At the same time, some cost reductions can be expected at NCAs once ESMA 
takes over certain supervisory tasks and NCAs reduce or reallocate supervisory capacity. 

To  support  ESMA’s  expanded  supervisory  responsibilities  and  ensure  consistent  supervisory 
outcomes across the Union, further development of centralised IT systems is required. 

First,  a supervisory data platform covering CCPs, CSDs and trading  venues  would consolidate 
data collection, document exchange and supervisory workflows for the direct oversight of these 
entities,  enabling  secure  and  timely  access  for  national  competent  authorities  and  supervised 
entities. The estimated cost is EUR 8 million for development and EUR 3.7 million annually for 
maintenance. 

Second, a central register for CASPs market surveillance under MiCA would function as a pan-
EU  hub  for  the  collection,  aggregation  and  analysis  of  transaction  and  order  data  reported  by 
CASPs.  Building  on  ESMA’s  MIDAS  system,  it  would  enhance  market  integrity  by  detecting 
potential  market  abuse  and  facilitate  cooperation  between  ESMA  and  national  competent 
authorities. The estimated cost amounts to EUR 4.2 million for development and EUR 2.5 million 
per year for maintenance. 

Third,  a  data  platform  for  cross-border  notifications  of  funds  would  streamline  home–host 
supervisory cooperation for the cross-border marketing of AIFs and UCITS. This one-stop-shop 
system would provide a secure interface for submitting, accessing and exchanging reliable, up-to-
date documentation, including automated translation services. The expected cost is EUR 1 million 
for development and EUR 0.2 million annually for maintenance. 

Finally,  a  centralised  data  and  analytics  capability  would  reinforce  ESMA’s  Union-level  data 
infrastructure  and  support  the  efficient  exchange  of  information  as  part  of  a  common  Union 
financial data strategy. It would provide shared analytical tools, timely supervisory insights and 
secure, standardised data access for competent authorities. The estimated cost is EUR 15 million 
for development and EUR 4 million annually for maintenance. 

Taken  together,  these  investments  would  support  the  efficient  exercise  of  ESMA’s  direct 
supervisory  tasks,  reduce  duplication  of  systems  and  processes  across  Member  States,  and 
strengthen coordination between authorities and supervised entities. 

Coherence 

This option would be coherent with the objectives of the SIU strategy by reducing supervisory 
fragmentation,  which  is  essential  for  building  investor  trust,  reducing  costs  and  burdens  for 
companies, and enabling efficient cross-border business. It would reflect a careful and calibrated 
application  of  the  principles  of  subsidiarity  and  proportionality,  by  ensuring  that  supervisory 
responsibilities are allocated based on where they can be exercised most effectively. ESMA’s role 
would be strengthened in areas with a clear need for central oversight, such as large or systemically 
important entities with a significant cross-border dimension, while NCAs would retain their roles 
in  supervising  smaller,  nationally  focused  institutions.  This  approach  would  preserve  national 
knowledge and proximity  while addressing the limitations of the current  framework in  dealing 
with EU-wide challenges. 

The  proposed  governance  reforms  would  also  improve  coherence  by  aligning  decision-making 
processes  with  ESMA’s  evolving  role.  Introducing  an  Executive  Board  would  enhance  the 

91 

 
 
independence of the decision-making process and ensure that decisions are guided by technical 
expertise  and  the  EU  interest.  By  keeping  the  Board  of  Supervisors  involved  through  a  non-
objection and consultation procedures, the model would also preserve a degree of national input 
and legitimacy, reinforcing the balance between centralisation and inclusiveness. 

Furthermore, the measures to strengthen ESMA’s supervisory convergence tools would promote 
coherence  across  the  broader  supervisory  ecosystem.  They  would  ensure  that  where  national 
supervision remains in place, it is supported by consistent guidance, improved coordination, and 
common enforcement standards. In doing so, this option would reinforce the EU’s broader policy 
goals of the SIU and fostering a genuine single market for financial services. 

This  option  would  also  be  coherent  with  the  Commission’s  priority  to  boost  Europe’s 
competitiveness,  the  strategy  outlined  in  the  Competitiveness  Compass,  the  Single  Market 
Strategy, the EU Start Up and Scale Up strategy, as well as the Communication on a Simpler and 
Faster Europe. 

Overall, this policy option would be coherent not only with EU institutional and legal frameworks, 
but also with the strategic direction of European financial integration.  

Annex  11  on  ‘Supervision’  provides  for  additional  detail  and  analysis  of  the  changes  in  the 
concerned sectors.  

6.2.2.  ESMA as a supervisor for all EU trading venues, CSDs, CCPs, asset 

managers and crypto asset service providers 

Effectiveness in meeting the specific objectives 

Fully centralising supervision of all CCPs, CSDs, trading venues, asset managers and CASPs at 
ESMA  would  directly  target  the  issue  of  fragmented  supervisory  practices.  This  option  would 
address  fragmentation  by  eliminating  inconsistent  national  practices  and  providing  a  holistic 
perspective of the EU supervisor over the market, directly meeting the core of the objective. This 
approach would eliminate forum shopping and regulatory arbitrage, ensure consistent practices, 
and reduce costs by consolidating supervision under one authority. However, for mid-size, small 
or local entities, whose business models and risks are inherently linked to national markets, deep 
on-the-ground  knowledge  of  local  specificities  would  be  lacking,  which  could  lead  to  an 
underestimation of risks or insufficient support towards market development in smaller markets. 
Moreover, supervising thousands of firms would demand an unprecedented scale of direct EU-
level supervision, for which ESMA currently lacks the operational capacity. This could result in 
weakened  oversight  during  the  transition.  These  constraints  are  less  evident  in  a  new  area  of 
financial  activity  as  are  the  CASPs,  because  of  their  cross-border  nature  and  the  fact  that  any 
transitional period would impact less entities, as MiCA entered into force recently and therefore 
only a few entities are already licensed.  

Efficiency 

The centralisation of supervision at ESMA offers theoretical cost savings and economies of scale. 
Reducing duplication among 27 Member States, centralising coordination tasks and ensuring one 
uniform supervisory approach can lower costs over time. NCAs would benefit in terms of reduced 
need for staffing and resources, in particular IT, data collection and monitoring systems. Pooling 
resources  within  ESMA  would  create  significant  synergies  and  ensure  the  application  of  fully 
consistent  reporting  practices  and  standards.  Firms  operating  across  borders  could  face  less 
regulatory fragmentation. However, these potential efficiencies are offset by significant practical, 
structural, and financial inefficiencies in the short and medium term. Indeed, under option 3, the 
immediate  financial  and  logistical  cost  of  scaling  ESMA’s  supervisory  capacity  would  be 

92 

 
 
substantial. ESMA would for instance oversee about 1 700 UCITS management companies and 4 
500 AIFMs, requiring significant resource expansion and a multi-year transition.  

Sector  

Trading Venues 

CCPs  

CSDs 

FTEs154,155  

340- 580 

50– 55 

40- 50 

Asset Managers 

200- 360 

Budget implication 

EUR 63 – 108 mil.  

EUR 9 – 10 mil. 

EUR 7 – 9 mil. 

EUR 37 – 67 mil. 

Note: Further details on the scope of entities and operational considerations underpinning these estimates are provided 
in the Supervision Annex 11 (Section 4.5). 

Although  most  of  the  additional  entities  that  would  fall  under  ESMA’s  supervision  under  this 
option  would  be  small,  ESMA  would  need  to  recruit  an  unprecedented  number  of  experts 
(numbering  in  the  hundreds),  establish  decentralised  infrastructure  across  Member  States,  and 
replicate the breadth of NCA capabilities. The recruitment of a significant number of qualified 
experts could have bottleneck effects. Moreover, the replacement of national structures is expected 
to raise strong political opposition at national level. The funding of the transition phase would need 
to come from the EU budget as long as companies do not yet pay fees. A "one-size-fits-all" funding 
mechanism could unfairly penalise small or low-risk entities. Without tailored fee structures, the 
model could discourage market entry and competition, particularly for local players. During the 
build-up  phase  and  until  full  centralisation  is  achieved,  both  NCAs  and  ESMA  may  duplicate 
efforts, leading to inefficiencies rather than savings. Although centralisation promises theoretical 
efficiencies, the transition costs, disproportionate burdens on small actors, and rigidity would make 
this option inefficient in practice, at least in the short to medium term.  

Full centralisation is less adapted to cases where the risks relate mostly to the domestic market and 
markets are primarily local. Consultation responses, in particular smaller and more domestically 
focused infrastructures,  revealed widespread  resistance to  blanket  centralisation of supervision. 
Concerns focus on loss of national influence, poor fit for small entities, and increased distance 
between supervisor and market. Pursuit of this option may be less warranted on the grounds of 
proportionality, and it may distort regulatory outcomes that we seek to achieve with the revision 
of the supervisory framework for capital markets. 

While aligned with long-term integration ambitions, it could be perceived that it goes too far, too 
fast, in a regulatory context that is not yet harmonised or politically unified, at least in some of the 
sectors considered unless warranted by other considerations (such as the relative novelty of the 
sector). 

Coherence 

This  option  would  align  with  the  long-term  goals  of  EU  market  integration  and  supervisory 
consistency that underpin the SIU strategy. However, it would also face a major hurdle of existing 
legal fragmentation and resulting operational frictions. Furthermore, option 3 appears to be less 

154 A cost per FTE of EUR 186,000 is assumed. 
155 Given that the entities captured in addition to the ones covered in option 2 would be considerably smaller and less 
complex, it is no appropriate to convert them on an entity-proportional basis. Instead, it is assumed that the number of 
FTEs needed for these smaller entities is only 5-10% (trading venues, asset manager) and 20-40% (CCPs,  CSDs) 
compared to option 2.    

93 

 
 
 
 
coherent than option 2 with the rest of the package, as it does not align with the choices made on 
the review of the functioning of capital markets. Specifically, the decision to opt for a broad review 
of the framework, but not a far-reaching one that requires full harmonisation in all areas, suggests 
that a more proportionate approach for supervision is needed.  

6.2.3.  How do the options on non-aligned supervisory practices across Member 

States and weak tools and powers at EU level compare  

The tables below provide a high-level summary of how the described package of options compare 
(for  the  sake  of  readability,  the  labels  of  the  options  have  been  shortened).  A  more  detailed 
overview  of  the  impacts  of  the  different  options on  supervision  can  be  found  in  the  respective 
sectoral annex. 

Taking  into  account  the  assessment  and  explanations  provided  above,  the  preferred  option  is 
Option 2: a combination of enhancing supervisory convergence via an improved set of tools and 
direct  supervision  of  certain  financial  entities  by  ESMA.  This  option  strikes  the  best  balance 
between effectiveness, efficiency, and coherence, offering tangible improvements in supervisory 
quality and consistency while maintaining proportionality and political feasibility. It strengthens 
the  EU’s  supervisory  framework  without  overstepping  the  bounds  of  national  autonomy  or 
institutional  capacity.  By  contrast,  Option  3,  while  potentially  more  effective  in  achieving  full 
supervisory integration, does so at the expense of efficiency and raises subsidiarity concerns, as it 
would  remove  the  role  of  national  authorities  even  in  areas  where  local  supervision  would  be 
preferred.  It  would  also  require  substantial  financial  and  institutional  investment  and  deep 
structural changes that are not immediately feasible. As such, it could be seen as a longer-term 
vision for future integration rather than a realistic short- to medium-term reform path. Option 2 
therefore  represents  a  pragmatic  and  cost-effective  step  forward,  and  one  that  meaningfully 
improves coherence and trust across the supervisory landscape while reinforcing ESMA’s role as 
a  hub  for  convergence  and  expertise.  In  the  current  context,  it  provides  the  optimal  path  to 
strengthen supervisory consistency, reduce fragmentation, and build the foundations for potential 
deeper integration in the future.   

Effectiveness 
0 
+ 

Efficiency  
0 
+ 

Coherence 
0 
+ 

Overall score 
0 
+ 

Baseline scenario (Option 1) 
Option 2: 
Improved  supervisory 
convergence and an 
enhanced role for ESMA in 
supervision 
Option 3: 
ESMA single supervisor for 
all EU trading venues, post 
trading, asset managers, and 
CASPs 
Legend: ++ = positive + = slightly positive +/- = mixed effect 0 = no effect - = slightly negative and -- = negative.  

+/- 

+/- 

++ 

- 

94 

 
 
 
 
 
 
 
 
 
 
 
Impact on stakeholder groups 

Baseline 
(Option 1)  
Option 2 

Supervisory authorities 
No change 

CCPs, CSDs, Trading venues 
No change 

CASPs 
No change 

Asset management 
No change 

+++  Better  overview  of  the  financial  system 
and monitoring of risks  

+Lower  supervisory  costs  for  cross  border 
entities 

+++Consistent supervisory practices  

+++Economies  of  scale  and  efficiency  gains 
thanks to proportional approach  

++Single  point  of  contact  for  supervisory 
issues for systemic cross border entities 

+++Consistent supervisory guidance 

 ++Local  expertise  for  smaller  CCPs,  and 
CSDs is preserved 

++Smaller  CCPs  and  CSDs  can  benefit  from 
local guidance 

+Lower 
supervisory 
costs  for  cross  border 
entities 

point 

++Single 
of 
contact  for  supervisory 
issues  

+++Consistent 
supervisory guidance 

+Lower  compliance  costs  for  cross  border 
entities 

+++Consistent supervisory guidance  

+++Fair  competition  among  entities  from 
different MS 

++Asset  managers  can  benefit  from  local 
guidance 

++Local  expertise  for  asset  management  and 
all profiles of trading venues is preserved 

+/- For trading venues, all entities continue to 
benefit  from  local  market  surveillance  by 
NCAs responding to local specificities.  

+++ Level playing field in terms of regulatory 
treatment  facilitating  fair  competition  among 
entities from different MS 

Option 3 

+++  Better  overview  of  the  financial  system 
and monitoring of risks 

++Single  point  of  contact  for  supervisory 
issues  

+++Consistent supervisory practices 

+++Consistent supervisory guidance 

---Loss  of  local  expertise  for  smaller  CCPs, 
CSDs and trading venues 

+++Fair  competition  among  entities  from 
different MS 

---Loss of local expertise for asset managers 

-Economies  of  scale  and  efficiency  gains 
outweighed  by  significant  costs  to  centralise 
supervision for all entities and replicate  NCA 
capabilities 

---Smaller  CCPs,  CSDs  and  trading  venues 
cannot benefit from local guidance 

-Economies  of  scale  and  efficiency  gains 
outweighed  by  significant  costs  to  centralise 
supervision for all entities and replicate NCA 
capabilities 

Legend:  +++ = Very positive ++ = Positive + = Slightly positive +/- = Mixed effect  
0 = no effect - = Slightly negative -- = Negative --- = very negative

95 

+++Fair 
among 
different MS 

competition 
from 

entities 

+Lower 
supervisory 
costs  for  cross  border 
entities 

point 

++Single 
of 
contact  for  supervisory 
issues  

+++Consistent 
supervisory guidance  

+++Fair 
among 
different MS 

competition 
from 

entities 

++Single  point  of  contact  for  supervisory 
issues  

+++Consistent supervisory guidance 

+++Fair  competition  among  entities  from 
different MS 

---Local guidance is lost 

-Economies  of  scale  and  efficiency  gains 
outweighed  by  significant  costs  to  centralise 
supervision for all entities and replicate NCA 
capabilities 

 
 
 
7. 

 PREFERRED OPTION 

7.1.  IMPACTS AND ASSESSMENT OF THE PREFERRED OPTION 

Option  2  is  the  preferred  option  for  both  the  measures  addressing  the  barriers  to  cross-border 
activities  and  innovation,  as  well  as  fragmentation  in  supervision.  This  option  recognises  the 
intrinsic links between sectoral improvements, supervision, and innovation, and seeks to create a 
more integrated and dynamic EU capital market. It removes barriers to cross-border operations 
and  innovation  by  further  harmonising  requirements  for  trading  venues,  as  well  as  facilitating 
settlement  processes,  notably  but  not  only  through  increased  interconnectivity,  refining  asset 
management requirements and improving the DLTPR, as well as strengthening the technological 
neutrality of sectoral legislation. Revisiting these regimes would also allow simplifying provisions 
whenever possible. Harmonising and streamlining requirements for passporting and intra-group 
activities  would  promote  cross-border  activities  and  increase  operational  efficiencies.  By 
improving,  harmonising,  and  streamlining  requirements  across  these  sectors,  the  option  would 
directly  benefit  trading  venues,  CSDs,  CCPs,  asset  managers  and  DLTPs  operating  in  the  EU 
which  should  profit  from  lower  compliance  costs  related  to  cross-border  provision  of  their 
financial services, cost reductions arising from rationalisation of intra-group operations and cost 
reductions related to streamlining of requirements and increased clarity and legal certainty.  

Supervision  plays  a  crucial  role  in  driving  integration,  scale,  and  reducing  fragmentation.  In 
particular, effective supervision is critical to ensuring that EU capital markets can operate as one 
interlinked  market.  This  is  why  Option  2  proposes  strengthening  the  European  supervisory 
framework,  particularly  by  enhancing  the  role  of  ESMA.  Financial  market  participants  under 
strengthened  EU  supervision  (i.e.  cross-border  significant  trading  venues,  CSDs,  CCPs,  asset 
management  firms  and  CASPs)  would  directly  benefit  from:  1)  reduced  compliance  cost  and 
administrative burden for entities currently supervised by multiple NCAs; 2) savings stemming 
from  less  duplications,  differences  in  instructions  and  procedural  delays;  3)  reduction  of 
supervisory fees for entities currently supervised by several NCAs and 4) savings due to synergies 
and increased intra-group outsourcing/delegation.  

Moreover, by increasing market integration and scale, the option would indirectly benefit the entire 
EU capital market ecosystem and its participants. Both institutional and retail investors are likely 
to  experience  lower  trading  costs  and  enjoy  a  wider  range  of  financial  products  and  services. 
Enhanced and more agile supervision of capital markets will bolster investor trust and confidence 
in market governance and oversight. This should spur cross-border investments within the Single 
Market,  offering  companies  broader  access  to  funding  and  reducing  their  financing  costs.  By 
promoting  risk  sharing,  financial  market  integration  and  consistent  supervision  should  also 
strengthen financial stability across the EU. 

The overall impact of the expected changes under option 2 should be further enhanced by progress 
on  all  pillars  of  the  SIU  strategy,  as  well  as  parallel  efforts  in  the  competitiveness  agenda.  In 
particular, the recently adopted Financial Literacy Strategy156 seeks to improve citizens’ financial 
literacy and empower them to take conscious personal finance decisions, including savings and 
investment decisions, that contribute to their (financial) well-being. In addition, the Commission’s 
Savings and Investment Account Recommendation provide concrete suggestions to support retail 

156 EU to boost financial literacy and investment opportunities for citizens - European Commission 

96 

 
 
 
 
participation  in  capital  markets  and  make  it  easier  for  them  to  diversify  their  savings  across 
financial instruments.157 In November, the Commission also adopted a comprehensive package on 
pensions,  including  both  non-legislative  and  legislative  measures,  with  a  view  to  enhancing 
pension  income,  attract  institutional  investors  into  EU  capital  markets  and  increase  their 
contribution  as  provider  of  long-term  financing  to  the  EU  economy.  Finally,  the  recent 
Commission proposals to facilitate securitisation activity in the EU158 should help channel more 
investments  into  the  real  economy  –  supporting  economic  growth,  innovation  and  job  creation 
across the EU.   

By  removing  barriers  and  facilitating  further  integration,  this  initiative  is  expected  to  bring 
significant macroeconomic benefits. Estimates are derived based on several assumptions, notably 
on how research findings from existing studies translate into the expected impact of this initiative 
(see  Annex  4  for  more  information).  Using  this  approach  and  assuming  that  this  initiative  is 
effective,  economic  growth  is  estimated  to  increase  by  as  much  as  EUR 1.36- 3.62  trillion 
(cumulatively) over the next 30 years based on the economic analysis in a study159 analysing the 
negative growth effects of market fragmentation. 

This  estimate  is  notably  broad  given  the  long  period  and  significant  uncertainties  surrounding 
market development and impacts. Given these significant limitations, it would also make no sense 
to attempt to provide a more detailed breakdown of economic impacts by individual measures. The 
estimate  serves  primarily  to  demonstrate  the  potential  scale  of  growth  impacts.  Even  more 
conservative  estimates  would  still  show  that  the  positive  impacts  outweigh  the  costs  of 
implementing  the  measures  described  in  Option  2,  in  particular  the  costs  for  certain  CSDs  to 
establish links to CSD hubs and T2S (quantified in Section 6.1.1) and the costs of enhanced EU 
supervision (quantified in Section 6.2.1).  

As regards administrative burden, the measures include diverting reporting to ESMA to fulfil its 
functions as a competent authority. These are not new reporting requirements, as the rules already 
provided for such reporting to national competent authorities. Nevertheless, there may be one-off 
adjustments to reporting templates and formats needed implying some administrative costs. These 
will depend on the level of detail and formats of the current national reporting and how it differs 
from  the  future  new  more  harmonised  reports  to  ESMA.  Following  a  further  cost-benefit 
assessment,  ESMA,  which  is  in  general  obliged  to  keep  reporting  and  related  burden  to  the 
minimum, would develop the relevant level 2 requirements. The redirection of reporting flows will 
require investment estimated at EUR 15 million into ITC systems by ESMA and approximately 
EUR 4 million in annual maintenance (see Annex 11).  

In addition, one-off adjustment costs for directly affected financial intermediaries to comply with 
streamlined and simplified rules are expected to be relatively small. One-off indirect costs could 
arise  for users of affected services (e.g.  contractual  changes)  are also expected to be relatively 
small. Overall, while there will likely be one-off adjustment costs, new administrative burdens are 
expected to be small and are therefore not further quantified.  

157 Ibid. 
158 Commission proposes measures to revive the EU securitisation framework - Finance 
159 ‘Capital Market Fragmentation and Economic Value Migration How Europe's Financial System Promotes Wealth 
Transfer to the U.S’; Holste, Bjoern and Bergström, Mattias - April 03, 2025 - Link 

97 

 
 
 
 
The package is  not  expected to  have  any direct  significant  social,  environment or fundamental 
right impacts. 

7.2.  REFIT  

The initiative contains a range of simplification efforts which consist of removing barriers to cross-
border provisions of financial services in trading, post-trading and asset management. They aim to 
simplify  procedures  as  well  clarify  and  harmonise  requirements  and  the  approach  taken  by 
supervisors. These measures represent the substantial and integral part of the overall package and 
largely account for the overall benefits quantified (see Annex 3).    

7.3.  APPLICATION OF THE ‘ONE IN, ONE OUT’ APPROACH 

New administrative burden created by the initiative is largely of a one-off nature, specifically to 
adapt to legal changes and redirect reporting flows to ESMA. While not quantified for the reasons 
set out above and in Annex 4, the related costs are expected to be relatively small as the initiative 
is not above adding new requirements but removing national gold-plating and other barriers. It is 
not expected that there will be substantial on-going administrative costs. In some cases, the more 
harmonised procedures or the approach taken by ESMA may incur minor on-going administrative 
costs. Likewise, there may be some entities for which on-going costs are expected to decrease (e.g. 
removal of gold-plating provisions). The exact effect is difficult to pin-point and will depend on 
different aspects such as the entity, respective compliance, currently responsible NCA.  

Some  administrative  burden  reductions  are  quantified  in  Annex  3,  notably  (i)  EUR  435,500  - 
585,500 per exchange group per year (rationalisation of intra-group operations), (ii) EUR 0.5 to 5 
million per cross-border operating exchange groups per year (supervisory convergence, reduced 
fragmentation  of  requirements)  and  (iii)  a  significant  part  of  EUR  20,000  –  60,000  (current 
administrative costs) per fund registered in  another Member State. Administrative costs should 
also  be  reduced  for  intragroup  operations  and  through  streamlined  member  onboarding  /  due 
diligence  checks  (trading  venues  &  brokers),  increased  legal  clarity  /  certainty  (CSDs), 
standardised authorisation procedures, notifications and requirements concerning marketing (asset 
management)  and  by  reduced  divergence  in  requirements  and  approach  taken  across  multiple 
NCAs. 

8.  HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED? 

The initiative is expected to follow normal implementation procedures. Ex-post evaluation of all 
new legislative measures is a priority for the Commission. The Commission services will review 
the  outputs,  results  and  impacts  of  this  initiative  once  the  legal  instrument  becomes  effective.  
An evaluation is envisaged 5 years after the implementation of the measure and in accordance with 
the Commission's better regulation guidelines.  

For  further  monitoring  and  preparing  an  evaluation  of  the  impact  of  the  legislative  initiative,  
the following non-exhaustive list of sources could provide for a basis for information gathering: 

i.  Websites of competent authorities 
ii. 
iii. 
iv. 

ESMA databases on financial instruments (MiFID/MiFIR) 
ESMA databases on clearing (EMIR)   
ESMA database for notifications (notifications, updates, de-notification regarding cross-
border distribution of funds) (AIFMD/UCITS)  
Third-party databases (including Clarus CCP View, Bloomberg, Refinitiv, Morningstar) 

v. 

98 

 
 
vi.  Regular market reports from industry associations 
vii. 
viii. 

FISMA indicators to measure overall capital market developments160 
Stakeholder engagements  

The Commission presents below a series of metrics to be monitored following the adoption of the 
changes included in the initiative. The metrics listed focus on the indicators per sector, but broader 
indicators  to  measure  wider  market  impacts  will  also  be  monitored,  even  if  those  can  be  less 
directly  attributed  to  this  initiative  –  e.g.  measures  assessing  access  to  capital  and  corporate 
financing  structures  or  the  level  of  retail  investor  participation  in  capital  market.  The  sectoral 
metrics listed below present a mix of direct indicators of the level of (cross-border activity) and 
also the key indicators that relate to market outcomes in terms of costs and prices. Based on the 
known data limitations, we expect that some data will be more difficult to obtain than other – but 
the below sets out an ambitious approach to be able to put a monitoring in place, also with the help 
of  ESMA  and  other  stakeholders  and  using  a  mix  of  different  types  of  indicators.  Given  the 
methodological challenges, including the fact that market outcomes are affected by many different 
factors that are difficult to control, no quantitative targets are set for the specific objectives and 
related indicators; the table only reports the expected direction of evolution as a result of the policy 
intervention.  

Trading  

Objective  

Proposed indicator (expected direction in brackets) 

Enable  further  market 
integration  and  scale 
effects  by  increasing 
cross-border activity 

Number of PEMO licenses (increase) 
Average number of broker-venue connections (increase) 
Number of brokers offering cross-border trading (increase) 
Average gap in fees charged between domestic and cross-border 
trading within the EU (decline) 
Volume of cross-border transactions in the EU (increase) 
Average transaction costs (per asset class; domestic/cross-border) 
(decline) 
Number of open access arrangements / applications under open 
access provisions (increase) 

Post-Trade  

Objective  

Proposed indicator (expected direction in brackets) 

Enable  further  market 
integration  and  scale 
effects  by  increasing 
cross-border activity 

Total cross-border settlement activity (volume/value by 
instrument) (increase) 
Total cross-border issuance (value/volume) (increase)  
Settlement fees for domestic and cross-border transactions 
(decline) 
Number of CSDs that are part of a group that engage in intra-
group outsourcing of core CSD activities (increase) 
Number of CSDs experimenting with new technologies (increase) 
Volume and value of settlement conducted by settlement 
internalisers (increase) 
Number of CSDs that designate credit institutions to provide 
banking-type ancillary services (increase) 
Volume and value of settlement activity taking place in 
T2S (increase) 

of 

Source 
information 
ESMA, 
industry, 
commercial 
databases, 
CMU 
indicators 

of 

Source 
information 
ESMA, 
industry, 
commercial 
databases, 
CMU 
indicators 

160 List of indicators to monitor progress towards the CMU objectives - European Commission 

99 

 
 
 
 
 
 
 
 
Total number of CSD links (increase) 
Total number of third-country systems designated under the 
SFD (increase)  
Total number of systems designated under the SFD (increase) 
Settlement activity (in volume and value terms) executed using 
novel technologies (increase) 
Total amount of cash leg settlement executed with digital money 
(increase) 
Total number of DLT-based SFD designated systems (increase) 

Asset management  

Objective  

Proposed indicator (expected direction in brackets) 

Enable  further  market 
integration  and  scale 
effects  by  increasing 
cross-border activity 

Number of cross-border funds (marketed cross-border) (increase) 
Average size of funds (increase) 
Average management cost of funds (per sector / specialisation) 
(decline) 
Creation/cessation of funds (indication of market entry barriers) 
(increase) 
Number of asset managers (increase) 
Size of asset managers (increase) 
Number of asset management groups and number of Member 
States where they operate (increase) 
Number of Member States where funds will be established due to 
the depositary passport (increase) 

of 

Source 
information 
ESMA, 
commercial 
database, 
industry 

Innovation (DLTPR) 

Objective  

Proposed indicator (expected direction in brackets) 

Facilitate innovation 
by removing 
regulatory obstacles 

Number of DLT-based authorisations (increase) 
Number of Member States with legal frameworks to allow DLT-
based transfer of ownership (increase) 

of 

Source 
information 
ESMA 

Supervision 
Objective  

Improve supervision 
by reducing 
fragmentation 

of 

Source 
information 
ESMA 

Proposed indicator (expected direction in brackets) 

Number  of  collaboration  platforms  with  ESMA  participation 
(increase) 
Number  of  joint  on-site  inspections  and  dedicated  investigations 
(increase) 
Number of peer reviews conducted (increase) 
Number  of  obstacles  to  convergence  identified  and  removed 
(increase) 
Number of investigations of breach of EU law successfully closed 
(increase) 
Number of warnings on manifest breach of the EU law (increase) 

100 

 
 
 
 
 
 
 
 
 
ANNEX 1: PROCEDURAL INFORMATION 

1.  LEAD DG, DECIDE PLANNING/CWP REFERENCES  

•  Lead Directorate-General: Directorate-General for Financial Stability, Financial Services 

and Capital Markets Union.  

•  Decide Planning Reference: Plan 2025/1066 and Plan 2025/1074. 
•  CWP references:  The initiative is  part of the SIU strategy, included in  the  Commission 

Work Programme 2025. 

2.  ORGANISATION AND TIMING  

Organisation and timing of Inter Service Steering Group’s meetings: the Inter Service Steering 
Group  included  representatives  of  the  Directorates  General  (Budget  (BUDG),  Climate  Action 
(CLIMA), Communications Networks, Content and Technology (CNECT), Competition (COMP), 
Education,  Youth,  Sport  and  Culture  (EAC),  Economic  and  Financial  Affairs  (ECFIN), 
Employment,  Social  Affairs  and  Inclusion  (EMPL),  Energy  (ENER),  Environment  (ENV), 
European Statistics (Eurostat), Internal Market, Industry, Entrepreneurship and SMEs (GROW), 
International Partnerships (INTPA), Joint Research Centre (JRC), Justice and Consumers (JUST), 
Regional  and  Urban  Policy  (REGIO),  Research  and  Innovation  (RTD),  Taxation  and  Customs 
Union (TAXUD), Trade (TRADE), the Legal Service (LS) and the Secretariat General (SG)). 

•  1st meeting on 26 June 2025;   
•  2nd meeting on 9 September 2025; 
•  Written consultation from 3 September to 10 September 2025.  

3.  CONSULTATION OF THE REGULATORY SCRUTINY BOARD 

The  Impact  Assessment  report  was  examined  by  the  Regulatory  Scrutiny  Board  (RSB)  
on  8  October  2025.  Following  the  first  negative  opinion,  the  IA  Report  was  resubmitted  
to the RSB on 29 October 2025. In its second opinion of 14 November the Board acknowledged 
the improved quality of the report, reflecting the significant efforts made to address all previous 
comments, 
those  on  economic  analysis  and  macroeconomic  estimates.  
However, the Board still had remaining concerns regarding the latter two areas, as expressed in its 
2nd  opinion,  but  nonetheless  issued  a  positive  opinion.  In  view  of  the  improved  quality  
and the remaining concerns, the Board granted a ‘positive opinion with reservations’. 

including 

Following the second opinion, the Impact Assessment was revised to (i) better clarify and frame 
the  estimated  macroeconomic  impacts,  (ii)  provide  more  details  on  impacts  on  and  views  
held by individual stakeholder groups, and (iii) be clearer on the types of costs and savings that 
are expected to arise. The RSBs suggestion to include additional modelling, extrapolate effects 
and provide more detailed breakdowns, notably as regards costs and savings, could not be followed 
due to lack of data and time.  

101 

 
 
 
The principal areas in  which this Impact  Assessment was  reinforced following  both  the RSB’s 
negative opinion and the reservations expressed in its second opinion are summarised in the table 
below.161  

 Areas to improve according to RSB opinion 
(1)  The  report  should  provide  a  more  detailed  rationale  
for  the  chosen  scope  of  the  initiative,  including  better 
explaining the focus on only two of the main pillars of the 
SIU  Strategy.  This  includes  briefly  outlining  ongoing 
initiatives to show how this initiative forms a part of a larger 
context.  
(2) The report should provide robust evidence to demonstrate 
the magnitude  of the  problem addressed.  For  example,  the 
number and size of market participants is not a sufficiently 
informative  indicator  of  to  what  extent  the  market  is 
efficient. The report should substantiate if and how barriers 
between submarkets make the markets inefficient or increase 
costs  (such  as  transaction  costs  and  fees)  for  operators.  It 
should also substantiate what the effects are on limiting the 
volume  of  trades  or  investments,  including  for  different 
categories of stakeholders.  

The report should clarify the causality between the problems, 
problem drivers and consequences.  

On supervision, the report should provide broader evidence 
to better illustrate the problem, problem drivers and related 
costs. 

(3)  For  Digital  Ledger  Technologies  (DLT),  the  report 
should explain to what extent the intervention is expected to 
drive  innovation,  taking  into  account  the  need  for  related 
investments.  The  report  should  also  better  explain  the 
expected outcomes in terms of the relations between DLT-
enabled solutions and “traditional” solutions.  

(4)  In  describing  the  context,  the report  should  provide  an 
economic  analysis  of  the  EU  market  for  savings  and 
investments  covering  background  factors  such  as  profit 

Overview of changes  
The  revised 
includes  more 
text 
explanations  on  the  scope  of  the 
initiative  and  its  link  to  other  SIU 
initiatives 
(Section  1,  but  also 
references in subsequent sections).  

revised 

improves 

text  was 

to  explain  better 

The  revised  text  includes  further 
quantitative and qualitative evidence 
to substantiate the specific problems 
(Section  2).  As  further  explained  in 
Annex 4, there are limitations in the 
available data, including on costs and 
fees,  and  quantitative  modelling  is 
inherently difficult, but the text also 
refers to  the  rich  body  of secondary 
evidence available to substantiate the 
problems.  The 
also 
the 
improved 
impacts  on  the  individual  categories 
of stakeholders.  
The 
the 
text 
explanations  on  the  causal  links 
between  drivers,  problems  and 
consequences, also adding references 
to the literature (Section 2).  
The  revised  text  includes  additional 
explanations, including examples and 
references, to illustrate the problems. 
Quantification  of  these  problems  is 
difficult, 
the  additions  are 
qualitative in nature (Section 2).  
The  revised  text  clarifies  the  value-
added of DLT and discusses barriers 
between 
to 
uptake 
DLT/traditional 
in 
qualitative terms, referring also to the 
literature (Section 2). It also provides 
additional details in terms of stability 
risks, 
including  the  susceptibility  
of DLTs to cyber risks.  
comprehensive 
Conducting 
assessment  of  the  EU  market  for 
savings  and  investments  is  beyond 

link 
systems 

and 

so 

a 

161  The  main  revisions  were  made  following  the  first  opinion,  with  further  targeted  improvements  made  after  the 
second opinion, in particular to provide more information on stakeholder feedback, clarify the purpose and limitations 
of the macroeconomic estimates, explain certain cost estimates and other aspects of the analysis, and additional editing. 
102 

 
 
  
 
 
margins,  different  fiscal  or  regulatory  frameworks,  returns 
on  investment  and  perceived  risks,  compared  with  other 
relevant markets.  

(5) The report should more thoroughly analyse the variations 
in  financial  markets  performance  across  different  Member 
States  and  sectors,  to  better  identify  what  works  and  what 
does not, and how this can inform the design of options.  

(6) The report should present objectives and an intervention 
logic  that  clearly  define  success.  The  main  report  should 
summarise the main regulatory barriers, and their associated 
costs,  that  are  to  be  removed  or  harmonised  through  this 
initiative.  The  report  should  formulate  a  broader  range  of 
options and be clear on how the options correspond to and 
address  the  identified  barriers.  The  options  should  be 
formulated  so  as  to  be  specific.  The  objectives  should  be 
measurable as far as possible, and the report should clearly 
demonstrate how they are expected to be attained. The report 
should better capture to what extent the options are expected 
to  contribute  to  the  completion  of  an  integrated  financial 
services market, and also if and how the options are expected 
to  promote  economies  of  scale  and  how  the  economies  of 
scale will reduce costs and drive market efficiency.  

(7) The report should present a quantitative assessment of the 
current  state  of  play,  incorporating  how  other  related 
initiatives  and  key  economic  variables  evolve  under  the 
baseline scenario.  

(8)  The  impact  chapter  of  the  draft  report  should  put  an 
emphasis on evidence-based quantification of the costs and 
benefits  associated  with  the  proposed  measures.  It  should 
demonstrate  to  what  extent  the  removal  of  the  identified 
barriers will result in increased efficiency and more or larger 
transactions on the market.  

103 

the  scope  of  the  report  and  seems 
disproportionate to inform about the 
needs for and merits of the initiative. 
The  revised  text  includes  a  more 
detailed  description  of  the  market 
context  (Section  1),  plus  further 
country-specific  descriptions  in  a 
new Annex 12. Additional references 
to  studies  and  other  background 
information have also been added.   
The  revised  text  includes  further 
background  information  and  market 
description per Member State (Annex 
12).  In  the  spirit  of  a  proportionate 
assessment, and given the timeframe 
and urgency to act, it was beyond the 
scope of this assessment to deliver a 
country-by-country  assessment  of 
best practices and the impacts.  
The  revised  text  expands  on  the 
intervention logic and explains better 
how  the  objectives  link  to  specific 
market  outcomes.  Quantification  of 
all the dimensions is not feasible, as 
explained  in  Annex  4.  Broadening 
the range of options in the main part 
IA  was  not  considered 
of 
proportionate,  given 
the  more 
granular  assessment  of  options 
already  contained  in  the  sectoral 
annexes (options in the main part as 
the annexes have the granular options 
already  (and  adding  more  would 
make 
longer).  
The main part of the report should be 
read alongside the annexes. 
The  revised  text  has  been  enriched 
the 
with  better  explanations  on 
current  problems  and  the  interplay 
between  the  in-scope  and  out-of-
scope 
Quantitatively 
modelling  a  dynamic  baseline  is 
difficult,  given  the  data  limitations 
and  the  modelling  challenges  of 
controlling for the many factors that 
influence market outcomes.  
Further (quantitative and qualitative) 
evidence has been added to assess the 
barriers and the benefits and costs of 
For 
removing 
example,  for  post-trading,  estimates 
are  presented 
the 
reduction in settlement fees and costs 

report  even 

to  quantify 

barriers. 

factors. 

those 

the 

the 

 
 
(9)  Based  on  the  analysis  of  to  what  extent  untapped 
economies  of  scale  may  be  available,  the  report  needs  to 
develop  a  more  fully  fledged  analysis,  supported  by 
evidence,  to  demonstrate  how,  and  to  what  extent,  the 
options under consideration will deliver benefits compared 
to the baseline scenario due to this factor.  

impacts  on  costs 

(10)  The  report  should  include  a  dedicated  analysis  of  the 
initiative’s 
types  of 
stakeholders, impacts on real economy including on savings, 
credits  and  investments, competitiveness  of the EU  capital 
markets  and  the  EU  economy.  This  includes  a  more 
disaggregated  and  balanced  presentation  of  views  across 
different stakeholder groups.  

for  various 

For the main regulatory requirements to be harmonised the 
report should indicate to what extent stricter, or less strict, 
regulatory  requirements  will  result  for  various  regulated 
actors  and  attempt  to  identify  the  changes  in  compliance 
costs following from this. 

The  analysis  of  the  One  in  One  Out  principle  should  be 
updated to contain information regarding compliance costs, 
as well as administrative costs. 

the  methodology, 

in  particular  related 

(11) The costs and savings, including for trading and use of 
TS2,  should  be  quantified  to  the  extent  possible  and  the 
report  and  methodological  annexes  should  provide  more 
detail on the methodology of the calculations.  
On macroeconomic impacts the report should be transparent 
about 
the 
contribution of the intervention to the economic growth. Any 
comparisons,  such  as  to  the  US  market,  need  to  be 
substantiated  and 
full 
harmonisation is not the preferred option. The robustness of 
this estimate, the range, the contribution of other factors and 
the assumptions used should be clarified. If monetisation is 
not feasible the report should provide a reason why. 
(12)  The  report  should  also  assess  potential  risk  to  the 
stability  of  the  EU  financial  system,  including  as  to  the 
significant liberalisation of DLT-based solutions.  

into  account 

take 

that 

the 

to 

104 

on 

and 

presenting 

of  establishing  T2S  connections, 
based 
simplifying 
certain 
assumptions.  Full  quantification  of 
all dimensions is beyond the scope of 
the study. 
text  contains  more 
The  revised 
to 
explanations 
evidence 
substantiate economies of scale in the 
market, 
quantitative 
evidence  where  possible.  The  data 
and  methodological 
limitations 
challenges  of  conducting  a  fully-
fledge  analysis  are 
transparently 
presented in the main part and Annex 
4.   
The  revised 
includes  more 
text 
analysis,  including  quantification  of 
main  costs.  Stakeholder  views  and 
impacts have also been added.  

Further  explanations  have  been 
added in the main text. The detailed 
explanations of the specific rule and 
how they would address barriers and 
remove  national  gold-plating  are  set 
out in the sectoral annexes.  
Annex  3  separates  the  adjustment 
costs  from  the  administrative  costs. 
Further  explanations  have  also  been 
the 
added 
preferred option (Section 7).   
Estimations  based  on  simplifying 
assumptions  have  been added  to  the 
text.  

the  discussion  of 

in 

The text, and Annex 4 in particular, 
includes  a  more  detailed  discussion 
of  the  macroeconomic  impacts.  The 
estimates presented give an order of 
magnitude only, given the modelling 
challenges and inability to control for 
that  shape 
factors 
many  other 
macroeconomic outcomes.  

Explanations  have  been  added  to 
explain  the  stability  risks,  including 
why the DLTPR related measures do 
not increase such risk. References are 
also  provided  to  explain  why  more 

 
 
  
(13) The report should be a concise self-standing document 
in  line  with  better  regulation  requirements,  legible  and 
accessible  to  the  non-specialist  reader.  The  report  should 
strike a better balance between narrative and analysis with 
emphasis  on  empirical  evidence.  The  length  of  the  report 
should be significantly reduced. 

stability 

integrated and developed EU capital 
markets  promote 
and 
resilience, through more risk-sharing.    
Given all the additional requirements, 
it  has  not  been  possible  to  cut  the 
length  of  the  report.  However,  the 
descriptions  have  been  streamlined 
and certain duplications removed. 

4.  EVIDENCE, SOURCES AND QUALITY  

Evidence  used  in  the  impact  assessment  came  from  a  variety  of  sources,  including  
(list is not exhaustive and further references are included in text):  

- Replies by stakeholders to a targeted consultation which ran from 15 April to 10 June 2025;   

- Targeted bilateral outreach to key stakeholders;  

-September 2024 roundtables on the on consolidation in the investment funds sector and trading 
and  post-trading  infrastructure;  Joint  ECB-Commission  conference  on  financial  integration  
in 2024, with focus on SIU, market infrastructure and supervision; and many other workshops, 
conferences and events, including those organised by stakeholders;  
- Report on the Future of the Single Market, E. Letta162;  
- Mario Draghi, ‘The Future of European Competitiveness,’ 2025163  

- Reports from the European Securities and Markets Authority including:  

- ESMA Working paper on Fragmentation in European Equity markets164  

- ESMA Report Provision of cross-border services by CSDs and handling of applications 

under Article 23 of CSDR from 2020 to 2022165  

- ESMA MiFID Dashboard 2024 

   - ESMA EU Securities Markets Report 2023 

- Briefing paper for the ECON Committee at the European Parliament 

Statistics and reports (selection of main input):  

- A new Vision for Europe’s capital markets, Final Report of the High-Level Forum on the Capital 
Markets Union, June 2020 

- Study on consolidation and reducing fragmentation in trading and post-trading infrastructures  
in Europe: https://op.europa.eu/en/publication/doi/10.2874/2649452 

- Study of barriers to, and drivers of, the scaling-up of funds investing in innovative and growth 
companies - Publications Office of the EU 

162 https://single-market-economy.ec.europa.eu/news/enrico-lettas-report-future-single-market-2024-04-10_en; 
163 https://commission.europa.eu/topics/eu-competitiveness/draghi-report_en 
164 ESMA50-524821-3352 Working Paper: Fragmentation in European Equity Markets since 2019 
165 ESMA74-2119945925-1568 Report on Provision of cross-border services by CSDs and handling of applications 
under Article 23 of CSDR from 2020 to 2022 

105 

 
 
  
 
   
 
 
 
 
 
 
 
 
 
-  Study  on  the  costs  of  compliance  for  the  financial  sector,  CEPS  on  behalf  of  the  European 
Commission, 2019 

-  Beck,  T.,  B.  Bruno  and  E.  Carletti,  2024.  Can  the  Banking  Union  foster  market  integration,  
and what lessons does this hold for Capital Markets Union?  

-  Bierboum,  Maximilian,  Christopher  Breen  ,  and  William  Wright,  “Searching  for  Growth:  
The Future of EU Capital Markets”, September 2024 

- European Central Bank (ECB), “Capital markets union: a deep dive  - Five measures to foster  
a single market for capital”, ECB Occasional paper Series, May 2025 

- European Central Bank (ECB), Changing patterns of risk-sharing channels in the United States 
and the euro area”, Working Paper Series N 2849 

- European Central  Bank (ECB),Public and private risk sharing: friends  or foes? The interplay 
between different forms of risk sharing, ECB Occasional paper, June 2022 

- US Government Accountability Office (GAO) report on Reg. NMS, July 2005 

-  International  Monetary  Fund  (IMF),  Euro  Area:  Publication  of  Financial  Sector  Assessment 
Program Documentation-Technical Note on Capital Markets Union-Implications for Supervision 
and Institutional Arrangements, IMF Staff Country Reports, Volume 2025: Issue 214 

-  International  Monetary  Fund  (IMF),  June  2025,  FINANCE  &  DEVELOPMENT:  “Europe’s 
integration imperative”. 

-  International  Monetary  Fund  (IMF),  Regional  Economic  Outlook  for  Europe,  October  2024:  
A Recovery Short of Europe’s Full Potential 

-  Holste  B.,  Bergström  M.,  “Capital  Market  Fragmentation  and  Economic  Value  Migration:  
How  Europe's  Financial  System  Promotes  Wealth  Transfer  to  the  U.S”,  May  2025, 
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5204091 

- “Monitoring progress  towards a Capital  Markets  Union:  a toolkit of indicators“, Commission 
Staff Working Document, September 2025 

-  OECD,  OECD  Economic  Surveys:  European  Union  and  Euro  Area  2025  July  2025  Volume 
2025/19 

-  EC-commissioned  study  on  enhancing  financial  services  with  permissionless  blockchains 
https://op.europa.eu/en/publication-detail/-/publication/cab54e8e-ad3b-11ef-acb1-
01aa75ed71a1/language-en 

BlackRock 

- 
tokenized 
https://securitize.io/learn/press/blackrock-launches-first-tokenized-fund-buidl-on-the-ethereum-
network 

(BUIDL) 

launches 

fund 

first 

on 

Ethereum 

-  BIS  Bulletin  No.  107  –  “DeFi  and  tokenisation:  new  challenges  and  opportunities” 
https://www.bis.org/publ/bisbull107.pdf 

-  J.P.  Morgan  executes  first  live  DLT-enabled  collateral  mobilisation  on  Eurex  Clearing 
https://www.thetradenews.com/jp-morgan-executes-first-live-dlt-enabled-collateral-mobilisation-
transaction-on-eurex-clearing/ 

ECB: 

- 
https://www.ecb.europa.eu/press/intro/news/html/ecb.mipnews241204.en.html 

experiments 

Eurosystem 

DLT 

with 

for 

wholesale 

settlement 

106 

 
 
Bank 

- 
dashboard 
https://www.bankofengland.co.uk/financial-stability/digital-securities-sandbox/digital-securities-
sandbox-dashboard 

Securities 

Sandbox 

England 

Digital 

of 

-  BIS  Annual 
Economic  Report 
https://www.bis.org/publ/arpdf/ar2025e3.pdf 

2025 

–  Chapter 

3 

on 

tokenisation 

Letter 

ESMA 

- 
https://www.esma.europa.eu/sites/default/files/2024-04/ESMA75-117376770-
460_DLT_Pilot_Regime_-_Letter_to_EU_Institutions.pdf 

on  DLT 

institutions 

Pilot 

EU 

to 

Regime 

(2024) 

- ESMA Report on the functioning and review of the DLT Pilot Regime (Art. 14) – June 2025 
https://www.esma.europa.eu/sites/default/files/2025-06/ESMA75-117376770-
460_Report_on_the_functioning_and_review_of_the_DLTR_-_Art.14.pdf 

-  AMF  &  CONSOB  position  paper:  Towards  a  more  competitive  European  Pilot  Regime  
(April 
2025) 
https://www.amf-france.org/sites/institutionnel/files/private/2025-04/amf_consob_position-
paper-towards-a-more-competitive-european-pilot-regime.pdf 

Digital 

-Euroclear: 
https://www.euroclear.com/services/en/primary-issuance/digital-financial-market-
infrastructure.html 

Financial  Market 

Infrastructure 

for 

primary 

issuance 

-Bindseil  &  Malekan  (2025):  Public  crypto  networks  as  financial  market  infrastructures 
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5138052 

-Enhancing  energy  derivatives  trading:  Assessing  the  need  to  update  the  European  DLT  Pilot 
Regime Regulation; https://ssrn.com/abstract=5189300 

-ESMA  Reply  by  Chair  Verena  Ross  on  DLT  Pilot  Regime  Implementation  (May  2024) 
https://www.esma.europa.eu/sites/default/files/2024-
05/3056562_030524_Reply_Verena_Ross_on_DLT_Pilot_Regime_Implementation.pdf 

107 

 
 
 
ANNEX 2: STAKEHOLDERS CONSULTATIONS  

The following consultation activities have helped to shape the content of this initiative:    

•  European Commission ‘Call for evidence on the Savings and Investments Union: Fostering 
integration and scale and more efficient supervision in EU capital markets’, from 8 May 
until 5 June 2025.    

•  European  Commission  targeted  consultation  on  ‘Integration  of  EU  capital  markets’ 

between 15 April and 10 June 2025.   

•  Workshop to collect information from stakeholders on the recent EU initiatives on markets 
in  crypto  assets  and  DLT-based  infrastructures  for  both  crypto  assets  and  traditional 
financial 
instruments:  https://finance.ec.europa.eu/events/workshop-asset-tokenisation-
2024-06-11_en 

• 

Informal workshops with relevant stakeholders in the trading sector (trading venues, banks, 
high frequency traders) between May and July 2025, to collect information and evidence 
on the barriers to cross-border operations and investment flows within the Union and on 
how to improve market efficiency to deepen liquidity, followed by bilateral meetings. 

•  Multiple  meetings  with  CCPs, CSDs,  ministries,  banks,  and  other  relevant  stakeholders  
in  the  post-trading  area  (about  20  counterparts).  Several  provided  some  quantitative 
information (fees, costs of CSD links, costs of connecting to T2S, legal fees). 

•  Engagement with relevant stakeholders and associations of the asset management sector  
to  collect  additional  information  on  the  topics  related  to  the  asset  management  sector,  
in particular on costs associated with the cross-border distribution of funds and intra group 
delegation. 

•  Bilateral  calls  with  ESMA  and  contacts  with  NCAs  to  collect  quantitative  information  

on the impact of the measures on supervision.  

•  Additional  targeted  outreach  to  stakeholders  after  the  consultation,  in  September  
and  October,  to  have  more  information  and  quantitative  evidence  on  the  consequences  
of regulatory and supervisory barriers, taking into account different locations and sizes.  

1.  CALL FOR EVIDENCE 

The  Call  for  Evidence  received  53  responses  from  a  broad  range  of  stakeholders.  
Participation  was  dominated  by  business  associations,  accounting  for  62.3%  of  submissions, 
reflecting  the  voice  of  the  investment,  banking  and  asset  management  industries.  Companies  
and  businesses,  primarily  from  the  financial  sector,  represented  20.8%.  Individual  EU  citizens 
contributed  9.4%  of  responses,  while  other  categories,  including  chambers  of  commerce, 
professional  associations  and  advisory  firms,  accounted  for  5.7%.  Finally,  non-governmental 
organisations (NGOs) represented 1.9% of total submissions.   

108 

 
 
The purpose of the call for evidence was to (i) gather stakeholder views on barriers that prevent 
the EU’s trading and post-trading infrastructures from reaping the benefits of a truly frictionless 
the  current  regulatory  and  supervisory  setting  
single  market,  (ii)  examine  whether 
is  fit  for  the  capital  markets  and  in  particular  for  market  operators  with  strong  cross-border 
activities  or  operating  in  new  or  emerging  sectors;  and  (iii)  review  the  European  Supervisory 
Authorities’ toolbox to assess areas where their effectiveness and efficiency can be strengthened 
and improved.   

Across all stakeholder groups, there was broad alignment on the need to deepen capital markets 
integration and enhance supervisory convergence, accompanied by a shared call for simplification, 
proportionality  and  legal  certainty.  Stakeholders  widely  recognised  that  a  more  integrated  and 
efficient financial ecosystem would enhance Europe’s competitiveness, improve access to finance, 
and  expand  investment  opportunities.  Nonetheless,  they  underlined  that  reforms  must  remain 
balanced,  transparent  and  inclusive,  demonstrating  tangible  benefits  for  citizens  and  the  real 
economy. The extent of support for centralising supervision at EU level varied significantly among 
stakeholders. Business associations and companies tended to prefer incremental progress within 
the  current  institutional  structure,  while  NGOs  and  some  citizens  favoured  stronger  EU-level 
oversight to ensure coherence and accountability. 

2.  STAKEHOLDER TARGETED CONSULTATION (SYNOPSIS REPORT)  

2.1.  INTRODUCTION 

This  Annex  outlines  the  feedback  received  from  stakeholders  to  the  targeted  consultation  
that  was  launched  on  15  April  2025  and  remained  open  until  10  June  2025.  The  online 
questionnaire was structured in two parts. Part 1 covered the following topics: simplification and 
burden  reduction  of  the  EU  regulatory  framework  in  the  trading,  post-trading  and  asset 
management sectors; and barriers to cross-border operations in the trading space and to liquidity 
deepening in EU capital markets; and barriers to cross-border provisions of post-trade services.  

Part 2 included questions on: horizontal barriers in trading and post-trading sectors (related, for 
instance,  to  innovation,  group  synergies,  issuance  of  financial  instruments);  barriers  to  cross-
border  provision  of  asset  management  services  and  investment  funds;  and  barriers  specifically 
linked to supervision. In parallel, bilateral meetings were held with selected stakeholders to gather 
complementary input and explore specific concerns in greater depth. 

Each  sub-section  below  summarises  the  key  messages  received  for  each  topic,  supported  by 
quantitative and qualitative data where provided. The percentages expressed exclude those who 
did not answer the questions and those who chose the option “don’t know/ no opinion”. 

2.2.  OVERVIEW OF RESPONDENTS 

In total, 297 stakeholders166 replied to the consultation through the Commission website. However, 
the number of responses per question varied considerably.  

166 Additional responses received by email were treated as confidential and not mentioned in this Annex. 

109 

 
 
 
 
In  Part  1  of  the  consultation,  the  majority  of  contributions  came  from  business  associations,  
and companies or business entities. These two groups submitted 92 and 79 responses respectively. 
Public authorities represented a significant share of participants as well, contributing 25 responses. 
Additional input was received from seven non-governmental organisations, five trade unions, four 
EU citizens, and one consumer organisation. Fifteen responses were categorised under the “other” 
stakeholder type. 

In  Part  2  of  the  consultation,  business  associations,  and  companies  or  business  entities  again 
accounted  for  the  largest  number  of  submissions,  with  90  and  69  responses  respectively.  
There  were  31  submissions  from  public  authorities,  followed  by  seven  responses  from  non-
governmental organisations, four from EU citizens, three from trade unions, two from consumer 
organisations, and thirteen categorised as “other”. 

The  consultation  thus  attracted  a  diverse  range  of  respondents,  including  market  participants, 
representative associations, public authorities, and civil society organisations.  

Table 1: Part 1’s Respondent stakeholder types 

Stakeholder types 

Count 

Business association 

Company/business 

Consumer organisation 

EU citizen 

Non-governmental 
(NGO) 

organisation 

Other 

Public authority 

Trade union 

Total 

92 

79 

1 

4 

7 

15 

25 

5 

228 

110 

 
 
 
 
 
 
 
 
 
 
Graph 1: Part 1’s shares of categories 

Table 2: Part 1’s Respondent by Country and Type 

111 

Country Business assoc.Company/businessPublic authorityOtherNGOTrade unionEU citizenConsumer org.TotalGermany151821137Belgium214111129France81422228United Kingdom109221Netherlands5611215Italy6411113United States6511Sweden312118Luxembourg5218Poland22127Spain111216Ireland2125Finland2215Malta11215Austria21115Slovenia1214Croatia314Denmark1113Czechia123Switzerland213Latvia22Norway112Estonia11Portugal11Slovakia11Lithuania11Total927925157541228 
 
 
 
 
Table 3: Part 2’s Respondent stakeholder types 

Stakeholder types 
Count 
Business association 
90 
Company/business 
69 
Public authority 
31 
13 
Other 
Non-governmental organization (NGO)  7 
4 
EU citizen 
3 
Trade union 
2 
Consumer organisation 
219 
Total 

Graph 2: Part 2’s shares of categories 

112 

 
 
 
 
 
 
 
 
 
 
 
Table 4: Part 2’s Respondents by Country and Type 

113 

Country Business assoc.Company/businessPublic authorityOtherNGOEU citizenTrade unionConsumer org.TotalGermany1415411136Belgium1952111130France1111121127United Kingdom77115Netherlands651113United States56112Italy721111Poland23128Luxembourg5218Ireland22217Sweden3317Spain111216Malta111216Croatia1315Finland1214Switzerland2114Slovenia134Austria1113Czechia123Latvia123Norway11Portugal11Cyprus11Denmark11Romania11Israel11Lithuania11Total906931137432219 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table 5: Unique Respondents by Country and Type 

114 

Country Business assoc.Company/businessPublic authorityOtherNGOEU citizenTrade unionConsumer org.TotalGermany1821412248Belgium2472211239France1015132334United Kingdom1211225Netherlands7711218Italy7411114United States8614Poland431412Sweden4131110Spain211419Luxembourg5229Malta121419Slovenia2417Ireland22217Austria31116Croatia1416Finland2215Czechia134Switzerland2114Norway123Denmark1113Latvia123Portugal22Romania11Estonia11Israel11Slovakia11Cyprus11Lithuania11Total11596362411852297 
 
 
 
3.  SUMMARY OF KEY MESSAGES 

This section provides a summary of the full targeted consultation; however, not all feedback is 
directly relevant to the policy options for this initiative.  

3.1.  SIMPLIFICATION AND BURDEN REDUCTION 

Overall,  stakeholders  call  for  a  more  proportionate,  simplified,  and  harmonised  regulatory 
framework that reduces burdens, particularly on smaller institutions, and supports innovation, 
while maintaining investor protection and market stability. 

Proportionality in the EU Regulatory Framework: 84.6% of the 149 respondents  to  this 
question expressed the need for greater proportionality in the EU’s regulatory framework for 
trade, post-trade, asset management, and investment funds, advocating for more tailored rules 
aligned  with  risk  profiles,  sectoral  specificities,  and  business  activities.  Support  was 
particularly  high  among  business  associations  (55.7%  strongly  agree,  28.6%  agree)  and 
companies  (49.0%  strongly  agree,  33.3%  agree),  as  well  as  NGOs  (75.0%  strongly  agree, 
25.0%  agree)  and  individual  citizens  (75.0%  strongly  agree,  with  25.0%  expressing  no 
opinion). Simplified and risk-based regulation was seen as essential to lower compliance costs 
and support innovation. Nonetheless, there was a strong consensus that proportionality must 
not  undermine  investor  protection,  market  stability,  or  financial  integrity.  Calls  for 
simplification  were  widespread,  especially  regarding  reporting  obligations  under  MiFIR, 
EMIR  and  SFTR,  which  are  often  duplicative  and  administratively  burdensome.  A  body 
representing pension providers and some market infrastructure operators also highlighted that 
existing  reporting  and  transparency  frameworks  apply  disproportionately  across  market 
segments, urging horizontal simplification rather than expanded proportionality tools. Certain 
business and industry associations warned that differentiated rulesets for smaller actors could 
risk further fragmentation and weaken efforts to deepen EU-wide harmonisation, while some 
NCAs  called  for  clearer  and  more  explicit  proportionality  clauses  (similar  to  those  under 
DORA) to support consistent supervisory application. Dissent was marginal, limited to a small 
minority of company respondents (5.9% neutral, 3.9% disagree, 2.0% strongly disagree, 5.9% 
no opinion) and a single consumer organisation that opposed proportionality and cautioned that 
proportionality  should  not  be  used  as  a  rationale  for  deregulation.  A  stock-exchange  group 
likewise  argued  that  proportionality  should  not  lead  to  divergent  requirements  for  trading 
venues offering the same services,  emphasising instead the need for  a consistent, principle-
based  framework  across  MiFIR,  EMIR  and  CSDR  to  preserve  fair  competition  and  avoid 
further fragmentation of liquidity. An investment firm also argued that repeated adjustments in 
the name of proportionality could add complexity rather than reduce it. 

Adjusting AIFMD Sub-thresholds for Market Evolution and Inflation: 55.5% of the 54 
respondents  support revising the AIFMD sub-thresholds to  account  for cumulative inflation 
and changes in market structure since the thresholds were setover a decade ago are no longer 
aligned  with  today’s  asset  valuations,  leading  to  disproportionate  burdens  for  smaller  fund 
managers. Respondents (60.5% of the 71 respondents to this point) also supported introducing 
greater  proportionality  in  the  AIFMD  for  smaller  fund  managers  (simplified  reporting, 
streamlined authorisation processes, and tailored liquidity risk management). Harmonising the 
treatment of sub-threshold AIFMs across Member States was also deemed essential to prevent 
fragmentation  and  regulatory  arbitrage.  Support,  however,  varied  significantly  across 

115 

 
 
 
 
stakeholder  groups:  NGOs  were  the  most  favourable  (50.0%  strongly  agree,  25.0%  agree), 
followed by individual citizens (66.7% strongly agree, 33.3% neutral). By contrast, business 
associations  showed  limited  support  (14.0%  strongly  agree,  8.0%  agree),  with  a  majority 
(58.0%) indicating no opinion and 12.0% disagreeing. Companies were even more hesitant, 
with 74.4% giving no opinion and only 7.7% strongly agreeing; 12.8% disagreed and 2.6% 
strongly  disagreed.  Consumer  organisations,  in  turn,  unanimously  expressed  no  opinion. 
Several stakeholder groups, including business and industry associations, as well as credit and 
banking institutions also expressed reservations about adjusting the current the thresholds and 
stressed the importance of regulatory stability given that both AIFMD and UCITS were only 
recently  reviewed.  They  cautioned  that  inflation-linked  adjustments  could  introduce 
complexity, reduce legal certainty, and disrupt well-established regulatory boundaries. Some 
investment firms and asset managers similarly opposed revising the thresholds at this stage, 
warning  that  changes  could  create  unintended  consequences  for  the  regulatory  perimeter, 
investor  protection  and  supervisory  consistency,  and  suggested  that  any  future-proofing 
mechanisms should only be considered in a later, holistic AIFMD review. Certain NCAs also 
advised caution, noting that increasing thresholds could allow more AIFMs to fall outside the 
authorisation  regime  in  Member  States  where  oversight  for  sub-threshold  AIFMs  is 
comparatively light, while others indicated that an inflation adjustment could be considered 
only if accompanied by reinforced enforcement powers. Additional concerns were raised by 
business  associations  and  investment  firms  regarding  the  need  for  a  level  playing  field, 
emphasising  that  managers  offering  similar  services  should  not  operate  under  materially 
different oversight regimes. Several of these stakeholders argued that proportionality would be 
better  achieved  through  targeted  simplification  within  the  existing  thresholds  rather  than 
structural changes to the regime. 

Converting  Directives  (e.g.  AIFMD,  UCITSD,  MiFID)  into  Regulations:  Views  were 
divided. The majority supported the idea, with 27.6% strongly agreeing and 23.6% agreeing, 
to foster legal clarity, reduce fragmentation, and enhance supervisory convergence, especially 
in cross-border contexts. However, many others feared it could increase compliance burdens 
and  erode  national  flexibility.  The  added  rigidity  was  seen  as  particularly  problematic  for 
smaller  or  regionally  specific  markets.  Support  was  particularly  strong  among  consumer 
organisations  (100.0%  strongly  agree)  and  EU  citizens  (50.0%  strongly  agree).  Business 
associations were more  divided (23.6% strongly  agree, 16.4%  agree, with 38.2% opposed). 
Companies  also  showed  mixed  views  (14.6%  strongly  agree,  19.5%  agree,  22.0%  neutral, 
24.4% oppose, 19.5% no opinion). NGOs were split equally between support, opposition, and 
no opinion (25.0% each). “Other” stakeholders also presented a balanced distribution (9.1% 
strongly  agree,  27.3%  agree,  18.2%  neutral,  27.3%  oppose,  18.2%  no  opinion).  Opposing 
views  argued  that  the  current  directives  generally  function  well  and  emphasised  that  recent 
reviews of AIFMD and UCITSD should be allowed to take effect before considering structural 
changes.  They  cautioned 
into  regulations  could  reduce 
proportionality, increase transition costs and fail to address the main sources of fragmentation, 
which they linked to gold-plating and divergent supervisory practices rather than the legislative 
form. Some NCAs and market participants also warned that regulations may not accommodate 
national market specificities and noted that directly applicable frameworks such as SFDR have 
not  prevented  divergent  interpretations.  A  stock  exchange  group  took  a  different  view  and 
supported converting the Financial Collateral Directive and the Settlement Finality Directive 
into regulations to improve cross-border legal certainty. Overall, many sceptical stakeholders 
preferred targeted amendments and stronger supervisory convergence instead of a wholesale 
shift from directives to regulations. 

that  converting  directives 

116 

 
 
 
Simplifying  Interplay  Between  EU  Regulatory  Frameworks:  there  was  near-unanimous 
support  for  simplifying  the  interactions  between  EU  financial  regulations  and  for  greater 
alignment of definitions, thresholds, and reporting requirements across frameworks. Among 
120 respondents, 85% agreed or strongly agreed that complexity and duplication (for instance 
on  reporting)  across  frameworks—particularly  MiFID,  AIFMD,  and  UCITSD—create  legal 
uncertainty and administrative inefficiencies. Support was particularly high among business 
associations (36.5% strongly agree, 34.6% agree), companies (30.2% strongly agree, 34.9% 
agree), NGOs (20.0% strongly agree, 60.0% agree), consumer organisations (100.0% agree), 
and  “other”  stakeholders  (55.6%  strongly  agree,  11.1%  agree).  EU  citizens  also  supported 
simplification  (25.0%  strongly  agree,  25.0%  agree,  with  50.0%  no  opinion).  Dissent  was 
minimal,  limited  to  small  minorities  of  business  associations  (5.8%  neutral,  7.6%  oppose), 
companies (9.3% neutral, 4.6% oppose), and “other” stakeholders (11.1% neutral, 22.2% no 
opinion). However, several stakeholders expressed reservations about deeper consolidation of 
frameworks  rather  than  targeted  simplification.  Some  investment  firms  and  asset  managers 
argued  that  merging  elements  of  the  asset  management  framework  with  MiFID  would  not 
benefit EU managers and could inadvertently favour UK market structures. An NCA also noted 
that MiFID and the asset management framework have distinct roles in the regulatory chain 
and  should  remain  separate,  although  targeted  improvements  to  remove  overlaps  were 
considered appropriate. Some business associations warned that broad alignment efforts could 
expose very small asset managers to new requirements, and risk creating additional burdens 
rather than simplification.  

Streamlining PRIIPs KID: of the 117 respondents, 57.3% strongly agreed and 21.4% agreed 
that  the  PRIIPs  Key  Information  Document  (KID)  is  overly  technical,  difficult  for  retail 
investors  to  understand,  and  burdensome  for  producers  to  comply  with.  Some  suggested 
adapting the KID to modern communication tools through layered digital formats. Support was 
particularly high among business associations (44.6% strongly agree, 17.9% agree), companies 
(42.9% strongly agree, 9.5% agree), NGOs (40.0% strongly agree, 40.0% agree), EU citizens 
(50.0%  strongly  agree,  25.0%  agree),  and  consumer  organisations  (100.0%  strongly  agree). 
“Other” stakeholders were somewhat more divided (27.3% strongly agree, 9.1% agree, 27.3% 
neutral, 9.1% oppose, 27.3% no opinion). Neutrality and opposition were marginal, with small 
minorities  of  business  associations,  companies,  and  “other”  stakeholders  expressing  such 
views.  Among  those  cautious  or  opposed,  several  business  associations, credit  and  banking 
institutions  and  investment  firms  argued  that  the  KID  has  already  undergone  substantial 
revisions and now provides an acceptable balance between accuracy, comparability and retail 
comprehensibility.  They  stressed  that  further  changes  could  create  unnecessary  cost  and 
disruption and highlighted that complaint levels from retail investors are currently very low. 
Some  investment  firms  also  warned  that  reopening  the  framework  could  disadvantage  EU 
providers  relative  to  UK  competitors  and  noted  that  investors  are  now  accustomed  to  the 
existing  format.  Credit  institutions  and  business  associations  further  cautioned  that 
oversimplification  may  undermine  the  quality  of  information  and  suggested  that  any  future 
changes should be based on robust consumer testing and clear evidence of added value. 

Other Recommendations for Streamlining and Simplification: an overwhelming 90.8% of 
stakeholders  used  the  opportunity  to  offer  further  recommendations  for  simplification.  The 
most  common  proposals  included  harmonising  reporting  regimes,  simplifying  supervisory 
practices, and creating an EU-wide central register for funds and fund managers. Proportional 
regulation tailored to smaller or less complex market participants was again a recurring theme. 
Respondents  also  stressed  the  need  for  more  coherent  sequencing  of  Level  1,  2,  and  3 
legislations to ensure operational readiness and legal certainty.  

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Some respondents advocated for enhancing ESMA’s powers, arguing that centralisation could 
improve supervisory convergence and cross-border consistency. Others suggested pausing or 
reassessing  new  regulatory  initiatives  to  allow  for  comprehensive  evaluation  of  the  current 
framework and reduce compliance fatigue among market participants. 

EU  level  supervision  and  simplification:  Opinions  on  the  added  value  of  EU-level 
supervision for simplification were mixed. While some respondents supported strengthening 
the  role  of  ESMA  to  improve  consistency,  legal  certainty  and  reduce  duplication,  others 
stressed  that  further  centralisation  risks  undermining  national  expertise  and  increasing 
regulatory  overlap.  Of  the  147  responses,  support  was  limited,  with  only  10.2%  strongly 
agreeing and 17.7%  agreeing.  A nearly equal  share disagreed or were neutral. Support  was 
strongest  among  NGOs  (20.0%  strongly  agree,  60.0%  agree)  and  the  single  consumer 
organisation  (100.0%  strongly  agree).  “Other”  stakeholders  also  displayed  support  (18.2% 
strongly agree, 18.2% agree) but with a notable share opposed (36.4%). Business associations 
(5.8% strongly agree, 14.5% agree) and companies (10.2% strongly agree, 18.4% agree) were 
mostly  sceptical,  with  40–45%  opposed  and  around  30%  neutral.  EU  citizens  were  divided 
(25.0% strongly agree, 25.0% oppose, 50.0% no opinion). 

Stakeholders  cautioned  that  such  reforms  must  respect  subsidiarity  and  be  accompanied  by 
appropriate  resourcing  and  clear  mandates.  A  balanced  approach,  combining  better 
coordination, mutual recognition, and strategic reinforcement of EU-level supervision where 
justified,  was  widely  favoured.  Some  business  and  industry  associations,  several  asset 
managers, stock exchanges and some NCAs emphasised that further centralisation would not 
lead to simplification. These respondents argued that EU-level supervision risked adding layers 
of  oversight,  duplicating  existing  national  processes,  increasing  costs,  and  weakening 
proximity  to  local  markets.  Many  therefore  called  instead  for  stronger  supervisory 
convergence,  clearer  EU  rules,  and  the  reduction  of  national  gold-plating.  One  technology 
provider  respondent  explicitly  rejected  centralised  supervision  as  lacking  legal  basis  and 
undermining EU competitiveness, while some insurance and market infrastructure stakeholders 
warned  that  past  experiences  (e.g.  the  SSM)  show  that  centralisation  can  increase 
administrative burden rather than reduce it. 

3.2.  TRADING 

This section sought stakeholders feedback on barriers to cross-border operation in the trading 
space and on liquidity deepening in EU capital markets. 

Integration  and  deepening  of  liquidity  pools  in  EU  capital  markets:  95  out  of  142 
respondents answered the questions on the current level of integration of liquidity pools across 
the EU, with the majority reporting it is efficient and only 18,95 % considering it absent or 
inefficient. The latter category of respondents includes 5 investment firms, 2 credit institutions, 
1 NCA and an organisation representing retail investors. 

The main drivers for inefficient integration of liquidity pools in the EU are non-regulatory and 
linked to market practices, legal/regulatory barriers at domestic level (44 respondents including 
13 investment firms, 13 stock exchanges, 7 credit institutions and 2 NCAs), legal/regulatory 
barriers  at  EU  level  (35  respondents  including  11  investment  firms,  11  stock  exchanges,  4 
credit  institutions  and  1  NCA)),  and  supervisory  practices  (29  respondents  including  9 
investment  firms,  7  stock  exchanges,  4  credit  institutions  and  1  NCA).  38  respondents 
highlighted also other elements that prevent smooth integration of liquidity pools, including 
market fragmentation, post-trade fragmentation, connectivity and access barriers and investor 

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home bias. Respondents would see benefits in increasing the level of harmonisation for certain 
areas, including the core principles and approval processes of exchange rulebooks, fair access 
and outsourcing.  

Connection to trading venues: Among the 79 respondents to this point, 32 out of the 56 who 
expressed  an  opinion  (including  11  investment  firms,  8  credit  institutions  and  8  stock 
exchanges), consider that the current level of direct connection to trading venues by investment 
firms is adequate. Among the 13 who consider it absent or inefficient are 4 stock exchanges, 2 
technology  companies,  1  credit  institution,  1  association  representing  retail  investors  and  1 
NCA. Limits to additional connections are mainly driven by cost considerations and lack of 
demand. Post-trade fragmentation and lack of full CCP interoperability are also cited as playing 
a role.   

Indirect  connection  (through  other  intermediaries)  is  widely  adopted  and  considered  an 
efficient  way of accessing trading  venues, even if some respondents  pointed out  the risk of 
creating  a two-tier market,  with  less benefits  for smaller investment  firms and their clients. 
Retail  clients,  who  usually  have  a  strong  home  bias,  might  not  get  access  to  investment 
opportunities cross-border due to absence of connection, but also due to limited visibility over 
those investment options. It is broadly reported (36 ‘yes’, among which 10 investment firms 
and  4  credit  institutions,  and  13  ‘no’,  among  which  6  investment  firms  and  1  investment 
management firm) that (retail) clients are charged higher fees for trading in markets located in 
a Member State different  from  the one of the broker, but  this is  mainly driven by the costs 
associated  with  post-trade  and  the  need  to  establish  longer  chain  of  intermediation. 
Interoperability of CCPs and market practices of CSDs were pointed out as the main barriers 
to  cross-border  trading,  together  with  data  licensing  agreement,  legal  and  tax  complexity. 
Technology  —such  as  API  aggregation,  cloud-based  infrastructure,  and  standardised 
identifiers—  is  seen  as  a  potential  solution  for  integrating  liquidity  pools,  even  if  it  faces 
barriers  including  cost  of  implementation  and  cost  of  market  data,  lack  of  standardization, 
regulatory  uncertainty  and  complexity,  interoperability  with  legacy  systems  and  resistance 
from incumbents.  

The lack of seamless connectivity was seen as a key factor hindering deeper liquidity pools and 
market integration. It also negatively impacts retail investors, who face limited product choice, 
suboptimal execution, and higher costs. Some proposed mandating routing of retail orders to 
competitive venues to ensure better execution outcomes and market transparency. 

ETFs market in the EU: A majority of the 81 respondents that expressed an opinion thought 
that the existence of multiple listings for ETFs had a negative impact on the attractiveness of 
EU markets (34 respondents finding this very negative, rather negative or slightly negative as 
compared to 22 who found it rather positive or very positive). As to the four most prominent 
drivers  for  the  existence  of  multiple  ETF  listings,  respondents  pointed  to  market  practices 
related to trading venues (39 respondents), other barriers (including legal barriers at EU and 
national  level)  (38  respondents),  market  practices  pertaining  to  investment  firms  (34 
respondents)  and  market  practices  pertaining  to  CSDs  (33  respondents).  Fewer  respondents 
pointed  to  the  (lack  of)  CCP  interoperability  (20  respondents)  or  supervisory  practices  (18 
respondents).  

Interconnection  solutions  in  trading:  Asked  whether  intermediaries  should  be  obliged  to 
connect to all venues in the EU, respondents were overall reluctant (87 respondents, of which 
21 in favour and 51 against). The reasons for this reluctance appear to be mostly related to cost, 
with the majority of respondents highlighting that mandating all intermediaries to connect to 

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all EU trading venues and offer access to all shares and ETFs would impose disproportionately 
high costs, especially for smaller and mid-sized firms, which would ultimately be passed on to 
investors. Many respondents (47 ‘yes’ and 18 ‘no’) however indicate that smart order routing 
or  similar  technologies  hold  promise  in  improving  access  to  liquidity.  There  was  also 
scepticism  about  requiring  interconnections  between  RMs  and  MTFs  (with  43  respondents 
against and 25 in favour – out of a total of 89 who expressed an opinion). Between the two 
options  (requiring  brokers  to  connect  to  all  venues  and  requiring  venues  to  interconnect), 
respondents showed a slight preference for interconnecting venues, specifically with regard to 
quality and speed of execution, and ultimately with regard to the efficiency of the EU trading 
landscape.  

Open access: A clear majority of respondents have highlighted inefficiencies in the way open 
access functions today, failing to deliver on a fully integrated and interoperable trading and 
post-trading 
landscape.  While  certain  respondents  advocated  for  full 
interoperability  between  CCPs,  some  respondents  also  referred  to  restrictive  practices  that 
protect trading and clearing silos, even when the CCPs clearing trades of a given venues are 
already interoperable. 

infrastructure 

Some respondents (39) reported familiarity with  the US Reg NMS and its Order Protection 
Rule, yet cautioned against its literal transposition to EU markets. 42 respondents (53,8 % of 
those expressing an opinion) thought geographical dispersion would pose issues to the effective 
implementation of that rule.  

Best  execution  &  Consolidated  Tape:  37  respondents  (accounting  for  45%  of  those  who 
expressed an opinion on this point) believe the EU's best execution rules are generally effective, 
despite some persistent issues. Only 11 % believe that the best execution rules are ineffective 
or rather ineffective. Most participants reported that the fragmented nature of EU markets, the 
complexity of assessing best execution, and the availability and cost of comprehensive market 
data pose significant challenges in consistently achieving best execution. Almost half of the 
respondents  deem  that  the  EU  best  execution  framework  is  better  suited  than  the  US  best 
execution framework to obtain the best possible result for the clients, mostly as it places the 
responsibility directly on the intermediary, who must consider a range of factors based on the 
specific profile and needs of the client.   

On the consolidated tape (CTP), 37% of the respondents (including representatives of buy side, 
sell side, and proprietary traders) deem that lifting the anonymity of the European Best Bid 
Offer (EBBO) would improve the ability of investment firms to assess the quality of execution 
and  improve  efficiency  of  price  formation.  25%  of  respondents  (mainly  representatives  of 
trading venues) disagree with this view, noting that the CTP will always lag behind private data 
feeds, introducing structural latency that sophisticated market participants can exploit (to the 
detriment of less sophisticated investors).  

Transparency:  Asked  about  the  reasons  for  a  decrease  of  lit  order  book  equity  trading, 
respondents  mainly  cited  regulation  (i.e.  the  equity  waiver  regime  under  MiFIR  –  40 
respondents),  liquidity  fragmentation  (with  more  order  flow  migrating  to  execution  venues 
such  as  systematic  internalisers  and  dark  pools  –  39  respondents),  as  well  as  technological 
developments such as high-frequency trading (37 respondents).   

Asked about the reasons for the rising importance of closing auctions, respondents mentioned 
mainly  the  rise  of  index  investing  /  passive  management  (55  respondents)  and  the  use  of 
quantitative investment strategies benchmarked to the closing price (38 respondents).  

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Bilateral  and  multilateral  trading:  Respondents’  views  on  the  benefits  of  competition 
between bilateral and multilateral venues are equally split, with 26 respondents considering the 
net result positive, 21 being of the opposite view, 20 having no view. Of the 21 that considered 
the  net  result  of  competition  negative  –  mainly  trading  venues  –  18  were  proponents  of 
requiring that retail orders be executed on multilateral and lit venues.  

Single market maker venues: 27 out of the 64 respondents are aware of practices that restrict 
the presence of multiple market makers on certain venues, and views were almost evenly split 
between those who considered the existence of single market maker venues justified and those 
who do not.   

Ghost  liquidity:  out  of  the  63  respondents  to  this  point,  19  believe  ghost  liquidity  is 
detrimental to adequate levels and ‘quality’ of liquidity and price formation on trading venues, 
versus  10  that  don’t  and  34  being  neutral.  Some  participants  report  that  it  can  distort  the 
perception of available liquidity, enable potential price manipulation, and undermine efficient 
price  formation.  However,  multiple  respondents  maintain  that  the  phenomenon  is  not 
problematic  and  is  a  natural  outcome  of  modern  electronic  trading  and  legitimate  risk 
management practices.  

3.3.  POST-TRADE 

The  section  of  the  targeted  consultation  covered  a  wide  range  of  topics  in  the  post-trading 
space,  including,  among  others,  cross-border  settlement,  CSD  services,  links  between  EU 
CSDs,  issues  related  to  Target2-Securities  (T2S),  legal  certainty,  the  Settlement  Finality 
Directive  (SFD),  new  technologies  and  market  practices,  the  Financial  Collateral  Directive 
(FCD),  internalised  settlement,  information  sharing,  and  authorisation.  161  stakeholders 
responded to this section, including industry associations, banks, market infrastructures, and 
regulatory bodies. It must be noted that not all participants responded to all questions.   

Cross-Border Settlement and Other CSD Services: Respondents identified barriers to the 
cross-border provision of services, particularly with regards to procedures and requirements 
mandated  by  national  and  by  EU-level  regulations.  Specifically,  37  out  of  the  47  who 
responded mentioned that national differences in legal, regulatory, or operational requirements 
prevent the provision of post-trade services cross-border, in particular with regards to corporate 
law, insolvency law, securities law, and taxation. Many respondents noted that the lack of a 
common understanding of what constitutes corporate law is a significant barrier, and the ESMA 
list of corporate or similar laws of Member States (Article 49(1) of CSDR) is not helpful as it 
is  too  complicated.  Several  respondents  suggested  that  the  development  of  a  harmonised 
framework for corporate law would help  to  reduce barriers to  the cross-border provision  of 
services.  

Respondents also mentioned a series of outstanding barriers to the freedom of issuance in the 
EU. In fact, 36 of 49 respondents indicated they believed there to be barriers to the freedom of 
issuance in the EU. In particular, many respondents noted that several Member States require 
securities  constituted  under  their  national  laws  (and  in  particular  bonds  issued  by  national 
governments) to be issued through domestic CSDs. At the EU-level, respondents indicated that 
CSDR passporting requirements create a barrier to cross-border issuance and requires costly 
legal assessments.  

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Stakeholders called on public authorities to support harmonisation efforts, both via industry 
and  regulatory  efforts  to  overcome  these  barriers.  Several  respondents  suggested  the 
introduction of a 28th regime or EU-wide legal framework, as well as the harmonisation of key 
concepts for securities issuance and dematerialisation. Some respondents suggested developing 
a  pan-European  system  for  withholding  tax,  building  on  the  FASTER  Directive.  On  an 
operational level respondents suggested mandating EU-wide harmonisation of corporate action 
workflows, timelines, and messaging  standards. The majority of respondents  (38 out  of 43) 
indicated  that  there  are  barriers  to  cross-border  asset  servicing  and  processing  of  corporate 
actions. 

Regarding links between EU CSDs, 26 out of 30 respondents indicated there are barriers related 
to  the establishment of links  and 18 out  of 25 respondents  indicated there are barriers with 
respect to the maintenance of links (while very few respondents indicated an issue with the 
improper use of links or the inappropriate classification thereof). Respondents emphasised the 
need for simplification and standardisation in the process of setting up links between EU CSDs. 
The  complexity  and  cost  of  establishing  and  maintaining  links,  as  well  as  the  lack  of 
harmonisation  in  operational  and  regulatory  aspects,  were  cited  as  major  barriers.  Some 
respondents  suggested  that  ESMA  could  play  a  role  in  providing  clearer  guidance  on 
definitions,  risk  implications,  and  the  appropriate  use  of  different  kinds  of  links.  A  few 
respondents noted that the current framework for links is too rigid and inflexible, and that a 
more modular approach would be beneficial.   

Some  respondents,  particularly  investor  associations,  advocated  for  the  promotion  of 
interoperable  links  to  achieve  competitiveness  in  settlement  markets  and  avoid  oligopoly, 
although more than half of respondents (17 out of 29) indicated they  do not believe that all 
links should be interoperable. 

22 out of 23 respondents indicated that they do not believe that regulation should mandate a 
minimum number of links between EU CSDs, several solutions were proposed to promote their 
establishment. These include the creation of standardised due diligence questionnaires and risk 
assessment  frameworks  to  simplify  the  process  of  setting  up  links,  and  the  promotion  of 
transparent and comparable pricing disclosures to enable informed choices about link usage. 
In addition, 16 out of 22 respondents indicated that for the establishment of links between CSDs 
and other infrastructures to be of any benefit, they must be accompanied by convergence in 
settlement  location  and  there  should  be  standards  and  protocols  developed  to  ensure 
streamlined set-up and maintenance.  

In terms of settlement services and issues related to T2S, 29 out of 35 respondents suggested 
that T2S could be further enhanced by expanding its scope and functionality to include more 
CSDs, currencies, and services beyond settlement (e.g. common corporate action processing 
and  collateral  management).  Respondents  also  highlighted  the  importance  of  driving  full 
adoption of T2S harmonisation standards by all CSDs and participants, as well as harmonising 
operational procedures and timelines across T2S and non-T2S markets. In addition, 25 out of 
36  respondents  believe  that  all  CSDs  settling  their  cash  leg  in  euro  should  be  required  to 
connect  to  T2S.  Several  respondents  however  noted  that  the  current  T2S  framework  is  too 
complex and that a more streamlined approach would be beneficial.  

Settlement costs were a major point of contention on the part of respondents, 48 out 51 agreed 
that settlement costs in the EU should be reduced to improve the competitiveness of EU capital 
markets  (including  the  cost  of  settling  within  T2S).  Suggestions  included  increasing 
competition  and  transparency  among  CSDs,  leveraging  T2S  and  harmonisation  to  improve 

122 

 
 
 
efficiency,  and  addressing  specific  cost  drivers  such  as  communication  of  costs  and  partial 
settlement fees (41 out of 46 were in favour of greater price transparency).  

30 out of the 43 respondents believe that divergent national legal systems and practices create 
a barrier to legal certainty in the post-trading area. These include different national laws on 
securities ownership (slightly more than half of respondents mentioned this to be an issue), 
registration procedures and title transfer, settlement rules, insolvency, corporate and tax rules; 
national  differences  in  the  implementation  and  interpretation  of  SFD  and  FCD,  particularly 
settlement finality and collateral management; legal uncertainty regarding DLT-based systems; 
and  lack  of  interoperability  and  data  synchronisation  between  distributed  ledgers  and 
traditional post-trade systems.  

The adoption of different national solutions for DLT-based systems adds to the uncertainty and 
fragmentation. Some stakeholders support creating a unified legal framework for all types of 
settlement assets used in DLT environments, regardless of their nature, to promote cross-border 
market integration. 20 out of 27 respondents indicated that traditional and DLT-based assets 
should be subject to the same rules. The existing conflict of law rules do not adequately cover 
all proprietary aspects of securities holdings in cross-border contexts, and national conflict of 
that 
laws  rules  vary. Respondents  advocated  for  harmonised  conflict-of-law  rules 
accommodate DLT-based instruments to reduce friction and enhance legal certainty. 

Regarding the SFD, some respondents considered that the Directive works well and only needs 
some clarifications regarding its application to DLT-based systems (29 out of 34 respondents 
believe that SFD protection is important for DLT-based systems). Others support turning SFD 
into a Regulation to tackle inconsistent implementation of the SFD across the EU. Respondents 
also highlighted the need for clearer guidance on the conflict of law rules, uncertainty regarding 
the protection of indirect participants and the extension of protection to participants in third-
country systems and to DLT-based systems. Several respondents noted that the current SFD 
framework is too narrow and that a more comprehensive approach would be beneficial (e.g. 
broadening the scope of eligible participants, extending SFD protection to activities in relation 
to  any  assets,  not  just  cash  and  securities).  In  addition,  some  respondents  indicated  that 
settlement finality moments within the SFD should be harmonised, and clearer definitions of 
“collateral  security”  and  “financial  collateral”  in  the  FCD  should  be  provided.  The 
misalignment of these definitions was mentioned by more than half of respondents as creating 
complexities for efficient collateral management.  

New  Technology  and  Market  Practices:  The  majority  of  respondents  found  the  current 
framework  under  the  CSDR  broadly  adequate  for  managing  DLT-related  risks,  but  some 
adjustments may be needed to fully address DLT-specific challenges and ensure technological 
neutrality of CSDR definitions to include DLT-based securities.  

44 out of 45 respondents believe that DLT can streamline post-trade processes, enhance data 
sharing, and reduce the reporting burden. However, regulatory adaptation is needed to accept 
DLT-native reporting  formats,  and changes in  regulatory frameworks, securities legislation, 
accounting standards, and taxation processes may be required.  

27 out of 37 respondents supported a modular approach to the CSDR – in particular custodians, 
brokers,  and  investors,  arguing  that  it  could  foster  technological  neutrality,  encourage 
innovation, and facilitate the integration of new technologies like DLT. This approach would 
allow  service-specific  authorisation  for  DLT-based  functions  like  notary,  maintenance,  and 

123 

 
 
 
settlement, reducing compliance burdens and promoting competition by allowing new market 
entrants to offer specialised services without demanding full CSD compliance.  

Barriers under the FCD: 20 out of 21 respondents consider that there are barriers related to 
the scope of the FCD, in particular with respect to the parties eligible as collateral taker and 
collateral provider, definition of financial collateral, and the definition of cash. 24 out of 28 
respondents consider that collateral other than cash, financial instruments, and credit claims 
should  be  eligible  under  the  FCD,  including  gold  and  DLT-based  financial  collateral 
arrangements, in particular in light of DLT-based financial collateral arrangements.  

20 out of 22 respondents indicated that legal uncertainty related to the recognition of tokenised 
financial instruments as collateral under the FCD exists, citing difficulties in applying key FCD 
concepts like “possession” and “control” to tokenised assets and hence providing equivalent 
rights and protections as financial collateral under the FCD. It was also mentioned that the legal 
status and proprietary nature of tokenised assets can vary across EU Member States, leading to 
differing levels of clarity and certainty regarding their use as collateral. 

16 out of 22 stakeholders mentioned the need to change the current approach that only protects 
financial collateral arrangements where at least one of the parties is a public authority, central 
bank or financial institution, and propose to include new counterparties such as crypto-asset 
service providers,  corporates, DLT-based  entities and natural  persons. However, there  were 
also  respondents  that  expressed  caution  about  broadening  the  FCD’s  personal  scope, 
suggesting  that  the  current  restrictions  may  still  be  appropriate  to  ensure  discipline  and 
safeguard against potential risks.  

12 out of 14 respondents said they have encountered problems with the recognition/application 
of close-out netting provisions under the FCD, citing the different interpretations of insolvency 
across Member State, and the different coverage of transaction types under the FCD in different 
Member States.  

Market  Practices  and  Compliance  Costs:  Respondents  highlighted  that  internalised 
settlement  represents  a genuine alternative to  CSD settlement,  but  there is  no consensus  on 
whether  this  activity  provides  an  uneven  playing  field  with  regards  to  CSDR-regulated 
securities settlement or represents additional risks to the stability of the capital market. A few 
respondents  suggested  that  the  development  of  a  harmonised  framework  for  internalised 
settlement would help to reduce uncertainty and promote efficiency. 26 out of 33 respondents 
believe that the current reporting obligation for internalised settlement allows for an accurate 
identification of the risks stemming from this activity.  

Most respondents supported the idea of ESMA developing reporting templates or centralising 
reporting  requirements 
information 
sharing. Barriers  to  information  sharing  also  stem  from  different  interpretations  of  or  gold-
plating  by  some  authorities  when  transposing  EU  rules.  Several  respondents  noted  that  the 
current  framework  for  information  sharing  is  too  complex  and  that  a  more  streamlined 
approach would be beneficial. 

the  reporting  burden  and 

to  reduce 

improve 

In terms of authorisation, 8 out of 21 considered the authorisation procedure for CSDs under 
the CSDR to be too long and burdensome. Key concerns included the extensive documentation 
required, complex coordination among multiple authorities, and the absence of standardised 
timelines. Respondents proposed a range of improvements, including introducing harmonised 
templates, clear checklists, a centralised digital platform for submissions, introducing a two-

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stage process (initial principle approval followed by operational readiness), allowing lighter 
requirements  for  smaller  or  less  systemic  CSDs,  as  well  as  strengthening  ESMA’s  role  to 
reduce  duplication  and  improving  communication  between  authorities.  A  few  respondents 
suggested that the development of a harmonised framework for authorisation would help to 
reduce  uncertainty  and  promote  efficiency.  Several  respondents  noted  that  the  current 
authorisation framework is too rigid and inflexible, and that a more modular approach would 
be beneficial. Many of these concerns were also mirrored in the case of extensions of CSD 
authorisations  and  processes  related  to  outsourcing  activities.  Two-thirds  of  respondents 
indicated these procedures to be too long and burdensome. 

Approximately half of respondents also highlighted that the procedure for authorising CSDs to 
provide banking ancillary services is excessively long and burdensome, posing a significant 
barrier to market participation and innovation.  

Several respondents (approximately one-third) supported the concept of tiered, i.e. per service, 
authorisation for CSDs to enable proportionate regulation, allowing CSDs offering only one or 
two core services to comply with tailored requirements. Respondents argued that this would 
lower entry barriers for smaller or specialised providers, fostering innovation and competition, 
improving operational efficiency by aligning regulatory obligations with actual risk exposure 
and allowing flexible expansion by enabling CSDs to add services incrementally without full 
re-authorisation.  

Interaction with Other EU Legislation: A common thread among the responses is that issues 
between the CSDR and other EU legislation can create uncertainty, duplication of efforts, and 
increased compliance costs for market participants.  

Many  industry  associations  and  market  infrastructures  highlighted  the  need  for  greater 
coordination and harmonisation between CSDR and the MiFID II, EMIR, and the SFD. For 
instance, they pointed to the potential conflict between the provisions of the SFD and CSDR 
regarding settlement finality and dispute resolution in cases of failed settlements. They also 
noted that the regulation of trade reporting, transparency, and best execution under MiFID II 
may sometimes conflict with settlement obligations under CSDR, particularly where settlement 
cycles and reporting deadlines do not align.  

Some  entities  emphasised  the  importance  of  clarifying  the  interaction  between  CSDR  and 
DORA and the Cyber Resilience Act, to avoid duplication of provisions, particularly in areas 
such as ICT risk management, operational resilience, and cybersecurity.  

Other Issues on Post-Trading: The majority of respondents underscored the need for greater 
interoperability  and  harmonisation  among  post-trade  infrastructures,  including  CSDs  and 
CCPs. Many industry associations and market infrastructures emphasised the importance of 
interoperability in reducing costs and increasing efficiency in post-trade services. For instance, 
there  was  a  proposal  for  the  establishment  of  a  European  "Interoperability  Framework"  for 
CSDs and CCPs, which would enable greater connectivity among national CSDs and facilitate 
the consolidation of liquidity.  

Several banks, especially those with a significant presence in the EU, argued that the current 
EU framework for CCPs is in need of reform. suggested that the equivalence regime for third-
country  CCPs  could  be  optimised  through  more  regular  reviews,  greater  transparency,  and 
clearer communication on pending decisions, and a more risk-based approach to determining 
the capital treatment of exposures to third-country CCPs.  

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In contrast, some respondents highlighted the importance of maintaining local capital market 
ecosystems, citing the need to support small and medium-sized companies that are not typically 
of  interest  to  foreign  institutional  investors.  These  entities,  including  some  market 
infrastructures  and  regulatory  bodies,  emphasised  the  role  of  local  CSDs  in  delivering 
comprehensive services to domestic companies and supporting the development of local capital 
markets. They argued that the EU should prioritise the development of a harmonised approach 
to the provision of issuance and asset servicing by third-country CSDs, which would enable 
greater consistency and clarity for market participants.  

A significant number of respondents, including 70% of the industry associations and 60% of 
the  market  infrastructures  that  responded  to  the  targeted  consultation,  identified  regulatory 
barriers as a major obstacle to post-trade integration. Specifically, they pointed to the lack of 
harmonisation in areas such as corporate action processing standards, withholding tax reclaim 
processes,  and  insolvency  laws. Many  entities,  particularly  those  based  in  the  EU's  larger 
member  states,  argued  that  the  EU  should  prioritise  the  development  of  a  harmonised 
framework for corporate action processing, which would enable greater consistency and clarity 
for market participants. They also proposed the introduction of a relief-at-source system, or a 
pan-EU withholding tax reclaim portal. 

Operational barriers, such as differences in settlement cycles and messaging protocols, were 
also identified as a significant challenge by many respondents, including 80% of banks and 
75% of market infrastructures. These entities, often with a pan-EU presence, emphasised the 
need for greater standardisation and harmonisation in post-trade processes to reduce costs and 
increase efficiency.  

3.4.  HORIZONTAL BARRIERS TO TRADING AND POST-TRADING INFRASTRUCTURES 

This section of the consultation covers horizontal barriers and horizontal aspects (innovation) 
to trading and post-trading. 

EPTF  Barriers  to  Post-Trade  Integration:  The  targeted  consultation  gathered  extensive 
stakeholder input on the barriers identified by the European Post Trade Forum (EPTF) in 2017, 
reaffirming many of the structural inefficiencies in the EU’s post-trade landscape. While views 
varied in intensity, several recurrent themes emerged, including the need for harmonisation, 
simplification,  digitalisation,  and  legal  certainty.  Responses  also  indicate  differentiated 
urgency  across  barriers,  often  reflecting  the  degree  of  market  integration,  operational 
complexity, and relevance for cross-border activity.  

High-urgency barriers: Stakeholders strongly endorsed action on several long-standing issues, 
beginning with fragmented corporate actions and general meeting processes, with 43.5% of 46 
respondents  rating  it  of  high  urgency  and  among  the  most  pressing  issues.  Likewise, 
respondents  underscored  the  inefficient  cross-border  withholding  tax  collection  procedure, 
with 55.3% of 47 respondents deeming it highly urgent, as reclaim procedures remain slow, 
costly,  and  inaccessible—especially  for  retail  investors.  While  the  FASTER  Directive  is 
welcomed,  many  deem  it  insufficient  and  push  for  a  relief-at-source  mechanism  or  even 
abolition of withholding taxes on EU-sourced investment income.  

Legal  fragmentation  in  asset  ownership,  registration,  and  segregation:  Legal  uncertainty 
remains a persistent obstacle to market integration and cross-border investments. Stakeholders 
called  for  harmonisation  of  rules  related  to  asset  segregation,  shareholder  registration  and 

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identification (rated as highly urgent by 43.5% of 46 respondents), ownership of book-entry 
securities (uncertainties surrounding nominee structures, platform custody, and cross-border 
transfers), and investor protection (investor protection and asset recovery mechanisms remain 
inconsistent across Member States). Regarding inconsistent asset segregation rules, 41.9% of 
43  respondents  saw  high  urgency  in  addressing  divergent  national  approaches  that  increase 
costs and risks. The lack of clarity on enforceability in cross-border settings was highlighted, 
with  respondents  advocating  for  a  harmonised  legal  baseline. Some  raised  concerns  over 
operational  risks  tied  to  neo-brokerage  and  pooled  sub-nominee  arrangements,  calling  for 
DORA enforcement and regulatory clarity. 

Lack of convergence and harmonisation in information messaging standards remain an issue 
despite  standardisation  efforts  have  advanced.  Stakeholders  highlighted  inconsistent  uptake 
across  domains  and  markets  in  messaging  and  reference  data,  especially  in  non-T2S 
jurisdictions.  

Issues  regarding  reference  data  and  standardised  identifiers  were  seen  as  less  urgent  (high 
urgency only for 14.6% of respondents) but drew support for broader use of global identifiers. 
Stakeholders  reported  progress  in  LEI  adoption  but  flagged  licensing  costs  and  gaps  in 
standardisation.  Some  also  raised  interoperability  concerns  for  crowdfunding  platforms  and 
DLT-based markets, pointing to the need for common identifiers (LEI, ISIN, and CFI).  

Harmonisation of ETF post-trade processes was deemed less urgent (19.1% of 47 respondents 
sees it as highly urgent), although stakeholders noted that the lack of a harmonised processing 
model impedes cross-border investment. Some called for alignment with UCITS and MiFID, 
but most viewed this as a niche issue affecting specific market participants. Post-trade reporting 
and supervisory complexity  

Stakeholders broadly agreed on the need to simplify the EU’s complex post-trade reporting 
structure.  The  targeted  consultation  revealed  dissatisfaction  with  fragmented  requirements 
across EMIR, MiFIR, SFTR, and CSDR (with 29.8% of the 47 respondents ranking it as highly 
urgent and 21.3% of medium urgency). Respondents endorsed a harmonised or single-sided 
framework  and  recommended  eliminating  redundant  fields,  enhancing  machine-readability, 
and consolidating supervisory oversight. The importance of adopting universal identifiers to 
support automation and interoperability was stressed.  

Legal  uncertainty  in  risk  and  default  procedures:  No  significant  concerns  regarding  legal 
soundness of CCP default management and intermediary risk mitigation were raised (only 10% 
of respondents saw it as highly urgent). However, respondents did call for continued oversight 
and  safeguards  like  asset  portability  and  client  transparency.  On  the  shortcoming  related  to 
different understanding, within the EU, under the Settlement Finality Directive (SFD) of the 
actual moment of finality of transfers, and to protect Delivery versus Payment, stakeholders 
consider it technically important but not operationally pressing (only 12.2% of 41 respondents 
deemed it highly urgent). While existing SFD rules work well for most systems, some edge 
cases (e.g., insolvency law conflicts, blockchain systems) need clarification.  

Collateral mobility and cross-currency settlement barriers: The lack of collateral mobility (the 
ability to move collateral efficiently between counterparties, markets and accounts) was rated 
by  the  majority  of  respondents  (37.52%  of  41  respondents)  as  highly  urgent.  While  recent 
initiatives  (e.g.,  T2S,  ECMS)  have  improved  collateral  flows,  legal  and  operational 
fragmentation persist. Respondents urged harmonisation of settlement processes and tri-party 
interoperability.  Likewise,  restrictions  imposed  by  the  CSDR  on  settlement  agents  could 

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constitute an obstacle to the provision of cross-border delivery versus payment services in non-
domestic currencies by CSDs (high urgency for 15.4% of the respondents). The lack of such 
capabilities in most EU CSDs limits collateral management and international issuance. Calls 
were made for scalable, harmonised solutions.  

National  restrictions  and fragmented infrastructures:  Some stakeholders called for vigilance 
against emerging restrictions. The issue of fragmented CCPs/CSDs was once again raised, with 
comparisons drawn to the more unified US post-trade environment (e.g., DTCC and OCC). 
Respondents argued for radical simplification of infrastructure to reduce costs and systemic 
risk.  

Cross-border operational synergies between entities: This section revealed a broad range of 
stakeholder  perspectives  on  the  adequacy  and  effectiveness  of  the  EU  regulatory  and 
supervisory framework governing outsourcing and intra-group synergies, in trading and post-
trading infrastructures, in particular Central Securities Depositories (CSDs). A recurring theme 
across the responses is the need for greater proportionality, harmonisation, and clarity in the 
treatment of intra-group outsourcing and cross-border activities, along with a more targeted 
approach to CSD consolidation that recognises market realities.  

Stakeholders  underscored  the  lack  of  consistent  application  of  outsourcing  rules  across  EU 
Member States, resulting in regulatory fragmentation and unequal compliance burdens. Many 
respondents identified challenges in outsourcing to third-country service providers, including 
legal, operational, and data access risks. These challenges were perceived as exacerbated by 
the absence of clear equivalence criteria and oversight mechanisms. Intra-group outsourcing 
was  also  flagged  as  an  area  in  need  of  differentiation,  as  current  frameworks  often  fail  to 
distinguish  between  intra-group  and  third-party  arrangements,  leading  to  unnecessarily 
burdensome requirements. Furthermore, stakeholders criticised the complexity and overlap of 
various  regulations  and  guidelines—such  as  those  under  CSDR,  DORA,  and  from 
ESMA/EBA—which  collectively 
the  operational  and  compliance  costs  of 
outsourcing. Another concern related to the absence of a formal definition of "Group Entity," 
which  complicates  the  supervisory  treatment  of  intra-group  arrangements  and  results  in 
inefficiencies.  

increase 

Turning  to  intra-group  synergies  in  trading  and  post-trading  infrastructures,  stakeholders 
emphasised  the  burdensome  nature  of  applying  third-party  outsourcing  rules  to  intra-group 
arrangements,  especially  in  areas  such  as  CSDR  and  banking  legislation.  In  particular, 
respondents pointed to regulatory duplication and the lack of flexibility in applying rules across 
borders as limiting their ability to centralise operations or adopt innovative technologies such 
as cloud computing. Many advocated for greater proportionality and flexibility, with specific 
calls to distinguish intra-group from third-party outsourcing in relevant EU rules.  

Barriers to the consolidation of CSD functions at the group level were explored. Among the 14 
respondents,  57.1%  cited  legal  barriers  in  national  law  was  indicated  as  a  major  obstacle, 
together with EU legal acts, the CSDR itself, and other structural constraints. Supervisory and 
technical  barriers  (28.6%)  of  respondents)  as  well  as  market  practices  (14.3%)  were  also 
mentioned  by  respondents.  The  main  challenges  identified  relate  to  the  fragmented 
implementation of key EU legislation (including CSDR, DORA, EMIR, and MiFID II) across 
Member  States,  which  generates  uncertainty  and  limits  cross-border  operational  efficiency. 
Many respondents endorsed the need for further harmonisation, especially in allowing CSDs 
to provide ancillary services like FX and non-euro settlement without requiring full banking 
licenses. Furthermore, stakeholders noted that passporting remains impractical due to divergent 

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national  interpretations,  while  the  Settlement  Discipline  Regime  was  viewed  as  a  source  of 
operational  uncertainty. Although  some  respondents  supported  the  use  of  structural  and 
technological  reforms  (e.g.  blockchain) 
to  drive  efficiency,  others  argued  against 
administrative consolidation calling for a market driven process that respect the diversity of 
existing CSD models. 

Reporting  under  CSDR  is  seen  as  an  obstacle  to  consolidation  only  by  6.5%  of  the  31 
respondents. Several respondents indicated that they do not favour consolidation at all, arguing 
that the cost of using national CSDs is lower for clients than relying on international CSDs. 
Others  advocated  for  enhancing  interoperability  between  national  CSDs  rather  than 
consolidating  them.  A majority  noted  that,  provided  the  consolidating  entity  is  a  CSD  with 
appropriate authorisations, legal or regulatory barriers to consolidation were not apparent in 
practice.  

Similarly,  when  asked  about  organisational  requirements,  such  as  outsourcing  obligations 
under  the  CSDR,  only  12.1%  of  the  33  respondents  perceive  these  to  be  barriers  to 
consolidation  due  to  the  diverging  national  interpretations  of  these  requirements,  which 
complicate  group-wide  operations.  Again,  respondents  reiterated  that  national  CSDs  often 
deliver  more  cost-efficient  services  and  that  interoperability,  rather  than  full  consolidation, 
would better serve client needs.  

On  the  supervisory  and  oversight  framework  for  CSDs,  the  30  respondents  were  similarly 
divided. A few respondents acknowledged that the establishment of supervisory colleges under 
CSDR  had  improved  coordination,  while  many  praised  the  CSDR  Refit’s  introduction  of  a 
single  supervisory  decision-maker  as  a  positive  development—especially  in  relation  to 
passporting. This single point of supervisory decision-making was widely considered a best 
practice and should be more broadly applied. Some participants suggested that a future review 
of CSDR could provide an opportunity to formalise supervisory cooperation among Member 
States and with equivalent third countries. Stakeholders generally advised caution against full 
consolidation and encouraged further enhancements to interoperability frameworks instead.  

In  conclusion,  the  consultation  responses  point  to  a  consistent  demand  for  proportionality, 
simplification,  and  improved  cross-border  coherence  in  the  EU’s  regulatory  approach  to 
outsourcing and consolidation within trading and post-trading infrastructures. While there is 
no consensus on the desirability of consolidating CSDs per se, most stakeholders agree that 
improvements in supervisory convergence, regulatory clarity, and the treatment of intra-group 
arrangements are essential to enable operational efficiencies and market integration, without 
imposing unnecessary burdens or undermining national market structures.  

Complexity  of  issuance  process:  The  issuance  process  for  securities  and  other  financial 
instruments  in  the  EU  is  complex  and  fragmented,  with  various  barriers  and  obstacles  that 
hinder  its  efficiency  and  effectiveness.  The  main  barriers  identified  by  respondents  include 
regulatory  fragmentation,  lack  of  standardization,  and  manual  processes,  which  create 
inefficiencies and increase operational risk. The lack of harmonization in areas such as investor 
identification and classification, data exchange, and underwriting services also contributes to 
the complexity of the issuance process.  

Respondents  highlighted  the  need  for  increased  standardisation,  harmonisation,  and 
digitalisation of processes, as well as the adoption of common data standards and regulatory 
requirements across Member States. The use of technologies like AI and digitalisation could 
help  automate  and  improve  the  issuance  process,  reducing  costs  and  increasing  efficiency. 

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However, the lack of a harmonized EU framework for digital securities and the limited use of 
standardised  digital  identities  for  issuers  and  investors  are  significant  barriers  to  the 
development of digital issuance models.  

The market for underwriting services is characterized by high fees, limited transparency, and 
limited  competition,  making  it  difficult  for  smaller  or  first-time  issuers  to  access  capital 
markets. 

To  improve  the  issuance  process,  respondents  recommended  a  range  of  measures:  
harmonisation  of regulatory requirements and data standards  across Member States;  greater 
use of digital technologies; improving transparency in fee structures and underwriting services; 
the  development  of  a  harmonised  EU  framework  for  digital  securities  and  the  adoption  of 
standardised digital identities for issuers and investors; the creation of a pan-European platform 
for debt instruments; and standardisation of data exchange formats and protocols. Enhancing 
the efficiency of the settlement process and reducing the complexity of issuance procedures, 
particularly for first-time and smaller issuers, were also frequently mentioned.   

Overall, the responses suggest that the EU issuance process is in need of significant reform to 
improve its efficiency, transparency, and competitiveness. The development of a harmonised 
EU  framework  for  digital  securities,  the  use  of  standardised  digital  identities,  and  the 
improvement of transparency in fee structures and underwriting services are seen as key steps 
towards achieving this goal. The creation of a pan-European platform for debt instruments and 
the standardisation of data exchange formats and protocols could help to reduce the complexity 
and costs associated with the issuance process. 

Innovation – the use of DLT Pilot Regime (DLTPR) and asset tokenisation: 

Technology-Neutral Prudential Rules for Tokenized Assets: participants emphasized the need 
for prudential regulations to remain technology-neutral, advocating for a risk-based framework 
focusing  on  asset  characteristics,  control  environments,  and  operational  resilience,  avoiding 
differentiating  between  permissioned  and  permissionless  distributed  ledgers,  which  could 
create regulatory barriers and stifle innovation. Otherwise, they fear that Europe will be at an 
even greater disadvantage compared to other jurisdictions, such as the US.  

Reforming the DLT Pilot Regime (DLTPR): according to the majority of respondents, the key 
priority for enhancing the attractiveness and viability of the DLTPR is expanding the scope of 
eligible  assets  (from  tokenized  physical  assets  to  all  types  of  stocks  and  all  financial 
instruments  under  MiFID  II)  and  adapting  or  removing  the  limit  on  the  value  of  financial 
instruments  traded,  which  severely  limit  the  scalability  and  economic  viability  of  projects 
within the regime. Removing or increasing these limits would facilitate the transition of trading 
activity  from  the  current  OTC  framework  to  the  DLT  Pilot  regime,  thereby  enhancing  its 
competitiveness with other jurisdictions. Removing the limited duration of DLTPR licenses is 
also  seen  as  critical  for  long-term  business  planning  and  investment,  as  it  would  reduce 
regulatory uncertainty and align the EU with international practices.  

Respondents prioritize clearer regulatory pathways for transitioning from the DLTPR to the 
CSDR-framework to ensure market confidence and reduce regulatory uncertainty.  

The vast majority of the respondents support a more principle-based regulatory approach and 
a service-specific regulation of settlement services, i.e. regulation at the level of individual core 
services under the CSDR (notary, account maintenance, and settlement services), which would 
create a more flexibility and compliance proportionality for its participants.   

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Barriers to Asset Tokenisation in Europe: despite the potential of DLT, participants highlight 
significant barriers to scaling asset tokenisation in the EU. The most pressing challenge is the 
divergence in Member States’ securities and corporate laws, which complicates cross-border 
issuance,  ownership,  and  transfer  of  tokenized  assets.  Existing  EU  trading  and  post-trading 
laws, such as MiFID II and CSDR, are also deemed ill-suited for DLT-based models, requiring 
harmonization to accommodate digital finance.  

Interoperability and Standardization, enabling a Connected DLT Ecosystem: interoperability 
between  DLT  platforms  and  traditional  financial  systems  remains  a  focal  point.  Most 
respondents oppose public policy mandates to enforce interoperability, advocating instead for 
market-driven  solutions  and  private-sector  leadership.  However,  there  is  strong  support  for 
public policy to encourage interoperability through industry standards, regulatory sandboxes, 
and public-private partnerships, while avoiding overly prescriptive regulations. Technical and 
business  standards  are  identified  as  the  most  urgent  need,  including  a  harmonized  legal 
framework  for  digitally  native  securities  and  shared  data  taxonomies,  which  are  critical  to 
reduce  fragmentation.  Standardizing  connections  between  DLT  platforms  (e.g.,  blockchain 
bridges) is also prioritized to facilitate seamless transfers.  

Cross-Cutting Themes: Regulatory Clarity, Innovation, and EU Competitiveness: 

Across all discussions, participants stress the importance of regulatory clarity and long-term 
stability to build trust in DLT-based systems and recommend a "balanced, risk-on" approach, 
with  regulators  focusing  on  core  objectives  such  as  security  and  transparency  rather  than 
restrictive measures. The EU’s competitiveness in digital finance is a recurring concern, with 
stakeholders urging alignment with practices of leading jurisdictions to avoid falling behind in 
innovation.   

The  consultation  also  highlights  the  need  for  DLTPR  to  remain  an  adaptive  regulatory 
framework that evolve with market developments, with thresholds and eligibility criteria to be 
reviewed periodically by authorities like ESMA to ensure the DLTPR remains competitive as 
the DLT landscape matures. 

3.5.  ASSET MANAGEMENT AND INVESTMENT FUNDS 

This section of the targeted consultation covers issues related to the cross-border distribution 
of investment funds and cross-border operations of asset managers. 

Authorisation procedures: Overall, the consultation shows that most respondents (67% overall 
and  85%  of  asset  managers  and  business  associations)  find  the  current  authorisation  and 
supervisory  approval  processes  under  AIFMD  and  UCITSD  sufficiently  clear  and 
comprehensive.  However,  there  is  a  strong  view  that  these  processes  are  not  applied 
consistently across Member States with respondents noting, among other issues, divergencies 
in the interpretations of the concepts of substance or effective governance in the granting of 
AIFM or UCITS management companies’ licenses or in the requirements concerning the set-
up of a framework to manage potential conflicts of interest and related-party transactions. 

Respondents broadly (79%) support greater harmonisation and streamlining of authorisation 
procedures to simplify the regulatory framework and reduce national divergences. They also 
stress that ESMA should better check/enforce EU regulation and to avoid Member States’ gold-
plating EU requirements. Also, stakeholders noted that NCAs should better share information 

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to avoid multiple requests of the same data. In a few cases, respondents—such as the French 
authorities—support moving toward EU-level supervision. 

Concerning  the  treatment  of  service  providers  and  depositaries  during  the  authorisation 
process, 79% of respondents considered that the current authorisation process at the NCA level 
of  the  fund  service  providers  appointed  to  a  fund  (incl.  depositaries),  is  sufficient  and 
proportionate overall. When asked whether an authorisation process should be introduced at 
the  entity  level  for  depositaries,  few  respondents  provided  feedback  and  most  answered 
negatively  (71%).  However,  some  respondents  support  the  introduction  of  an  authorisation 
process for depositaries at entity level to allow them to offer their services across EU Member 
States, pointing out that the lack of an EU-level depositary license and passport mechanism 
contributes to structural inefficiencies within the European asset management landscape and 
that  the  introduction  of  an  harmonised  EU-wide  authorisation  is  crucial  to  foster  greater 
competition and quality of services while reducing market fragmentation. According to some 
respondents, this authorisation should include an EU-wide public register, managed by ESMA. 
Other respondents pointed out that allowing for a passporting of depositaries’ services across 
the EU might encourage depositaries’ consolidation.  

EU passport for marketing of investment funds: Stakeholders (such as industry associations 
and  asset  managers)  identify  major  implementation  issues  of  the  marketing  passport  across 
Member States (82% of respondents), such as inconsistent national requirements, burdensome 
one-month prior notification for new share classes, duplicative processes, and high costs due 
to local regulatory fees, translations, and disclosure rules. The 36-month blackout period post-
denotification  under  AIFMD  is  also  seen  as  disproportionate.  They  call  for  greater 
harmonisation, a single EU-wide notification portal, simplified document updates (“file and 
inform”), and clearer ESMA-led guidance to ensure more consistent and efficient cross-border 
marketing. 
fund 
In  addition,  the  cross-border  passport  is  not  applied  in  a  consistent  manner  (83%  of 
respondents). Significant issues remain, primarily arising from NCAs that do not fully apply 
the requirements set out in the EU frameworks. 

The key issue is differing national requirements on marketing documents (86% of respondents). 
These  divergences  create  costs,  delays,  and  legal  uncertainty,  especially  for  pan-European 
distribution. Amongst the solutions proposed, respondents mentioned EU-level harmonisation 
of content and format rules, single ESMA marketing documentation portal, clearer guidance 
distinguishing  marketing  communications  vs  investor  disclosures,  as  well  as  greater 
supervisory convergence through ESMA coordination. 

EU passporting for Management Companies: When asked to indicate whether the current 
passporting provisions are sufficiently clear, comprehensive and proportionate to enable the 
smooth operation of fund management companies in the single market, 74% of respondents 
answered  positively.  However,  58%  of  respondents  noted  that  the  current  passporting 
provisions  for  management  companies  are  not  reflected  in  a  consistent  way  in  domestic 
legislation  by  Member  States.  Such  differences  include:  (i)  requirements  for  fund 
documentation to be translated into the local language/languages; and (ii) appointment of local 
entities  to  carry  out  certain  management  functions  (e.g.,  transfer  agency);  notification 
procedures  in  the  EU  framework  not  applied  consistently  (73%  of  respondents).  Therefore, 
stakeholders  (investment  associations)  note  that  barriers  and  divergences  primarily  concern 
procedural and technical aspects of the notification process. 

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Group operations - Eliminating inefficiencies and duplication: Responses to this section of 
the consultation were very limited. As per the key obstacles to consolidating functions across 
entities within the same asset management group, respondents identified both legal barriers in 
EU law (UCITSD does not recognise the notion of group structure, requirements) and national 
laws (local presence, which become disproportionate for relatively simple group) as well as 
supervisory  (inconsistent  supervisory  interpretations,  expectations,  and  processes  across 
Member States with limited reliance on group level assessment of internal policies and other 
functions within the group) and market practices to be relevant hurdles.  

On  the  issue  of  whether  there  is  scope  to  streamline  authorisation  and  supervision  of  asset 
managers operating in groups, the vast majority of respondents did not give an opinion. Very 
few replied (40 out of 210 respondents), and among them there is scepticism on the topic. Only 
8 respondents saw efficiency gains and cost reductions that a group perspective would bring 
(in the compliance, risk management, and portfolio management functions). 

Respondents opposing group authorisation highlighted its downsides and risks, as the license 
will most likely not be granted to the entity where the regulated activities take place and/or it 
will further centralise activities, which creates substance related challenges. 

Overall, most respondents do not see the need for group level authorisation and supervision, as 
asset managers operate under highly diverse business models, and there is no uniform structure 
across  the  industry.  Additionally,  asset  managers  are  not  prudentially  regulated  on  a 
consolidated  basis  and  do  not  typically  centralise  risk  management  across  their  European 
operations in the same way as banks. 

Even where firms wish to achieve group level efficiencies, the primary barriers to intra-group 
efficiency, such as national tax laws, employment regulations, and inconsistent interpretations 
of what constitutes a “letter box entity,” would not be resolved by a supervisory shift. 

Concerning  possible  solutions,  those  proposed  by  respondents  focused  on  supervisory 
convergence and coordination among NCAs to reduce inconsistencies/barriers and enable more 
efficient cross-border operations, including: enhanced peer reviews and supervisory briefings 
coordinated  by  ESMA;  mutual  reliance  or  recognition  of  assessments  where  appropriate; 
practical guidance on delegation oversight and intra-group cooperation standards, as well as 
transparent  communication  from  NCAs  on  their  expectations  and  administrative  practices. 
Respondents are of the view that these improvements can be achieved within the current legal 
framework. 

Barriers  for  investments  in  EU  funds:  On  barriers  to  investing  in  EU  funds,  91%  of 
respondents replied that they have encountered issues or barriers to accessing investments in 
EU funds, either directly or on a cross-border basis, noting that such issues mainly stem from 
restrictions  or  differential  treatment  based  on  the  national  framework  where  a  fund  is 
domiciled, combined with diverging supervisory administrative practices, corporate law and 
tax law systems, rather than from the EU framework. One prominent industry association noted 
that  these  barriers  have  impacted  structuring  aspects  of  fund  offerings  and  have  prevented 
investors from investing in a wider range of fund products. 

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3.6.  SUPERVISION 

This section summarises the feedback received on the supervision of financial entities in the 
trading, post-trading, and asset management sectors, as well of crypto-asset service providers 
(CASPs). 

Effectiveness  of  the  current  framework:  on  effectiveness,  both  public  and  private  sector 
respondents identify similar structural challenges. Public authorities most commonly cite legal 
fragmentation, inconsistent application of rules across MS, and excessive reliance on Level 2 
and 3 measures.  Many  warn that the  ESAs underutilize existing  tools (e.g., Q&As, binding 
mediation),  and  suffer  from  limited  capacity  and  internal  experience,  which  hampers 
supervisory convergence. 

The private sector, while agreeing on legal fragmentation and inconsistent supervision, focuses 
more on governance, transparency, and stakeholder engagement. Many criticize the lack of a 
competitiveness  mandate, pointing  to  high  compliance costs and regulatory uncertainty that 
deter  innovation  and  market  participation.  NGOs  further  highlight  the  lack  of  centralised 
supervision  and  persistent  national  bias in  ESA governance  as  major  obstacles  to  effective, 
integrated EU supervision. 

ESMA’s current governance model faces criticism for slow decisions, limited engagement, and 
small  market  underrepresentation,  prompting  calls  for  streamlined,  more  transparent,  and 
AMLA-inspired reforms. 

Supervisory arrangements for different sectors: public authorities generally favour national 
supervision  and  subsidiarity,  with  openness  to  limited  EU  oversight  for  systemic  or  cross-
border  entities,  while  industry  supports  targeted  centralization  to  enhance  efficiency, 
particularly for major market infrastructures, alongside strong local input. Most stakeholders 
prefer strengthening ESMA’s coordination role through gradual, risk-based reforms over full-
scale centralisation. 

There is broad consensus against establishing ESMA regional hubs/centres of expertise due to 
concerns about inefficiency and duplication, though some remain open to the idea, if carefully 
designed to preserve local expertise within a coherent EU framework. 

Supervision  of  EU  CSDs:  most  respondents  believe  that  the  current  CSDR  supervisory 
framework functions well – especially post-CSDR Refit – and that many of the outstanding 
issues stem from fragmentation of national laws. With respect to efficiency and legal certainty, 
a  majority  of  respondents  (17  out  of  24)  affirmed  the  robustness  and  clarity  of  the  current 
framework,  particularly  during  crises.  However,  12  out  of  29  stakeholdersperceive 
convergence in supervisory practices across Member States as divergent (11 convergent and 6 
neutral).167  Mentioned  issues  included:  inconsistencies  in  passporting  procedures,  divergent 
interpretations  of  CSDR  provisions  (e.g.,  outsourcing, 
internalised  settlement,  and 
governance), divergent approaches to service extensions, multiple reporting formats (e.g. under 
DORA), and gold-plating of EU rules.   

167  Question  8  in  Section  6.3.1  asked:  How  would  you  rate  the  convergence  of  supervisory  practices  across 
Member  States  in  the  area  of  the  supervision  of  CSDs?  Please  provide  examples  of  divergent  outcomes  of 
supervisory practices for CSDs in different Member States. 

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Several respondents, including in particular CSDs and CSD associations, supported stronger 
supervisory  convergence,  although  a  majority  of  respondents  disagreed  that  centralised 
supervision  for  CSDs  would  reduce  regulatory  costs,  enhance  resilience,  and  simplify  or 
accelerate  authorisations,  since  processes  are  already  clearly  defined  in  the  CSDR.  In 
particular, many respondents argued that centralised supervision would introduce new layers 
of  bureaucracy,  increase  fixed  costs  and  require  adaptation  to  new  reporting  and  oversight 
mechanisms.  Several  respondents  stated  that  there  is  no  clear  evidence  of  deficiencies  in 
current supervisory quality that would justify centralization. Key concerns cited include the 
loss of local expertise, proximity and responsiveness, the risk of one-size-fits-all approaches 
undermining  proportionality  and  competition,  and  possible  overlapping  supervision  and 
regulatory arbitrage. In fact, 23 out of 25 respondents, including those in favour of centralized 
EU supervision, considered that this could also produce negative side-effects if, for example, 
not designed properly or in the case that knowledge of the local market is lost.   

With respect to employing joint supervisory teams (JSTs), views were again mostly negative, 
with  many  respondents  warning  that  JSTs  would  introduce  additional  supervisory  layers, 
increase  reporting  obligations,  and  dilute  accountability.  Some  respondents,  although 
supportive  of  EU  integrated  supervision,  expressed  preference  for  a  centralised  main 
supervisor.   

Supervision of EU CCPs: several respondents, particularly CCPs, industry associations and 
some regulatory bodies, supported the idea of single supervision of EU CCPs, citing benefits 
such  as  convergence  of  practices,  faster  and  simpler  processes,  and  a  level  playing  field 
between EU CCPs and those domiciled in third countries.   

Respondents argued that ESMA should have a more prominent role in ensuring the consistency 
and  effectiveness  of  CCP  supervision  across  the  EU.  They  suggested  that  ESMA  could  be 
responsible  for  authorising  CCPs,  approving  significant  changes  to  their  operations,  and 
overseeing their compliance with EU regulations.  

However, 22 out of 25 respondents considered that more centralised EU supervision of CCPs 
could  also  produce  negative  side  effects,  including  increased  bureaucracy  and  higher  costs. 
Many respondents opposed centralised supervision (notably the regulatory bodies), with some 
expressing concerns about the potential loss of local expertise and the risk of over-regulation. 
They  argued  that  NCAs  have  a  deeper  understanding  of  the  local  market  and  are  better 
equipped to supervise CCPs that are systemically important at the national level.  

Some respondents also argued that the current EMIR 3 framework already provides for a robust 
supervision  of  CCPs  (including  provisions  for  the  coordination  and  cooperation  between 
ESMA and the NCAs), and that further centralisation is not necessary. The supervisory colleges 
are  seen  as  a  useful  tool  in  supervision,  facilitating  cooperation  and  coordination. A  small 
number  of  respondents  suggested  a  tiered  or  differentiated  approach  to  supervision,  where 
"significant"  CCPs  would  be  supervised  more  centrally  by  ESMA,  while  smaller,  more 
nationally  focused  CCPs  would  remain  under  the  purview  of  NCAs  and  less  stringent 
requirements would apply to them.   

Regarding the possibility of employing JSTs, some respondents argued that they could help to 
leverage the expertise and resources of NCAs and ESMA and could facilitate the sharing of 
best  practices  and  knowledge  among  supervisors. However,  other  respondents  expressed 
concerns  about  the  potential  effectiveness  and  efficiency  of  JSTs  (leading  to  duplication  of 
efforts and resources, as well as conflicts of interests).  

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Supervision of significant EU trading venues: on average, 44 stakeholders responded to the 
questions in this section of the consultation on trading venues (with the number of participants 
peaking at 57). 15 of them were public authorities and 22 from the private sector, including 
trading venues and associations representing their interests. As regards the level of convergence 
of Member States’ supervisory practices, 17 out of a total of 46 respondents consider them as 
‘rather’ or ‘very’ convergent, while 13 consider them as ‘rather’ or ‘very’ divergent – 16 being 
neutral – even though a number of respondents point out that their feedback is limited to the 
perspective from one Member State. Out of 10 public authorities that replied, two supervisory 
authorities indicate significant differences in supervisory practices, for example as regards the 
authorization  of  trading  venues,  governance  arrangements,  operational  resilience  and 
outsourcing requirements as well as how national supervisory authorities interpret and enforce 
transparency requirements or algorithmic trading controls.  

41  to  50  respondents  expressed  an  opinion  on  the  various  pros  and  cons  of  the  current 
supervisory framework.  The majority of respondents  highlights that the current  supervisory 
framework enables an efficient supervision thanks to the proximity of NCAs to trading venues 
(81%),  it  allows  an  efficient  use  of  national  and  EU  supervisory  resources  (68%),  and  it  is 
optimal in terms of regulatory costs for trading venues (62%). As regards the cons, only 30 to 
33% believe that it creates an uneven playing field for EU trading venues or legal uncertainty 
because  of  different  implementation  or  interpretation  of  EU  legislation.  It  is  however 
noteworthy that the views of groups of trading venues operating across borders are much more 
critical. For example, in their view, the current supervisory framework does not allow for an 
effective supervision of groups operating across EU borders, prevents economies of scale for 
such groups, and makes it more complex or costly to develop activities across borders.  

The majority of respondents therefore express scepticism about the possible benefits of more 
integrated supervision of trading venues in the EU, citing concerns about increased complexity 
and compliance costs, notably by introducing bureaucratic layers, requiring dual reporting, and 
creating administrative burdens. A majority of respondents also does not believe that a more 
integrated supervision of trading venues in the EU could simplify and/or accelerate procedures 
for obtaining supervisory approvals (27 respondents against 10, 15 being neutral or with ‘no 
opinion’),  nor  simplify  and/or  accelerate  the  procedure  for  obtaining  the  agreement  for 
amendments to the exchange rulebooks (31 respondents against 6, with 16 neutral/no opinion). 
The majority of respondents emphasizes the importance of local NCAs, which are deemed to 
possess the necessary insights to address market-specific risks effectively. A slight majority 
still believes that a more integrated EU supervision could decrease uncertainties arising from 
different implementation or interpretation or EU legislation (20 against 18 respondents) and 
could increase the effectiveness of the supervision of groups, allowing for a comprehensive 
understanding  of  their  activities  (18  against  15).  Pan-European  trading  venues  in  particular 
show an overall positive sentiment on the potential of more integrated supervision. A number 
of  stakeholders  indicate  a  preference  for  enhancing  the  current  system  through  improved 
coordination and supervisory convergence efforts, for example, 14 respondents express support 

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for enhanced supervisory college models, while ten respondents are in favour of moving to 
fully centralised supervisory arrangements.168  

When asked about the possible models of more integrated EU-level supervision, the majority 
of respondents are against an EU-level supervisor that would be responsible for the supervision 
of all trading venues (35 against, 10 in favour, 9 neutral/no opinion) or certain trading venues 
according to certain criteria (such as, for instance, trading volume of assets) (27 against, 15 in 
favour, 15 neutral/no opinion). Most respondents do not support a model with Joint supervisory 
colleges with enhanced powers either (26 against, 14 in favour, 15 neutral/no opinion). Many 
cite concerns over loss of local market knowledge, increased complexity and costs, and reduced 
flexibility  to  adapt  to  national  specificities. While some respondents  still acknowledged the 
potential benefits of EU-level supervision for large, cross-border venues, others felt it was not 
necessary  or  efficient,  especially  for  smaller  and  Central/Eastern  European  countries.  The 
responses from pan-European trading venues tend to be more positive (or at least split) towards 
a model based on an EU-level supervisor responsible for the supervision of all trading venues 
or  on  certain  trading  venues  based  on  certain  criteria,  rather  than  a  model  based  on  joint 
supervisory  colleges.  A  few  respondents  suggested  a  gradual,  step-by-step  approach  to  any 
potential expansion of EU-level supervision, allowing for a balanced transition and ensuring 
market readiness and institutional capacity.  

As regards the question on whether entities within the same group should be subject to EU-
level  supervision,  views  are  nearly  equally  split  between  (i)  the  ones  who  believe  that  if  a 
trading  venue  belonging  to  a  group  is  in  scope  of  EU-level  supervision,  all  trading  venues 
located in the EU and belonging to that group should be in scope, irrespective of whether the 
quantitative criteria for being in scope are met for each of the entities (7 respondents), and (ii) 
the ones of the view that only trading venues of a group that individually reach the criteria 
should be in scope (6 respondents). The vast majority had no opinion (16) or other views (14). 

When asked which MiFID II powers could be transferred to EU-level supervision, the majority 
of respondents were against such transfer, except for a few powers for which the views were 
more split or neutral: group level supervision, fair access to trading venues and CCPs as well 
as  commodities  derivatives. As  regards  MiFIR  powers,  most  respondents  are  against 
transferring them from national to EU level supervision. Yet there is more openness to EU-
level supervision over the rules on non-discriminatory access to trading venues and CCPs, and 
to some extent over market data.   

Supervision of funds and asset managers: overall, few respondents replied to this part of the 
consultation.  When  asked  to  rate  the  convergence  of  supervisory  practices  across  Member 

168 This is based on Question 32e, 33a and 33b in Section 6.5.2. Question 32e asked: Please indicate to which 
extent you support the following possible models of more integrated EU supervision. Joint supervisory colleges 
with  enhanced  powers.  Strongly  support:  1,  rather  support:  13,  neutral:  5,  rather  not  support:  7,  strongly  not 
support:  19.  For  the  EU-level  supervisor,  responsible  for  the  supervision  of  all  EU  trading  venues,  strongly 
support: 9, rather support: 1, neutral: 1, rather not support: 4, strongly not support: 31.1. Question 33a asked: In 
the case of a single EU-level supervisor (a, b, c and d in question 32), to which extent would you support the two 
possible models described below? a) ESMA is the direct supervisor, with decisions taken by the ESMA Board of 
Supervisors  and  certain  tasks  delegated  to  NCAs.  Strongly  support:  2,  rather  support:  4,  neutral:  5,  rather  not 
support: 6, strongly not support: 20. Question 33b asked: b) Within ESMA, a Supervisory Committee composed 
of  representatives  of  ESMA,  relevant  NCAs  and  possibly  independent  experts  is  in  charge  of  the  on-going 
supervision.  The  ESMA  Board  of  Supervisors  could  retain  decision  making  powers  on  a  limited  number  of 
important MiFID/R issues. Very satisfied: 7, satisfied: 5, neutral: 4, unsatisfied: 7, very unsatisfied: 14. 

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States in the area of the supervision of funds and asset managers, 49% of respondents (mainly 
industry  stakeholders)  deemed  it  to  be  ‘very  or  rather  converging’  while  only  22%  of 
respondents  highlighted  convergence  issues  mainly  related  to  national  authorities  applying 
rules inconsistently, particularly in areas related to licensing and substance requirements for 
asset  managers.  These  stakeholders  noted  that  these  divergences  can  reflect  protectionist 
tendencies that  discourage cross-border activities, increase  compliance burdens, and restrict 
choice for businesses and investors. Therefore, some respondents advocated for harmonising 
substance  requirements  for  the  proficiency  and  skillset  of  required  local  FTEs,  local 
governance requirements, and streamlining regulatory reporting. 

Concerning the identification of costs related to the current supervisory framework and benefits 
of  more  integrated  EU  supervision,  results  show  that  the  classification  of  fees  may  vary 
considerably across different countries and NCAs. 

Some  respondents  expressed  a  favourable  view  of  the  potential  benefits  of  integrated  EU 
supervision, highlighting that it would decrease uncertainties that currently arise from different 
implementation or divergent interpretations of EU Regulations amongst Member States and 
ESMA.  

When  asked  to  indicate  to  which  extent  they  support  given  models  of  more  integrated  EU 
supervision,  respondents  being  favourable  preferred  a  supervisory  coordination  college 
comprised of all relevant NCAs and ESMA, while supervisory responsibilities would remain 
unchanged, followed by only a few supporters of a single EU supervisor, responsible for the 
supervision  of  asset  managers  with  significant  cross-border  activities,  while  NCAs  would 
remain  responsible  for  the  supervision  of  asset  managers  with  limited  or  no  cross-border 
activity, UCITS funds and AIFs. Very little appetite was shown for setting up a supervisory 
college,  taking  joint  decisions  on  the  supervision  of  asset  managers  with  significant  cross-
border  activities,  while  NCAs  would  remain  responsible  for  the  supervision  of  asset 
managers/investment funds with limited or no cross-border activity. 

The  few  (again  public  authorities)  that  support  the  creation  of  joint  supervisory  teams, 
composed of experts of NCAs and representatives of ESMA, under ESMA’s lead, to achieve 
more  harmonised  and  efficient  supervision  of  AIFs,  UCITS  and  their  fund  managers, 
highlighted that experience of Joint Supervisory Teams (JSTs) within the Single Supervisory 
Mechanism of the Banking Union has been overall positive.  

When asked how they  would expect  their compliance cost  to  change under the supervisory 
model they chose in the previous questions, in the vast majority of cases, respondents did not 
respond or indicate a change as they prefer the supervisory status quo to be maintained. 

Supervision  of  EU  crypto-asset  service  providers  (CASPs):  there  is  no  clear  majority 
support amongst the respondents for any of the proposed models for an increasingly integrated 
EU-supervision, which ranges from single EU-supervision to only centralizing supervision for 
specific areas or subsets of CASPs.  

Some  respondents,  including  NCAs  and  businesses,  see  a  more  centralized  EU-level 
supervision as highly beneficial for establishing a level playing field. Approximately half of 
the  respondents  suggested  that  convergence  can  already  be  achieved  through  strengthened 
coordination  among  NCAs  and  ESMA's  role.  Others  stress  that  the  nascent  nature  of  the 
emerging  market  presents  an  opportunity  to  implement  centralized  supervision  more 
effectively.  Some  advocate  for  centralized  supervision  due  to  the  global  and  cross-border 

138 

 
 
 
nature of CASPs and see value in having a single point of contact for regulators and entities 
from third countries. Other respondents strongly oppose this approach, citing existing effective 
national supervision and the principle of subsidiarity, which supports national-level oversight. 
Additionally, respondents hold mixed opinions on the efficiency of joint supervisory teams, 
composed  of  NCA  experts  and  ESMA  representatives  under  ESMA's  leadership,  for 
harmonizing  and  improving  the  authorization,  supervision,  and  monitoring  of  CASPs. 
Challenges identified include organizing teams across jurisdictions, balancing roles between 
entities and potential duplication, thus adding complexity. Potential benefits include improved 
information sharing and complementary expertise, such as use of local knowledge.  

A  majority  of  respondents  believe  that  significant  CASPs  are  more  exposed  to  systemic, 
operational, cybersecurity, cross-border and other risks compared to less significant CASPs. 
Nevertheless, some respondents highlighted that while significant CASPs may be exposed to 
greater  risk,  they  often  have  more  advanced  infrastructure,  compliance  resources,  and  risk 
management frameworks, enabling them to handle risks more effectively than smaller entities. 

A majority of respondents are of the opinion that these risks can be addressed by supervision 
of CASPs at EU level, while some respondents, including several NCAs, acknowledged that 
centralized supervision could address certain risks, such as cross-border operations, regulatory 
arbitrage and forum-shopping more effectively than national frameworks. A few respondents 
expressed concerns about the feasibility and accountability of an EU-level supervisor, noting 
that national authorities have more proximity, local knowledge, and often already supervise 
under other frameworks such as the EU AML Directive or PSD, making it more effective to 
supervise CASPs on a national level. Many respondents take note that centralized supervision 
could create bottlenecks in the authorization process, extend its duration, deprioritize smaller 
CASPs  and  reduce  responsiveness.  Some  respondents  suggested  that  a  balanced  approach, 
leveraging both national and EU-level supervision, may be the most effective way to address 
the risks posed by significant CASPs. 

In terms of which criteria/thresholds to use to identify significant CASPS, most respondents 
consider the current threshold of 15 million active users per calendar year for assessing the 
significance  of  a  CASP  as  appropriate.  However,  the  majority  of  respondents  suggest 
considering  additional  criteria,  beyond  size,  highlighting  that  CASPs  are  a  heterogeneous 
group, each with different activities and varying levels of risk exposure. Among the additional 
criteria suggested there are: cross-border activity, complexity of organizational structure, client 
types and risk profile. 

3.7.  HORIZONTAL QUESTIONS ON THE SUPERVISORY FRAMEWORK 

This section summarises the feedback received on ESMA’s supervisory framework.  

New direct supervisory mandates and governance models: most public authorities and much of 
the industry oppose broad, full-scale EU-level ESMA supervision while favouring a balanced 
approach that strengthens national oversight while enhancing EU-level coordination. 

There is growing support among some industry players and other stakeholders (NGOs, citizens) 
for targeted ESMA supervision in specific cross-border or systemic areas. 

Public authorities largely value ESMA’s current governance for preserving national expertise 
and  subsidiarity,  while  many  in  the  industry  view  a  streamlined  Executive  Board  as  a 
constructive step toward more agile and efficient decision-making, especially if it maintains 

139 

 
 
 
sectoral expertise and complements inclusive models with continued NCA involvement and 
broader stakeholder representation. 

Supervisory  convergence:  respondents  consider  guidelines,  stress  tests,  recommendations, 
opinions,  and  peer  reviews  to  be  effective  supervisory  convergence  tools.  For  example,  40 
respondents  consider guidelines to  be effective,  while only  15  consider them non-effective. 
Similarly, 27 respondents consider stress tests to be effective, with only 5 considering them 
non-effective. 

No action letters, breach of Union law and inquiries are considered as less effective tools. For 
instance,  23  respondents  consider  breach  of  Union  law  to  be  non-effective,  while  only  12 
consider  this  tool  effective.  Similarly,  31  respondents  consider  no  action  letters  to  be  non-
effective, while 26 consider this tool effective. 

Some  tools,  such  as  binding  mediation,  collaboration  platforms,  colleges  of  supervisors, 
coordination groups, supervisory handbooks, and Union strategic supervisory priorities, have 
more mixed opinions. For example, 11 respondents consider binding mediation to be effective, 
while 11 consider it non-effective. Similarly, 17 respondents consider colleges of supervisors 
to be effective, while 10 consider them non-effective. 

44 versus 21 respondents believe that current supervisory convergence tools are not being used 
effectively  and  suggest  leveraging  on  existing  tools,  such  as  breach  of  Union  law  and  peer 
reviews, more proactively to address supervisory divergences. Respondents also highlighted 
issues  with  guidelines  and  Q&As,  and  called  for  greater  transparency,  coordination,  and 
streamlining of these tools to enhance their effectiveness. 

26  versus  19  respondents  believe  that  ESMA's  current  governance  and  decision-making 
processes  do  not  provide  sufficient  incentives  for  supervisory  convergence  tasks  due  to  a 
consensus-driven model led by NCAs that creates conflicts of interest and discourages assertive 
action.  They  suggest  enhancing  ESMA's  governance  structure,  improving  transparency  and 
accountability,  and  potentially  establishing  a  Supervisory  Convergence  Sub-Committee  to 
drive convergence. 

Respondents have split views about whether resource constraints ever hindered or prevented 
the use of supervisory convergence tools. Some suggested a more proportionate approach to 
convergence activities, particularly for smaller authorities and entities. 

The delegation of tasks and responsibilities between NCAs and ESMA is a complex issue, with 
many  respondents  citing  uncertainty  and  hesitation  due  to  a  lack  of  clear  frameworks  and 
guidelines.  To  increase  the  usability  of  this  tool,  respondents  suggested  changes  such  as 
clarifying  the  scope  and  legal  effect  of  delegation,  establishing  clear  criteria  and  oversight 
mechanisms,  and  harmonizing  IT  workflows  and  procedures.  Additionally,  concerns  were 
raised about the potential costs of delegation, particularly for smaller NCAs.  

While  a  narrow  majority  of  respondents  overall  (24  out  of  42)  did  not  perceive  significant 
limitations in the current supervisory convergence tools for addressing home/host issues, the 
views of different stakeholder groups varied. Notably, public authorities were almost evenly 
split. In contrast, a majority of private stakeholders (16 out of 27) indicate that they do perceive 
limitations in the current tools. 

21 versus 18 respondents think that ESMA should be empowered to issue an opinion in cases 
where national supervision is deemed ineffective in the context of supervision of products or 
of conduct of business rules. Respondents have split views about whether ESMA should be 
empowered to issue binding advice in cases where national supervision is deemed ineffective.   

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Several respondents suggested introducing additional supervisory convergence tools to address 
supervisory divergences and promote consistent supervision across the EU. These tools include 
Common  Supervisory  Actions,  structured  industry  dialogue  platforms,  early  coordination 
mechanisms for new rules or regime changes, supervisory interpretation trackers (divergence 
mapping), annual assessment of national gold-plating practices, centralised registers and data 
sharing, and the possibility for financial actors to refer a matter to ESMA for binding mediation.  

Data  and  technology  hub:  stakeholders  from  both  public  and  private  sectors  support  an 
enhanced  role  for  ESMA  as  a  data  and  technology  hub,  especially  in  centralising  and 
harmonising supervisory reporting. In total, around 34 respondents comment on this topic in 
the  public  consultation,  with  roughly  25  supporting  a  more  centralised  EU  reporting 
architecture. This includes 10 national authorities and 12 market participants, as well as eight 
industry associations—together pointing to efficiency gains from a single reporting entry point 
and  more  consistent  EU-wide  data  structures.169  Public  authorities  emphasise  preserving 
national autonomy, data ownership, and governance, as well as clear rules for data access and 
use, while the private sector prioritises efficiency, reduced compliance costs, and predictability. 
Both sectors also advocate for the development of SupTech tools to improve risk-based, data-
driven supervision—targeting areas like crypto-assets, ESG, market abuse, and social media 
monitoring.  Several  respondents  also  point  to  concrete  applications  where  SupTech  would 
bring immediate benefits, such as automated validation of fund reports, liquidity and stress-
testing 
in  sustainability 
investment  funds,  and  greenwashing  detection 
disclosures.170While public stakeholders often highlight AI-powered analytics and document 
processing, private respondents focus more on automation and regulatory streamlining.  

tools  for 

Funding: 27 out of 55 respondents consider financing of ESMA not appropriate. A majority 
of public authorities consider the 60/40 funding split between NCAs and the EU budget to be 
unsustainable and unfair, especially given the rising number of mandates assigned to ESMA 
without parallel budget increases. Public authorities together with the private sector strongly 
oppose  full  industry  funding,  arguing  it  would  jeopardize  ESA  independence  and  burden 
market participants—particularly in smaller Member States. They oppose the introduction of 
targeted indirect industry funding for ESMA’s convergence-related tasks, such as voluntary 
colleges or supervisory opinions. The private sector echoes concern about ESMA’s expanding 
workload and inadequate funding, but their emphasis lies on the financial burden placed on 
supervised entities. Many argue that current  fees are excessive and discourage  cross-border 
activity. In the case of EIOPA, the current EU budget and NCA funding split is seen as fair, 
with some suggesting a slight alteration to a 55%-45% split. For the EBA only a few replies 
were received, therefore no reasonable conclusions can be made.  

Costs of supervision: 

General Observations Across Sectors: across all sectors, initial one-off costs are expected to 
be high, especially for IT system adaptation, legal restructuring, and staff training to align with 

169 This is based on 20 and Question 21 in Section 7.6. Question 20 asked: Which area(s) would benefit most from 
an ESA(s)’ enhanced role as a data and technology hub? Question 21 asked: In which sectors/areas would the 
development of supervisory technology tools (suptech, i.e. use of technology by supervisors to deliver innovative 
and efficient supervisory solutions that will support a more effective, flexible and responsive supervisory system) 
be most beneficial to enhance efficiency and consistency of supervision? Please give examples. 
170 Question 21 in Section 7.6 asked: In which sectors/areas would the development of supervisory technology 
tools (suptech, i.e. use of technology by supervisors to deliver innovative and efficient supervisory solutions that 
will support a more effective, flexible and responsive supervisory system) be most beneficial to enhance efficiency 
and consistency of supervision? Please give examples. 

141 

 
 
 
 
 
new EU-level procedures and reporting formats.  Among the 21 respondents who provide cost-
related  input,  14  expect  ongoing  costs  to  rise  due  to  overlapping  responsibilities  between 
ESMA and NCAs, particularly if national layers of supervision are not fully removed.171  Four 
respondents foresee broadly neutral impacts, typically only under limited adjustments to the 
current  system,  while one respondent  anticipates  a cost  reduction in  a narrow CCP-specific 
scenario. Two respondents are unable to estimate the impact. Six of the respondents expecting 
increasing costs also stress that cost neutrality or savings would only be achievable if national 
supervision were fully replaced—an outcome they generally consider unlikely. 

Sector specific costs of supervision 

Central  Counterparties  (CCPs):  public  Authorities  in  general  appeared  sceptical  of  cost 
benefits. Several noted that centralisation risks duplicative costs (national + EU-level) and a 
loss of national proximity, which could reduce effectiveness and increase operational burdens. 

Private  Sector  CCPs  generally  oppose  dual  oversight.  They  highlighted  higher  compliance 
costs due to  divergent  supervisory interpretations and legal  uncertainty in  transition  phases. 
Big CCPs noted that they often already deal with multiple jurisdictions. Still, shifting to ESMA 
would not eliminate NCA engagement, and firms fear double-reporting burdens. Small CCPs 
voiced the concern that the compliance and legal costs of centralisation might be unsustainable. 
There were warnings that the existence of local markets in two EU countries (Croatia, Czech 
Republic) might be endangered due to cost escalations. 

Central Securities Depositories (CSDs):banking CSDs saw significant risks of supervisory 
duplication if banking and settlement oversight was handled by different EU bodies. Euroclear 
and  others  noted  the  cost  of  multiple  supervisory  interfaces  and  feared  splintered 
communication and inefficiencies. Some public sector institutions expressed the opinion that 
even without formal authority, NCAs would still need to support ESMA, leading to resource 
duplication rather than relief. 

Trading venues:  private venues highlighted that costs stem from  continuous and divergent 
engagement with  multiple NCAs. They believed  that centralisation could  reduce duplicated 
compliance efforts, regulatory delays, and uncertainty, potentially unlocking considerable cost 
savings but only if truly streamlined. Others however feared a “two-tier” system, where ESMA 
oversight is added rather than replacing NCAs, resulting in higher net costs. The Saxony State 
Ministry for Economic Affairs, Labour and Energy stated explicitly that centralisation would 
"massively increase costs." 

Small  Venues  reported  severe  concerns,  which  were  shared  by  national  supervisors.  Hanfa 
(Croatian  Financial  Services  Supervisory  Agency),  for  instance,  fears  supervisory  fees  for 
small APAs would become unaffordable, if they fell under ESMA supervision and that they 
would have to cease providing the service. 

Asset Managers (AMs): industry Associations flagged major initial investments, such as IT 
upgrades, legal reform, and reorganisation of supervisory engagement protocols. In their view, 
training  staff  to  handle  EU-level  procedures  would  also  constitute  an  ongoing  burden. 
Mentioned  ongoing  costs  included  increased  legal/advisory  spend  due  to  unclear  or 
overlapping roles and supervisory fees to ESMA, potentially added on top of national levies. 

171 This is based on all cost related questions in Section 6 and 7. 

142 

 
 
 
 
 
Several  Private  AMs  emphasised  the  loss  of  efficiency  from  engaging  with  more  distant 
regulators.  They  saw  no  evidence  of  cost  savings  but  greater  procedural  complexity  and 
bureaucratic overhead. 

Some  trading  venues  and  asset  managers  saw  potential  savings  arising  from  a  reduction  in 
duplicative  NCA  communication  (including  reporting  obligations)  and  faster  product 
approvals, but only if centralisation was clean and harmonised. 

the 

given 

nascency 

Crypto-Asset Service Providers  (CASPs):  regarding CAPS, diverging views on costs and 
suitability of centralisation were expressed. A majority of respondents (e.g. MFSA, BP23 CA 
Ltd,  BVC  WG,  Austrian  Ministry  of  Finance)  appear  opposed  to  centralisation.  Added 
reporting  layers,  transition  costs,  and  legal  uncertainty  were  cited.  The  value  of  national 
stressed. 
of 
proximity, 
A minority of respondents (e.g. Bitkom, Association of German Banks, Finansinspektionen, 
French Ministry of Economy) advocated for a phased or hybrid EU supervision, arguing that 
the nascent state of the CASP sector presented a rare opportunity for early harmonisation. They 
believed  EU-level  coordination  could  streamline  compliance  for  significant,  cross-border 
platforms  and  viewed  long-term  savings  as  possible,  though  conditional  and  speculative. 
CASPs  fear  being  subjected  to  dual  reporting  obligations  if  EU-level  supervision  doesn’t 
replace  NCA  engagement.  Smaller  CASPs  were  concerned  about  disproportionately  high 
compliance costs and potentially having to exit the market. One national authority (CONSOB) 
estimated €250k in lost supervisory fees from transferring CASP oversight to ESMA. 

regulation 

CASP 

was 

Specific Issues  for Small Entities Across  Sectors:  several  respondents  — including  small 
market  infrastructures,  public authorities, and market  participants  — identify small  CASPs, 
CSDs and trading venues as particularly vulnerable to rising compliance and supervisory costs. 
Six  respondents  raise  concerns  about  the  disproportionate  impact  on  smaller  entities  across 
these sectors, and three  of them explicitly  warn  that uniform  thresholds for EU supervision 
(e.g. based solely on cross-border activity) could unintentionally capture small firms, pushing 
them  out  of  the  market.172.  The  Croatian  Financial  Services  Supervisory  Agency  (Hanfa) 
warned that centralisation could raise the cost of supervision, in particular for smaller CSDs 
(as well as smaller trading venues and CCPs), making it economically unviable to operate in 
small Member States.  

Public  Authorities'  Perspective:  most  NCAs  and  Ministries  (e.g.  MFSA,  FSMA)  did  not 
expect cost savings. Instead, they anticipated higher setup costs for ESMA, continuous NCA 
engagement as local implementation and national law remain relevant, as well as loss of staff 
and expertise, with no reduction in national resource requirements. The Austrian Ministry of 
Finance estimated cost neutrality in the best case, and cost increases in all others. 

Final Assessment on costs of supervision: across all sectors, full or partial centralisation of 
supervision is expected to raise costs in the short to medium term. Any savings are conditional 
on the elimination of national duplications, streamlined supervisory models (not two-tiered), 
and harmonised procedures. 

For  small  firms  and  local  markets,  the  risk  of  a  disproportionate  cost  burden  was  seen  as 
particularly acute and possibly resulting in market exits or reduced innovation. 

172 This is based on all cost related questions in Sections 6 and 7. 

143 

 
 
 
 
 
 
ANNEX 3: WHO IS AFFECTED AND HOW? 

1.  PRACTICAL IMPLICATIONS OF THE INITIATIVE 

This  initiative  affects  in  particular  the  following  groups  of  stakeholders:  trading  venues, 
investment  firms  (notably  brokers),  CSDs,  CCPs,  asset  managers,  DLT-based  structures, 
CAPSs, investors, NCAs, ESMA and the ECB.  

and 

investment 

trading  venues 

terms  of  benefits, 

In 
firms  would  benefit  
from rationalisation of intra-group operations, cross-border operations and savings linked to 
local  governance  costs.  Operational  efficiency  gains  for  exchange  operators  should  
be partially passed on to downstream intermediaries and retail and institutional investors. CSDs 
would benefit from facilitation of cross-border provision of services, increased legal clarity and 
certainty. Moreover, costs per settlement transaction could be reduced by a greater use of T2S. 
CSDs, investment  firms,  CASPS, credit institutions using DLT-based structures would  also 
benefit from harmonised definitions and concepts. Asset managers would benefit from reduced 
compliance burden and legal costs as well as increased legal clarity when engaging in cross-
border activities.  

Financial market participants under strengthened EU supervision (i.e. cross-border significant 
trading  venues,  CSDs,  CCPs,  asset  management  firms  and  CASPs)  would  benefit  from:  1) 
reduced  compliance  cost  and  administrative  burden  for  entities  currently  supervised  by 
multiple NCAs; 2) savings stemming from  less duplications, differences in  instructions and 
procedural delays; 3) reduction of supervisory fees for entities currently supervised by several 
NCAs and 4) savings due to synergies and increased intra-group outsourcing/delegation.  

The initiative is expected to lead to deeper and more integrated financial markets and increased 
trust in financial markets, benefitting end-users and the wider economy. Institutional and retail 
investors are expected to face lower trading costs and a larger choice of financial products and 
services. More agile and comprehensive supervision of capital markets will increase investors’ 
trust and overall confidence in the governance and supervision of capital markets. This should 
increase cross-border investments in the Single Market, yielding benefits for companies via a 
broader access to funding and expected lower financing costs. By promoting cross-border risk 
sharing,  financial  market  integration  and  consistent  supervision  should  also  strengthen 
financial stability across the EU. 

On  the  cost  side,  trading  venues,  brokers,  CSDs,  asset  managers  and  DLT-based  structures 
would  face  implementation  costs  to  align  their  operations  with  legal  changes.  For  instance, 
CSDs would have to invest in establishing new links with other CSDs and with T2S, if not yet 
in place. The ECB would likely have to invest into T2S to accommodate a higher number of 
linked CSDs as well as higher volumes, in addition to any other changes to the functionality of 
the platform. ESMA would have to hire additional staff to perform new tasks (mainly financed 
through fees) while NCAs would gain room for staff reductions due to centralisation of certain 
tasks.   

144 

 
 
 
2.  SUMMARY OF COSTS AND BENEFITS 

The  tables  below  summarise  the  expected  benefits  and  costs  of  the  preferred  initiative  
for the affected stakeholders. It should be noted that no significant costs are expected to arise 
for citizens, hence the overview of costs focuses on stakeholder categories expected to bear 
some additional costs. Potential costs stemming from related Level 2 acts are not quantified 
here because they depend on the precise technical specifications to be determined and impact-
assessed in preparation of their adoption. For additional details and explanations see Annex 7-
11 as well as Annex 4 detailing the methodological approach.  

I. Overview of Benefits (total for all provisions) – Preferred Option 

Description 

Amount 

Direct benefits 

Comments 

Compliance  cost  reductions 
when  engaging 
in  cross-
border activities   

Trading:  EUR  47 - 120  million per year for all 
current trading  venues that  belong to  a  group 
(total  across  all  measures  impacting  trading 
venues)  

Trading:  Estimated  total  savings  for  all 
trading  venues  operating  under  a  group 
structure (see Annex 7) 

another  Member 

Asset  management:  Significant  part  of  EUR 
of  UCITS 
20,000 – 60,000 per registration 
State (estimate 
fund in 
of current administrative 
costs) and 
ongoing (additional staffing, external legal advic
e  etc.) EUR 400,000  per  cross-border  fund  per 
year 

Asset management: Reduced administrative 
burden  and  legal  costs  stemming  from 
authorisation 
standardised 
cross-border 
procedures, timelines and 
access 
notification;  Harmonised 
requirements  concerning  marketing  rules 
and 
elimination  of  unnecessary  EU 
requirements  

via 

Administrative 
cost 
reductions arising only from 
rationalisation of intra-group 
operations 

Compliance  cost  reductions 
related  to  streamlining  of 
requirements  and  increased 
clarity and legal certainty 

Trading: 

EUR 435,500 - 585,500 per group per year   

Brokers:  EUR  100  000  -  500  000  per  broker 
(streamlined  venue  membership  and  indirect 
impact on fees) 

Others not quantified (see qualitative comments) 

Trading: EUR 0.5 to 5 million per year (for cross-
border operating exchange groups) 

Reduced compliance cost 
and administrative burden 
for entities currently 
supervised by multiple 
NCAs  

145 

Benefits arising from rationalisation of intra-
group  operations,  cross-border  operations 
and savings linked to local governance costs 

Trading venues:  Less  staffing  needs  linked 
to  streamlined  member  onboarding  and 
monitoring  process;  due  diligence  only 
performed once and by one trading venue 

Brokers:   Benefits  stemming  from  more 
streamlined membership  on-boarding  and 
ongoing compliance/monitoring procedures 
by trading venues  

Increased 
CSDs: 
less fragmentation 
reduced compliance burden  

legal 

clarity 

and 
leading to 

DLTs: Benefits resulting from harmonising 
definitions and concepts 

Estimate provided for trading venues 

Other financial market participants 
will also benefit because as they will face le
ss duplications, differences in instructions 
and procedural delays   

Reduction of supervisory fees for entities 
currently supervised by several NCAs  

 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
Savings due to synergies and increased 
intra-group outsourcing/delegation  

Indirect benefits 

Estimated  EUR  11.25  to  30  million  directly 
benefit end investors 

Brokers, end-clients should benefit in terms 
of reduced transaction costs 

Estimated  potential  for  30%  cost  reduction  (15 
cent  per  settlement  transaction  settled  in  T2S 
versus a given CSD)  

A  greater  use  of  T2S  would  potentially 
reduce costs per settlement transaction 

Not  quantified,  but  illustrations  provided  in 
Annex 9 

End clients of asset managers should benefit 
in terms of reduced management fees 

Qualitative / Not quantifiable 

in 

Confidence 
and 
the 
supervision  of  capital  markets  could 
increase  cross-border  investments  in  the 
single market. 

governance 

Operational efficiency gains 
for  exchange  operators  will 
be  partially  passed  on  to 
intermediaries 
downstream 
and end clients 

Operational efficiency gains 
for  CSDs  will  be  partially 
passed  on  to  downstream 
intermediaries 

Operational efficiency gains 
in asset management will be 
partially  passed  on 
to 
downstream intermediaries 

Better, more agile and 
comprehensive supervision 
of capital markets increases 
investor trust  

Reduction of financial 
stability risks 

Qualitative / Not quantifiable 

More  centralised  supervision  should  be 
more effective in capturing especially cross-
border  risks.  There  will  be  benefits  due  to 
reduction  of  financial  stability  risks,  and 
expected  spill-over  effects  of  supervisory 
failures. 

NCAs will need less 
resources in areas where 
ESMA takes on supervisory 
responsibilities 

Not  quantified;  will  vary  significantly  across 
NCAs 

Staff reduction due to centralisation of 
certain tasks 

Macroeconomic benefits  

Increased EU GDP: 

EUR1.36tn – 3.62tn cumulative over 30 years  

The study upon which this figure is based 
compares the development of EU & US 
capital markets over 30 years (1995–2024).  
It uses a World bank estimated correlation 
between market capitalisation and GDP to 
model additional GDP growth that could 
have been achieved by having more 
integrated capital markets in the EU. The 
figure presented here assumes that the 
initiative can achieve part (10-25%) of this 
integration process modelled. See also 
Annex 4 for further details and additional 
studies indicating a similar magnitude of 
impact on GDP stemming from reduced 
fragmentation 

146 

 
 
 
 
 
 
 
 
II. Overview of costs – Preferred option  

Businesses  

Administrations  

One-off  

Recurrent  

One-off  

Recurrent  

Direct 
adjustment 
costs  

Broad  review  of 
the  functioning  of 
markets 
capital 
(Measures 
to 
address  barriers  to 
cross-border 
activities 
innovation)  

and 

Direct 
adjustment 
costs  

EUR  0.015  –  2 
(adjustment 
million 
trading 
costs 
venues 
-adapting 
exchange rulebooks)  

for 

and 

Implementation  costs 
for  trading  venues  (b), 
CSDs(c) 
asset 
managers 
to  digest 
legal  changes  (e.g. 
harmonisation 
of 
MiFID/MiFIR)  

Direct 
investment  and 
maintenance 
costs  

200 
About  EUR 
million in total for all 
CSDs that still need to 
connect to T2S  

in 

to  EUR  9 
Up 
million 
total 
annual maintenance 
cost  for  all  CSDs 
with new T2S links  

Direct 
investment  and 
maintenance 
costs  

Supervisory 
data 
platform  coverage  of 
CCPs,  CSDs,  TV 
EUR  7.2  million  for 
development   

Annual 
maintenance  EUR 
2.96 million  

Supervisory 
platform  for  CCPs, 
CSDs,  TV  EUR0.8 
for 
million 
development   

Annual 
maintenance  EUR 
0.74 million   

 Direct 
investment  and 
maintenance 
costs  

Central  register  for 
market 
CASPs 
surveillance EUR 4.2 
million 
for 
development   

EUR2.5 million for 
annual 
maintenance   

 Direct 
investment  and 
maintenance 
costs  

 Direct 
investment  and 
maintenance 
costs (e) 

Direct 
adjustment 
costs  

Centralised data and 
analytics  EUR  15 
million 
for 
development  

Annual 
maintenance EUR 4 
million  

 Annual 
maintenance  EUR 
0.2 million  

Data  platform  for 
cross-border 
of 
notifications 
funds €1 million for 
development 

for  Member 
Cost 
States 
align 
to 
national  laws  with 
the targeted changes 
(d)    

147 

 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
 
  
  
  
 
 
  
  
  
  
Some 
implementation 
costs  will  arise  for 
ESMA  in  order  to 
adapt  to  the  legal 
changes  

II. Overview of costs – Preferred option  

Direct 
adjustment 
costs  

Indirect costs   One-off  costs  could 
for  users  of 
arise 
services 
(e.g. 
contractual changes) - 
not  quantified  but 
costs  are  expected  to 
be relatively small  

Direct 
adjustment 
costs  

Greater 
supervisory 
convergence 
and 
an  enhanced  role 
for ESMA’s role in 
supervision (f)(g) 173 

adjustment 
One-off 
costs  related  to  re-
directing 
existing 
reporting  to  ESMA  - 
not  quantified  but 
costs  are  expected  to 
be relatively small  

Direct 
regulatory  fees 
and charges  

Direct 
regulatory  fees 
and charges  

Direct 
regulatory  fees 
and charges  

When 
supervision starts: 

direct 

To prepare for direct 
supervision: 

ESMA 
90–105 
extra  FTEs (direct 
of 
supervision 
trading venues) 

ESMA  5-10  FTEs 
for  the  preparatory 
direct 
for 
work 
supervision  EUR  1-
2 million 

EUR  17  –  19.5 
million 

When 
supervision starts: 

direct 

prepare 

 To 
direct supervision: 

for 

ESMA  30–50  extra 
FTEs (supervision 
of CCPs)  

EUR  5.5  –  9.5 
million 

ESMA  5-10  FTEs 
for  the  preparatory 
work 
direct 
for 
supervision  EUR  1-
2 million 

When 
supervision starts: 

direct 

prepare 

 To 
direct supervision: 

for 

ESMA  30–40  extra 
FTEs (supervision 
of CSDs) 

ESMA  5-10  FTEs 
for  the  preparatory 
direct 
for 
work 
supervision  EUR  1-
2 million 

173 All costs are calculated without overhead. Overhead costs of 20% can be assumed. 

148 

 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
II. Overview of costs – Preferred option  

EUR  5.5  –  7.5 
million 

Direct 
regulatory  fees 
and charges  

Direct 
regulatory  fees 
and charges  

Direct 
regulatory  fees 
and charges  

Direct 
regulatory  fees 
and charges  

Direct 
regulatory  fees 
and charges  

ESMA  10–20  extra 
FTEs  (coordination 
of  supervision  of 
cross-border  asset 
management 
groups) 

 To prepare  for new 
tasks: 

ESMA  5  FTEs  for 
the 
preparatory 
work  for  new  tasks 
EUR 1 million 

EUR 2 – 4 million 

 To prepare  for new 
tasks: 

When  new 
start: 

tasks 

ESMA  5  FTEs  for 
the 
preparatory 
work  for  new  tasks 
EUR 1 million 

ESMA 10–15 FTEs 
(oversight  of  cross-
border 
fund 
distribution)  

EUR 2 – 3 million 

When 
supervision starts: 

direct 

prepare 

 To 
direct supervision: 

for 

ESMA 
65–160 
extra  FTEs (direct 
supervision CASPs) 

EUR  12  –  30 
million 

ESMA  5-10  FTEs 
for  the  preparatory 
work 
direct 
for 
supervision  EUR  1-
2 million 

ESMA 
(DLT Pilot)  

7  FTEs 

EUR 1 million  

ESMA  5-10  extra 
FTEs (strengthen 
supervisory 
convergence  across 
sectors) 

EUR 1 - 2 million 

This  will  not  create 
additional  expenses 
because  it  will  be 
accomplished 
by 
reassigning existing 
FTEs to new tasks. 

Direct 
regulatory  fees 
and charges  

ESMA  Executive 
Board  and  related 

149 

 
 
 
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
II. Overview of costs – Preferred option  

overhead (no 
estimate available) 

(a)  Upper-bound estimate reflects costs of complete revision of rulebooks, including costs related to 

project management, legal drafting, IT adjustments, and staff re-training. 

(b)  Harmonisation of MiFID/MiFIR rules and legal recognition of intra-group operations 
(c)  Scope  of  participants  &  eligible  securities,  and  designation  practices  for  EU  systems.  Amount  will 

depend on respective MS laws and extent of changes needed. 

(d)  Conflict of law rule, participation of EU entities in third-country systems, scope of participants & 

eligible securities, designation practices for EU systems, settlement finality moments 

(e)  These costs could also be covered by fees to be paid by the regulated entities to ESMA. The centralised 
notification system would be expected to be accompanied by a reduction (and possible removal) of fees 
currently charged at national level for passporting of funds (in addition to the cost reductions stemming 
from the removal of barriers), ultimately delivering net efficiencies. 

(f)  Ongoing cost for direct supervision (in the asset management sector: improved supervisory 

convergence) would be covered by supervisory fees levied on entities directly supervised (in the asset 
management sector: entities subject to improved supervisory convergence) by ESMA 

(g)  The precise cost figures for ESMA are based on estimates of FTEs needed and using an average costs 

per FTE of EUR 186 000.174  

Depending on the details of targeted legal changes (e.g. MiFID/R harmonisation, SFD) and respective 
legal approach in Member States there can be small administrative costs that arise. The main costs items 
are  the  costs  of  adjusting  to  the  system  and  are  thus  not  captured  as  an  administrative  cost  
in  the  one-in-one-out  table  below.  Overall,  the  proposed  changes  will  reduce  administrative  costs, 
especially in relation to cross-border activities (e.g. streamlined notifications for passporting, harmonised 
marketing requirements, avoiding duplicative reporting). There are no administrative costs that will be 
carried by citizens. 

III. Application of the ‘one in, one out’ approach – Preferred option(s) 

One-off 

Recurrent 

Total 

(annualised total net present 
value over the relevant period) 

(nominal values per year) 

Businesses 

New administrative 
burdens (INs) 

Administrative  costs  to  adapt 
to  legal  changes  and  redirect 
reporting flows to ESMA - not 
quantified  but  expected  to  be 
small 

N/A 

- 

174 The rate of 186k per FTE is based on the 2025 standard rates of the Commission for staff expenses adjusted 
for inflation of 2% as at 2028, and builds on the  current mix at ESMA between temporary agents, contractual 
agents,  and  seconded  national  experts.  The  rates  cover  salaries,  employer  social  contribution,  office 
accommodation, IT basic support, etc.   

150 

 
 
 
  
 
    
 
 
 
III. Application of the ‘one in, one out’ approach – Preferred option(s) 

One-off 

Recurrent 

Total 

(annualised total net present 
value over the relevant period) 

(nominal values per year) 

Removed administrative 
burdens (OUTs) 

N/A 

47 

120 

EUR 
– 
million per year for all 
current trading 
venues that 
belong to a group175 (this includes 
rationalisation 
intra-group 
585,500 per 
- 
EUR 435,500 
group per  year and  supervision 
EUR 0.5 to 5 million per year per 
cross-border group)  

of 

EUR 

part 
Significant 
20,000 – 60,000 per registration 
of UCITS fund in another Member 
State176 and of EUR 400,000 (on-
going costs) per cross-border fund 
per year  

Net administrative 
burdens* 

Adjustment costs** 

Citizens 

New administrative 
burdens (INs) 

Removed administrative 
burdens (OUTs) 

Net administrative 
burdens* 

Adjustment costs** 

None 

None 

N/A 

N/A 

Total administrative 
burdens*** 

- 

- 

None 

None 

N/A 

- 

N/A 

N/A 

- 

- 

- 

None 

 None 

N/A 

- 

(*) Net administrative burdens = INs – OUTs;  
(**) Adjustment costs falling under the scope of the OIOO approach are the same as reported in  Table 2 above. Non-
annualised values;  
(***) Total administrative burdens = Net administrative burdens for businesses + net administrative burdens for citizens. 

175 These are mostly administrative costs that relate to duplicative functions across Member States where trading 
venues are operated and diverging practices across NCAs. 
176  Most  costs  related  to  cross-border  registrations  classify  as  administrative  costs.  Savings  are  recurrent  but 
depend on the number of funds registered.  

151 

 
 
 
 
 
 
 
 
 
 
 
3.  RELEVANT SUSTAINABLE DEVELOPMENT GOALS 

IV. Overview of relevant Sustainable Development Goals – Preferred Option(s) 
Relevant SDG 

Expected progress towards the Goal 

Comments 

initiative  should  help 

The 
economic growth in support of SDG 8.  

to  promote 

The initiative should increase efficiencies in 
the  capital  market  sector.  This  should 
improve  financing  conditions  and,  in  turn, 
help  in  promoting  investments,  supporting 
SDG 9.  

SDG  no.  8  –  Decent  work 
and economic growth 

Positive  impact  on  GDP  (see  Annex  4  for  more 
details) 

- 

SDG  no  9 
resilient 
infrastructure,  inclusive  and 
sustainable  industrialization, 
foster innovation 

Positive impact on financing conditions  

152 

 
 
 
 
ANNEX 4: ANALYTICAL METHODS 

A  range  of  analytical  methods  were  considered  for  this  impact  assessment  after  a  careful 
evaluation of their feasibility and added value. To assess the need for and appropriateness of 
quantification, we proceeded as follows.  

the 

toolbox, 

the  analysis 

scope  and  depth  of 

Firstly, we apply the proportionality principle. According to the Better Regulation guidelines 
should  be  proportionate  
and 
and  consistent  with  the  importance  and  type  of  initiative,  as  well  as  with  the  nature  
and  magnitude  of  the  expected  impacts.  The  effort  invested  in  data  collection,  the  depth  
of  analysis,  the  extent  of  quantification  and  thereby  choice  of  analytical  method(s)  should 
correspond to the likely magnitude of impacts (Better Regulation Toolbox 2023, Chapter 8). 
In  addition,  highly  accurate  quantification  of  costs  and  benefits  is  less  important  
in  cases  where  less  granular  estimates  show  that  benefits  significantly  outweigh  costs  
(or  vice  versa).  In  these  instances,  more  accurate  estimates  will  not  alter  the  decision  
to  go  ahead  with  the  initiative;  such  quantification  is  thus  less  informative  for  the  overall 
decision.  

Secondly, we rely on the availability of  data  and evidence to  perform a robust quantitative 
analysis in those areas where it would be proportionate to perform such an analysis. While, 
on theoretical grounds, a quantitative analysis would be the preferred approach for evaluating 
the impact of the initiative, as it would provide a more precise and objective measurement of 
the effects, in practice such quantification is often not feasible or desirable due to a lack of data 
or limited, incomplete or inconsistent data inputs which would lead to flawed estimates and 
unreliable results. This impact assessment faces significant data gaps —with no or only limited 
data being available— including for example on the costs and pricing of the services provided. 
This information was also not available from stakeholders who often are reluctant to reveal 
their cost structures or estimates of costs. 

Thirdly, quantitative analysis needs to allow establishing a causal relationship between policy 
measures  and  impacts.  The  accurate  and  reliable  establishment  of  such  a  relationship  is 
hampered by difficulties in isolating the effect of policy measures, due to the complexity and 
possible instability of causal relationships, limited data and sample size, heterogenous effects, 
out-of-scope factors that are in flux, and other contextual factors. Quantitative analysis relies 
on simplifying assumptions that may not capture the intricacies of the causal relationships. In 
addition,  data  issues  may  result  in  a  lack  of  statistics.  While  there  is  a  significant  body  of 
literature to establish the problems and consequences of fragmentation in capital markets, and 
to  confirm  the  importance  of  legal  barriers,  it  was  not  possible  to  quantify  and  isolate  the 
specific impacts that this initiative would bring and to model the relevant causal relationships, 
from  the  underlying  barriers  or  specific  policy  measures  through  to  the  expected  market 
outcomes (e.g. in terms of costs, prices and quantities).     

In  those  cases  where  a  quantitative  analysis  would  not  be  justified  or  desirable,  
based on the above grounds (not proportionate or not a viable option due to methodological or 
other limitations), we perform a qualitative analysis or mixed-methods approach, based on the 
existing  literature  and  stakeholder  feedback  to  provide  a  contextual  understanding  of  the 
initiative's impact.  

153 

 
 
 
1.  OVERVIEW OF EMPLOYED ANALYTICAL METHODS  

1.1.  ENGAGEMENT WITH STAKEHOLDERS: CONSULTATION AND TARGETED INTERVIEWS 

To ensure that stakeholders’ perspectives inform the impact assessment and decision-making, 
the Commission organised a stakeholder consultation and conducted targeted interviews with 
stakeholders (see Annex 2).  

The  stakeholder  consultation  allowed  us  to  engage  with  a  broad  range  of  stakeholders.  
An  open  consultation  aims  at  being  inclusive  and  ensuring  the  representativeness  
of different stakeholders. The responses to the consultation provided insight into the average 
opinion  of  each  stakeholder  group  concerned  and  the  level  of  consensus  within  each 
stakeholder group.  

The  targeted  interviews  were  both  included  in  the  external  market  studies  performed  
in view of this IA (see below), and separately for gaining a more comprehensive understanding 
of barriers and to engage on existing data gaps, notably on cost and benefit quantification. 

1.2.  MARKET  STUDIES  ON  MARKET  DEVELOPMENTS  AND  INTEGRATION  IN  TRADING, 

POST-TRADING AND ASSET MANAGEMENT 

Two  external  studies  were  commissioned  by  the  European  Commission  in  preparation  
of this initiative to attain information on market developments, fragmentation and barriers to 
scaling-up. Findings are reported in the Study of barriers to, and drivers of, the scaling-up of 
Study  
funds 
on  consolidation  and  reducing  fragmentation  in trading  and  post-trading  infrastructures in 
Europe (Link).  

companies 

innovative 

investing 

growth 

(Link) 

and 

and 

in 

The objective of the first study was to identify barriers to the scaling-up and consolidation in 
fund  management,  focusing  specifically  on  growth  capital  funds  (i.e.  investment  funds  that 
invest in companies that are in their growth phase, such as start-ups, scale ups). Various barriers 
to scaling up of venture and growth capital were identified, including regulatory/legal, tax and 
market-driven barriers, impacting fund managers and institutional investors in both domestic 
and cross-border contexts. The scope of this study covers a part of the investment funds sector, 
in  particular venture capital  and private equity funds. Several  of barriers identified, such as 
harmonising  marketing  rules,  reducing  duplication  of  requirements  for  the  authorisation  of 
asset managers, making the passporting regime work more effectively, considered applicable 
to a broader range of investment funds and are addressed in this package, informed partially by 
this study and partially by further sources of evidence.   

The objective of the second study was to identify barriers and potential options for the further 
consolidation and reduced fragmentation of trading and post-trading infrastructure in the EU 
to create deeper pools of liquidity, produce synergies and related cost efficiencies, and to help 
lower  the  cost  of  financing. This  study  highlights  that  the  market  infrastructure  of  the  EU 
capital market is inefficient and costly, and its inherent complexity does not support the SIU 
goals  of  increasing  investors’  and  issuers’  participation  by  growing  both  the  demand  for 
investment  products  and  services  and  the  supply  of  investment  solutions.  A  transition  to  a 
simplified infrastructure based on the principles of resilience, competition, and interoperability 
is therefore necessary and the measures required have, in large part, been identified historically 

154 

 
 
 
in studies beginning with the Giovannini Report in 2001, but progress in implementing them 
has been slow. The report highlights, at various point, problems or deficiencies in the publicly 
available data that need to be addressed, confirming also the data limitations that have impeded 
this impact assessment.  

Relevant insights of these studies have been incorporated into the impact assessment. 

1.3.  DESK RESEARCH 

The Commission services conducted a literature review and reviewed existing market data to 
support this  impact  assessment, in  particular to  gather evidence on market  developments  in 
relevant  sectors,  identify  barriers  to  market  integration,  review  scale  economies  and  gain 
insights into market outcomes. This included a review of the relevant academic literature and 
market reports and publicly available data, including relevant analyses and statistics reported 
by ESMA. For further sources, see Annex 1. 

1.4.  FURTHER INFORMATION ON COSTS AND BENEFITS ESTIMATES 

Given  data  and  time  constraints,  extensive  data  collection  required  for  more  advanced 
modelling of impacts were not within scope. Furthermore, especially in relation to costs and 
cost savings, the evidence provided was limited, and it is unclear whether all cost estimates 
provided are representative of the true costs experienced across affected entities given a low 
number of industry stakeholders that provided figures.    

the 

the 

to  check  whether 

results  are  broadly  within 

The estimates of the overall macro-economic benefits (see Annex 3) were derived based on 
estimations provided in an external paper which provides an estimate of loss of GDP growth 
over  the  past  30  years  as  a  result  of  market  fragmentation.177  Additional  two  papers  were 
consulted 
same  order  
of  magnitude.178,179  In  all  three  papers,  the  fragmentation  issues  discussed  do  not  directly 
overlap  with  the  proposed  measures  in  the  preferred  option  assessed  in  this  report.  
The estimate therefore relies on assumptions concerning the effectiveness of the initiative to 
address outstanding fragmentation issues. Notably, more sophisticated modelling approaches 
sufficient  data)  would  equally  depend  
(not  carried  out  due 
on  similar  estimates  given  that  (i)  there  are  limited  past  cases  which  could  be  used  
to determine the strength of different, individual barriers (ii) accurately disentangling barriers 
would  require  confidential  and  thus  non-available  micro-data  (e.g.  cost-function  data  of 
providers),  and  (iii)  there  will  always  be  remaining  uncertainty  as  to  the  practical  effect  of 
every  regulatory  change  (including  some  non-rational  /  behavioural  effects  that  cannot  be 
accurately modelled). In effect, while modelling approaches may be more effective and should 
give  better  estimates  in  theory  (provided  sufficient  data  were  available),  they  would  face 
similar shortcomings here. Therefore, the main disadvantage of the chosen approach is not the 

lack  of 

to  a 

177  ‘Capital  Market  Fragmentation  and  Economic  Value  Migration  How  Europe's  Financial  System  Promotes 
Wealth Transfer to the U.S’; Holste, Bjoern and Bergström, Mattias - April 03, 2025 - Link 
178  ‘Lifting  Binding  Constraints  on  Growth  in  Europe:  Actionable  Priorities  to  Deepen  the  Single  Market’,  
Nathaniel Arnold, Allan Dizioli, Alexandra Fotiou, Jan Frie, Burcu Hacibedel, Tara Iyer, Huidan Lin, Malhar 
Nabar, Hui Tong, and Frederik Toscani; June 2025; IMF – Link 
179 ‘The economic impact of European capital market integration’; F. Venditti, M. Caivano, P. Cova, K. Pallara 
and M. Pisani, Banca d’Italia Occasional Papers, Edition Number 957 – July 2025 – Link 

155 

 
 
 
 
 
of 

lack  
as 
precision 
of  insight  as  concerns  their  accuracy,  given  that  errors  and  confidence  intervals  are  not 
determined via statistical analysis and thus cannot be further assessed.   

estimate(s) 

rather 

such 

but 

the 

the 

a 

(relative 

0.2–0.3% 

to  GDP) 

correlates  with 

The  first  paper  models  the  impact  on  GPD  if  the  EU  had  similar  market  integration 
characteristics to the US. The findings indicate that a well-integrated financial system could 
have retained trillions in European wealth, resulting in an additional EUR 7.5-8 trillion in GDP 
over the last 30 years. This uses a World Bank estimate that a 10% increase in stock market 
capitalisation 
increase  
in annual GDP growth over the long  run (see World Bank Open Data –  Link).  For further 
details concerning the model’s assumption, please see Holste & Bergström p. 15 (main ones 
concern  baseline,  growth  elasticity,  capital  rendition  and  structural  shocks).  This  initiative 
would  only  achieve  a  partial  level  of  integration  to  the  one  analysed  in  this  paper.  Many 
stakeholders  note  that  differences  in  taxation  and  national  legal  barriers  (securities  law, 
ownership/property 
part  
law 
of  cross-border  hurdles.  We  assume  that  it  could  contribute  10-25%  towards  a  level  of 
integration  similar  to  the  US.  This  range  was  chosen  on  a  qualitative  basis  informed  
by stakeholder inputs on the respective strength of in and out-of-scope drivers of fragmentation 
(i.e. strong out-of-scope barriers). The external market study arrived at a similar conclusion, 
highlighting that these barriers outside of the scope of the initiative are crucial to overcome in 
order to develop a true common market. On this basis, the initiative could add GDP growth in 
the range of EUR 1.36tn – 3.62tn over the next  30 years. A broad range of 10 to 25% was 
deliberately  chosen  in  order  to  reflect  the  considerable  uncertainty.  Overall,  the  estimate  is 
mainly provided in order to demonstrate the order of magnitude of positive economic effects 
in the long run.  

insolvency 

account 

large 

etc.) 

law, 

for 

a 

in  capital  markets.  However, 

The second paper (Arnold et al., 2025) estimates that GDP in the EU relative to the baseline 
can increase in the range of 0.6 - 3.1% over 10 years by enacting key reforms that would foster 
integration 
integration  aspects  
that remain outside the scope of this initiative. As such, and in contrast to the former paper,  
it  makes  little  sense  to  estimate  a  similar  contribution  percentage  and  use  these  figures  
to detail the benefits of this initiative. It is referenced merely to provide an idea of the scale of 
the  macro-economic  effect  of  a  more  integrated  EU  capital  market,  in  line  with  Better 
Regulation guidance for cases where a more accurate assessment is not possible.  

it  assesses  mainly 

The  third  paper  (Vendetti  et  al.,  2025)  investigates  price  effects  assuming  a  reduction  
in firms’ cost of capital by 50 basis points. Using a dynamic equilibrium model calibrated to 
the  euro  area  it  estimates  that  this  would  lead  to  an  increase  in  investments  of  1%  
of  GDP.  Under  conditions  that  additional  investment  would  focus  on  physical  capital  this 
would translate into an increase in output of 1.5% after ten years. The impact on economic 
to  R&D.  
activity  would  be  considerably  stronger 
It is estimated that GDP could rise by 4% after ten years in this scenario. The analysis also 
shows that if the gap in the share of venture capital investments between the US and Europe is 
halved, additional investments of 0.35% of GDP would become available. These quality effects 
investors  with  higher  risk  aversion.  Assuming  a  multiplier  
related 
of  about  4.5  after  ten  years,  this  would  give  rise  to  an  additional  GDP  growth  effect  
of  1.6%  over  this  period.  The  analysis  assumes  that,  in  addition  to  reduced  legal  
and  supervisory  fragmentation,  there  will  be  a  reduction  of  risk-free  rates  driven  
by the creation of a European safe asset. This would be a major change and will not come about 
from this initiative The measures envisioned by this initiative will therefore have significantly 

investments  were  directed 

to  attracting 

if 

156 

 
 
 
lower effects on their own. It remains unclear how strong effects would be, and it was decided 
that, given the difference in baseline (risk-free rate) and high uncertainty, it provides no added 
value to try and extrapolate effects with high inaccuracy. The figures in the latter two papers 
however do support that (i) the direct benefits estimated via the first approach are of a realistic 
order  of  magnitude,  and  (ii)  that  there  are  multiple  significant  out-of-scope  barriers  (i.e. 
reinforcing  the  low  10-25%  range  estimate  for  the  effectiveness  of  this  initiative  towards 
forming a fully integrate market).  Even if we assume that the preferred option only addresses 
a fraction of the fragmentation problem  – how much exactly is difficult to ascertain for the 
reasons set out above - the resulting benefits in terms of GDP impacts would be high (in the 
billions  of  euros)  –  and  much  higher  in  the  order  of  magnitude  than  the  direct  costs  of  the 
measures in question.  With some exceptions (in particular the interconnection requirements 
and EU supervision, the costs of which are quantified the report), this initiative does not impose 
any  new  requirements  but  seeks  to  remove  barriers  to  cross-border  operations.  Overall, 
significant  efforts  have  been  undertaking  to  support  the  analysis  of  problems  and  the 
assessment of policy options. Each of the sources of evidence and methodological approaches 
applied  provided  valuable  insights  and  informed  the  assessment  presented.  However,  
there are clear limitations in what can be quantified, and all presented figures hold significant 
caveats  in  terms  of  accuracy.  The  combined  evidence  nonetheless  provides  corroborating 
evidence and presents a basis for the impact assessment, despite the inherent limitations of each 
of the individual approaches applied and the lack of quantification for all different impacts. 
Multiple  previous  impact  assessments  and  other  studies  in  the  sectors  provide  further,  if 
sometimes outdated, evidence in terms of market barriers and hurdles to both integration and 
innovation. The overall analysis in this impact assessment shows that only some of these issues 
have been successfully addressed and assesses the policy options to tackle the key remaining 
ones.

157 

 
 
 
ANNEX 5: COMPETITIVENESS CHECK 

1.  OVERVIEW OF IMPACTS ON COMPETITIVENESS 

Dimensions of 
Competitiveness 

Impact of the initiative 

(++ / + / 0 / - / -- / n.a.) 

References to sub-sections of the main 
report or annexes 

Cost and price competitiveness  ++ 

International competitiveness  

+ 

Capacity to innovate 

SME competitiveness 

+ 

+ 

2.  SYNTHETIC ASSESSMENT  

Sections  6,  7;  Annex  3  &  Sectoral 
Annexes (7-11) 

Sections  6,  7  &  Sectoral  Annexes  (7-
11) 

Sections 6, 7 & Annex 10 

Annex 6 

The initiative intends to remove key obstacles to cross-border activities in the addressed sectors 
(trading, post-trading, asset management). In addition, increased supervisory convergence and 
alignment  of  practices  will  create  a  more  level  playing  field  for  market  participants. 
Furthermore, the changes envisioned to the DLT Pilot regime and related changes in the SFD 
aim to expand the regime and prevent legal fragmentation across MSs to facilitate innovation 
and market uptake of DLT solutions. 

initiative 

is  expected 

to  stimulate  cross-border  activity  by 

lowering  costs  
The 
of cross-border provision of services and market entry. This would enable service providers to 
grow more easily and to a larger size by servicing clients across the EU. Size effects may also 
come about via market consolidation, which becomes more attractive given the new treatment 
of group structures and reduced burden for cross-border service providers. These effects and 
higher economies of scale would bring about benefits for downstream and end-consumers both 
in terms costs and quality of the services provided. The costs of adjusting to the new provisions 
would be smaller in comparison and are expected to be outweighed by these benefits.   

In  addition,  the  reduction  of  the  frictional  costs  in  cross-border  service  provision  
and  the  potential  for  increased  economies  of  scale  will  positively  impact  the  international 
attractiveness of services provided in the EU and, in effect, EU capital markets in general. This 
may attract additional business for EU service providers as well as investments from investors 
based in third countries. It would help address the current fragmentation and underdevelopment 
of EU capital markets relative to certain other jurisdictions.  

Formalising the DLT regime and expanding the scope of eligible assets and volume thresholds 
would make the regime more attractive. Market participants would be able to engage in long-
term  planning  and  extend  operations  beyond  small  testing  scales.  Harmonisation  and  target 

158 

 
 
 
changes to the SFD would furthermore prevent fragmented legal regimes across Member States 
and allow for designations (and protection) under the SFD for DLT-based systems. Overall, 
the changes should promote innovation by increasing the potential returns of investments and 
by providing increased legal certainty / clarity for DLT innovations. 

Although  not  specifically  targeted  at  SMEs,  the  initiative  could  also  bring  about  positive 
impacts for SMEs. Similar to larger firms, smaller market participants in the financial sector 
will  benefit  from  reduced  costs  and  administrative  burden  for  cross-border  provision  of 
services. Given lower volumes and revenue base, these cost savings can be more impactful for 
SMEs.  While 
the  market  
due to increased cross-border competition, SMEs with viable business models will be able to 
tapping  finance  
grow  more  easily.  SMEs 
via  capital  markets  may  also  see  small  benefits  in  terms  of  improved  market  liquidity  
and  minor  improvements  to  financing  conditions  given  a  more  efficient  EU  capital  market 
ecosystem.  

less  efficient  SMEs  could  be  pushed 

that  are  non-financial  companies  and 

leave 

to 

3.  COMPETITIVE POSITION OF THE MOST AFFECTED SECTORS 

With easier access to a broader range of venues, brokers could enhance their service offerings, 
providing clients with diverse investment opportunities and competitive pricing, which could 
ultimately  result  in  making  investments  more  accessible  and  attracting  a  larger  client  base. 
Moreover,  inter-CSD  link  requirements  would  create  a  more  interconnected  settlement 
landscape, allowing for participants in any CSD to more easily invest in an instrument held at 
any other EU CSD. This less fragmented settlement network would further foster competition 
between CSDs, as would a reduction in the burden of issuing across borders and for CSDs to 
provide services in other Member States. 

The proposed measures in the asset management sector are expected to boost competition in 
the EU market. By introducing a "passporting upon authorisation" regime, this initiative will 
simplify market access for investment funds, enabling asset managers to enter new markets 
more easily and quickly, at reduced costs. According to economic research180, new entrants 
drive  price  and  quantity  competition.  Asset  managers  will  also  be  able  to  utilise  and  share 
resources across entities within their EU group, allowing them to optimise their operations and 
compete more effectively. 

Furthermore, the EU depositary passport will increase competition among depositaries, giving 
fund  managers  a  broader  range  of  providers 
the  EU.  
Overall,  the  proposed  measures  will  promote  competition,  reduce  barriers  to  entry,  
and increase the efficiency of the EU asset management market. This will bring the EU fund 
industry closer to a 'contestable market'181, characterized by low barriers to entry and exit that 
lead to lower costs and greater efficiency to ultimately benefit the end-user, i.e. EU investors. 

to  choose  from  across 

Finally, by increasing the activity thresholds of the DLTPR and the scope of eligible products, 
this option would support the scaling of DLT-based projects.

180 Wahal, S., & Wang, A. Y. (2011). Competition among mutual funds. Journal of Financial Economics, 99(1), 
40-59. 
181 Baumol, W. J., Panzar, J. C., & Willig, R. D. (1982). Contestable Markets and the Theory of Industry Structure. 
San Diego: Harcourt Brace Jovanovich. 

159 

 
 
 
 
 
 
ANNEX 6: SME CHECK  

1.  OVERVIEW OF IMPACTS ON SMES 

Relevance for SMEs  
Although  not  directly  targeted  at  SMEs,  the  initiative  is  relevant  both  for  SME  financial 
services providers as well as for SME’s that are non-financial companies (NFCs) engaging 
in capital market financing.    

    (1)  IDENTIFICATION OF AFFECTED BUSINESSES AND ASSESSMENT OF RELEVANCE 
Are SMEs directly affected? In which sectors? 
SMEs active in the financial sector, especially those which engage in capital markets (e.g. 
brokers, asset managers), will be affected directly.   

Estimated number of directly affected SMEs 
The initiative will impact foremost small and medium sized brokers, asset managers as well 
as SMEs which are, or plan to engage, in DLT-based initiatives. The large majority of firms 
active 
services)  
are  large,  well-established  companies.  Some  small  infrastructure  providers  (e.g.  niche 
players) and potential new entrants may however also meet the SME criteria.    

(trading  &  post-trading 

the  provision  of 

infrastructure 

in 

Estimated number of employees in directly affected SMEs 
In total, there are around 4,600 asset management companies. Most of these managers are 
expected  to  meet  the  SME  criteria.  According  to  EFAMA182,  there  are  130,000  people 
employed directly in the EU asset management industry. This includes UCITSs and AIFs 
managers. There are no figures available to estimate the exact number employed by SME 
UCITs and AIF managers.  

There are no figures available to estimate the number of employees in small and medium-
sized EU brokers or firms engaged in DLT-based initiatives.    

There are 1806 EU SME companies listed on EU regulation markets who employ around 
110 000 staff183 and that will indirectly be affected by the initiative.  

Are  SMEs  indirectly  affected?  In  which  sectors?  What  is  the  estimated  number  
of indirectly affected SMEs and employees? 
EU NFC SMEs will be indirectly affected via efficiency gains and increased competition in 
capital  market  services.  Given  system-wide  efficiency  gains,  it  can  be  expected  
that there is some minor positive impact on all EU SMEs that utilise market-based financing 
options (i.e. almost all). This includes also firms using exclusively bank-based financing as 
this financing channel stands in competition with capital-market based financing.  

(2) CONSULTATION OF SME STAKEHOLDERS 

182 See ‘Our industry in numbers’, EFAMA – Link  
183 Orbis Database.  

160 

 
 
 
 
 
 
 
 
 
How has the input from the SME community been taken into consideration? 
The  public  consultation  asked  whether  respondents  were  SMEs,  which  was  the  case  
for  X  out  of  X  replies.  more  than  half  would  qualify  as  SMEs.  Many  of  these  were 
however business associations (87 SMEs out of 92 respondents) and trade unions (5 out 
of  5)  and  not  representing  the  SME  views  as  such.  35  individual  companies  
who responded where SMEs, mostly from the financial sector.    

Are SMEs’ views different from those of large businesses?  
The consultation  replies from  SME and other direct  engagements with  SME have not 
shown  any  categorical  differences 
in  opinion.  SME  stakeholders  often  note  
that a respectively smaller revenue base increases, in relative terms, the size of barriers 
to cross-border activities.   

(3) ASSESSMENT OF IMPACTS ON SMES 

What are the estimated direct costs for SMEs of the preferred policy option?  
Qualitative assessment 
Most SMEs will not  be directly affected by the measures concerning the supervisory 
setup given that changes only apply to large market participants. In asset management, 
which likely contains the largest number of SMEs, NCAs will remain the only supervisor 
and there is no change as such. There may be some adjustment costs (e.g. to digest legal 
changes) but these remain small. Impacts will be similar to those for large companies. 
In relative terms, the impact of barriers to cross-border activities is usually higher for 
SMEs, given a smaller revenue base. SMEs, like other market participants, will likely 
experience  stronger  competition  in  their  respective  market(s)  but  the  initiative  will  
also  facilitate  expanding  activities  throughout  the  EU.  It  thereby  gives  competitive 
SMEs the ability to grow faster.           

Quantitative assessment 
Annex 3 summarises the available estimates of  costs for businesses for the preferred 
combination of policy options. As SMEs are not specifically targeted and quantitative 
evidence is overall limited, no separate estimates for SMEs are provided. 

What  are  the  estimated  direct  benefits/cost  savings  for  SMEs  of  the  preferred 
policy option? 
Qualitative assessment 
SMEs will experience cost savings when they engage in (or aspire to engage in) cross-
border activities. The harmonisation and streamlining of requirements will benefit them 
in the same manner as large companies. Arguably, this positive effect is bigger for SMEs 
as they have  a lower revenue base to  stem  administrative costs arising  from  national 
divergent requirements and supervision.   

Quantitative assessment 
Annex 3 summarises the estimation(s) of the one-off and recurring costs for businesses 
in the baseline scenario as well as the changes for the preferred combination of policy 
options. 

What are the indirect impacts of this initiative on SMEs?  
SMEs will benefit in terms of a more efficient market, including lower costs and higher 
quality  of  intermediary  services.  This  will  allow  them  to  tap  capital  markets  more 
effectively  and  it  is  expected  that  there  will  be  some  minor  positive  impact  in  terms  
of financing conditions for all EU SMEs that utilise market-based financing options.  

161 

 
 
 
 
 
 
(4) MINIMISING NEGATIVE IMPACTS ON SMES 

Are SMEs disproportionately affected compared to large companies?  

If yes, are there any specific subgroups of SMEs more exposed than others? 
No  

Have mitigating measures been included in the preferred option/proposal?   
No  

CONTRIBUTION TO THE 35% BURDEN REDUCTION TARGET FOR SMES 

Are there any administrative cost savings relevant for the 35% burden reduction 
target for SMEs? 

No  

162 

 
 
 
 
 
 
 
ANNEX 7: SECTORAL ANNEX ON TRADING 

1.  DESCRIPTION OF THE CURRENT TRADING ENVIRONMENT IN THE EU 

1.1.  DESCRIPTION  AND  EVOLUTION  OF  EUROPEAN  MARKETS 

IN  FINANCIAL 

INSTRUMENTS 

The EU trading landscape changed significantly after MiFID 1184 and MiFID 2185 came into 
force  in  2007  and  2018,  respectively.  MiFID  1  abolished  the  so-called  ‘concentration  rule’ 
which, under the 1993 Investment Services Directive186, allowed Member States to require that 
orders  in  equity  instruments  be  routed  to  national  stock  exchanges. As  a  result,  MiFID  1 
liberalised  equity  trading  and  promoted  competition  between  different  execution  venues  
with  a  view  to  enhancing  price  competition,  innovation  and  investors’  choice.  While  the 
incumbent national exchanges remained dominant in equity trading, alternative trading venues 
(in particular, Multilateral Trading  Facilities, ‘MTF’) began to  develop  and put  competitive 
pressure on traditional stock exchanges. MTFs offer secondary trading in financial instruments 
that are initially admitted to trading on other trading venues, such as regulated markets (‘RM’). 
For single-name financial instruments, this means that there may be multiple liquidity pools. 
In  several  cases,  those  pools  of  liquidity  are  located  in  more  than  one  Member  State,  
thus qualifying those instruments as cross-border instruments.187  

MiFID 2 further expanded the regulated multilateral space by adding the Organised Trading 
Facility (‘OTF’) classification (specific for bonds and derivatives) and by introducing “SME 
growth  markets”,  a  type  of  MTF  designed  to  ease  access  of  smaller  companies  to  public 
markets.  

Under MiFID 2/MiFIR, most bilateral/over-the-counter (OTC) execution by investment firms 
is  regulated  as  an  investment  service.  Since  MiFID  1,  investors  also  have  the  possibility  
to trade against the balance sheet of investment banks (at market risk) that act as dealers and 
trade bilaterally (also known as ‘systematic internalisers’, ‘SIs’).  

These  regulatory  developments  have  led  to  a  proliferation  of  venues  where  financial 
instruments  can  be  traded  (execution  venues).  The  total  number  of  trading  venues  (‘TVs’)  

184 Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial 
instruments.  
185 Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial 
instruments. 
186 Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities field. 
187 According to ESMA Securities Markets 2023, “For EEA bonds, 53,000 instruments or 70% of bonds issued in 
the EEA were cross-border instruments in 2022. This proportion was even larger for EEA equity instruments, for 
which 10,200 out of the 12,100 EEA equity instruments available for trading were cross-border instruments in 
2022”. 

163 

 
 
 
 
 
in  the EEA, at  segment MIC level188, reached 330 at  the end of 2024 and 314  - in  the EU. 
Among  EEA TVs,  there  are  130  (119  in  the  EU)  RMs,  170  (165  in  the  EU)  MTFs  and  30 
OTFs.189 

In addition to TVs, there are 173 (167 in the EU) SIs190 

Source: ESMA, MiFID dashboard 2024, MiFID dashboard 2024 

Considering  the  number  of  trading  venues,  there  is  significant  geographic  concentration  
of TVs, with three Member States (Germany, the Netherlands and Sweden) being home to 41.2 
% of all TVs.  

188 In the context of this analysis, trading venues are identified at segment MIC level. Segment MICs are often 
used  to  distinguish  different  trading  systems  and/or  different  financial  instruments.  This  allows  for  a  precise 
identification of trading facilities by market type, in instances in which the same market operator runs both a RM 
and an MTF, for example. 
189 As a comparison, there are 36 exchanges and 77 alternative trading systems in the United States as officially 
registered within the SEC. 
190 Only 11 investment firms registered as SIs under MiFID 1, UK firms included. 

164 

 
 
 
 
 
 
 
Source: ESMA, MiFID dashboard 2024, MiFID dashboard 2024 

The  level  of  concentration  in  terms  of  number  of  venues  remains  similar  when  including  
also  SIs,  with  the  top  three  Member  States  (Germany,  the  Netherlands  and  France)  
being home to the 40.7 % of all SIs.  

Source: ESMA, MiFID dashboard 2024, MiFID dashboard 2024 

Not  all  of  these  execution  venues  operate  independently  from  each  other. There  have  been 
several market-led initiatives that pursued horizontal consolidation. To better assess the actual 
level  of  fragmentation,  it  is  therefore  worth  considering  the  existence  and  extent  
of consolidation of ca. fifty groups that, in some cases, comprise several trading venues located 
in different Member States.  

Within those groups, there are several market operators established in different EEA States,  
all controlled by the same parent company.  For example, Euronext operates several trading 
venues (51 at segment MIC level) in seven countries (Belgium, France, Ireland, Italy, Norway, 
Portugal and the Netherlands). Nasdaq operates several trading venues (53 at segment MIC 
level)  in  eight  countries  (Denmark,  Estonia,  Finland,  Iceland,  Latvia,  Lithuania,  Norway  
and Sweden). Despite functioning separately (e.g., separate order books), trading venues that 
are part of the same group often share a single technology trading platform and, to the extent 
possible  considering  the  current  legislative  framework,  a  single  rulebook.191 This  approach 
seeks  to  reduce  operational  costs  and,  potentially,  increase  markets’  accessibility  by  users 
located in different Member States. Outside groups’ structures, similar objectives are pursued 
through the sharing of technology by larger players in favour of smaller ones on a commercial 
basis.192  

The set-up of the post-trading sector has also implications on the fragmentation in the trading 
sphere.  In  absence  of  a  full  interoperability  with  Central  Securities  Depositories  (‘CSDs’),  

191 For example, this is the model applied by Euronext and Nasdaq.  
192 For example, Deutsche Börse’ T7 platform is used by several exchanges in central and southern Europe. 

165 

 
 
 
 
 
 
the ability of a broker to trade the same instruments cross-venues is reduced while also being 
costlier, keeping those pools of liquidity separate and not directly accessible by a vast majority 
of market participants. To settle transactions, a transfer from the securities account held by the 
issuer’s CSD is needed. To settle a transaction, where an investor has its own securities account 
in  a  CSD  other  than  the  issuer’s  CSD  (so-called  investor’s  CSD),  links  should  
be in place between those two CSD. The absence of those links forces market participants using 
more  expensive  settlement  options  (such  as  going  via  a  chain  of  intermediaries/custodians  
or, alternatively, simultaneously setting up and maintaining accounts in multiple CSDs), which 
ultimately discourages brokers from cross-venue trading (i.e. trading across multiple venues).  

A similar problem exists at the level of clearing, where clearing of trades occurring on a given 
venue  will  only  be  possible  on  a  selected  number  of  Central  Counterparties  (‘CCPs’),  
which are themselves not necessarily interoperable. In addition, the absence of interoperability 
prevents  a  clearing  member  (and  by  proxy  the  broker)  to  cross  margins  positions.  
Therefore, the need to establish proper post-trade arrangements, which are sometimes specific 
to  each  trading  venue  also  has  a  direct  impact  on  the  ability  to  integrate  pools  of  liquidity,  
on the clearing costs, as well as navigating such pools in an efficient manner.  

Pan-European trading venues (i.e. trading venues offering trading in financial instruments that 
are initially admitted to  trading  on other trading venues, often in  a different  Member State) 
have  emerged  as  a  possible  model  to  tackle  the  issue  of  access  to  a  pan-European  range  
of  instruments,  notably  in  the  equity  space.  From  a  user’s  perspective,  two  limitations  
to the attractiveness of pan-European venues must however be highlighted: 

(ii) 

(i)  While pan-European trading venues offer a solution as regards access to securities, 
they  still 
liquidity  
represent  only  one  of  several  available  pools  of 
and  not  necessarily  the  deepest  one.  Therefore,  those  trading  venues  might  not 
always offer the best execution conditions to investors for a given share, compared 
to the home domestic market or to any other execution venue.  
This  model  does  not  offer  a  solution  to  the  fragmentation  of  the  post-trade 
infrastructure. This implies that entities trading on pan-European venues still need 
to be directly or indirectly connected to the issuer’s CSD of each equity instrument 
they trade on those platforms. It also does not solve the situation where multiple 
CCP membership is necessary due to the absence of interoperability arrangements 
between CCPs (e.g., in the case where the CCP on a given pan-European platform 
is not allowed to clear trades on an incumbent venue on an interoperable basis). 

Lastly,  it  is  noteworthy  that  such  pan-European  platforms  usually  focus  on  the  most  liquid 
instruments. As a result, shares issued by smaller issuers might not benefit from the emergence 
of those platforms. 

Therefore,  the  emergence  of  pan-EU  trading  platforms  can  only  partially  address  the  issue  
of fragmentation in the trading area. Having access to a variety of trading venues therefore still 
remains instrumental to having access to the widest possible range of financial instruments, 
and in offering optimal execution quality to end-clients. 

166 

 
 
 
1.2.  CURRENT  REGULATORY  APPROACH  TO  CROSS-BORDER  OPERATIONS  OF  TRADING 

INFRASTRUCTURE 

The  proliferation  of  trading  venues  led  to  subsequent  consolidation  among  those  venues.  
This  has  culminated  notably  in  the  emergence  of  two  large  trading  infrastructure  groups  
in  the  EU.  While  the  creation  of  groups  did  not  address  all  regulatory  and  non-regulatory 
barriers  to  cross-border  operation,  as  further  explained  below,  at  the  very  least,  it  sought  
to attenuate their impact. 

In  general,  entities  or  groups  operating  across  borders  can  rely  on  two  main  types  
of organisational arrangement: 

- 

- 

subsidiaries 

in  each  Member  State  of  operation, 

the  subsidiary  model  (relying  on  multiple  licences),  where  entities  establish 
separate 
resulting  
in a group of independent entities, each subject to local authorisation requirements 
and supervision; 
the  passporting  model  (relying  on  a  single  licence),  where  entities  obtain 
authorisation  in  one  Member  State  and  leverage  the  EU's  freedom  to  provide 
services  or  freedom  of  establishment  to  operate  in  other  Member  States,  
without 
locally  authorised  entity  
to  establish  a  dedicated, 
(one entity with one license offering its services in multiple Member States). 

the  need 

These  two  approaches  differ  fundamentally,  as  they  involve  distinct  corporate  structures, 
licensing  requirements,  and  supervisory  arrangements,  giving  rise  to  varying  regulatory 
expectations and obligations. 

As  regards  the  first  type  of  organisational  arrangement  (groups),  the  existing  regulatory 
framework  falls  short  in  addressing  the  unique  needs  of  entities  operating  across  multiple 
Member  States.  Notably,  the  MiFID  2  framework  does  not  fully  recognise  the  operational 
specificities of groups of financial market infrastructures, their distinct needs, or the potential 
economies of scale that could be harnessed. The allocation of resources within a group is still 
subject to default outsourcing rules (i.e. the rules that are equally applicable to the outsourcing 
to completely independent legal entities), and each delegation of tasks between group entities 
is treated as a third-party outsourcing arrangement, despite being part of the same corporate 
structure  under  the  oversight  of  a  single  parent  company.  This  oversight  fails  to  account  
for the inherent differences between intra-group allocation of resources and outsourcing to third 
parties outside the group. 

There are also important shortcomings with regard to the functioning of the passporting model. 
The  use  of  the  passporting  model  is  currently  complicated  by  the  persisting  fragmentation  
of  the  regulatory  framework  for  trading  venues  due  to  national  divergences  (as  well  as 

167 

 
 
 
 
divergent level of supervisory oversight193). The transposition of MiFID 2 requirements into 
national legislation has resulted in varying interpretations and implementations across Member 
States, with some introducing additional requirements at the national level to address areas not 
covered by EU law. This fragmentation is particularly pronounced for RMs, which are subject 
to comprehensive and dedicated national rulebooks, as well as distinct national approaches to 
implementing EU legislation, leading to a complex and still non fully harmonised regulatory 
landscape. 

It is also worth noting that, unlike what exists for investment firms operating an MTF/OTF,  
the  framework  applicable  to  RMs  does  not  contain  similar  explicit  provisions  relating  
to the rights of RMs as regards the provision of cross-border services in the Union on the basis 
of their initial license, that is to say the freedom to provide services (Article 34 for investment 
firms) or the establishment of a branch (Article 35). This gap or, at the very least, lack of clarity, 
has  a  direct  impact  on  the  capacity  of  regulated  markets  and  their  operators  to  seamlessly 
operate across borders, and is conducive to the preservation of local entities in Member States 
(persistence of the group model). Those problems are further described in the dedicated section 
below. 

Therefore, the EU regulatory framework currently falls short of fully addressing the operational 
needs of groups and infrastructure entities operating cross-border. As a result, and as further 
described  below,  efforts  to  consolidate  and  rationalise  the  trading  venue  landscape,  
or to  leverage synergies within groups, carried out  by EU operators in  the past,  have failed  
to  fully  deliver  the  expected  outcomes  for  end-users.  Furthermore,  this  inability  to  ensure 
effective consolidation on the operators’ side was not mitigated by easier access to liquidity  
of  users  who  continue  to  face  difficulties  in  accessing  multiple  trading  venues  (and  pools  
and liquidity) in a cost-efficient manner. 

1.3.  ACCESSING LIQUIDITY POOLS IN THE UNION: CURRENT MARKET PRACTICES 

From a user’s perspective, the corollary to the fragmentation of the EU trading landscape is the 
necessary arrangements that need to be put in place to effectively access, directly or indirectly, 
all the trading venues needed for their activities. Access to trading venues can be done either 
directly, through direct membership, or indirectly, via intermediaries. Both paths entail specific 
procedures, costs and challenges outlined below.  

Direct access to trading venues necessitates a multitude of arrangements, making it a complex 
and costly access route. The process of establishing direct connection entails several critical 
steps, including: 

-  undergoing  assessments  conducted  by  trading  venues  on  organizational  aspects,  
such as knowledge and experience evaluations, which are verified by each venue upon 
each membership application; 

193 See Annex 11 for more detail on the currently fragmented supervisory setting. 

168 

 
 
 
 
 
-  establishing physical/hardware connections to the technical systems operated by those 

venues; 

-  ensuring  compatibility  with  the  software  applications  utilised  by  each  venue, 
specifically their communication protocols, and implementing necessary Information 
Technology (IT) upgrades; 
remitting  membership,  connection,  and  other 
to these venues; and 
implementing  requisite  post-trade  arrangements  to  facilitate  clearing  and  settlement  
of transactions executed on these venues. 

fees  associated  with  access  

- 

- 

The  cumulative  burden  and  costs  associated  with  compliance  with  these  requirements  have 
given  rise  to  the  emergence  of  third-party  service  providers  that  facilitate  the  technological 
aspects of direct connections to venues for entities that lack the capacity (or do not have enough 
resources)  to  develop  proprietary  hardware  and  software  connection  solutions.  While 
membership remains the responsibility of the member, these service providers offer software 
or hardware solutions that alleviate the technical complexities associated with direct access to 
trading venues:  

-  Application Service Providers (ASPs) provide both hardware and software solutions; 
- 

Independent Software Vendors (ISVs) provide a software solution to ‘translate’ orders 
to be compatible with each venue’s communication protocol, but do not handle physical 
connections; 

-  Extranet Service Providers (ESPs) provide the physical/hardware connection, but do 

not provide any software solution. 

Application 
service providers 
(ASPs)

Independent 
Software Vendors 
(ISVs)

Extranet Service 
Providers (ESPs)

Harware 
solution

NO 
Hardware 
solution

Software 
solution

Software 
solution

Hardware 
solution

NO 
Software 
solution

Figure  1:  overview  of  the  main  types  of  third-party  service  providers  offering  technical 
solutions for connection to trading venues 

An  alternative  to  direct  connection  is  the  use  of  indirect  connection.  Indirect  connections  
trading  volumes  
are  usually  simpler  and  more  cost-efficient 
and downstream client demand do not warrant a direct connection to trading venues. In such 

in  scenarios  where 

169 

 
 
 
 
 
 
 
 
 
 
 
 
 
instances, brokers opt to leverage the services of intermediaries that possess membership status 
with the requisite venues. Several modalities of indirect access exist, including: 

-  Direct Electronic Access; 
-  Brokerage services via prime brokers. 

This indirect connection approach can offer brokers a more economical and streamlined means 
of  accessing  trading  venues,  particularly  in  situations  where  the  costs  and  complexities 
associated with direct membership are prohibitively high. 

-  Direct Electronic Access  

To ease cross-border connection to trading venues, while preserving market integrity, MiFID 2 
introduced a comprehensive regime governing “Direct Electronic Access” to trading venues. 
Pursuant to Article 4(1)(41) of MiFID 2, Direct Electronic Access includes both direct market 
access and sponsored access.  

Direct  market  access  (DMA)  is  an  arrangement  whereby  a  member,  participant  or  client  
of  a  trading  venue  (the  provider)  allows  a  legal  or  natural  person  that  is  not  a  member, 
participant or client of that trading venue to make use of its trading code (access) to directly 
and electronically transmit orders in financial instruments to that trading venue. As a result,  
the  provider’s  client  can  pass  orders  directly  to  a  trading  venue  through  the  infrastructure  
of  the  provider  or  a  connection  system  made  available  by  that  provider,  with  control  
over the trading decisions and reduced latency of execution.  

Sponsored access (SA) is an arrangement whereby a member, participant or client of a trading 
venue (the provider) allows a client that is not a member, participant or client of that trading 
venue  to  transmit  orders  directly  and  electronically  to  a  specified  trading  venue  using  
the  provider’s  trading  identification  without  these  orders  having  to  first  pass  through  the 
provider’s  own  electronic 
include  
the use of the infrastructure or connection system of the provider). 

(the  arrangement  does  not 

systems 

trading 

The investment firms that offer Direct Electronic Access (DEA) remain responsible for orders 
that  are  placed  by  their  clients  that  make  use  of  their  systems  and/or  their  trading  codes.  
They must draw up criteria regarding the appropriateness of the parties to whom direct access 
is being provided. The investment firms that offer DEA must also ensure that clients who make 
use of DEA comply with MiFID 2 rules and the rules of the trading venue. In addition, they 
must build in risk controls and threshold values and be able to terminate the access of individual 
clients. Trading venues are also required to build in risk controls and threshold values for direct 
access to trading. In addition, they must draw up rules that ensure that DEA providers comply 
with MiFID 2 rules.  

-  Prime brokerage services 

Brokers that are not directly connected to the trading venues where a given instrument is traded 
may also choose to resort to prime brokerage services, which involves the provision of access 
to  multiple 
intermediary.  Prime  brokers  
a 
are  in  charge  of  executing  orders  by  following  best  execution  rules  and  can  do  so  either  

through 

trading 

venues 

single 

170 

 
 
 
by  executing  trades  directly  on  the  relevant  venues,  or  by  executing  through  systematic 
internalisers (which those entities often run themselves). Prime brokerage is often accompanied 
by additional services such as clearing and settlement. 

Direct membership

Proprietary 
solutions

Third-party solutions

Indirect access 

Direct Electronic 
Access

Prime brokerage 
services

Access

Own 
physical/hardware 
connections

Own software 
solutions

ASPs

ESPs

ISVs

Direct Market 
Access

Sponsored Access

Figure 2: different paths for direct and indirect access to a trading venue 

2.  ASSESSMENT OF PROBLEMS IN THE TRADING AREA 

2.1.  IDENTIFIED PROBLEMS IN THE TRADING AREA 

The EU trading landscape suffers from a lack of seamless cross-border operation of trading 
infrastructures,  on  the  one  hand,  and  access  by  users  of  those  infrastructures,  in  particular 
smaller brokers, on the other hand.  

On  the  trading  infrastructures  side,  entities  that  wish  to  operate  across  border  still  face 
significant  compliance,  operational  and  adaptation  costs  linked  to  a  complex,  non-fully 
harmonised  regulatory  landscape,  and  supplementary,  often  diverging,  national  rules  
and specificities. Groups operating trading infrastructures across multiple Member States face 
regulatory  barriers  in  allocating  resources  optimally  and  are  not  able  to  fully  leverage  the 
synergies  that  can  be  drawn  from  legal  consolidation  (i.e.  merger  and/or  acquisition).  
In  addition,  not  having  a  well-defined  passporting  regime  creates  uncertainty  for  market 
operators on whether they can use this additional avenue for cross border provision of services. 
As  a  result,  the  opportunities  afforded  by  the  Single  Market  are  not  being  fully  exploited, 
leading to suboptimal outcomes. 

171 

 
 
 
 
exacerbates 

and  particularly 

the  problem.  Users, 

On  the  infrastructure  users’  side,  a  costly  and  complex  access  to  the  fragmented  trading 
landscape 
smaller  brokers,  
are not able to navigate the EU trading infrastructure as a single, integrated pool of liquidity, 
which limits their ability to operate efficiently and effectively across the EU. This is partially 
driven also by costs of post-trade activities. For example, CCP fee structures are often volume-
based, meaning that smaller participants tend to pay more per trade than larger ones (e.g. 0.06 
EUR for a low volume client versus 0.0035 EUR for a high-volume client in cash equities194). 
As a result, end-investors, particularly retail investors, face higher trading costs, in particular 
when  they  wish  to  invest  across  borders,  and  are  deprived  from  the  potential  benefits  of 
diversifying their portfolios with a broader range of investment opportunities. Some smaller 
brokers’ costs associated with trading on EU exchanges can be double or even triple the fees 
charged for similar transactions on US trading venues. There is also a significant discrepancy 
in the fees brokers charge for executing transactions on their domestic markets, as opposed to 
ones in other Member States. Multiple brokers across different Member States impose fees that 
are  three  times  higher  for  executing  trades  in  other  markets  in  the  EU  compared  to  their 
domestic market.195 As a result, companies, particularly SMEs, face challenges in attracting 
cross-border investment from brokers based in other Member States, affecting their ability to 
raise capital on capital markets and grow. 

2.2.  IDENTIFIED PROBLEM DRIVERS IN THE TRADING AREA 

The lack of  a seamless  cross-border operation in the trading  space  can  be attributed to  two 
primary  drivers:  (i)  regulatory  hurdles  that  impede  the  cross-border  activities  of  financial 
market  infrastructures,  and  (ii)  market  practices  (or  non-regulatory  barriers)  that  prevent 
infrastructure users to easily and cost-efficiently connect to various trading venues, hindering 
EU capital markets’ ability to function as a truly integrated pool of liquidity. 

Sub-driver 1 (regulatory barriers): Absence of a true single rulebook for trading venues 
and lack of recognition of operational specificities of groups 

Efficient cross-border operations of trading venues and, more specifically, of RMs, is hindered 
by two key types of regulatory barriers. First, the provision of cross-border services for RMs 
is still subject to a non-fully harmonised specific regime that does not allow for the same level 
of flexibility for the cross-border provision of services compared to the one that applies to the 
provision of investment services and activities (including the operation of an MTF or an OTF) 
by investment firms. Second, the current regulatory framework is not adapted to the operations 
of market infrastructures that are part of the same group.  

Lack of true single rulebook for trading venues, and regulated markets in particular 

194 Cash Equities Clearing in Europe: Building a More Competitive and Integrated Market, AFME, October 2025 
- Link  
195 Information based on internal analysis of the publicly available fee schedules of a representative sample of 
neo-brokers and banks active in 8 Member States.  

172 

 
 
 
 
 
The  current  regulatory  framework  for  trading  venues  is  still  subject  to  a  certain  degree  
of  national  discretions  and  peculiarities.  The  existence  of  non-harmonised  national  rules  
for  RMs  and  their  operators  significantly  exacerbates  the  complexity  for  firms  that  wish  
to  operate  on  a  cross-border  basis.  This  fragmentation  not  only  hinders  the  ability  
of firms to scale their operations efficiently across multiple Member States, but also increases 
their  administrative  and  operational  costs,  as  they  must  dedicate  considerable  resources  
to  understanding,  adapting to,  and complying  with  the specific framework of each Member 
State  in  which  they  operate.  Furthermore,  the  lack  of  harmonisation  creates  uncertainty  
and  risks  for  firms,  as  they  may  face  diverging  enforcement  practices,  inconsistent 
interpretation  of  rules,  and  potential  reputational  damage  stemming  from  unintentional  
non-compliance.  Ultimately,  the  patchwork  of  national  rules  acts  as  a  significant  barrier  
to  the  provision  of  trading-related  services  across  borders  within  the  Union,  disincentivises  
infrastructure  groups,  undermines  
the  formation  of  cross-border  financial  market 
the competitiveness of firms and limits their ability to fully harness the potential of the Single 
Market. 

This  situation  appears  to  be  particularly  acute  when  it  comes  to  RMs  that  are  subject  
to  a  significant  amount  of  national  rules.  By  way  of  example,  national  specificities  and 
divergences in terms of procedures to approve amendments to exchange rulebooks have been 
identified  between  Member  States.196  Similarly,  national  approaches  diverge  in  relation  to 
prudential  requirements.197  This  leads  to  high  compliance  costs  and  fails  to  adequately 
incentivise or facilitate cross-border operation of trading infrastructures in the EU. The absence 
of  full  harmonisation  has  also  allowed  several  Member  States  to  impose  additional 
requirements linked to the entities that can operate a RM on their territory, and to introduce 
national  laws  that  require  RMs  to  be  operated  by  an  entity  with  a  seat  in  and  authorised  
by those Member States. 

Additionally, unlike investment firms operating MTFs or OTFs, which benefit from a fully-
fledged passporting mechanism under MiFID (with dedicated articles relating to the provision 
of services via the freedom to provide services or the freedom of establishment), the current 
MiFID 2 rulebook only foresees, in terms of cross-border activity, the possibility for regulated 
markets  to  set  up  ‘trading  arrangements’  to  accommodate  remote  access  of  members  (i.e., 
trading screens).198 By being silent on any other forms of arrangements, such as the possibility 
to have a local presence without setting up a subsidiary authorised in another Member State, 

196 Practices widely differ in that regard. Some NCAs do not require any form of ex ante approval, while others 
require  pre-approval  of  rules  changes,  and  others  even  a  pre-notification  of  proposed  changes  which  then  go 
through pre-approval. This adds to the actual divergences in appreciation of changes by different NCAs for exact 
same cases (the same change, notably in groups of exchanges, is often appreciated diversely by the various NCAs 
to which it needs to be submitted).  
197 For instance, under French law a market operator is subject to minimum capital requirements as well as own 
resources requirements which are laid down in  Arrêté du 2 juillet 2007 relatif au capital minimum, aux fonds 
propres et au contrôle interne des entreprises de marché - Légifrance. These requirements differ from requirements 
applicable to market operators under Italian law, as laid down in Article 6 of Consob’s Regolamento Mercati.  
198 See Article 53(6) MiFID: ‘Member States shall, without further legal or administrative requirements, allow 
regulated  markets  from  other  Member  States  to  provide  appropriate  arrangements  on  their  territory  so  as  to 
facilitate access to and trading on those markets by remote members or participants established in their territory’. 

173 

 
 
 
 
 
for instance to facilitate issuer or broker onboarding through a branch, the current framework 
creates uncertainty as regards the extent to which services relating to RMs can be carried out 
on  a  cross-border  basis  under  a  single  licence  through  the  establishment  of  a  branch.  In 
addition,  beyond  the  passporting  rights  linked  to  each  trading  venue,  the  mere  fact  that  the 
current regulatory framework requires an authorisation at the level of each RM does not allow 
for the cost-efficient operation of several regulated markets on the basis of a single licence. 
Moreover,  the  current  framework  for  RMs,  while  clearly  identifying  market  operators  and 
RMs, does not provide for a clear-cut allocation of tasks between the two entities. As a result, 
most Member States do not dissociate the RM from its operator which, in turn, does not allow 
for  any  sort  of  flexibility  in  terms  of  cross-border  operation,  whereby  some  tasks  could  be 
performed by a market operator located in a different Member State than the market. This is 
for instance reflected in certain national frameworks which require that local regulated markets 
be  operated  by  a  market  operator  located  in  that  same  Member  State.199  This  prevents  the 
emergence of truly efficient structures operating markets in several Member States on the basis 
of a single licence and, therefore, on the basis of a single core supervisory relationship. 

Treatment of group structures 

The  current  MiFID  2  rules  governing  trading  venues  and  their  operators  do  not  recognise 
operational  specificities  of  group  structures.  This  may  create  a  misalignment  between  
the current legal set up, according to which each market operator is a separate and autonomous 
legal entity, with its own governance structure and rules, and the key characteristics of a group, 
that acts as a single economic entity.  

As a consequence: 

▪  a participant (i.e. broker) must apply to and be approved by each trading venue within 

the group on which it wishes to trade;200 

▪  each  market  operator  within  the  group  is  responsible  for  the  national  markets  
that it operates, and faces different national supervisors, with each supervisor having 
limited visibility over the organisation and operation of the group as a whole; 
the economies of scale that can be realised are limited, for example:  

▪ 

o  any  outsourcing  arrangement  within  the  group  is  treated  as  those  entered  
into  with  entities  outside  the  group,  requiring  arm’s  length  outsourcing  
and service level agreements, even when they are between group entities; 

o  staff and more general resources sharing is limited within the group; 
o  reporting streams are fragmented in terms of recipients and data coverage. 

199 For example, under French law (Art. L. 421-2 du Code Monétaire et Financier) ‘A regulated market is run by 
a  market  undertaking  which  is  a  commercial  company.  Where  a  market  undertaking  runs  a  regulated  market 
governed by the provisions of this code, its registered office  and its effective management shall be located in 
Metropolitan France or its overseas départements or in Saint Barthélemy or Saint Martin. 
200 Taking Euronext as an example, out of the 230 trading members authorised to trade on the Cash/or Derivatives 
markets for the seven countries, only 26 are members of all the markets (Members list | live).   

174 

 
 
 
 
 
Ultimately,  market-led  consolidation  is  not  sufficiently  incentivised,  as  groups  are  hindered  
in  their  capacity  to  allocate  resources  freely  and  efficiently  among  the  entities  that  are  part  
of the same group and economies of scale are not sufficiently exploited.

175 

 
 
 
Sub-driver 2 (non-regulatory barriers): Barriers linked to market practices: costly direct 
access to liquidity and financial instruments 

In addition to the barriers stemming from the lack of a unified single rulebook for EU trading 
infrastructures, barriers linked to market practices further exacerbate the fragmentation of EU 
trading infrastructures and frustrate seamless cross-border trading activity in the Union.  

Firstly,  brokers  and  end-clients  within  the  Union  face  significant  obstacles  in  accessing  all 
available  liquidity  pools  for  a  given  financial  instrument.  Notably,  EU-based  brokers, 
particularly small and medium-sized entities, often maintain connections to a limited number 
of trading venues, frequently restricted to the locally relevant venues. According to the replies 
of the public consultation, this is linked to several factors, some of those pertaining to post-
trade arrangements, but the high costs and technical complexity involved in connecting directly 
to multiple trading venues across the EU, especially for smaller and medium-sized firms, was 
considered  a  major  obstacle  for  achieving  efficient  and  widespread  direct  connectivity. 
Although, as previously explained, this lack of direct connection does not inherently preclude 
a broker from offering its clients access to financial instruments across borders, it nonetheless 
results in increased costs for end-clients. Consequently, placing orders for instruments traded 
on venues located in other Member States is typically significantly more expensive, especially 
for retail investors, compared to trading on local venues (or even on US-based venues).  

While  the  explanation  for  these  costs  is  complex  and  multifactorial,  also  being  influenced  
by  the  expenses  associated  with  cross-border  post-trade  arrangements,  they  also  reflect  the 
incentives of brokers to limit their direct connections to local infrastructure.  

Hurdles in  accessing multiple liquidity pools also hinder brokers' ability to  directly execute 
orders for a given instrument on the most efficient execution venue. This implies either higher 
costs  linked  to  intermediation  to  tap  into  the  most  efficient  liquidity  pool,  or  potential 
suboptimal  execution quality  - both  leading  to inferior execution conditions  for end-clients, 
especially those seeking to invest cross-border. 

Secondly,  the  reliance  on  intermediaries  to  access  certain  markets  or  instruments  can 
compromise the capacity of brokers, and eventually end-clients, to access the broadest possible 
range  of  EU  financial  instruments,  as  access  becomes  contingent  upon  the  intermediary's 
commercial interests. This can be particularly detrimental for small and mid-cap stocks, where 
demand may be insufficient to warrant provision of access to end-clients, thereby limiting their 
visibility and liquidity. As a consequence, excessive intermediation can restrict access to shares 
of  smaller  and  mid-cap  companies,  resulting  in  missed  opportunities  for  both  issuers  and 
investors in this market segment. Similar conclusions had been reached by the Capital Markets 
Union High Level Forum in June 2020, where experts identified that, as liquidity for SMEs 
was often pooled in one location (i.e., one exchange), measures should be taken to guarantee 
access to such liquidity to the widest possible range of investors.201 The report (while mostly 
focusing on smaller cap markets) refers to the need for more interconnection of exchanges, as 

201 Final report of the High-Level Forum on the Capital Markets Union (p. 69). 

176 

 
 
 
 
 
well  as  to  greater  passporting  possibilities  for  exchanges,  notably  the  possibility  to  operate 
through branches and on the basis of a single authorisation. 

Thirdly, this situation undermines the effectiveness of policy measures aimed at empowering 
infrastructure  users  to  navigate  a  fragmented  market  and  identify  the  most  efficient  pools  
of  liquidity.  The  consolidated  tape,  introduced  as  part  of  the  last  MiFIR  reform,  
is  a  case  in  point. While  the  consolidated  equities  tape  will  provide  users  with  information  
on  the  best  available  bid  and  offer  for  a  given  share  or  ETF  in  the  EU,  brokers  may  still  
not be able to tap into that liquidity at a reasonable cost. The inability of infrastructure users  
to  tap  into  a  broad  range  of  liquidity  pools  at  a  reasonable  cost  is  a  significant  obstacle  
to realising the full potential of the consolidated tape. 

in 

Lastly, remaining inefficiencies in the functioning and application of open access provisions at 
the trading venue level pose a significant barrier to efficient and cost-effective access to EU 
the  functioning  of  existing  open  access  provisions,  
trading  venues.  Frictions 
such  as  excessive  flexibility  for  infrastructure  operators  and  national  supervisors  to  reject 
interoperability arrangements, or restrictive practices limiting the leveraging of interoperability 
arrangements between CCPs, exacerbate fragmentation, forcing market participants to navigate 
a complex web of disparate post-trade systems, each with unique requirements and costs. As a 
result,  accessing  multiple  trading  venues,  particularly  across  borders,  becomes  even  more 
costly  and  cumbersome,  creating  a  high  barrier  to  entry  for  new  market  participants  and 
discouraging direct connections, especially for smaller brokers and investors.  

2.3.  OBJECTIVES IN THE TRADING AREA 

The  objective  of  this  initiative  is  to  enable  further  market  integration  and  scale  effects  by 
increasing  cross-border  activity.  Considering  the  abovementioned  problems  and  problem 
drivers, this overall objective translates, in the trading area, in terms of: 

- 
- 

facilitated and increased cross border activities of trading venues; and 
improved brokers’ direct access to liquidity pools. 

3.  POLICY OPTIONS AND ASSESSMENT OF THE OPTIONS 

3.1.  DESCRIPTION OF POLICY OPTIONS 

Option  1:  lifting  regulatory  barriers  to  cross-border  operations  of  trading  venues  
and facilitating direct broker connections to a wider range of trading venues 

This option seeks to achieve a more integrated EU trading landscape, (i) where rules that apply 
to  trading  venues  are  further  harmonised  and  passporting  opportunities  for  RMs  and  their 
operators are enhanced, (ii) where groups that comprise multiple trading venues across several 
Member  States  can  effectively  leverage  economies  of  scale  and  (iii)  where  brokers’  direct 
access to trading venues is simplified.  

177 

 
 
 
Under  this  option,  the  rules  regarding  the  authorisation  and  operation  of  RMs  would  be 
transferred from MiFID 2 (Directive) to MiFIR (Regulation) and further harmonised (reducing 
scope for national discretions and gold-plating) with a view to creating a truly European single 
rulebook for trading venues. As regards MTFs and OTFs, considering that those venues can be 
operated by investment firms (and not only by market operators), only rules that are specific to 
the operation of an MTF or OTF (and not the entire investment firm authorisation and operation 
requirements)  would  be  transferred  to  MiFIR  and  further  harmonised.  In  parallel,  rules  for 
RMs, MTFs, and OTFs would be aligned as much as possible to ensure a level playing field, 
including from the supervisory standpoint. Incidentally, this harmonisation of rules would also 
facilitate the transfer of supervision of operators/markets with a cross-border dimension to the 
European level and allow to enforce a truly single rulebook for those operators (and not just a 
series of national laws). 

The harmonisation of rules would be accompanied by enhanced passporting rights for market 
operators and regulated markets, to ease the cross-border operation of these trading venues and 
allow for a rationalisation of licensing requirements across Member States. In particular, a new 
status  for  ‘Pan-European  Market  Operators’  would  be  introduced  for  cross-border  market 
operators to allow for the operation of trading venues in multiple Member States on the basis 
of a single licence. This single PEMO licence, to be granted by ESMA, would allow to maintain 
the  existence  of  ‘national’  markets,  thereby  preserving  proximity  with  local  ecosystems, 
without the need for those markets to be subject to individual licenses to operate those markets.   

In parallel, this option would allow trading venues that operate under a unified group structure, 
with  harmonised  systems  and  governance,  to  fully  exploit  group  synergies.  The  regulatory 
framework would be revised to ensure that intra-group allocation of resources and functions is 
not treated in the same way as outsourcing outside the group. This is with a view to simplifying 
the allocation of tasks within the group, thus reducing administrative burden and compliance 
costs for groups.202  

This  option  also  entails  the  implementation  of  measures  aimed  at  eliminating  barriers  that 
hinder  brokers  from  becoming  direct  members  of  trading  venues.  To  achieve  this,  a 
“streamlined  membership  process”  would  be  established,  enabling  entities  that  have  been 
granted  membership  on  one  venue  for  one  asset  class  to  avoid  duplicative  checks  and 
procedural  burdens  when  they  apply  for  membership  on  another  comparable  platform.  
The  granting  of  membership  would  thereby  waive  the  requirement  for  redundant  checks  
by other trading venues trading the same asset class, thus streamlining the membership process. 
However, other aspects of membership eligibility checks, such as those pertaining to the ability 
to  settle  trades  executed  on  trading  venues,  would  remain  subject  to  individual  venue 
assessment, given the venue-specific nature of post-trade arrangements. This would also ensure 
that  venues  can  continue  to  compete  and  innovate  on  more  technical  aspects  of  the  trading 
business. 

202 The actions linked to enhancing passporting rights for market operators and regulated markets, as well those 
on  the  treatment  of  groups  require  ensuring  an  appropriate  supervisory  set-up  that  considers  the  cross-border 
dimension of those entities and therefore they are linked to the initiatives on EU-level supervision as detailed in 
the Sectoral Annex 11 on ‘Supervision’.  

178 

 
 
 
 
 
 
 
Option 2: Option 1 supplemented by a requirement on the interconnection of significant 
exchanges and pan-European MTFs 

The  measures  outlined  under  Option  2  should  be  considered  as  a  supplementary  extension  
to  those  presented  under  Option  1  (in  other  words,  Option  2  builds  on  Option  1  but  also 
complements it with an additional measure). 

Under this option, a subset of key trading venues, which could be subject to ESMA supervision, 
would  be  required  to  establish  interconnections  with  one  another.203  This  is  with  
a view to enabling members of each of those venues to submit orders for execution on other 
venues  within  the  interconnected  network,  without  necessitating  membership  or  direct 
connection to those other trading venues. 

It  is  essential  to  note  that  this  option  would  not  transform  the  aforementioned  venues  into 
executing  brokers,  subjecting  them  to  best  execution  rules.  Rather,  venues  participating  
in the network would serve as mere technical conduits, facilitating brokers' ability to directly 
place  orders  on  diverse  venues  within  the  network.  To  this  extent,  this  option  differs 
substantially from  the US 'Order Protection Rule' (also  known as Reg NMS rule)204, which 
mandates  exchanges  to  re-route  orders  received  to  the  exchange  offering  the  best  available 
price (or National Best Bid and Offer, NBBO), thereby placing the onus on every exchange to 
identify the most favourable venue of execution. In contrast, under this option, brokers relying 
on the interconnection offered by venues within the network would retain full responsibility 
for selecting the venue for order execution, and would consequently remain liable for ensuring 
the best execution vis-à-vis their clients. 

Establishing  this  interconnection  would  necessitate  that  each  concerned  venue  becomes  a 
technical member of the other venues, and that each concerned venue implements a technical 
solution  to  submit  orders  on  other  venues  within  the  interconnected  network  (technical 
connectivity).  While  the  former  requirement  (membership)  does  not  imply  significant 
complexity nor cost, the latter necessitates that venues ensure they are capable of (i) interacting 
with each venue's communication protocol, thereby allowing communication with the target 
venue (software component), and (ii) physically conveying messages to other venues within 
the network (hardware component). 

To achieve this, venues within the network may opt to: 

-  develop proprietary hardware and software connections to other venues; 
-  utilise  third-party  providers  of  physical/hardware  connections  (Extranet  Service 
Providers, ESPs), while  leveraging their own coding  capacity to  integrate with  each 
venue's communication protocols; 
employ  third-party  providers  of  software  solutions  to  'translate'  orders  into  a  format 
compatible with each venue's communication protocol (ISVs), while relying on their 
own physical/hardware connections to other venues; or 
resort to third-party providers offering both hardware and software solutions (ASPs). 

- 

- 

203 See the Sectoral Annex 11 for more detail on EU-level supervision. 
204 Rule 611 of the Regulation National Market System established intermarket protection against trade-throughs 
for certain shares. Due to this rule, trading venues are prevented from executing orders if a better execution price 
can be found on another exchange. 

179 

 
 
 
 
 
This option would not prescribe a specific technical setup for venues in scope, as the choice  
of solution will depend on factors such as projected volumes of cross-border orders to be placed 
through the interconnection mechanism and the specific venues involved. 

To ensure the effectiveness of this technical solution relative to intermediation (notably prime 
brokerage) services, this option should be accompanied by restrictions on venues' ability to 
charge re-routing fees, which could otherwise render this setup uneconomical. Consequently, 
venues within the network would be precluded from charging fees for orders placed through 
their venue on other venues within the network. 

Lastly,  a  fundamental  prerequisite  for  the  effectiveness  of  this  option  is  that  users  of  the 
interconnected  system  have  access  to  price  information  enabling  them  to  identify  the  most 
relevant  execution venue among  those within the network. In this regard, the experience of 
China's  'China  Stock  Connect'  system,  which  has  established  an  interconnected  network 
between the Shanghai, Shenzhen, and Hong Kong stock exchanges, is worth noting. China has 
mandated that level 1 price-depth market data be shared with all market participants free of 
charge. That solution would however not necessarily need to be implemented in the EU context. 
Instead,  in  the  EU,  the  consolidated  tape  could  be  leveraged  to  ensure  the  usability  of  the 
mechanism. 

3.2.  ASSESSMENT AND COMPARISON OF THE OPTIONS 

Option 1 - lifting regulatory barriers to cross-border operations of trading venues and 
facilitating direct broker connections to a wider range of trading venues 

Cost-benefit analysis 

-  Costs and benefits for trading venues 

Harmonisation of rules (MiFID to MiFIR), better passporting opportunities and creation of a 
‘Pan-European Market Operator’ status 

Under option 1, requirements applicable to regulated markets, as well as to MTFs and OTFs 
would be moved from Directive (MiFID 2) to Regulation  (MiFIR), removing differences in 
transposition in national laws and the possibility for additional gold-plating by Member States. 
This, in turn, would simplify the overall regulatory landscape, in particular for cross-border 
entities or groups, remove national specificities and gold-plating measures, and lead to more 
uniform supervisory outcomes. In addition, as the absence of harmonisation has left room for 
varying interpretations of these requirements, further harmonisation would avoid an uneven 
playing  field  among  Member  States  and  minimise  risks  of  forum  shopping.    It  would  also 
enhance  legal  certainty  and  enable  market  infrastructures  in  the  Union  to  scale  up  their 
activities. 67% of respondents to the relevant question in the public consultation deemed an 
increase in the level of harmonisation of EU rules applying to trading venues and their operators 
necessary to foster cross-border operations.  

180 

 
 
 
A study published in 2019205 estimated that compliance with MiFID/MiFIR accounted for a 
significant portion of operating costs in the financial markets industry, with average one-off 
compliance costs representing 1.44% of such operating costs, and ongoing compliance costs 
accounting  for  2.2%.  Notably,  the  study  assessed  that  MiFID/MiFIR  imposed  the  highest 
ongoing compliance costs and the second-highest one-off compliance costs among all financial 
services-related legislation. Although it is challenging to quantify the exact savings that could 
be achieved by simplifying the MiFID/MiFIR regulatory framework, these figures suggest that 
any  simplification  efforts  (elimination  of  national  specificities,  gold-plating,  uniform 
application, etc.) would likely have a substantial impact on compliance cost savings for firms. 
In some specific areas,  stakeholders have mentioned extra costs (notably  opportunity  costs) 
linked  to  diverging  practices  and  additional  procedures  not  mentioned  in  EU  legislation 
amounting to ca. EUR 1 million per group-level changes (e.g. approval of a change of trading 
platforms). The actual level of cost savings would however also depend on other alleviations 
introduced,  such  as  on  whether  an  authorisation  process  would  be  maintained  or  instead 
replaced by a lighter notification process (e.g. for changes in an exchange rulebook). 

While the adaptation to a new, fully harmonised rulebook might entail some adaptation cost 
for entities managing trading infrastructure because of the modification of national rules (i.e., 
the deletion of national specificities), the costs incurred are likely to be one-off and by no means 
comparable  to  the  benefits  that  are  expected  to  be  drawn  by  those  same  entities  from  the 
simplification of the regulatory landscape. Therefore, while it was impossible to quantify the 
level of one-off adaptation costs nor a precise level of generated benefits, it is expected that 
overall infrastructure entities are likely to obtain a net benefit over a mid to longer term horizon. 

The fully harmonised rulebook will be accompanied by enhanced passporting opportunities for 
those entities that would seek to operate on the basis of the freedom of establishment or the 
freedom to provide services, notably through a clarification of the scope of activities that can 
be  carried  out  by  a  trading  venue  in  a  Member  State  without  establishing  a  fully-fledged 
licensed  entity.  In  addition,  the  creation  of  a  PEMO  status  would  further  facilitate  the 
streamlining of operational and supervisory arrangements of groups of trading venues, while 
maintaining the existence of local ‘national’ markets. One stakeholder has referred to potential 
savings  linked  to  the  rationalisation  of  its  corporate  structure  (i.e.,  the  suppression  of  legal 
entities within the group) amounting to savings in the order of tens of millions annually. This 
represents savings linked to legal, regulatory (internal and external advisors’ costs), finance, 
human resources costs that would be reduced should operation through branches be enhanced. 
That same stakeholder also cited savings linked to local governance costs. Similar cost savings 
could be expected for other entities structured as groups, although the exact level for each group 
would  depend  on  each  entity’s  (i.e.  of  the  group  and  entities  within  that  group)  current 
governance and established processes.206 Ultimately, this facilitation of cross-border operations 

205 Study on the costs of compliance for the financial sector - CEPS 
206 Those savings depend also on the supervisory structure applicable and therefore are linked to the initiatives on 
EU-level supervision described in the Sectoral Annex 11. Where EU-level supervision is envisaged, the described 
cost savings could be extracted to the fullest extent possible. 

181 

 
 
 
 
 
through a single license will also create incentives for legal consolidation, as the operations of 
trading infrastructure in several Member States would be significantly streamlined. 

To  further  substantiate  the  impact  of  the  proposed  measures,  the  Commission  received 
confidential  input  from  a  number  of  groups  of  trading  infrastructures  operating  in  several 
Member States on the estimated savings the proposed measures would generate. Together, the 
groups that provided input accounted for around one third of all on-venue trading in shares in 
2023.207 Their submissions showed that there are significant inefficiencies in operating a cross-
border group under the current legal framework. Some of these inefficiencies are linked to the 
EU-level rules themselves, such as the lack of clarity around a passporting regime for regulated 
markets, whereas others are the result of national implementation of the rules, including gold-
plating and the inability to freely allocate resources or functions within a group. Contributing 
exchange  groups  report  the  largest  potential  saving  from  the  removal  of  the  requirement  to 
maintain multiple legal entities to operate cross-border as a group, in a scenario where those 
groups would be able to operate as a single legal entity under a single licence, with estimated 
savings per group ranging from EUR single digit millions to mid double digit millions per year. 
More limited savings, in the range of EUR 0.5-5 million per group per year, are expected if 
Member  States  would  no  longer  have  the  discretion  to  impose  additional  requirements 
regarding  the  compliance  and  risk  functions.  Market  surveillance  requirements,  too,  are 
reportedly applied in diverging ways, with reported potential cost savings ranging from EUR 
0.5 to  5 million  per year. Exchange groups also  report inefficiencies as  well as opportunity 
costs arising from the need to obtain approval for updates of their exchange rulebooks from 
several competent authorities, with the opportunity costs as a result of time lost estimated as 
much greater, by a factor of 5 to 10, than the direct costs incurred. Further anecdotal evidence 
was reported of diverging requirements from  certain NCAs necessitating  multi-million-euro 
modifications to IT infrastructure before the exchange rulebook could be approved. In total, 
the groups contributing input reported expected savings between EUR 29 and 74 million per 
year, depending on the scope of expected savings resulting from the reduction in the number 
of legal entities required and on whether anecdotal evidence is taken into account. 

Assuming that all groups of trading venues that operate across Member States would similarly 
benefit from  the proposed  measures in  proportion to  the volume traded, we can  extrapolate 
these estimated savings to all trading infrastructure groups, which in 2023 accounted for around 
55% of all on-venue trading in shares. This yields expected savings ranging between EUR 47 
and 120 million per year across all trading venues belonging to a group. It is moreover possible 
that the proposed measures would allow trading venues that currently do not operate as a group 
to  expand or to  organise their operations more efficiently; those potential benefits  have not 
been quantified at this stage. 

Assuming a pass-through rate of at least 50% from trading venues to brokers and at least of 
50% from brokers to clients (that would be a conservative assumption, given a rather significant 
number of trading venues (see page 2 of this Annex) and brokers competing with each other in 

207 Based on ESMA FITRS data. 

182 

 
 
 
 
 
the EU), it can be estimated that a minimum of EUR 11.25 to 30 million of these savings would 
will directly benefit end investors trading on EU stock exchanges. 

Enhanced intra-group efficiencies 

Entities that do not wish to rely on enhanced passporting opportunities, and continue to operate 
as  a  group  of  trading  infrastructures,  would  be  able  to  rely  on  the  enhanced  intra-group 
efficiencies  included  in  this  option.208  For  some  trading  venues,  the  need  to  navigate  the 
diverging regulatory frameworks applicable to each entity within the group entails time costs 
that could amount up to approximately 13,000 hours per year on administration209, reporting, 
risk and compliance in relation to managing existing outsourcing arrangements. 

According  to  responses  of  trading  venues  to  the  public  consultation,  the  recognition  of  the 
operational specificities of groups active in more than one Member State will create significant 
synergies within a group. By treating jointly (i.e. as a single entity) all RMs comprised within 
a  group  rather  than  isolated  units,  groups  can  streamline  operations,  consolidate  and  cut 
resources, and eliminate redundancies. This recognition allows for shared services, centralised 
procurement,  coordinated  decision-making,  and  better  leverage  of  economies  of  scale.  One 
exchange has for instance referred to significant potential savings in case of: 

- 

- 

rationalisation of compliance function teams (especially if combined with compliance 
function related to post-trading activities where applicable),  
rationalisation  of  resources  dedicated  to  market  operations,  including  market 
surveillance, market abuse, regulatory reporting and membership of 30% (which can 
amount to figures in the low millions), plus additional savings from the avoidance of 
duplicative teams in certain Member States only. It would also facilitate more efficient 
use of capital and human resources across the group, reducing duplication of efforts and 
enabling consistent policy implementation.  

The Commission therefore estimates that in total cost savings linked to enhanced intra-group 
efficiencies would be in the range of EU 435,500 - 585,500 (13,000 hours annually) in terms 
of  management  of  regulatory  requirements.  In  addition,  there  would  be  additional  savings 
linked  to  operational  efficiencies,  such  as  optimal  allocation  of  resources,  avoidance  
of duplicative functions within the same group, etc., which could be significant. Those savings, 
however, are complex to quantify accurately, as they highly depend on the business decisions 
taken by each group and each group’s existing corporate structure, as well as on the supervisory 
arrangements. 

208 It is however possible that the same entity both remains structured as a group and avails itself of passporting 
possibilities  to  access  local  markets  (i.e.  in  other  Member  States  where  the  group  does  not  have  established 
presence). 
209 Using Eurostat figures for average hourly income (using ISCO2 ‘professionals’; 2022 figures - Link) this would 
translate  to costs of EUR 435,500. This represents the lower bound figure. In practice, total costs savings are 
expected  to  be  higher  as  the  EU  average  hourly  rate  (EUR  33.50/hour)  is  not  adjusted  for  the  respective 
concentration of compliance activity in Member States (e.g. using average hourly costs for only DE, FR, IT, ES 
and NL would result in savings of EUR 585,500). 

183 

 
 
 
 
 
The Commission also assesses that the facilitation of pooling of intra-group resources will also 
foster the development of innovative solutions, in particular for the purpose of running trading 
platforms  in  a  cross-border  basis  and  in  the  management  of  various  national  contexts  (e.g., 
diverging  securities  laws,  management  of  corporate  events,  etc.). A  positive  impact  –  yet 
impossible to quantify – is therefore expected in the area of innovation/digitalisation.  

It  is  expected  that  those  measures  will  also  incentivise  legal  consolidation  through  
the facilitation of the operation of cross-border groups of trading infrastructures. 

Streamlined membership processes 

With respect to the streamlined membership process, trading venues are not expected to incur 
any  costs  other  than  that  of  the  harmonisation  of  targeted  areas  of  exchange  rulebooks. As 
regards the adaptation of rulebooks, trading venues estimated those to be in the range of EUR 
1-2 million (costs of project management, legal drafting, IT adjustments, and staff re-training). 
Additionally, it was pointed out that venues could also incur opportunity costs as the staff would 
focus  on  harmonisation  rather  than  other  projects.  However,  in  the  Commission’s  views, 
provided  estimations  would  exaggerate  the  actual  cost,  as  they  are  based  on  the  inaccurate 
assumption that the entire rulebook would be overhauled, including aspects relating to trading 
systems for instance (which, as described above, is not targeted by the action at hand). The 
Commission estimates that the targeted harmonisation of rulebooks on the elements pertaining 
exclusively to the ‘quality’ of members would only concern a marginal part of the rulebook and 
would in many cases require very limited efforts of adaptation on behalf of venues (e.g. direct 
incorporation of the relevant provisions set out in legislation). Those are estimated to require 
around 40 working hours by lawyers, which could translate into a cost of ca EUR 15,000.  It is 
worth noting that even those stakeholders who pointed to the potential adaptation costs were 
overall still positive about the expected net outcome (i.e. that benefits would outweigh costs). 

Additionally, as the result of the measure, trading venues would benefit  from  a streamlined 
member onboarding and monitoring process, as due diligence would only need to be performed 
once (and by one venue only), which would save staff cost for all venues over a longer-term 
horizon. As the measure would also make it easier for venues to rely on each other’s ongoing 
eligibility checks (such as annual/periodic audits), venues would also save staff costs, estimated 
at a few FTEs, for ongoing compliance and membership management. Despite several requests 
made to that effect, it was not possible for the Commission to obtain data on the cost of periodic 
auctions, making it impossible for the Commission to quantify expected cost savings related to 
the measure. 

-  Costs and benefits for brokers 

Further harmonisation of requirements applicable to trading venues would not create any cost 
for  brokers.  Conversely,  it  is  anticipated  that  any  costs  savings  and  operational  efficiencies 
made  by  trading  venues,  through  the  leveraging  of  the  above-described  opportunities 
(harmonised  regulatory  environment,  further  passporting  possibilities,  enhanced  intra-group 
synergies)  could  ultimately  benefit  brokers.  While  the  extent  of  the  pass-through  depends  
on the degree of  competition  in  the market,  it could  be estimated that a large broker  active  
in  the  entire  EU  could  save  EUR  100-500k  per  year  by  not  having  to  maintain  separate 

184 

 
 
 
memberships, should this mechanism lead to an alleviation or even suppression of membership 
fees.  

In addition, it is expected that the PEMO structure, by allowing a leaner operational structure 
of trading venues, would act as a first step towards the effective pooling of liquidity across 
trading venues operated by PEMOs (while maintaining national ‘entry points’). Those effects 
are even likelier to materialise as actions at the level of post-trade (e.g., facilitation of cross-
border  CSD  operations)  would  catalyse  the  synergies  drawn  at  trading  level.  Brokers  
(and, eventually, end-clients) would, in the longer term, therefore benefit from a more efficient 
trading environment derived from the more efficient organisational and supervisory structures 
enabled by the PEMO status. 

When it comes to the streamlined on-boarding processes, brokers that are existing members of 
venues would not incur any costs by virtue of the introduction of a streamlined membership 
process that will only apply to new members (who would now find it easier and cheaper to 
apply for direct membership of several venues due to the streamlined membership onboarding 
process). All brokers (new and existing ones) would benefit from a more streamlined ongoing 
compliance/monitoring  procedures  by  venues.  The  new  streamlined  membership  process 
would be without prejudice to the fees that brokers are required to pay to each trading venue to 
become members and to trade.  

Overall, brokers would be able to save on compliance costs and on the procedures to handle: 

(i) initial membership on-boarding processes (impossible to quantify), and  

(ii)  ongoing  monitoring of  compliance  with  membership  rules,  which  often  take  the 
shape of regular/periodic audits (impossible to quantify). 

-  Costs and benefits for end-clients 

As also stated on page 20 of this Annex, lower operational costs for trading venues and brokers 
could ultimately benefit end-clients, as these savings could be passed on in the form of reduced 
brokerage  fees  (depending  on  the  degree  of  competition  in  the  market). This  is  particularly 
significant if brokers can more easily connect to a wider range of trading venues outside their 
local  markets  (either  through  streamlined  membership  processes,  or  because  trading 
infrastructures offer more efficient connection opportunities through enhanced passporting or 
intra-group synergies) and thereby access markets  they might  not  have engaged with  under 
more  cumbersome  onboarding  processes  and  ongoing  monitoring  of  compliance  with 
membership  requirements.  With  easier  access  to  a  broader  range  of  venues,  brokers  can 
enhance  their  service  offerings,  providing  clients  with  diverse  investment  opportunities  and 
competitive pricing, which could ultimately result in making investments more accessible and 
attracting a larger client base. 

In addition, the quality of trade execution could see improvements through facilitated direct 
connections  to  trading  venues,  as  brokers  could  develop  more  direct  access  arrangements  
to  a  broader  range  of  trading  venues  than  they  would  without  streamlined  membership 
processes. 

185 

 
 
 
As  an  illustration  of  the  unequal  level  of  access  to  trading  venues  across  the  EU,  the 
Commission has compared the level of trading fees for the domestic market of the broker, the 
main US markets and other Member State markets (i.e. non-domestic markets of the broker). 
The table below represents the publicly available trading fee for a hypothetical EUR 10.000 
retail order to buy shares.210 Although not fully representative, the selected sample of Member 
States  and  of  brokers  indicates  that  it  is  almost  always  more  expensive  to  trade  on  other 
Member State markets than on the domestic market (4 out of 5 Member States included in the 
sample). In addition, it is often cheaper (for 4 out of 5 Member States included in the sample) 
to trade on US markets than on other Member State markets, and that there are even instances 
(2 out of 5 Member States included in the sample) where it is even cheaper to trade on US 
markets than on the domestic market. 

Table 1: Fee (EUR) for a EUR 10.000 retail order to buy shares for banks (B) and neo-brokers (N) across 5 Member States 
(data from May 2025) 

Member State 1 

Member State 2 

Member State 3 

Member State 4 

Member State 5 

Local market 
(or market 
belonging to 
the same 
exchange 
group) 

US market 
(NYSE / 
NASDAQ) 

B1: EUR 50 
B2: EUR 35 
N1211: EUR 60 
N2: EUR 45 

Bank 1: EUR 100 
Bank 2: EUR 10 
N1212: EUR 15 

B1: EUR 6 
B2: EUR 65 
N1: EUR 9 

B1: EUR 102 
B2: EUR 25 
N1: EUR 0 
N2: EUR 4,99 

B1: EUR 2,5 
B2: EUR 40 
N1: EUR 2,95 
N2: EUR 5 

Average: EUR 47,5  

Average: EUR 41,67 

Average: EUR 26,67 

Average: EUR 33 

Average: EUR 12,61 

B1: EUR 50 
B2: EUR 50 
N1: EUR 12 
N2: EUR 12 

B1: EUR 120 
B2: EUR 12 
N1: EUR 20 (USD 
20 / USD 10,000) 

B1: EUR 20 
B2: EUR 36 
N1: EUR 15 

Average: EUR 31 

Average: EUR 43 

Average: EUR 23,67 

B1: EUR 115 
B2: EUR 25 
N1: EUR 0 
N2: / (no price 
listed) 
Average: EUR 46,67 

B1: EUR 10,35 
(USD 12) 
B2: EUR 90 
N1: EUR 3,95 
N2: EUR 7,76 (USD 
9) 

% of the price of 
domestic trading: 
65% 

% of the price of 
domestic trading: 
103% 

% of the price of 
domestic trading: 
89% 

% of the price of 
domestic trading: 
141% 

Other EU 
market 

B1: EUR 50 
B2: EUR 50 
N1: EUR 30 
N2: EUR 25-35 

B1: EUR 120 -140 
B2: EUR 15 - 30 
N1: EUR 15 – 100 

B1: EUR 20 
B2: EUR 36 
N1: USD 15 

Average: EUR 53,33 

Average: EUR 70 

Average: EUR 23,67 

B1: EUR 129 
B2: EUR 25 
N1: EUR 0 
N2: / (no price 
listed) 
Average: EUR 51,33 

Average: EUR 28,02 

% of the price of 
domestic trading: 
222% 
B1: EUR 9 - 45 
B2: EUR 90 
N1: EUR 2,95-9,95 
N2: EUR 25 

Average: EUR 37,11 

% of the price of 
domestic trading: 
112% 

% of the price of 
domestic trading: 
168% 

% of the price of 
domestic trading: 
89% 

% of the price of 
domestic trading: 
156% 

% of the price of 
domestic trading: 
294% 

210 Where banks / brokers offered varying account types / membership levels, the standard / lowest cost option 
was chosen. 
211 Subsidiary of a bank. 
212 Subsidiary of a bank. 

186 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Effectiveness in meeting the specific objectives and overall efficiency 

This option envisages a number of measures that entail limited costs for stakeholders while 
effectively  achieving  the  aim  of  fostering  greater  market  integration  and  increasing  cross-
border trading activity. The Commission nevertheless acknowledges that the measures under 
Option  1  would  not  be  as  effective  as  the  interconnection  measures  set  out  under  Option  2  
(see section below for the cost-benefit analysis for Option 2). 

However,  as  demonstrated  above,  the  benefits  of  the  implementation  of  Option  1  would 
outweigh the potential costs incurred. Said benefits for trading venues include  

o  a decrease in the costs of compliance with MiFIR/ MiFID II and in the costs incurred 

on administration and reporting,  

o  an overall more efficient operation of venues by virtue of the legal recognition of the 

group’s concept, enhanced passporting possibilities, and a more streamlined 
membership process 

Respondents to the public consultation concur that the benefits significantly exceed the costs. 
One of the main advantages of this option is that the costs to-be-incurred may be known or at 
least estimated in advance, which allows the Commission to determine with better precision 
that the cost-benefit ratio underscores the efficiency of Option 1. By contrast, the costs for the 
implementation of Option 2 cannot be accurately calculated, even provisionally, at the present 
moment, and the benefits of that other option are contingent on many other factors (notably on 
changes in the operation of post-trade infrastructure) whose realisation is at this stage not fully 
certain  (see  section  below  for  the  cost-benefit  analysis  for  Option  2).  Thus,  as  regards  the 
efficiency criterion, based on the cost-benefit analysis of both Options, the Commission deems 
Option 1 to be the more efficient one, hence the preferred one.  

Coherence with the SIU objectives 

Option 1 is coherent with the Commission’s objectives, as defined in the SIU Communication, 
published on 19 March 2025. A unified rulebook for trading venues would remove barriers to 
cross-border operations by trading infrastructure and contribute to more consistent supervisory 
outcomes,  which  is  a  major  step  towards  achieving  harmonised  supervision  in  the  single 
market, which is one of the SIU’s pillars. Additionally, all measures comprising Option 1 are 
in  line  with  the  Commission’s  simplification  agenda,  also  relevant  in  the  SIU  context. 
Enhanced passporting opportunities would simplify cross-border operations by streamlining 
licensing requirements. The recognition of the operational specificities of groups would reduce 
costs and simplify operations for groups comprising several trading venues. Streamlining the 
membership process would reduce costs for brokers who wish to become members of several 
trading  venues,  thus  also  improving  execution  outcomes  for  end-clients.  Overall,  those 
measures  aim  to  create  a  more  integrated,  and  efficient  regulatory  landscape  that  facilitates 
business operations and economic activity across the Union. 

187 

 
 
 
Option 1 is also in line with the conclusions in Mario Draghi’s Report on the future of European 
competitiveness.213 The measures described above, if implemented, would help build a more 
dynamic and competitive economic environment in the EU. 

Option 2: Option 1 supplemented by a requirement on the interconnection of significant 
exchanges and pan-European MTFs 

Option 2 builds on but also expands Option 1, by supplementing it with the measure on the 
interconnection of trading venues. The below assessment only covers the additional feature of 
Option  2  (i.e.  interconnection).  The  previous  section  should  be  consulted  for  the  cost  and 
benefit analysis of all other measures comprised under Option 2. 

Cost-benefit analysis 

-  Costs and benefits for trading venues  

Venues  that  are  part  of  the  interconnected  network  would  bear  the  costs  of  setting  up  and 
maintaining  the  interconnections.  The  data  collected  from  stakeholders  lacks  consistency, 
making it challenging to provide a reliable estimate of the costs. Estimates of the average costs 
for  setting  up  the  network  provided  by  stakeholders  vary  from  EUR  300,000  to  EUR  100 
million (which probably partly reflects a divergent understanding by stakeholders of what the 
measure would represent). Additionally, the precise amount would depend on the actual setup, 
the number of venues that participate in the system, the type of connectivity (bilateral links 
versus  hub  system)  and  the  quality  of  the  links  used,  the  type  of  software  which  would  be 
implemented and the trading sessions costs, among others. 

Some  stakeholders  provided  additional  cost  breakdown,  as  presented  below.  Given  a  wide 
divergence in the overall cost estimates provided by stakeholders, those detailed cost estimates 
should be considered with caution and may only be used for illustrative purposes. The actual 
relevance  of  those  costs  would  also  depend  on  the  set-up  of  the  interconnectivity  between 
trading venues. 

First, with respect to bilateral links (or the lines) used, one possibility could be the use of land 
lines, which could cost between EUR 2,000 and EUR 8,000 per month per bilateral link. One 
exchange explained in the public consultation that connectivity to another trading venue would 
require more than one leased line: connectivity to the primary data centre of the trading venue 
with a backup line physically diverse from the main line and connectivity to the secondary data 
centre also with a second diverse route for resiliency purpose, which amounts to a total of four 
lines. Another option would be to use more advanced microwave technology, which reduces 
latency (or speed of data transmission) by roughly half, compared to leased lines. This network 
technology is, however, more expensive, at an estimated EUR 10,000 per month. 

Second, in order to connect to another venue, trading venues in scope would have to deploy 
and  maintain  the  necessary  software,  which  they  could  either  build  or  buy.  Building  the 

213 The Draghi report on EU competitiveness.  

188 

 
 
 
 
 
software in-house would require hiring additional IT staff (estimated to be between 20 and 40 
people) and would come at the cost, according to a stakeholder, of EUR 1.5 to 3 million per 
year  (not  including  the  software  maintenance  costs). A  cheaper  option  would  be  to  buy  the 
software. However, this option is reported to be less performant, while trading venues would 
still incur costs related to additional staff to maintain the platform and supervise the flow. 

Third,  the  connectivity  fees  vary  greatly  depending  on  how  many  order  books  would  be 
accessed, how many systems need to be connected to the trading venue, if the connection were 
via cross connect or via a central hub, and the capacity needed in terms of messages per second. 
Some  venues  do  not  publish  their  fees  and  that  further  complicates  the  assessment,  even 
provisional, of the costs that would be incurred. The cost of a trading session can vary between 
EUR 210 and EUR 780 per month. 

The above enumeration of costs is not exhaustive. Given the uncertainties referred to above, 
currently the Commission is unable to determine the precise level of costs that venues would 
incur to set up and maintain the interconnected network. It is however assessed that costs should 
be rather homogeneous among participating venues using similar trading protocols; they may 
however  differ  when  borne  by  users  of  those  connections  (e.g.  broker)  depending  on  the 
number of transactions executed using those connections. 

Some stakeholders suggested to use the cost of implementation of the ‘order protection rule’ in 
the US  as the reference point. When proposing  the order protection rule, the Securities and 
Exchange Commission estimated214 that the cost of the rule was around USD 143.8 million in 
one-off  costs,  and  USD  21.9  million  in  yearly  ongoing  maintenance  costs.  However,  the 
Commission is of the view that this reference to the US cost would not be appropriate in this 
case given the following important shortcomings:  

(i) 

(ii) 

(iii) 

(iv) 

the  order  protection  rule  implied  a  significant  responsibility  shift  in  terms  
of best execution to the venues. The interconnection proposed under option 2 
does not foresee such a shift, as explained above; 
the rule was introduced almost 20 years ago. Connection technology and overall 
the  degree  of  digitalisation  have  significantly  improved  since  the  decision  
to implement the order protection rules in the US in 2006; 
the US  exchange market structure is  also  significantly different  from  the  EU 
one,  although  the  amount  of  interconnected  exchanges  would  be  relatively 
similar. 
the US chose a particular system of interconnectivity (all relevant exchanges 
interconnected with each other). An alternative hub-and-spoke model 
(whereby a single central technical solution to which all venues in scope 
connect, and from which orders are then routed) would result in considerably 
less connections and much lower cost of the measure. 

214 Securities and Exchange Commission: Regulation NMS | U.S. GAO 

189 

 
 
 
 
 
In  terms  of  benefits  for  venues  generated  by  the  interconnection,  trading  venues  would  be 
expected to benefit from increased cross-border traffic, potentially generating higher revenue 
through execution fees. Nevertheless, the Commission notes that these benefits are likely to 
materialise only after implementation costs are incurred, and are contingent upon the solution 
being widely adopted by brokers.  

Overall,  given  the  uncertainty  around  costs  and  benefits  of  the  interconnection  for  trading 
venues, it is impossible to estimate with any meaningful degree of precision the net outcome 
of Option 2. 

-  Costs and benefits for brokers 

Brokers  would  not  bear  any  direct  costs  with  respect  to  the  initial  set-up  and  ongoing 
maintenance of the interconnected network. However, they may bear indirect costs. Although 
it is proposed that re-routing costs are prohibited/restricted under this option, trading venues 
may opt to increase execution fees for all clients, regardless of their use of the interconnectivity 
features (i.e. to cross-subsidise). Whether and to what extent such an increase in execution fees 
would materialise is complex to determine and quantify, given the uncertainty around the costs 
borne  by  venues  to  set  up  and  maintain  the  network,  and  the  uptake  of  the  interconnection 
system among brokers (the broader the use, the lower the costs per individual transaction). The 
effects  on  execution  fees  also  depend  on  whether  trading  venues  in  scope  would  opt  for 
internalising  at  least  a  portion  of  those  costs.  Because  of  competitive  pressure  from  other 
execution  venues,  venues  may  opt  against  passing  those  costs  entirely  on  to  their  clients 
(brokers).  

On the other hand, at present, brokers are paying fees for either connecting directly to a trading 
venue,  or  the  intermediation  fees  charged  by  larger  brokers.  Hence,  they  are,  at  present, 
incurring costs for establishing either direct or indirect connections to the venues on which they 
want to trade. If an interconnectivity mechanism were established, brokers would be able to 
place orders on multiple venues, while being connected to and being a member of only one. 
This would, in turn, mean that brokers would only pay membership and execution fees to the 
venue  of  which  they  are  a  member,  and  would  not  incur  either  membership  fees  and 
connectivity fees for connection to any other venue that is part of the interconnected network, 
or pay fees to intermediary offering execution on such venues. As no precise intermediation 
fees data is available, being generally very client-specific, it is not possible to provide precise 
figures  as  regards  savings  that  could  be  made  on  intermediation  fees.  However,  the 
Commission  is  aware  that  those  intermediation  fees  can  be  high,  in  particular  for  shares  of 
smaller companies. 

Lastly, as explained above, reliance on intermediation implies that brokers (and thereby end-
clients) are dependent on the intermediary’s commercial interest in offering access to a given 
instrument. This commercial interest is often lacking when it comes to offering solutions to 
trade shares of smaller companies. Therefore, interconnection would also offer brokers a more 

190 

 
 
 
systematic  and  broader  access  to  SME  shares,  as  highlighted  by  the  High-Level  Forum  
on the Capital Markets Union back in June 2020.215 

Given the above, the Commission can conclude that the benefits for the brokers are likely to 
outweigh the costs they would incur, and that this set-up would lead to a more efficient trading 
environment for them. The exact estimation of benefits for brokers however depends  on the 
actual set-up/quality of the interconnectivity system, client’s demand as well as overall costs 
charged by trading venues.  

-  Costs and benefits for end-clients 

The savings in terms of intermediation and/or direct connection costs for brokers are likely to 
be translated into lower brokerage fees for end-clients, especially for cross-border trades, as 
well  as  into  a  broadening  of  the  (cross-border)  offering  of  brokers.  The  positive  impact  is 
expected to be significantly greater for retail clients who, as explained above, are more affected 
by high costs linked to cross-border trading. However, the full scale of those benefits might be 
partially limited by the potential passing on of potentially increased execution fees incurred by 
brokers (see above).  

Furthermore,  as  noted  earlier,  brokers'  access  to  a  broader  pool  of  liquidity  could  
lead  to  improved  execution  quality  for  their  clients.  For  end-investors,  the  interconnection 
system would imply that their brokers' execution policies can no longer cite direct connection 
limitations as a reason for sub-optimal execution, a limitation that is sometimes encountered 
today. 

A  last  potential  benefit  of  the  measure  is  that,  by  lowering  cross-border  transaction  costs,  
it could help reduce home bias, particularly for retail investors. Currently, differentiated fee 
structures based on the country of origin of securities exacerbate home bias. By introducing 
more neutral, origin-agnostic fee schedules, the measure could further mitigate home bias and 
encourage  retail  investors  to  consider  a  broader,  more  diversified  range  of  investment 
opportunities. 

Effectiveness in meeting the specific objectives and overall efficiency 

Option 2 would be effective in addressing the costly and complex direct access to liquidity and 
financial instruments,  which brokers are currently facing. At present,  they either need to  be 
direct members of the trading venues on which they want to trade, or access indirectly via other 
brokers who are, in turn, direct members of the venue. By eliminating the need for brokers to 
become members of multiple venues, or get indirect access via intermediaries, Option 2 is more 
effective in addressing broker’s current needs, than Option 1.  

However,  Option  2  may  be  the  less  efficient  of  the  two  options.  As  explained  above,  
the  Commission  is  currently  unable  to  reach  a  conclusion  on  the  cost  estimation  and,  
as a consequence, cannot provide a straightforward answer as to whether the potential benefits 

215 Ibid. 

191 

 
 
 
 
 
would outweigh the costs incurred. Moreover, Option 2 is a supplementary extension to the 
measures  presented  under  Option  1.  Thus,  the  implementation  costs  for  the  creation  of  an 
interconnectivity mechanism would come in addition to the ones which would be incurred for 
the harmonisation of rules (although those measures result in the overall net benefit as set out 
above).  

Lastly,  the  Commission  acknowledges  that,  in  order  for  Option  2  to  function  as  envisaged,  
a  seamless  interoperability  of  post-trading,  notably  of  the  settlement  infrastructure,  
would be necessary. Therefore, given that pre-condition, the Commission cannot currently hold 
that creating interconnectivity between trading venues would constitute an efficient measure at 
the current juncture. 

Consequently,  taking  into  account  the  cost-benefits  analysis  from  the  perspective  of  all 
stakeholder categories, the Commission is of the opinion that Option 1 would be more efficient 
in addressing the identified drivers and tackling the identified problems. 

Coherence with the SIU objectives 

Requiring significant exchanges and pan-European MTFs to establish interconnectedness with 
one another could encourage retail investors’ participation in capital markets, which is in one 
of  the  objectives  put  forward  by  the  SIU  communication. Additionally,  interconnectedness 
could  simplify  investors  access  to  capital  markets  and  help  reduce  market  fragmentation.  
The creation of a more integrated network of RMs and MTFs is a stepping stone to the creation 
of a single market for capital or SIU, a key priority of the EU, which aims to provide businesses 
with a broader range of funding sources across member states.  

Improved interconnectivity can lead to increased competition among trading platforms, leading 
to better services, lower costs, and innovation—core elements needed to enhance the global 
competitiveness of European markets, as advocated in the Draghi report.  

Table 1 – Cost efficiency analysis of the options by stakeholder type216 

Option 1 
Option 2 

Cost efficiency by stakeholder type 

Trading venues 
++ 
-- 

Brokers 
+ 
++ 

End-investors 
+ 
++ 

Table 2 – Overall effectiveness, efficiency and coherence analysis of the options 

Option 1 
Option 2 

Effectiveness 
+ 
++ 

Efficiency 
++ 
N/A (-) 

Coherence 
++ 
++ 

216 Legend: +++ = very positive, ++ = positive, + = slightly positive, 0 = no effect,  - = slightly negative, -- = 

negative, --- = very negative 

192 

 
 
 
 
 
 
 
 
 
3.3.  FLANKING MEASURES 

Open access 

MiFID and MiFIR contain a number of rules to ensure that CCPs can clear trades executed  
on any venue, and vice-versa. However, restrictive practices and heavy processes that hinder 
their effectiveness remain when it comes to cash equities. 

First, the process to grant CCPs access to trading venues (and vice versa) is subject to a number 
of exceptions that allow NCAs and parties involved to reject said access. Feedback from the 
to  artificially  delayed  procedures  
consultation  has  also  pointed 
and lack of consistent enforcement of those rules.  

to  hurdles 

linked 

Second,  even  after  having  granted  access  to  CCPs,  some  trading  venues  implement  access 
models  that  limit  market  participant’s  ability  to  leverage  interoperability  agreements  that 
already exist between certain CCPs. More specifically, the Commission understands that some 
venues  apply  so-called  ‘preferred  clearing’,  whereby  counterparties  executing  a  trade  on  a 
venue can choose other CCPs than the default CCP only when both counterparties happen to 
choose the same CCP, which rarely happens in practice and is unpredictable. From a technical 
standpoint, interoperable CCPs can handle situations in which one trading party chooses one 
CCP  (e.g.  Six  x-Clear)  and  the  other  party  another  interoperable  CCP  (e.g.,  Cboe  Clear). 
However,  it  appears  that  ‘preferred  clearing’  arrangements  still  require  that  both  market 
participants have chosen the exact same CCP for trades to be cleared in a different CCP than 
the default one, even though the parties might have chosen different yet interoperable CCPs.  

It is therefore proposed that hurdles in that area are removed by: 

- 

- 

streamlining  and  simplifying  access  provisions  across  MiFID  and  MiFIR  and  better 
framing the conditions under which access requests can be rejected or unduly delayed 
by trading venues/CCPs and by NCAs. Those conditions could be aligned with those 
included in Article 33 of the CSDR on CSD access, whereby access can only be rejected 
on  the  basis  of  a  comprehensive  risk  assessment,  and  whereby  supervisors  only 
intervene  in  cases  of  disagreement.  It  is  also  proposed  that  the  EU-level  supervisor 
would be receiving notification for such requests and, similarly, only intervene in cases 
of disagreement; and 

ensuring that, whenever two or more already interoperable CCPs have access to a given 
trading  venue,  that  trading  venue  allows  its  participants  to  choose  to  clear  on  two 
different  interoperable  CCPs. This  approach  reduces  the  limitations  of  the  preferred 
clearing  model,  leveraging  existing  technology  to  clear  transactions  across  different 
CCPs. This option is likely to enhance competition by allowing customer choice and 
rewarding  CCPs  investing  in  interoperability.  It  should  also  unlock  significant  cost 
savings for market participants through netting efficiencies and a reduction in necessary 
CCP membership arrangements.  

193 

 
 
 
 
Measures  to  further  develop  the  equity  consolidated  tape  and  stimulate  competition  
in the closing auction segment.  

It  is  proposed  to  enhance  the  attractiveness  of  the  equity  consolidated  tape  and  its  ability  
to support informed investment decisions by:  

• 

• 

• 

• 

the 

tape,  

the  pre-trade 

information  published  by 

lifting  the  anonymity  of  the  European  Best  Bid  and  Offer  (EBBO),  to  allow  users  
of the tape to identify the venue offering the EBBO; 
the  depth  of 
increasing 
to cover the first five layers of the book; 
including in the equity pre-trade tape information on the (retail order) quotes published 
by SIs. To achieve that, a necessary pre-requisite to ensure that the quotes published  
by  SIs  are  meaningful  in  terms  of  price  formation.  Today,  SIs  can,  and  often  do, 
negotiate  bilaterally  price  improvements  that  are  targeted  to  specific  clients  
(leading to extreme client segmentation) and that are not reflected in the quotes that 
they  publish.  It  is  therefore  proposed  that,  for  retail  orders,  SIs  are  required  
to  immediately  update  their  public  quotes  to  reflect  price  improvements.  Such  price 
improvements will then feed into the tape to adequately reflect the best price offered by 
SIs, for those trade sizes that are subject to pre-trade transparency; 
requiring the tape to compute and publish the volume-weighted closing price generated 
by all closing auctions for a given security, thereby offering the market an (voluntary) 
alternative to the closing price generated by incumbent venues. In addition, it could be 
clarified  that  the  tape-produced  reference  price  could  be  considered  as  fair  pricing 
model  for  the  purpose  of  portfolio  valuation  by  asset  managers,  thus  potentially 
increasing the uptake of that price for that purpose and providing competition to the use 
of  the  standard  closing  auction  price  (and  hence  driving  execution  fees  in  closing 
auctions down).

194 

 
 
 
ANNEX 8: SECTORAL ANNEX ON POST-TRADE 

Glossary 

For the purposes of this Annex, the following definitions apply: 

Asset referenced 
token (ART) 

Bilateral link 

Book-entry 
settlement  

A type of crypto-asset (i.e. a digital representation of a value or of a 
right  that  is  able  to  be  transferred  and  stored  electronically  using 
distributed ledger technology or similar technology) that is not an 
electronic money token and that purports to maintain a stable value 
by  referencing  another  value  or  right  or  a  combination  thereof, 
including one or more official currencies.217  
An arrangement that set out under a single agreement the transfer of 
securities between two Securities Settlement Systems. 
Generally speaking, a mechanism that enables market participants 
to transfer assets (e.g. securities) without the physical movement of 
paper documents or certificates.  

Collateral 

Commercial bank 
money 

Central counterparty 
(CCP) 

Central bank money  Central bank money is the term commonly used to describe the case 
where  a  Securities  Settlement  System  settles  its  cash  leg  on  cash 
accounts opened in the books of a central bank. 
An entity that interposes itself, in one or more markets, between the 
counterparties to the contracts traded, becoming the buyer to every 
seller and the seller to every buyer.218 
An  asset  or  third-party  commitment  that  is  used  by  the  collateral 
provider  to  secure  an  obligation  to  the  collateral  taker.  Collateral 
arrangements  may  take  different  legal  forms;  collateral  may  be 
obtained using the method of title transfer or pledge. 
Commercial bank money is the term commonly used to describe the 
case where a Securities Settlement System settles its cash leg on cash 
accounts that are not opened in the books of a central bank but on 
the books of a credit institution. 
A  corporate  action  is  an  event  initiated  by  a  public  company  that 
brings or could bring an actual change to the securities—equity or 
debt—issued  by  the  company,  such  as  stock  splits,  mergers, 
dividend or coupon payments. The role of the CSD is to inform CSD 
participants  holding  the  respective  security  in  custody  about  the 
upcoming corporate action. 
A  legal  person  that  operates  a  securities  settlement  system  and 
provides at least a notary service or a central maintenance service. 
Regulation  (EU)  No 909/2014  of the European Parliament and of 
the  Council  on  improving  securities  settlement  in  the  EU  and  on 
central securities depositories 

Central Securities 
Depository (CSD) 
Central Securities 
Depositories 
Regulation (CSDR) 

Corporate action 

217 See Article 3(1), points 5 and 6 of Regulation (EU) 2023/1114 on markets in crypto-assets (MiCA). 
218  See  Article  2,  point  1  of  Regulation  (EU)  648/2012  on  OTC  derivatives,  central  counterparties,  and  trade 
repositories. 

195 

 
 
 
 
 
Committee on 
Payments and 
Market 
Infrastructures 
(CPMI) 

Custodian or 
custodian bank 

Customised link 
Distributed ledger 
technology (DLT) 

Delivery versus 
payment (DVP) 

EBA 
ECB 
ECSDA 
EEA 
EFAMA 
Electronic money 
token or ‘e-money 
token’ 

ESCB 
ESMA 
Exchange Traded 
Fund (ETF) 

Eurobond 

International 
Organization of 
Securities 

An international standard setter that promotes, monitors and makes 
recommendations  about  the  safety  and  efficiency  of  payment, 
clearing,  settlement  and  related  arrangements,  thereby  supporting 
financial stability and the wider economy. The CPMI also serves as 
a forum for central bank cooperation in related oversight, policy and 
operational matters, including the provision of central bank services. 
An  entity,  often  a  credit  institution,  which  acts  as  an  "account 
provider" and provides securities custody services to its customers, 
i.e. holding and administration of securities owned by a third party. 
A link where the investor CSD benefits from a special access. 
A  technology  that  enables  the  operation  and  use  of  distributed 
ledgers, such distributed ledger means an information  repositories 
that  keep  records  of  transactions  and  that  is  shared  across  and 
synchronised across a set of DLT network nodes using a consensus 
mechanism.219 
A  securities  settlement  mechanism  which  links  a  transfer  of 
securities  with  a  transfer  of  cash  in  a  way  that  the  delivery  of 
securities  occurs  if  and  only  if  the  corresponding  transfer  of  cash 
occurs and vice versa. 
European Banking Authority 
European Central Bank 
European Central Securities Depositories Association 
European Economic Area 
European Fund and Asset Management Association 
A type of crypto-asset (i.e. a digital representation of a value or of a 
right  that  is  able  to  be  transferred  and  stored  electronically  using 
distributed ledger technology or similar technology) that purports to 
maintain  a  stable  value  by  referencing  the  value  of  one  official 
currency.220 
European System of Central Banks 
European Securities and Markets Authority 
Exchange Traded Fund. An investment fund of which at least one 
unit  or  share  class  is  traded  throughout  the  day  on  at  least  one 
regulated market or Multilateral Trading Facility.  
Originally,  the  term  Eurobond  was  reserved  to  bonds  that  were 
issued in currencies different from the currency of incorporation of 
the issuer. Currently, Eurobonds are issued in a limited number of 
jurisdictions  (e.g.  England  and  Wales,  US),  leading  to  numerous 
situations where the law of issuance is different from the law of the 
issuer. 
The  international  body  that  brings  together  the  world's  securities 
regulators  and  is  recognized  as  the  global  standard  setter  for 
financial markets regulation. It develops, implements and promotes 

219  Article  2,  point  1  of  the  Regulation  (EU)  2022/858  on  a  pilot  regime  for  market  infrastructures  based  on 
distributed ledger technology (DLTPR).  
220 Article 3(1), points 5 and 7, of MiCA.  

196 

 
 
 
 
 
Commissions 
(IOSCO) 
Investor CSD 

Issuer CSD 

Direct link 

Indirect link 

Interoperable link 

Margin 

adherence  to  internationally  recognised  standards  for  financial 
markets regulation. 
A  CSD  that  opens  an  account  –  directly  or  through  a  third  party 
acting on its behalf - in another CSD (the issuer CSD) so as to enable 
the cross-CSD settlement of securities transactions.  
A CSD that opens accounts allowing investors (in a direct holding 
system) and/or intermediaries (including investor CSDs) to hold the 
securities it has issued.  
An account  opened by an investor CSD in  the books of an issuer 
CSD in order to facilitate the transfer of securities from participants 
in  the  issuer  CSD  to  participants  in  the  investor  CSD  (see  also 
Investor CSD). 
A  link  between  two  CSDs  through  a  non-CSD  intermediary. 
(Regulation (EU) No 909/2014 of 23 July 2014, Article 1 (32)). 
A  set  of  arrangements/procedures  that  allows  participants  in 
different  systems  to  conduct  and  settle  payment  or  securities 
transactions across systems while continuing to operate only in their 
own  respective  system.  Interoperability  generally  works  as  an 
improvement  of  classical  links.  (Regulation  (EU)  No 909/2014  of 
23 July 2014, Article 1 (33)). 
An asset (or third-party commitment) accepted by a counterparty to 
ensure  performance  on  potential  obligations  to  it  or  cover  market 
movements on unsettled transactions. 

Relayed link 

(Direct) Participant 

Operated direct link  A  direct  link  between  two  CSDs  where  a  third  party,  typically  a 
custodian bank, operates the account in the issuer CSD on behalf of 
the investor CSD. 
A participant to a securities settlement system as defined in Article 
2,  point  (f),  of  Directive  98/26/EC.  Central  counterparties, 
settlement  agents,  clearing  houses,  system  operators,  clearing 
members of an EMIR authorised CCP, credit institutions, investment 
firms  or  public  authorities/guaranteed  undertakings,  payment 
institutions and electronic money institutions may be participants.  
A  contractual  and  technical  arrangement  that  allows  issuer  and 
investor  CSDs  to  hold  and  transfer  securities  through  an  account 
with a third CSD ("middle CSD"), which acts as an intermediary. 
The CSDs are at the top of the securities chain, i.e. all holdings in a 
given financial instrument, whether by an individual or a financial 
institution, are ultimately kept in a securities account at the CSD. 
A  system  which  allows  the  transfer  of  securities,  either  free  of 
payment (FOP) or against payment (delivery versus payment). 
The completion of a securities transaction where it is concluded with 
the  aim  of  discharging  the  obligations  of  the  parties  to  that 
transaction through the transfer of cash or securities, or both. 
The inability  of a participant  to  a Securities Settlement System to 
meet its settlement obligations in the Securities Settlement System. 
This inability may be temporary or permanent. 
An  institution,  which  may  be  authorised  in  accordance  with 
Directive  2013/36/EU  or  Directive  2014/65/EU,  which  executes 

Securities settlement 
system 
Settlement 

Securities at Top Tier 
Level 

Settlement 
internaliser 

Settlement failure 

197 

 
 
 
transfer orders on behalf of clients or on its own account other than 
through a securities settlement system. 
A link where the investor CSD is treated as a normal participant to 
the  issuer  CSD.  (Regulation  (EU)  No 909/2014 of  23 July  2014, 
Article 1 (30)). These links are one-way. 
The  Eurosystem's  single  technical  platform  enabling  CSDs  and 
national  central  banks  to  provide  core,  borderless  and  neutral 
securities settlement services in central bank money in Europe. 

Standard link 

TARGET2-
Securities (T2S) 

1.  INTRODUCTION  

Barriers to efficient post-trade processes in the EU have persisted for decades, stemming from 
deep fragmentation of legal frameworks, tax procedures, and market practices across Member 
States. The first serious attempt to identify and address these barriers came with the Giovannini 
Reports in 2001 and 2003221, which pinpointed 15 specific barriers that hamper the creation of 
a truly  integrated market  for cross-border clearing and settlement. These  included, amongst 
others,  mismatches  in  national  operating  hours,  differences  in  corporate  action  processing, 
inconsistent settlement finality rules and divergent taxation regimes. 

These reports catalysed the development of pan-European solutions aimed at removing those 
barriers. Most notably, targeted solutions were introduced across several pieces of legislation, 
including the Central Securities Depositories Regulation (CSDR)222, the Securities Financing 
Transactions  Regulation  (SFTR)223  and  the  Shareholders  Rights  Directive  (SRD).224  In 
addition, the European Central Bank developed TARGET2-Securities (T2S), aiming to provide 
a unified settlement platform across the Euro area (and potentially the EU). Yet, despite these 
efforts, fragmentation and barriers remain. In its 2017 report225, the European Post Trade Forum 
(EPTF)  reassessed  the  landscape  and  found  that  while  some  Giovannini  barriers  had  been 
mitigated, 11 of the original 15 persisted, either in full or in part, such as inefficient withholding 
tax relief procedures and incomplete legal harmonisation around securities ownership rules. 
The 2020 CMU Action Plan226 announced the Commission’s intention to come forward with a 
legislative proposal to amend the CSDR to improve its efficiency and effectiveness (‘CSDR 
Refit’) and contribute to the development of a more efficient post-trading landscape in the EU. 
In particular, Action 13 (developing cross-border services) stated that “to improve the cross-
border  provision  of  settlement  services  in  the  EU  without  negatively  impacting  financial 
stability,  Commission  would  review  the  rules”.  The  Commission  subsequently  presented  a 

221 https://finance.ec.europa.eu/publications/giovannini-reports_en 
222 Regulation (EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving 
securities  settlement  in  the  European  Union  and  on  central  securities  depositories  and  amending  Directives 
98/26/EC and 2014/65/EU and Regulation (EU) No 236/2012. 
223  Regulation  (EU)  2015/2365  of  the  European  Parliament  and  of  the  Council  of  25  November  2015  on 
transparency of securities financing transactions and of reuse and amending Regulation (EU) No 648/2012. 
224 Directive 2007/36/EC of the European Parliament and of the Council of 11 July 2007 on the exercise of certain 
rights of shareholders in listed companies. 
225 https://finance.ec.europa.eu/publications/report-european-post-trade-forum-eptf_en 
226 Communication from the Commission to the European Parliament, the Council, the European Economic and 
Social Committee and the Committee of the Regions, “A Capital Markets Union for people and businesses-new 
action plan”, COM/2020/590 final, 24 September 2020. 

198 

 
 
 
 
 
 
proposal to amend the CSDR; the amendments entered into force in January 2024.227 The CMU 
Action Plan presented further initiatives, e.g. the FASTER initiative to facilitate and harmonise 
withholding  tax  procedures,  which  should  also  contribute  to  facilitating  cross-border 
activity.228 
More  recently,  the  Noyer  Report229  and  the  Letta  Report230  reiterated  that  post-trade 
fragmentation  is  a  major  impediment  to  achieving  a  Capital  Markets  Union.  The  Draghi 
Report231 went further, calling for a single rulebook and regulatory framework for EU post-
trade (i.e. clearing and settlement) infrastructure, emphasising that without full integration of 
that infrastructure – alongside Banking Union reforms – the EU capital market will remain at 
a competitive disadvantage globally. These reports converge in recognising that solving post-
trade fragmentation is not just a technical task but an economic priority for the EU. 

This annex focuses on barriers to the provision of cross-border settlement services, in particular 
in those areas that fall within the scope of the CSDR, and the Settlement Finality Directive 
(SFD).232  It  does  not  provide  analysis  or  proposals  for  a  way  forward  in  areas  outside  that 
scope, notably securities law, taxation, company law, insolvency law, etc. Those areas are being 
looked at as part of separate initiatives that are subject to different timelines announced in the 
Communication on the Savings and Investment Union (‘SIU Communication’).233  

2.  DESCRIPTION OF MARKET AND ENVIRONMENT  

2.1.  OVERVIEW OF POST-TRADE SERVICES 

Safe  and  efficient  post-trade  arrangements  for  securities  transactions  are  a  crucial  element  
of safe and efficient capital markets. Though largely invisible to investors, these arrangements 
ensure that after a trade has been carried out the buyer receives the securities they purchased, 
and the seller is paid. These arrangements are commonly referred to as post-trade services and 
typically include:234 

• 

clearing, which is the process of validating and finalising a transaction before it is settled; 
central  clearing  is  a  specific  form  of  clearing  whereby  a  central  counterparty  (CCP) 
guarantees the performance of transactions by becoming a buyer to every seller and a seller 
to every buyer; 

227 Regulation (EU) 2023/2845 of the European Parliament and of the Council of 13 December 2023 amending 
Regulation (EU) No 909/2014 as regards settlement discipline, cross-border provision of services, supervisory 
cooperation,  provision  of  banking-type  ancillary  services  and  requirements  for  third-country  central  securities 
depositories and amending Regulation (EU) No 236/2012, OJ L, 2023/2845, 27.12.2023. 
228 Council Directive (EU) 2025/50 of 10 December 2024 on faster and safer relief of excess withholding taxes, 
OJ L, 2025/50, 10.1.2025. 
229  https://www.tresor.economie.gouv.fr/Articles/2024/04/25/developing-european-capital-markets-to-finance-
the-future  
230 https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf 
231 https://commission.europa.eu/topics/eu-competitiveness/draghi-report_en 
232 Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality in 
payment and securities settlement systems. 
233 Communication from the Commission to the European Parliament, the European Council, the Council, the 
European Central Bank, the European Economic and Social Committee and the Committee of Regions, Savings 
and Investments Union A Strategy to Foster Citizens’ Wealth and Economic Competitiveness in the EU, 19 March 
2025; https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52025DC0124. 
234 European Post-Trade Forum Report, 15 May 2017, p. 15; https://ec.europa.eu/info/publications/170515-eptf-
report_en. 

199 

 
 
 
 
 
• 

• 

• 

settlement, which is the process that allows the completion of a transaction, i.e. discharging 
the obligations of the parties to that transaction, through the transfer of cash or securities; 

asset servicing, which encompasses administrative and operational processes that allow 
investors to benefit from, or exercise, rights tied to a security held over its lifetime (e.g. 
receiving dividend or coupon payments, voting, etc.); 

post-trade  reporting  of  individual  transactions  and/or  positions  of  nominated  market 
participants. 

Post-trade services  are an integral part of the securities industry value chain (see Figure 1). 
They are provided by post-trading infrastructures (i.e. CCPs, CSDs and trade repositories235)  
as well as by banks and investment firms (e.g. in their role as custodians or brokers). 

Figure 1: Securities industry value chain 

Source: European Post-Trade Forum Report, p. 15. 

Safe and efficient post-trading infrastructures are essential for ensuring trust in the financial 
system,  allowing  investments  to  flow  into  the  real  economy,  increasing  competition  and 
thereby further fostering a stronger and more resilient financial system.  

Timely  settlement  is  important  as  it  allows  market  participants  to  make  contingent  plans, 
contributing to the depth and liquidity of the financial markets and to their smooth functioning. 
Settlement is normally carried out in a securities settlement system operated by a CSD. In a 
CSD, buyers’ and sellers’ settlement instructions are matched, verifying the ability of the sellers 
to deliver the securities and the ability of the buyers to pay; after that the transaction is settled 
discharging the parties from their obligations. However, if both the buyer and the seller in a 
securities transaction have accounts at the same intermediary (usually a bank or an investment 
firm), the transaction can also be settled by an internal transfer between those accounts. In such 
a case, the intermediary is acting as a settlement internaliser236, which executes transfer orders 
on  behalf  of  clients  or  on  its  own  account  without  going  through  a  securities  settlement 
system.237  

235 Trade repositories are used by market participants for post-trade reporting purposes. 
236 Article 2(11) of the CSDR. 
237  A  firm  internalises  settlement  if  it  receives  an  instruction  from  a  client  and  transfers  securities  from  one 
securities account to another in its books rather than forward it to another intermediary or a CSD.  

200 

 
 
 
 
 
 
2.2.  LEGAL CONTEXT 

The provision of settlement services is governed by several pieces of EU legislation.  

2.2.1.  Central Securities Depositories Regulation 

The  CSDR,  which  entered  into  force  on  17  September  2014,  aimed  to  harmonise  the  rules 
applicable to CSDs and the timing and conduct of securities settlement in the EU. In particular, 
it introduced: 

• 

• 

• 

• 

• 

• 

strict organisational, conduct of business and prudential requirements for CSDs; 

prudential  and  supervisory  requirements  for  CSDs  and  other  institutions  providing 
banking-type services that support securities settlement; 

a passport system allowing authorised CSDs to provide their services across the EU; 

an obligation to record in book-entry form all transferable securities admitted to trading or 
traded on the trading venues; 

a settlement discipline regime to deal with settlement failures; and 

a harmonised settlement period for securities transactions executed on trading venues.  

Many  of  the  provisions  in  the  CSDR  are  based  on  the  Principles  for  Financial  Market 
Infrastructures238  developed  by  the  Committee  on  Payments  and  Market  Infrastructures 
(CPMI)239 and the International Organization of Securities Commissions (IOSCO).240 

The CSDR has amended a few times since its entry into force. In 2021, following a review of 
the functioning of the CSDR, the Commission published a report241 concluding that although 
the CSDR, in broad terms, achieved its original objectives, targeted changes could improve the 
Regulation’s  efficiency  and  effectiveness.  In  line  with  the  conclusions  of  the  report,  the 
Commission  proposed  certain  amendments  to  the  CSDR  in  the  same  year.  The  amending 
Regulation, known as CSDR Refit242, was adopted by the European Parliament and the Council 
on 13 December 2023 and entered into force on 17 January 2024. The CSDR Refit aimed to 
reduce the financial and regulatory burden on CSDs and improve their ability to operate across 
borders, by: 

• 

• 

introducing a simpler passporting regime to facilitate cross-border settlement and ease 
the administrative and financial burden of the process; 

enhancing CSD supervision by setting up mandatory supervisory colleges for CSDs that 
are of substantial importance to the functioning of the securities markets in at least two 

efficiency  of  payment, 

238 https://www.iosco.org/v2/about/?subSection=cpmi_iosco&subSection1=pfmi  
239 The CPMI is an international standard setter that promotes, monitors and makes recommendations about safety 
and 
see 
https://www.bis.org/cpmi/about/overview.htm.  
240 IOSCO is an international body that brings together the world’s securities regulators and that sets standards in 
the area of financial markets regulation. For more details see: https://www.iosco.org. 
241  “Report from the Commission to the European Parliament and the Council on improving securities settlement 

arrangements.  For  details 

settlement 

clearing, 

related 

and 

in the European Union and on central securities depositories”, COM (2021) 348. 

242 Regulation (EU) 2023/2845 of the European Parliament and of the Council of 13 December 2023 amending 
Regulation (EU) No 909/2014 as regards settlement discipline, cross-border provision of services, supervisory 
cooperation,  provision  of  banking-type  ancillary  services  and  requirements  for  third-country  central  securities 
depositories and amending Regulation (EU) No 236/2012. 

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Member States in order to facilitate cooperation and information exchange between 
Member States’ authorities; 

• 

• 

improving the settlement efficiency regime by better specifying its scope; and 

easing CSDs’ access to banking-type ancillary services, including those provided by 
other CSDs.  

In 2025, the Commission presented a proposal to amend the CSDR to shorten the time in which 
a securities transaction executed on a trading venue needs to settle (i.e. the settlement cycle) 
from no later than two business days following the date of the trade (‘T+2’) to no later than 
one business day after that date (‘T+1’) by 11 October 2027.243 The move to T+1 is expected 
to reduce counterparty risk for market participants - and hence reduce the amount of collateral 
those  participants  need  to  provide  to  guarantee  transactions  -  and  incentivise  greater 
harmonisation and automation of post-trade processes. This will improve the efficiency and 
resilience of EU capital markets thereby contributing to the aims of the Savings and Investment 
Union (SIU). The European Parliament and the Council reached a political agreement on the 
amendment on 18 June 2025, with Coreper confirming the text on 27 June and the European 
Parliament approved it on 10 September 2025.  

CSDs  may  also  be  subject  to  other  EU  legislation  depending  on  their  status,  e.g.  CSDs 
operating with a banking licence are also subject to the relevant banking legislation. Moreover, 
they may have to comply with certain national laws in the Member State in which they are 
incorporated, e.g. securities, corporate or civil law. CSDs operate securities settlement systems, 
which qualify as systems under the SFD and are therefore subject to the applicable national 
transposing laws.  

It  can  also  be  noted  that  the  CSDR  is  complemented  by  the  DLT  Pilot  Regime  Regulation 
(DLTPRR)244 that enables CSDs to provide notary, maintenance and settlement services using 
DLT in an experimental context.245  

2.2.2.  Settlement Finality Directive 

The SFD aims to reduce systemic risk arising from the insolvency of participants in payment 
systems (such as TARGET2246) and securities settlement systems (such as those operated by 
CCPs  and  CSDs),  hereafter  referred  to  as  ‘systems’.  It  was  adopted  in  1998  and  has  been 
amended six times since.  

The  SFD  allows  payments  and  securities  transactions  to  be  made  safely  and  settled  in 
systemically  important  systems.  In  particular,  it  protects  systems  by  disapplying  certain 
national insolvency rules, if a party to a transaction becomes insolvent. By doing so, the SFD 
ensures  that  payments  and  security  transfer  orders  become  final  (i.e.  it  ensures  ‘settlement 
finality’)  and  netting  arrangements  are  enforceable,  even  if  the  instructing  party  becomes 
insolvent. The SFD also protects collateral given by the insolvent party and clarifies which law 
applies in certain cross-border situations. The SFD applies to systems designated by a Member 
State. While the scope of the SFD is limited to systems governed by the law of a Member State, 

243  Proposal  for  a  Regulation  of  the  European  Parliament  and  of  the  Council  amending  Regulation  (EU)  No 
909/2014 as regards a shorter settlement cycle in the Union, COM/2025/38 final, 12.2.2025. 
244 Regulation (EU) 2022/858 of the European Parliament and of the Council of 30 May 2022 on a pilot regime 
for market infrastructures based on distributed ledger technology, and amending Regulations (EU) No 600/2014 
and (EU) No 909/2014 and Directive 2014/65/EU. 
245 See Sections 3.1.3 and 4.2.3 as well as Annex 10 on the DLT Pilot Regime. 
246 TARGET2 is the real-time gross settlement system for payments owned and operated by the Eurosystem. 

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Member States may extend SFD-like protections, as described above, to domestic entities that 
participate  in  third-country  systems.247  Moreover,  participation  in  SFD-designated  systems  
is also limited (mainly to banks, investment firms and system operators248). 

2.2.3.  Financial Collateral Directive 

The smooth and safe exchange of collateral is essential for the well-functioning and stability 
of financial markets and the SIU. The FCD was adopted on 6 June 2002 and has been amended 
three  times  since.  It  introduced  a  harmonised  framework  for  the  use  of  financial  collateral  
to secure transactions and thus contributed to enhancing cross-border use of financial collateral. 
The  comprehensive  approach  introduced  by  the  FCD  was  deemed  necessary  because  of 
divergent  national  rules  applicable  to  financial  collateral  which  were  frequently  impractical 
and often opaque. Also,  a clarification was introduced in the SFD249 which explicitly refers  
to the FCD when defining ‘collateral security’ and specifies that, without limitations, financial 
collateral eligible under the FCD is eligible under the SFD as well. 

The  FCD  does  not  aim  to  fully  harmonise  national  laws  applicable  to  financial  collateral 
arrangements.  Rather,  it  aims  to  remove  barriers  to  the  timely  cross-border  creation  
and operation of such collateral arrangements. This aim is achieved by providing protection to 
collateral takers notably by: (i) ensuring that financial collateral arrangements can be mobilised 
and  are  usable  without  delay  due  to  national  formalities;  (ii)  ensuring  close-out  netting250 
provisions are enforceable in accordance with their terms; and (iii) ring-fencing the operation 
of financial collateral arrangements should one of the parties become insolvent.  

While these protections constitute exceptions to the principles of equal treatment of creditors 
upon the opening of insolvency proceedings and universality of insolvency proceedings they 
are needed to help to avoid systemic contagion risks throughout the EU. 

2.3.  THE ROLE OF CSDS 

The three ‘core’ services under the CSDR are:  

• 

• 

the ‘settlement service’: the operation of a securities settlement system through which 
securities  are  delivered,  or  are  exchanged  against  cash  or  other  securities,  between 
buyer and sellers (via participants to the securities settlement system);  
the ‘notary service’: initial recording of securities in a book-entry system;251  

247 For more details see Recital 7 of the SFD as well as Section 3.2.9 of this annex. 
248 For more details see Article 2, point (f), of the SFD and Section 3.2.9 of this annex. 
249 This was introduced in 2009 by Directive 2009/44/EC of the European Parliament and of the Council of 6 May 
2009  amending  Directive  98/26/EC  on  settlement  finality  in  payment  and  securities  settlement  systems  and 
Directive 2002/47/EC on financial collateral arrangements as regards linked systems and credit claims (Text with 
EEA relevance, OJ L 146, 10.6.2009, pp. 37–43. 
250 Close-out netting is an arrangement commonly used in financial markets, to set off and replace all agreed but 
not  yet  due  liabilities  and  claims  vis-à-vis  a  counterparty  by  one  single  claim/liability.  It  ordinarily  covers 
instances where a counterparty defaults or becomes insolvent. 
251 A mechanism that enables firms to transfer assets (e.g. securities) without physically moving paper documents 
or certificates. Bank for International Settlement, Committee on Payments and Market Infrastructures – Glossary, 
https://www.bis.org/cpmi/glossary_030301.pdf . 

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• 

the ‘central maintenance service’ – maintaining securities accounts at the top tier 
level.252 

The  CSDR  defines253  a  CSD  as  a  legal  person  that  operates  a  securities  settlement  system  
(i.e. provides a settlement service) and provides at least one other core service. Notary services 
and  central  maintenance  services  are  only  operated  by  CSDs  except  for  the  cases  where  a 
Member State specifically allows for other parties to do so. Settlement can also be undertaken 
by settlement internalisers.254  
Settlement  in  CSDs  is  normally  carried  out  electronically.255  To  facilitate  this,  CSDs  offer 
holding securities centrally in book-entry (i.e. electronic) form. When securities are exchanged 
against cash, CSDs offer a procedure known as delivery versus payment (DvP), which ensures 
that neither party ends up with both the securities and the cash, and the other party with nothing. 
To  allow  for  cross-border  settlement,  CSDs  will  often  have  links  with  other  CSDs.  Cross-
border securities settlement is sometimes complex, involving at least two CSDs and multiple 
intermediaries.256  

CSDs also play a crucial role in the initial recording of newly issued securities (notary service). 
The initial recording generally occurs at the same time as the initial issuance of the securities 
by  the  issuer.  Once  created,  securities  are  usually  recorded  and  deposited  in  a  single  CSD, 
called the ‘issuer CSD’. The notary service is essential as it ensures that there are not more 
securities circulating than were actually issued and entered in the issuer CSD’s account (i.e. 
they ensure the integrity of the issue). 

Finally, CSDs ensure the maintenance of securities accounts that record how many securities 
have been issued by whom and each change in who holds those securities. Securities accounts 
are closely linked to the key mission of CSDs, which is to ensure - through their position at the 
top of the holding chain257 - that no more securities are settled than were actually issued.  

CSDs play a crucial role for the financing of the economy. Apart from the issuance process, 
securities  posted  as  collateral  by  non-financial  companies,  banks  and  other  financial 
institutions in financing transactions flows through securities settlement systems operated by 
CSDs. CSDs also play an essential role for the implementation of monetary policy by central 
banks as they settle securities provided as collateral in central bank monetary policy operations. 
In addition to their core services, some CSDs provide non-banking ancillary services,258 such 
as collateral management services, maintaining shareholder registers or supporting corporate 
actions,259  that  contribute  to  enhancing  the  safety,  efficiency  and  transparency  of  securities 

252 This allows CSDs to track all holdings, i.e. who owns it, in a given financial instrument, by a CSD participant, 
are ultimately kept in a securities account at the CSD. 
253  Article 2(1) of CSDR. 
254  See Section 2.4.2.3, provision of cross-border CSD-services. 
255  Physical settlement is also possible and is still used for securities that are held in physical form, although this 

form of settlement is rare nowadays. 

256  “Post-trade  explained  –  The  role  of  post-trade  services  in  the  financial  sector”,  Association  for  Financial 

Markets in Europe, February 2015. 

257  All tradeable securities are held on the books of various intermediaries, between the ultimate owner and the 

CSD, creating a security holding chain.  

258  For a non-exhaustive of ancillary services provided by CSD’s list see Section B of the Annex to the CSDR. 
259 A corporate action is an event initiated by a public company that brings or could bring an actual change to the 
securities - equity or debt - issued by the company, such as stock splits, mergers and dividend or coupon payments. 
The role of a CSD is to inform its participants holding the respective share or bond in custody about the upcoming 
corporate action.  

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markets. These services do not expose CSDs to credit or liquidity risk. The CSDR also allows 
CSDs to  provide banking-type ancillary services260 related to  core or ancillary services,  i.e. 
providing  cash  accounts  and  accepting  deposits  from  participants  to  a  securities  settlement 
system,  providing  cash  credit,  guarantees  and  commitments  or  payment  services.  
These services expose CSDs to credit or liquidity risk. 

Given the importance of CSDs as financial market infrastructures they are required to designate 
the  securities  settlement  systems  they  operate  under  the  SFD  in  order  to  enhance  financial 
market stability.  

2.4.  CSDS IN THE EUROPEAN UNION 

2.4.1.  Market structure 

Historically,  CSDs  were  established  along  national  lines  to  provide  a  local  venue  for  the 
issuance  and  settlement  of  securities.  Today,  this  fragmentation  remains  with  25  CSDs 
currently  authorised  in  the  EU  under Article  16  of  the  CSDR.261  With  the  addition  of  the 
Icelandic and Norwegian CSDs, 27 CSDs operate in the EEA. In contrast, the US market is 
more concentrated and specialised with 2 CSDs. 262 

Of the 25 EU CSDs, two are international CSDs (ICSDs): Clearstream Banking in Luxembourg 
and Euroclear Bank in Belgium. ICSDs settle trades in international and domestic securities, 
usually through direct and indirect links (i.e. through agents established in local markets) with 
other  CSDs.  Originally,  ICSDs  focused  on  settling  securities  transactions  denominated  in 
currencies  from  countries  other  than  the  country  in  which  the  issuer  is  based263  and  CSDs 
focused  on  national  markets. Today,  the  settlement  activities  of  ICSDs  and  CSDs  are  more 
similar  and  there  are  no  differences  in  legal  status  or  requirements  applying  to  ICSDs  and 
CSDs.[1] Thus, the term ‘ICSD’ denotes a business  strategy (scope of services) rather than 
legal or regulatory difference. From a regulatory standpoint Clearstream Banking Luxembourg 
is a CSD established in Luxembourg and Euroclear Bank is a CSD established in Belgium.264  

CSDs  operate  different  business  models,  depending  on  the  core  and  ancillary  services  they 
provide. To settle trades in international and domestic currencies, five CSDs265, including the 
two ICSDs, are authorised to provide ancillary banking services. All EU CSDs authorised under 
the CSDR settle equities transactions and corporate debt. A significant majority of CSDs settle 
government debt.266 EU CSDs have a variety of corporate structures and ownership models. 

260 For an exhaustive list see Section C of the Annex to the CSDR. 
261  ESMA  CSD  Register,  https://www.esma.europa.eu/sites/default/files/library/esma70-155-11635_csds_register_-
_art_21.pdf , ESMA70-155-11635. Please note that in addition to the 25 authorised CSDs, there are 7 CSDs that 
are exempted from the authorisation and supervision requirements under the CSDR, in accordance with Article 
1(4) thereof: 6 of them are operated by central banks while one is a public body charged with or intervening in 
the management of the public debt. 
262  In  the  US  corporate  bonds  and  equities  are  settled  through  the  Depository  Trust  and  Clearing  Corporation 
(DTCC) while government securities and related entities are settled through Fedwire Securities Service, which is 
operated by the Federal Reserve System. 
263  ICSDs  were  established  to  serve  the  Eurobond  market  –  that  is,  bonds  issued  by  corporate  issuers  for 
international investors, typically in a non-domestic currency.  
264 See ECSDA FAQ: Frequently Asked Questions - ECSDA. 
265 KELER Central Depository Ltd, OeKB CSD GmbH, Clearstream Banking AG, Clearstream Banking S.A and 
Euroclear Bank. 
266  European  Central  Securities  Depositories  Association  (ECSDA)  Members  Database  2023.  Source: 
https://ecsda.eu/ecsda-members-database-2023  

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Only the Croatian, Cypriot and Maltese CSDs are majority owned by the national government, 
while  in  Hungary  the  central  bank  is  the  majority  owner.  In  the  case  of  other  EU  CSDs, 
shareholders include stock exchanges, banks, national governments, central banks and other 
private institutions.267  
There are indications268,269 that EU market infrastructures enjoy stable market conditions, with 
high margins, high barriers to entry (for regulated activities) and switching costs for users270 as 
well as countercyclical features which provide for a robust business model, in particular in the 
case of ICSDs.271 With few exceptions, CSDs are profit-making entities.272 

2.4.2.  Growing settlement market 

EU  CSDs  serve  a  large  securities  market.  As  of  end-2024,  EU  securities  were  traded  on 
314 trading venues,273 including 119 regulated markets, 30 organised trading facilities and 170 
multilateral  trading  facilities.  At  that  point  in  time,  189 974  equity  instruments274  were 
available for trading in the EU. Close to 130 000 bonds were available for trading in the EU.  

EU CSDs serve the growing EU capital  market  by handling increasing  amounts of trading.  
In  2024,  EU  CSDs  handled  approximately  606  million  delivery  instructions  worth  over 
EUR 70 trillion of securities and representing a total turnover of almost EUR 1 690 trillion. In 
2020, EUR 56 trillion worth of securities were held in EU securities settlement systems, which 
handled  over  506 million  delivery  instructions  for  a  total  of  turnover  of  over  EUR 1 
349 trillion. This is a growth of 25% in value of securities held, 20% in number of delivery 
instructions and 25% in turnover in the period between 2020 and 2024.275 While the size of EU 
capital  market  has  grown  significantly  as  illustrated  previously,  it  should  be  noted  that  it 
represents a constantly decreasing share of global capital markets; in 2009, the EU represented 
17% of global markets but only 11% in 2022.276 

267  European  Central  Securities  Depositories  Association  (ECSDA)  Members  Database  2023.  Source: 
https://ecsda.eu/ecsda-members-database-2023 
268 “Financial Market Infrastructure Sector View 2025”, S&P Global Ratings, 27 January 2025. 
269 “Analysis of CSD fees in major European markets”, AFME, October 2025. 
270 For users, the costs of repositioning cash and securities between CSDs point to the benefit of consolidating 
each security in a single CSD. Source: “Study on consolidation and reducing fragmentation in trading and post-
trading infrastructures in Europe”, Final Report, Bourse Consult & Civitta, September 2025 (forthcoming). 
271  Global Financial Market Infrastructure Companies Outlook 2025, Outlook Report, Fitch Ratings, 02 December 
2024. 
272 “Study on consolidation and reducing fragmentation in trading and post-trading infrastructures in Europe”, 
Bourse Consult & Civitta, 2025: https://op.europa.eu/en/publication/doi/10.2874/2649452 . 
273 A trading venue includes Regulated Markets, Multilateral Trading Facilities and Organised Trading Facilities. 
MiFID dashboard 2024. 
274 MiFID dashboard 2024. 
275 For comparison, the value of securities held by the UK CSD (Euroclear UK & International) fell by 8%, from 
EUR 6 257 billion in 2019 to EUR 5 783 billion in 2023. The value of delivery instructions also fell, by 4%, from 
EUR 361 323 billion in 2019 to EUR 348 606 billion in 2023. In the US, the value of securities held by the two 
CSDs (DTC and Fedwire Securities Service) rose by 25%, from EUR 130 083 billion in 2019 to EUR 167 054 
billion in 2023, the number of delivery instructions processed increased by 45%, from 578 822 000 in 2019 to 
842 345 000 in 2023 (+45%), and the value of instructions processed increased by 88%, from EUR 497 trillion in 
2019 to EUR 938 trillion in 2023. Source: Bank for International Settlement, Red Book Statistics, Payment and 
financial market infrastructures. BIS data converted at fixed exchange rate.  
276 See https://www.sifma.org/resources/research/statistics/research-quarterly-equity-and-related/  

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Despite the large number of CSDs operating in the EU, in 2024 the four277 largest CSDs held 
over 75% of all securities held in EU CSDs.  

Consolidation of the sector 
Although there are 25278 CSDs authorised under the CSDR to operate in the EU and most of 
them remain organised along national lines, there has been some competition, integration and 
consolidation  in  the  sector,  spurred  by  several  factors,  namely  regulatory  changes  aimed  
at facilitating cross-border activity, as well as economies of scale and scope.  

Economies of scope may be achieved by consolidating service providers along the value chain 
of  securities  transactions,  i.e.  by  combining  trading,  clearing  and  settlement  into  one 
conglomerate. In the last 25 years, consolidation between CCPs, CSDs and stock exchanges 
has  created  EU  financial  market  infrastructure  conglomerates.  For  example,  the  merger 
between  Cedel  International  and  Deutsche  Börse  Clearing  in  2000  led  to  the  formation  of 
Clearstream. The latter is part of Deutsche Börse Group, which now operates three (I)CSDs 
(Clearstream Banking SA, Clearstream Banking AG and LuxCSD), several CCPs and several 
exchanges. Similarly, through acquisitions of the Lisbon Stock Exchange in 2002, of Oslo Børs 
in 2019, of VP Securities (the Danish CSD) in 2020 and of Borsa Italiana in 2021, Euronext 
now operates exchanges in seven EEA countries, a CCP (Euronext Clearing) and four CSDs 
under the Euronext Securities umbrella (in Denmark, Italy, Norway and Portugal).279 In March 
2025,  Euronext  announced  that  Euronext  Securities  Milan  would  become  the  CSD  for  the 
settlement of Euronext Amsterdam, Brussels and Paris equity trades by the second semester of 
2026.280  In  July  2025,  Euronext  launched  the  acquisition  of  the  Greek  trade  and  post-trade 
vertical silo, Athens Exchange Group (including the stock exchange, the CCP and the CSD).281 
Lastly, Nasdaq Baltic operates stock exchanges in Estonia, Latvia and Lithuania while Nasdaq 
CSD, being part of the same corporate group, provides post-trade services for the Baltic region 
(and Iceland). 

Euroclear Group has meanwhile pursued a strategy of horizontal consolidation by combining 
an  ICSD  (Euroclear  Bank)  with  6  domestic  CSDs  (in  Belgium,  Finland,  France,  the 
Netherlands, Sweden and the UK). Since 2009, Euroclear operates ESES, a common settlement 
platform and single access point with harmonised rules and practices, for three of its CSDs: 
Euroclear  Belgium,  Euroclear  France  and  Euroclear  Nederland.  Despite  this  level  of 
integration,  the  three  CSDs  remain  separate  legal  entities  and  maintain  three  securities 
settlement systems to account for different laws in the respective Member States.  

As a result of this consolidation, several CSDs, particularly in Member States with the largest 
settlement volumes, are now part of pan-European corporate groups. The three largest groups 
(Euroclear, Euronext and Deutsche Börse) represent 96% of EU CSD settlement activity and 
93% of assets under custody.282  

277 Euroclear Bank (28%), Clearstream Banking Frankfurt (18%), Clearstream Banking Luxembourg (15%) and 
Euroclear France (14%). 
278 Cf. footnote 47. This number does not include CSDs operated by a public body.  
279 Euronext has recently announced that its exchanges in Amsterdam, Brussels and Paris will designate Euronext 
Securities  as  the  CSD  for  the  settlement  of  equity  trades  from  September  2026.  See  “Euronext  consolidates 
settlement on its markets to improve European capital markets’ competitiveness”, Euronext  Press  Release, 12 
March 2025. 
280 Euronext consolidates settlement on its markets to improve European. 
281 31072025_Euronext_PR_ATHEX announcement.pdf 
282 “Unlocking scale and competitiveness in Europe’s markets”, Euroclear, September 2024. 

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Technological innovation  
In  the  post-trade  market,  distributed  ledger  technology283  (DLT)  is  currently  considered  the 
most promising way to simplify processes, reduce costs, and increase efficiency and security 
of transactions.284 It therefore has the  potential to  alter the post-trade  landscape, potentially 
leading  to  lower  costs  and  faster  settlement,  and  transform  how  securities  are  held  and 
recorded.285 

In a report published in 2024, the Association for Financial Markets in Europe (AFME) focuses 
on  the  size  and  growth  of  the  global  DLT  wholesale  market286  noting  that  in  2024,  EUR  3 
billion of DLT fixed income instruments287 were issued globally, a 260% increase from the year 
before.  

Most of the realised projects so far experimenting with DLT point to the potential for financial 
infrastructures to move towards real-time settlement, flatter structures, continuous operations 
and global reach.288 This is reflected in the growing application of DLT in post-trade processes, 
i.e. issuance and settlement of shares and bonds, data recording or the use of tokens to represent 
shares.289 A report290 published in 2023 noted that DLT could unlock transformative cost-saving 
and  operational  efficiency  benefits  (e.g.  approximately  USD  20  billion  annually  in  global 
clearing and settlement costs), innovation-led growth, broader market access and new liquidity 
pools  when  operating  at  scale  (e.g.  an  approximately  USD  16  trillion  global  market  for 
tokenised illiquid assets by 2030).  

One important aspect of the developments in relation to the use of DLT in the post-trade market 
in the EU was the establishment of the DLTPRR (adopted in 2022). Its aim was to establish a 
flexible  regulatory  framework  that  would  enable  the  industry  to  use  DLT  to  introduce 
experiment to gain efficiencies in, for example, issuance and transfer of financial instruments 
and  aspired  to  create  a  flexible  framework  that  would  allow  certain  derogations  from  the 
standard  rulebook  (i.e.  the  CSDR)  to  make  it  easier  for  participants  to  the  pilot  regime  to 
experiment with DLT for CSD services.291 

Another,  important  aspect  of  the  developments  of  the  use  of  DLT  in  settlement  markets  is 
allowing for cash settlement on DLT-based structures. The ECB has engaged in initiatives to 
test  and  consider  the  potential  of  using  DLT  in  the  post-trade  market.  Between  May  and 

283 The DLTPRR defines ‘DLT’ as “a technology that enables the operation and use of distributed ledgers” and 
‘distributed ledger’ as “an information repository that keeps records of transactions and that is shared across, and 
synchronised between, a set of DLT network nodes using a consensus mechanism”.  
284 Benos, Evangelos & Garratt, Rod & Gurrola Perez, Pedro, ‘The economics of distributed ledger technology 
for securities settlement’ (2019). Ledger. 4. 10.5195/ledger.2019.144. 
285 In 2015 an estimated EUR 17-24 billion was spent annually on trade processing globally; Bech, J. Hancock, 
T. Rice & A. Wadsworth, ‘On the future of securities settlement’, Bank for International Settlement, BIS Quarterly 
Review, March 2020. 
286 DLT-based Capital Market Report, Size and Growth of the Global DLT Wholesale Market 2024.  
287 Fixed income issuance includes bonds, bills, commercial paper, covered bonds, and structured notes. 
288  Shabsigh,  G.,  Khiaonarong,  T.  Leinonen  H.,  ‘Distributed  ledger  technology  experiments  in  payments  and 
settlements’, International Monetary Fund, June 2020. 
289  See  ‘The  use  of  DLT  in  post-trade  processes’,  Annex  1,  Advisory  Groups  on  Market  Infrastructures  for 
Securities and Collateral and for Payments, European Central Bank, April 2021. 
290 The Impact of Distributed Ledger Technology in Global Capital Markets, published by the Global Financial 
Markets  Association  (GFMA)  together  with  Boston  Consulting  Group  (BCG),  Clifford  Chance  and  Cravath, 
Swaine  &  Moore  LLP,  May  2023,  impact-of-dlt-on-global-capital-markets-full-report.pdf  (accessed  25  May 
2025). 
291 The DLTPRR has been in application since March 2023 and is subject to review under the SIU. Details as to 
such review can be found in Annex 10 – Innovation (DLT). 

208 

 
 
 
 
 
November  2024,  the  Eurosystem  engaged  with  64  market  participants292  across  different 
sectors and countries in conducting trials293 involving real transactions as well as experiments 
using mock scenarios with nearly EUR 1.6 billion in central bank money being settled as part 
of this work. Following its decision, taken in February 2025,294 to expand its initiative to settle 
transactions recorded on DLT in central bank money, the ECB Governing Council in June 2025, 
approved  a  plan  that  will  enable  settling  DLT  transactions  using  central  bank  money.  The 
initiative follows a two-track approach where the first track, named Pontes,295 provides a short-
term offering to the market – including a pilot phase – and the second track, named Appia,296 
focuses on a potential long-term solution and is in line with the Eurosystem’s commitment to 
supporting  innovation  without  compromising  on  safety  and  efficiency  in  financial  market 
infrastructures.297  

The ECB has engaged in collaborative projects with several third-country central banks (e.g. 
Bank  of  Japan,  Bank  of  England)  and  also  participates  in  global  central  bank  initiatives 
coordinated by the BIS. 

Several  EU  CSDs  have  also  started  to  use  the  new  technology,  some  within  the  current 
framework set out under the CSDR, others within the framework set out under the DLTPRR. 
Examples include: 

• 

In 2023, Euroclear298 launched its Digital Securities Issuance (D-SI) service. The service 
enables the issuance, distribution and settlement of fully digital international securities  - 
Digitally Native Notes (DNN) - on DLT. The D-SI service operates under the CSDR as part 
of  Euroclear’s  D-FMI  DLT  platform  which  is  connected  to  the  conventional  settlement 
platform  of  Euroclear  for  secondary  market  operations  in  DNN,  granting  investors  full 
access  to  trading  venues  and  liquidity  management  facilities.  In  2024,  Euroclear 
participated  in  an  experiment  to  tokenise  gilts,  Eurobonds  and  gold  to  circulate  these 
‘digital twins’ in a novel collateral management system.  

292 https://www.ecb.europa.eu/paym/pdf/participants_eurosystem_exploratory_work.pdf. 
293 Exploratory work on new technologies for wholesale central bank money settlement 
294  Eurosystem  expands  initiative  to  settle  DLT-based  transactions  in  central  bank  money,  20  February  and 
https://www.ecb.europa.eu/press/pubbydate/2025/html/ecb.exploratoryworknewtechnologies202506.en.html#toc11  
295 Pontes will offer a Eurosystem DLT-based solution, linking DLT platforms and TARGET Services to settle 
transactions in central bank money. The Eurosystem plans to launch a pilot for Pontes by the end of the third 
quarter of 2026. It will offer a single Eurosystem solution which incorporates features used in the Eurosystem's 
exploratory work on DLT in 2024. During the pilot, the Eurosystem will also explore the feasibility of further 
enhancements in line with the TARGET Services operational, legal and technical standards. Between now and 
the  launch  of  the  Pontes  pilot,  the  Eurosystem  will  consider  requests  for  further  DLT-related  trials  and 
experiments. 
296  Appia  focuses  on  a  long-term  approach  for  an  innovative  and  integrated  ecosystem  in  Europe  that  also 
facilitates safe and efficient operations at the global level. The Eurosystem will actively continue to analyse DLT-
based solutions and collaborate with public and private stakeholders.  
297  Eurosystem  expands  initiative  to  settle  DLT-based  transactions  in  central  bank  money,  20  February: 
https://www.ecb.europa.eu/press/pubbydate/2025/html/ecb.exploratoryworknewtechnologies202506.en.html#toc11. 
298 https://www.euroclear.com/services/en/primary-issuance/digital-financial-market-
infrastructure.html#:~:text=D-
SI%20is%20the%20first%20service%20offering%20available%20on,settlement%20platform%20%E2%80%93
%20all%20in%20compliance%20with%20CSDR. 

209 

 
 
 
 
 
• 

• 

In 2024, CSD Prague became the first CSD to gain an authorisation for a DLT settlement 
system under the DLTPRR.299 As a result, the CSD offers issuers of book-entry securities 
registration of issues in a newly created DLT-based registry, which allows the maintenance 
of a securities account, the crediting of shares or bonds to this account as part of a primary 
subscription, an issue increase or a transfer from another account based on an agreement 
with the counterparty.  

In  2024,  Deutsche  Börse  Group’s  Clearstream  established  its  next-generation  digital 
issuance  platform  D7,  that  provides  a  fully  digital  alternative  to  conventional  physical 
issuance  and  processing  of  securities.  The  platform  covers  all  retail  structured  products 
issued in Germany as well as a range of debt capital market products. D7 participated as a 
DLT market operator in the ECB’s trials and experiments.300  

Provision of cross-border CSD-services  

The three ‘core’ CSD services described in Section 2.3, i.e. notary, central maintenance and 
settlement services, can be provided cross-border in the EU. To do so, CSDs must comply in 
certain cases with a passport system allowing them to provide their services across the EU, as 
well as with rules on the establishment of various types of links between CSDs. CSDs offer 
EU notary services cross-border when they cater for the issuance of financial instruments by 
an issuer from a Member State that is different from the Member State the CSD is authorised 
in. Similarly, CSDs offer EU central maintenance services when they maintain at top tier level 
the accounts of participants that are established in a Member States that is different from the 
Member State the CSD is authorised in. Under the CSDR, for the purposes of passporting rules, 
CSDs are considered to offer notary and central maintenance services cross-border where they 
offer such services with respect to financial instruments constituted under the law of another 
Member State, as defined under the CSDR. As regards settlement services, those services are 
notably considered cross-border at CSD level when the Member State301 where the securities 
were issued is different from the Member State302 where the securities are settled. The latter is 
only  possible  when  a  link303  between  the  CSD  of  issuance  and  the  CSD  of  settlement  is 
established.   

One way of measuring cross-border activity is to look at the number of links between CSDs, 
the volume (i.e. number) and value of settlement instructions settled through those links. There 
are different types of links (e.g. standard, indirect304). The introduction of the CSDR in 2014 
led to the creation of a large number of links between CSDs in the EEA, although their number 
declined slightly between 2020 and 2022 from 174 to 161, numbers rose again to 180 in 2025. 
The CSDs with the highest number of links established with other CSDs from the EEA are the 
two ICSDs (26 for Clearstream Banking SA and 21 for Euroclear Bank). Among the members 
of ECSDA (40 national and international CSDs that go beyond the EU), there are a total of 372 

299 https://www.cdcp.cz/csd-prague-receives-first-european-dlt-register-
approval/?lang=en#:~:text=The%20CSD%20was%20the%20very%20first%20institution%20in,Bank%20with
%20notification%20from%20the%20European%20regulator%20ESMA. 
300 https://www.clearstream.com/clearstream-en/securities-services/issuance-1-/electronic-securities. 
301 i.e. the Member State of the issuer CSD.  
302 i.e. the Member State of the investor CSD.  
303 See Glossary for definition.  
304 See Glossary for definitions. 

210 

 
 
 
 
 
links, 46% of which are direct links, 37% are relayed links and 17% are indirect links. More 
than half of these links are used on a daily basis.305   

Although the number of links between EEA CSDs decreased between 2020 and 2022, the total 
volume  and  value  of  instructions  settled  through  those  links  has  almost  doubled  during  the 
same period, going from 23.6 million instructions for a total value of EUR 131.2 trillion to 44.1 
million  transactions  for  a  total  value  of  EUR 261.8  trillion.306  The  share  of  cross-border 
settlement in total settlement also grew, from approximately 12.3% in 2017 to 19% in 2022.307 
This increase in cross-border activity was mainly through ICSDs. Indeed, the average value of 
instructions settled through links is more than 9 times higher in ICSDs than in other CSDs. In 
terms  of  financial  instruments  settled  through  links,  the  majority  are  shares  (19%),  closely 
followed  by  sovereign  and  corporate  bonds  (17%  each),  and  other  types  of  transferable 
securities (16%).308 

A similar picture emerges when one looks at the volume and value of cross-CSD settlement 
instructions  settled  in  T2S.  One  of  the  objectives  of  T2S  was  to  make  settlement  between 
accounts in different CSDs simpler. Indeed, between 2020 and 2024, the volume of instructions 
settled in T2S increased approximately 64%, from 1.75 to 2.9 million, while the value of those 
instructions increased by approximately 46%, from 4.7 to 6.9 trillion (see Figure 2 below).309 
However, as shown in Figures 3 and 4, while the increase was material, the volume and value 
of cross-CSD settlement represents only a fraction of the overall volume and value settled in 
T2S. Indeed, in 2024, the volume and value of cross-CSD settlement represented, respectively, 
3.7% and 3.8% of the total volume and value of settlement in T2S.310 

305 “CSD Links Report”, ECSDA, October 2025. 
306 See "Provision of cross-border services by CSDs and handling of applications under Article 23 of CSDR from 
2020 to 2022“, European Securities and Markets Authority ESMA74-2119945925-1568, 31 January 2024. See 
paragraph 92.  
307  Based on own calculations, by combining ESMA data for cross-border activity (See ESMA Reports ESMA70-
156-3569  &  ESMA74-2119945925-1568)  with  total  value  of  settlement  instructions  from  the  ECB  securities 
trading, clearing and settlement data base.  
308 “Provision of cross-border services by CSDs and handling of applications under Article 23 of CSDR from 
2020 to 2022“, European Securities and Markets Authority, ESMA74-2119945925-1568, 31 January 2024. See 
paragraph 94.   
309 Please note that the numbers differ from those provided in the ESMA report due to the different scope: not all 
CSDs  participate  in  T2S.  In  particular,  the  main  driver  behind  this  is  that  both  ICSDs,  Euroclear  Bank  and 
Clearstream Banking SA, do not settle their transactions through T2S: the former is a participant in T2S, but has 
yet to start settling its transactions through the platform, while the latter is not a participant. The absence of the 
two ICSDs has a particularly strong impact on the cross-border settlement numbers, as those two account for the 
majority of cross-border settlement in the EU. 
310 “TARGET Services Annual Report 2024”, European Central Bank, July 2025. See chapter ”Intra-CSD, cross-
CSD and external CSD settlement”. 

211 

 
 
 
 
 
 
 
 
 
Figure  2:  Total  volume  and  value  of  all 
settlement instructions settled in T2S 

Figure 3: Total volume and value of cross-
CSD settlement instructions settled in T2S 

n
o

i
l
l
i

m

210

200

190

180

170

160

300

250

200

150

100

50

0

n
o

i
l
l
i
r
t
R
U
E

n
o

i
l
l
i

m

10

8

6

4

2

0

10

8

6

4

2

0

n
o

i
l
l
i
r
t
R
U
E

2020

2021

2022

2023

2024

2020

2021

2022

2023

2024

Volume (lhs)

Value (rhs)

Volume (lhs)

Value (rhs)

Source: TARGET Services Annual Report 2024. See 
Chart 18 and Chart 22. 
Figure 4: Share of cross-CSD settlement instructions in total volume and value of settlement 
instructions settled in T2S 

Source: TARGET Services Annual Report 2024. See 
Chart 35 and Chart 36.  

4%

3%

2%

1%

0%

2020

2021

2022

2023

2024

Volume

Value

Box 1: TARGET2-Securities (T2S) 

T2S was launched in 2015. It is a common platform that offers settlement of securities in 
central bank money. It is operated by the Eurosystem. At present, 24 CSDs311 are connected 
to  T2S,  including  all  euro  area  CSDs  authorised  under  the  CSDR,  with  the  exception  of 
Clearstream Banking SA (Luxembourg), AthexCSD (Greece) and CDCR (Cyprus). CSDs 
connected to T2S include 3 CSDs operated by central banks (Belgium, Bulgaria and Greece), 

311 One of those CSDs is Euroclear Bank. As explained in footnote 90, the latter is connected to T2S but has yet 
to start settling its transactions in T2S. 

212 

 
 
 
 
 
 
 
 
 
 
2 CSDs from non-euro area Member States (Denmark and Romania) and one non-EU CSD 
(Switzerland).312 T2S offers settlement in Euro and in Danish Krone. 

Through  its  goal  to  make  cross-border  securities  settlement  operations  as  seamless  as 
domestic  ones,  T2S  has  contributed  to  removing  some  of  the  barriers  in  cross-border 
settlement.  This  has  been  accomplished  by  the  effective  outsourcing  of  settlement  from 
CSDs to T2S (central maintenance and notary services remain in national CSDs).313 T2S has 
i) harmonised business hours and calendars, ii) addressed the absence of, or differences in, 
intraday  settlement  finality  affecting  cross-border  transactions,  iii)  put  in  place  common 
communication  and  messaging  standards,  and  iv)  made  idiosyncratic  technological 
infrastructure  redundant.  In  addition,  T2S  enabled  cash  pooling,  allowing  market 
participants  to  consolidate  their  cash  balances  into  one  single  account  at  a  central  bank 
connected to the platform and to benefit from liquidity optimisation as well as netting tools. 
Finally, it also contributed to the efforts aimed at adopting harmonised market standards, 
including for corporate actions. 

Participation in T2S is not sufficient to allow for cross-CSD settlement of securities; for that 
to happen, links need to be established between CSDs that are connected to T2S. Once links 
are established in accordance with the requirements and procedures set out in the CSDR,314 
cross-CSD  settlement  via  T2S  becomes  possible.  T2S  has  helped  to  reduce  the  costs  of 
settlement  for  cross-border  transactions.  In  addition,  the  streamlining  of  processes  and 
standardisation fostered  by T2S has reduced the  cost  of establishing  direct  standard links 
between CSDs connected to T2S compared to those not connected to T2S. Finally, T2S has 
also reduced the costs of cross-border settlement via banks, since they now only need one 
cash account at a central bank connected to T2S. 

Another way of measuring the evolution of cross-border services provided by CSDs is to look 
how  important  the  services  provided  by  a  CSD  established  in  a  Member  State  are  for 
participants and issuers from other Member States.  

As shown in Figures 5 and 6, the number of host Member States in which the activities of CSDs 
from other Member States are of substantial importance has remained stable since 2020. Most 
CSDs have no substantially important activity in any host Member State, i.e. most CSDs mainly 
provide their services to domestic participants. Although the extent of cross-border provision 
of notary and central maintenance services can be measured in various ways, it is evident that 
apart from the two ICSDs, the vast majority of CSDs are serving national markets. While most 
CSDs  provide  between  5%-20%  of  notary  and  central  maintenance  services  in  relation  to 
securities issued by issuers from other EEA states, 3 of them provide almost all their services 
in respect of such instruments: the two ICSDs and Nasdaq CSD.315  

312 For a list of CSDs participating to T2S see: https://www.ecb.europa.eu/paym/target/target-professional-use-
documents-links/t2s/shared/pdf/List_of_CSDs_connected_to_T2S.pdf  
313 T2S is therefore not considered a CSD under the CSDR. Please note that T2S only performs the technical 
settlement; from a legal perspective, settlement takes places in the securities accounts of the CSDs connected to 
T2S. 
314 See Section 2.4.2.3 and Section 3.1.1. 
315 “Provision of cross-border services by CSDs and handling of applications under Article 23 of CSDR from 
2020 to 2022“, European Securities and Markets Authority, ESMA74-2119945925-1568, 31 January 2024. See 
paragraph 79. 

213 

 
 
 
 
 
 
Figure 5: Number of CSDs by bucket of 
number  of  other  EEA  states  for  which  a 
CSD is of substantial importance 

Figure  6:  Number  of  CSDs  by  bucket  of 
share  in  other  EEA  states  of  the  value  of 
financial 
initially 
recorded or centrally maintained in securities 
accounts  by  the  CSD  for  participants  from 
other Member States. 

instruments 

that  are 

Source: “Provision of cross border services by CSDs and handling of applications under Article 23 of CSDR 
from 2020 to 2022”, ESMA74,2119945925-1568, paragraphs 73 and 80. 

A similar picture emerges when the share of securities that a CSD holds in other CSDs are 
looked at as a share of total securities it holds. As Figure 7 shows, only three EU CSDs (i.e. the 
two ICSDs and the Luxembourgish CSD) have a share of more than 20%, while a large majority 
of CSDs has less than 5%. This shows the challenges that investors in smaller markets face in 
accessing  investment  opportunities  (and  providing  liquidity)  throughout  the  EU.  While  a 
smaller CSD (as an investor-CSD) can theoretically rely on a single link to another CSD with 
multiple  links  to  gain  relayed  access  to  a  large  number  of  issuer-CSDs,  in  practice,  among 
CSDs  with  one  or  two  links,  the  ability  to  establish  broad  access  appears  to  be  lacking.316 
Therefore, these low figures can, more generally, be a sign of the low level of cross-border 
investment in the EU, and not only a sign of low use of links.  

316 See Advisory Group on Market Infrastructures for Securities and Collateral (Ami-Seco), “Remaining barriers 
to integration in securities post-trade services – issues and recommendations”, Chapter 5.2.1, September 2025. 

214 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Figure 7: Securities held at another CSD 2015 and 2023 

Source: Calculations based on ECB Securities Settlement Statistics, see: 
https://www.ecb.europa.eu/stats/payment_statistics/securities/html/index.en.html  

Based on the CSD data provided above, one could conclude that while cross-border provision 
of  services  in  the  area  of  post  trade  has  increased  since  the  introduction  of  the  CSDR,  the 
increase  has  been  relatively  limited.  However,  looking  only  at  CSD  data  can  provide  a 
misleading picture. Indeed, as regards settlement services, there is growing recognition317 that 
a large share of cross-border settlement, in particular in terms of volume, is executed outside 
of  CSDs  via  a  process  referred  to  as  internalised  settlement.  Internalised  settlement  is  the 
process  under  which  an  intermediary  (a  bank  or  an  investment  firm)  settles  securities 
transactions  in  its  own  accounts,  outside  of  a  CSD’s  securities  settlement  system.  
This is possible where both parties to a transaction have an account with the same intermediary; 
in  such  cases  the  transaction  is  settled  in  the  accounts  of  the  institution  without  triggering  
a corresponding change in the CSD’s accounts. In a report318 published in 2020, ESMA already 
emphasised “the extremely high values and volumes of internalised settlement”.  

317 See ESMA Report on Trends, Risks and Vulnerabilities No. 2, 2025, ESMA50-1949966494-3846, 9 September 
2025. ESMA50-1949966494-3846 Trends, Risks and Vulnerabilities (TRV) Report, No. 2, 2025. 
318  “CSDR  Internalised  Settlement”,  European  Securities  and  Markets  Authority,  ESMA70-156-3729,  05 
November 2020. 

215 

 
 
 
 
 
 
 
 
 
 
Figure 8: Activity of CSDs (in blue) vs. settlement internalisers (in green) – value (left; in EUR 
trillion) and volume (right; in million) of settlement instructions. Average over 2024. 

Source: TRV Risk Monitor. ESMA Report on Trends, Risks and Vulnerabilities No. 2, 2025, ESMA50-1949966494-3846, 9 
September  2025.  TRV  Statistical  Annex.  ESMA  Report  on  Trends,  Risks,  and  Vulnerabilities  No.  2,  2025,  ESMA50-
1949966494-3847, 9 September 2025. 

Recent data319 confirms this: as shown in Figure 8, ESMA’s observation holds particularly true 
for equities, where internalised settlement volumes in 2024 were almost double than the total 
settlement  volumes  of  CSDs.  In  terms  of  value,  settlement  internalisers  processed 
approximately two-thirds of what was processed by CSDs. For exchange-traded funds, the role 
of settlement  internalisers over the same period  was less important,  though  still significant: 
transactions  settled  by  settlement  internalisers  were  approximately  80%  of  those  settled  by 
CSDs, both in terms of volumes and values. Settlement carried out by settlement internalisers 
has  also  increased  over  time.  In  terms  of  volume,  as  of  end-2024,  settlement  internalisers 
accounted for approximately almost 50% of total settlement in the EU, up from approximately 
40% in Q1 2023. In terms of value, that number was around 18% of total settlement, up from 
roughly 12% over the same period. In addition,  while there are several thousand settlement 
internalisers active in the EU, this activity is highly concentrated: the top five entities account 
for over 90% of total internalised settlement. Nevertheless, it should also be noted that the fail 
rates associated with this activity are noticeably lower than those in CSDs. As of Q1 2025, in 
terms  of  volume,  fail  rates  associated  with  internalised  settlement  were  just  under  3%,  in 
contrast to the 6% fail rate for settlement at EU CSDs. In terms of value, settlement fail rates 
at  settlement  internalisers  and  CSDs  amounted  equally  to  approximately  2.5%.    Fail  rates, 
however, are heterogeneous across different asset classes and can vary drastically. For example, 
in terms of volume, settlement internalisers had higher fail rates than CSDs for UCITS and 
money market instruments. In terms of value, settlement internalisers had higher fail rates than 
CSDs for UCITS, sovereigns, bonds, and money market instruments.  

319 Figures provided by ESMA using information reported under Article 9 of the CSDR.  

216 

 
 
 
 
 
 
 
3.  ASSESSMENT OF PROBLEMS AND NEED TO ACT 

3.1.  PROBLEM DEFINITION AND DESCRIPTION OF CURRENT STATE-OF-PLAY  

3.1.1.  Lack of market integration and scale 

The  settlement  landscape  in  the  EU  is  highly  fragmented.  Fragmentation  forces  market 
participants  to  route  trades  and  settle  through  multiple  CSDs  or  intermediaries,  leading  
to  a patchwork of  fees,  duplicative operational  set-ups and costs, as well as  complex back-
office  arrangements  for  managing  accounts,  procedures,  and  navigating  disparate  legal 
regimes. This also has implications for the operational, legal, and business risks borne by a 
given firm. Fragmented custody of securities can also impede a market participant’s ability to 
mobilise collateral for covering exposures from financial transactions and can even have an 
effect on funding markets, in which highly liquid securities play a critical role. Costs for core 
services can also vary widely across the EU settlement ecosystem with smaller infrastructures 
serving  smaller  markets  sometimes  charging  comparatively  higher  costs.  For  example,  one 
market participant indicated that, on average, it pays almost four times more in settlement fees 
at the EU CSD that demands the highest premium versus the one to which it pays the lowest 
fees. Safekeeping fees on the other hand could be up to seven or eight times more depending 
on the market and the type of instrument.320 

In order for the SIU to deliver on its objectives, the fragmentation of the market for post-trading 
services needs to be addressed. This fragmentation is due to persistent barriers to cross-border 
operations, which are either legal or regulatory in nature – both at EU and national levels – or 
due to an entrenched, legacy market structure and practices that reinforce the lack of seamless 
settlement  across  borders  within  the  Union. This  fragmentation  prevents  both  infrastructure 
providers  and  their  users  from  benefitting  from  economies  of  scale,  i.e.  access  to  greater 
liquidity, lower costs of trading and settlement, etc. For example, one CSD has noted that while 
some activities (i.e. finance, compliance, regulatory management, audit, and risk management, 
among others) have been able to be consolidated into a single entity within the group, other 
key activities – such as operations and management functions – have remained siloed due to 
legal, fiscal and operational constraints that act as barriers in the post-trade space, e.g. disparate 
legal frameworks across Member States in the EU. 

CSDs that wish to operate across borders, and issuers that wish to issue their securities in other 
Member  States,  still  face  significant  compliance,  operational  and  adaptation  costs  linked  
to a complex, non-fully harmonised regulatory landscape, and supplementary, often diverging, 
national rules and specificities. As a result, cross-border issuance remains low. According to a 
recent report by Oliver Wyman, between 2021 and 2025, 90% of EU companies with smaller 
issuances (below EUR 50 million) issued within their home markets. For larger issuances, that 
number remained relatively high at 75%. However, those that did issue abroad, typically chose 
to do so in the US.321  

The  current  passporting  regime,  although  simplified  by  CSDR  Refit,  remains  subject  
to national corporate and securities law obligations (in accordance with Articles 23(3) and 49(1) 

320 Confidential information provided to DG FISMA services. 
321 “The Liquidity Matrix – Rebalancing European Fragmentation: Addressing fragmentation in European Equity 
Markets”, Oliver Wyman, July 2025. 

217 

 
 
 
 
 
of the CSDR), and creates uncertainty for CSDs wishing to operate in other Member States, 
limiting their ability to fully utilise the freedoms of establishment and provision of services.  
As  an  example,  one  small  CSD  indicated  that  setting  up  notary  and  central  maintenance 
services for a single asset class in another Member State took almost five months with a cost 
of  EUR  30  000  and  involved,  among  other  things,  legal  and  risk  assessments,  regular 
communication  with  local  authorities,  and  changes  to  rulebooks  and  procedures.  This,  in 
parallel, also limits issuers’ freedom to issue in any CSD in the EU. As a result, the freedom 
for issuers to use a CSD of their choice is little used in practice. Issuers prefer their “home” 
CSD, where the legal framework is aligned.322. Groups operating several CSDs across multiple 
Member States face regulatory barriers in allocating resources optimally and are not able to 
fully  leverage  the  synergies  that  can  be  drawn  from  consolidation.323  As  a  result,  the 
opportunities afforded by the Single Market are not being fully exploited, leading to suboptimal 
outcomes. 

For intermediaries that wish to provide cross-border services to their clients, the fragmentation 
of  the  post-trading  infrastructure  means  they  must  connect  to  several  CSDs  or  use  other 
intermediaries,  including  sub-custodians,  that  are  connected  to  those  CSDs  (the  latter 
intermediaries benefit from this status quo as they offer, at a cost, a single point of access that 
is otherwise not possible with a fragmented EU market infrastructure landscape). According to 
one  firm  connection  costs  vary  between  EUR 4 million  and 10 million,  depending  on  the 
CSD.324  The  costs  of  maintaining  those  connections  also  vary,  between  EUR 0.5 million 
and 3 million annually. According to the information received, the highest part of the costs is 
due to national specificities that need to be accommodated, and not by the existence of the CSD 
itself.325  

This  entails  higher  costs,  and  hence  higher  fees,  for  cross-border  transactions  compared  to 
domestic transactions, which in turn translates into less cross-border investment in securities 
(including because the high costs may prevent the creation of connections between markets). 
The average total settlement cost to a CSD client in Europe is EUR 0.53 per transaction, of 
which  roughly  EUR 0.10  is  pass-through  of  T2S  charges.  For  T2S  CSDs,  the  average 
settlement instruction fee is EUR 0.34, including T2S charges.326 This compares unfavourably 
with North America, where the average total settlement cost per transaction is EUR 0.25.327 
Another source indicates that settling in a European CSD is on average 65% more expensive 
than a North American (US and Canada) CSD with a weighted average of EUR 0.38 across 9 
European CSDs. Furthermore, every EU-based CSD included in the analysis exhibited a higher 
fee per settlement than the two North American CSDs. Including the ICSDs, this means that if 
European markets applied the same prices for CSD services as those in North America, this 
would yield a cost savings of approximately EUR 947 million.328 This has ultimately negative 
consequences for the international competitiveness of the EU capital market.  

322 “Study on consolidation and reducing fragmentation in trading and post-trading infrastructures in Europe”, 
Final Report, Bourse Consult & Civitta, September 2025: 
https://op.europa.eu/en/publication/doi/10.2874/2649452  
323 See Section 3.2.2. 
324 Confidential information provided to DG FISMA services. 
325 Confidential information provided to DG FISMA services. 
326 “Analysis of CSD fees in major European markets”, AFME, October 2025. 
327 “Study on consolidation and reducing fragmentation in trading and post-trading infrastructures in Europe”, 
Final Report, Bourse Consult & Civitta, September 2025 (forthcoming). 
328 “Analysis of CSD fees in major European markets”, AFME, October 2025. 

218 

 
 
 
 
 
3.1.2.  Fragmented, less efficient and ineffective supervision  

Please refer to the Annex 11 on supervision, Section 3b.  

3.1.3.  Obstacles to innovation and uptake of new technologies329 

A combination of EU legislation, such as the CSDR, the SFD and the FCD, that was not initially 
drafted with the specific characteristics of new technologies, in particular DLT, creates legal 
uncertainty for market participants. Oliver Wyman noted that such new technologies have the 
potential to increase the efficiency and resilience of the back-office processes that underpin 
settlement.  In  addition,  DLT-based  systems  can  improve  the  security  and  transparency  of 
transaction  reporting  and  help  reduce  the  cost  of  sometimes  complex  reconciliation 
exercises.330 However, while this technology is promising, as noted in a recent publication by 
the Deutsche Bundesbank,331 it still suffers from “limited scalability and technical maturity”, 
which currently hinders its widespread use and adoption. These limitations include high latency 
– i.e. the time it takes for a transaction to be finalised – as well as interoperability with other 
systems, including traditional infrastructure. 

Respondents  to  the targeted consultation  noted that legal  uncertainty on the applicability of 
concepts, such as book-entry form and securities accounts, are faced by market participants 
seeking to apply new technologies as well as those who simply want to engage in cross-border 
activity.  Divergent  national  approaches  across  the  EU  to  DLT-based  post-trade  services, 
including  settlement  services,  is  also  noted  in  the  targeted  consultation  as  it  creates  legal 
uncertainty and hurdles in the provision of cross-border provision of services both for new and 
traditional  operators.  The  lack  of  clear  rules  makes  the  cross-border  deployment  of  new 
technologies (e.g. DLT) considerably more complex, time-consuming, expensive and resource-
intensive than necessary or desirable.  

This in turn limits innovation by new providers and/or existing post-trade services providers, 
as it hinders the development of new business models using DLT in the provision of post-trade 
services and in particular settlement services, and the development of a more integrated and 
technologically  advanced  EU  capital  market.  It  also  stifles  competition  among  providers  of 
CSD services, irrespective of the technology they operate with, such as notary, maintenance 
and settlement (both traditional and DLT-based) as some national regimes may facilitate it, and 
others not, fragmenting the market, preventing cross-border activity and potentially putting the 
EU capital market at a competitive disadvantage internationally. 

3.2.  PROBLEM DRIVERS 

The  aforementioned  problems  are  driven  by  two  main  drivers:  (1)  barriers  to  cross-border 
activities and innovation; and (2) limited tools and powers at EU level to ensure convergent 
supervision and effective oversight. This section focused on the first of those drivers. For more 
information on second driver, please see Section 3 of Annex 11 on supervision. It is important 
to  note  that,  although  they  are  analysed  in  separate  annexes,  these  two  drivers  are  closely 

329 Please see Annex 10 – Innovation (DLT) for further details on DLT aspects and on the DLTPRR in particular. 
330 “The Liquidity Matrix – Rebalancing European Fragmentation: Addressing fragmentation in European Equity 
Markets”, Oliver Wyman, July 2025. 
331 “Digital money: options for large-value payments in central bank money”, Deutsche Bundesbank, Monthly 
Report, September 2025. 

219 

 
 
 
 
 
related, interacting to reinforce and exacerbate each other, thus creating market fragmentation, 
preventing or deterring market efficiencies and consolidation. 

The  drivers  identified  below  have  been  identified  through  a  range  of  sources  including,  
but  not  limited  to  the  targeted  consultation,  discussions  with  stakeholders,  experience  
of the design and implementation of the relevant legislation. 

3.2.1.  Barriers to freedom of issuance, passporting and cross-border provision 

of services  

Freedom  of  issuance,  i.e.  the  right  for  companies  to  record  their  securities  in  any  EU  CSD  
of their choice is enshrined in Article 49 of the CSDR. However, this right is without prejudice 
to  the  “corporate  or  similar  law  of  the  Member  State  under  which  the  securities  are 
constituted”.  Inconsistent  and  disparate  national  laws  on  securities  ownership,  corporate 
registration,  and  tax  procedures  create  frictions,  which  limit  cross-border  issuance  
(e.g. a requirement to appoint a local tax agent, which may be difficult to find and add another 
layer of cost). As highlighted by several respondents to the targeted consultation, the wording 
of Article 49 has proven insufficient to ensure freedom of issuance in the EU, particularly in 
light of the divergent understanding by Member States of the concept of “corporate or similar 
law of the Member State under which the securities are constituted.” This has enabled some 
Member States’ laws to even contain restrictions that, in practice, prevent or make difficult the 
issuance  of  securities  in  another  Member  State.  For  example,  several  respondents  to  the 
targeted consultation pointed out that national securities laws of certain Member States directly 
or indirectly only allow dematerialised issuance of securities in the domestic CSD. In particular, 
some  respondents  highlighted  that  national  provisions  governing  the  recording  of  issuance, 
dematerialisation and securities lifecycles require structures or solutions that are not feasible 
for non-local CSDs. Other respondents noted that, even where national rules do not explicitly 
mandate the use of domestic CSDs, the fragmentation of national  regimes and the different 
national interpretations of certain CSDR concepts (such as that of “corporate laws under which 
securities are constituted”) directly affect the possibility for a CSD to offer services to foreign 
issuers and hence for EU issuers to freely issue securities in any EU CSD. In other jurisdictions, 
corporate law is embedded in other domestic financial law (e.g. securities law), which makes 
identifying relevant corporate law aspects legally challenging.  

Furthermore, although the CSDR requires Member States to  “compile a list of  key relevant 
provisions of their corporate or similar law” and communicate this information to ESMA for 
publication, the list332 is not considered by CSDs and issuers to be compiled in a way that is 
conducive to identifying the relevant requirements, despite efforts in CSDR Refit to provide 
clarity.  For  example,  stakeholders  note  that  in  some  cases  the  list  only  provides  high-level 
references  to  national  laws,  which  are  oftentimes  only  available  in  the  local  language  and 
without  further  information  and  no  clear  indication  of  how  these  are  linked  to  the  CSDR 
requirements.  

These barriers restrict an issuer’s freedom of choice and increase the costs of, and deter the 
provision of, cross-border issuance services by CSDs thereby undermining the objectives of 
the SIU. 

332 The list can be found on ESMA’s website: ESMA70-155-11634 Key relevant provisions of national corporate 
or similar law - Article 49 CSDR. 

220 

 
 
 
 
 
Relatedly, passporting under the CSDR – i.e. the possibility for a CSD from one Member State 
to  provide  its  notary  and  central  maintenance  services  in  another  Member  State  –  remains 
incomplete,  as  described  in  the  first  paragraph  of  this  section. According  to  stakeholders’ 
responses  to  the  targeted  consultation  national  authorities  sometimes  impose  specific 
requirements that restrict the ability of CSDs to offer services across borders. Article 23 of the 
CSDR, as amended by CSDR Refit, allows an authorised CSD to provide core services – or set 
up a branch – in another Member State subject to certain conditions. These conditions primarily 
relate to the provision of certain information to the home Member State’s competent authority, 
namely where in the EU the services are to be provided, the services that are to be provided, 
the type of involved financial instruments, the currencies to be processed, the organisational 
structure of the branch (if applicable) and an assessment of how the CSD intends to allow its 
users to comply with the law in the host Member State (the latter information only needs to be 
provided in relation to shares). The home Member State’s competent authority is required to 
transmit this information to the host Member State’s competent authority within two months, 
unless the former competent authority does not wish to allow the CSD to provide these services 
(or to set up a branch) as it has reasons to doubt the adequacy of the administrative structure or 
the financial situation of the CSD intending to provide services in the host Member State or the 
adequacy of the measures the CSD intends to take to allow its users to comply with the law in 
the host Member State (in relation to shares). The CSD may then provide its services – or set 
up  a  branch  –  in  the  host  Member  State  at  the  earliest  fifteen  calendar  days  following  this 
transmission of information. This means that the home Member State’s competent authority 
can deny the CSD the possibility to provide services in a host Member State, on the basis of an 
assessment  of  how  the  CSD  intends  to  allow  its  users  to  comply  with  the  national  law 
provisions  in  the  host  Member  State. This  contrasts  the  Commission’s  original  proposal  on 
CSDR  Refit,  which  limited  the  possibility  for  Member  States  to  refuse  passporting  to  only 
where the home Member State’s competent authority had reasons to doubt the adequacy of the 
administrative structure or the financial situation of the CSD.  

Moreover,  the  CSD  must  wait  a  minimum  of  two  months  plus  fifteen  days  following  the 
provision  of  the  required  information  to  its  competent  authority  before  it  can  provide  its 
services – or set up a branch – in another Member State or make changes to the range of services 
provided,  or  before  it  is  informed  by  the  home  Member  State’s  competent  authority  of  its 
decision not to transmit the information to the host Member State’s competent authority. This 
process,  as has  been highlighted by several  respondents  to  the SIU targeted consultation,  is 
unnecessarily cumbersome, complicated, and costly, and undermines the ability of EU CSDs 
to passport their services in the EU.  

CSDs operated by public bodies are not subject to the passporting requirements. This create an 
unlevel  playing  field  between  public  CSDs  and  CSDs  authorised  under  the  CSDR  that  is 
particularly acute for the provision of cross-border services, which necessitate the passporting 
of central maintenance services for CSDs establishing links, or for the issuance of securities 
under the law of another Member State. Exempted from the burdensome processes pertaining 
to passporting, public CSDs can thus provide those services more easily.  

221 

 
 
 
According to estimates provided in the CSDR Refit impact assessment,333 obtaining a passport 
costs,  on  average,  approximately  EUR 30 000  and  requires  one  person  to  work  full  time 
between 1 and 3 months to prepare the application. According to one CSD, obtaining a legal 
opinion related to compliance with the legal framework of a particular country has a cost of, 
on  average,  EUR  20  000  to  EUR  25  000.  Legal  costs  therefore  comprise  a  substantial 
proportion of the total cost associated with setting up a passporting regime. In fact, one CSD 
noted  that  it  had  spent  almost  EUR  1  000  000  solely  on  legal  fees  in  an  effort  to  set  up 
passporting arrangement across a large number of Member States. Relatedly, according to one 
source, even arranging for extending the scope of services provided to an additional instrument 
type could cost between EUR 10 000 and EUR 15 000. In certain cases, passporting requests 
were not met due to incompatibilities in legal frameworks.334 In addition, according to those 
estimates, the monitoring needed to ensure the continued compliance with the requirements for 
the passport costs, on  average, approximately  EUR 2 000 per year. So a  CSD that wants  to 
provide its services for financial instruments constituted under the law of all other (i.e. 26) EU 
Member  States  would  have  to  pay  approximately  EUR 780 000  to  obtain  all  the  necessary 
passports, would need between 26 and 78 months to prepare the applications (assuming only 
one person would work on the process full time) and would have to pay EUR 52 000 per year 
to monitor compliance with the requirements for the different passports. It should be noted in 
particular that CSDs are required to provide an assessment of the measures the CSDs intend to 
take to allow their users to comply with the law in the host Member State, in relation to shares, 
meaning that a separate assessment needs to be provided for each Member State in which the 
CSD  intends  to  provide  services.  In  its  latest  report  on  the  issue  ESMA  assessed  that  the 
disproportionate length of time to get a “green light” for the passport as well unpredictability 
with regards to duration of the processing time remain some of the main obstacles for the CSDR 
passporting regime.335 

As CSDR Refit simplified the passporting procedure, the abovementioned estimates may no 
longer  be  entirely  accurate.  However,  many  respondents  to  the  SIU  targeted  consultation 
highlighted  how  even  after  those  simplifications,  the  passporting  procedure  remains 
excessively  burdensome  due  to  the  need  for  CSDs  to  undertake  complex  and  divergent 
assessments. These issues serve to deter or increase the cost of cross-border operations and the 
cross-border provision of services in contrast to the objectives of EU legislation and the SIU. 
Nevertheless, ESMA analysis336 shows that Clearstream Banking SA as well as CSDs from the 
Euroclear group have been granted passports in nearly all EEA Member States, indicating the 
potential of CSD passports for cross-border integration. 

3.2.2.  Barriers to intra-group outsourcing  

The CSDR treats intra-group outsourcing – e.g. outsourcing services to a subsidiary or sister 
entity within the same corporate group – the same way as it treats outsourcing to a third party; 
in other words, it applies the same requirements to both types of outsourcing. This imposes 
unnecessary  burdens  and  stifles  operational  efficiencies  that  could  be  realised  by  groups 
operating across borders. This has, in turn, important implications for competition in the sector. 

333  See  Section  2.3.1  of  the  CSDR  Refit  impact  assessment,  available  at  220316-csdr-review-impact-
assessment_en.pdf.  This  data  only  refers  to  the  cost  of obtaining  a passport  and  does  not  include  the  cost  for 
obtaining a CSD authorisation.  
334 Confidential data provided to DG FISMA services. 
335 ”Provision of cross-border services by CSDs and handling of applications under Article 23 of CSDR from 
2020 to 2022”, European Securities and Markets Authority, ESMA74-2119945925-1568, 31 January 2024. 

222 

 
 
 
 
 
 
A healthy competitive landscape would allow for any consolidation to benefit from economies 
of  scale  and  integration  of  technical  systems  and  processes.  Instead,  groups  of  CSDs  are 
prevented  from  designing  their  organisational  structure,  including  through  staff-sharing  and 
other  arrangements,  that  best  suits  their  objectives.  This  prevents  them,  and  the  settlement 
sector  more  in  general,  from  reaping  the  rewards  stemming  from  competition  and 
consolidation.    

Articles 19 of the CSDR includes an obligation for a CSD to seek authorisation in case it wishes 
to outsource a core service to a third party. Article 30 of the CSDR sets out the requirements 
that need to be fulfilled when the CSD outsources any activities and services (core and non-
core). The procedures to be followed are set out irrespective of whether the third party is part 
of  the  same  corporate  group.  This  prevents  CSD  groups  from  taking  full  advantage  of  the 
possible  benefits  from  corporate  synergies  (e.g.  allowing  settlement,  asset  servicing,  cash 
settlement, IT, or human resources to be handled by a single entity in the group), including the 
outsourcing  of  key  services  and  is  contrary  to  the  Commission’s  objective  of  promoting 
consolidation in the post-trade space as stated in the SIU Communication. An example that has 
been highlighted by a CSD relates to the treatment of staff sharing arrangements between CSDs 
that are part of the same group, which under the current CSDR framework is treated in the 
same way as outsourcing with third-party providers. A national authority also highlighted that 
the CSDR framework does not sufficiently cater for intra-group outsourcing. Other respondents 
to the targeted consultation (including CSDs and a national authority) generally mentioned that 
the approach to the qualification of outsourcing is not harmonised between national competent 
authorities. Even where a college of supervisors is in place, there are separate rulebooks for 
each of the entities and strict requirements for outsourcing or sharing resources between group 
entities. As a result, commercial efforts to consolidate market infrastructures have not been able 
to deliver their full benefits.337  

It  should  be  noted  that  considerations  from  an  ICT  risk  perspective  as  regards  outsourcing 
intragroup  versus  outsourcing  to  an  external  third  party  are  included  in  other  relevant 
regulations  such  as  Regulation  (EU)  2022/2554  (‘DORA’).  The  latter  acknowledges  the 
relevance of intragroup outsourcing and maintains a uniform regulatory framework, applying 
the same requirements regardless of whether the outsourcing provider is part of the same group 
as the outsourcer.338  

3.2.3.  Barriers related to cash settlement 

In general,  there are two types of barriers  relating to  cash  settlement: (1) restrictions to  the 
designation of a credit institution for the provision of banking type ancillary services and (2) 
issues related to settlement with tokenised forms of money. 

As regards the first barrier, Article 40(1) of the CSDR requires CSDs to settle the cash leg of a 
securities transaction in central bank money where practical and available. Where this is not 

337 “Study on consolidation and reducing fragmentation in trading and post-trading infrastructures in Europe”, 
Final Report, Bourse Consult & Civitta, September 2025: 
https://op.europa.eu/en/publication/doi/10.2874/2649452  
338 See Recital 31 of DORA: “While intra-group provision of ICT services entails specific risks and benefits, it 
should not be automatically considered less risky than the provision of ICT services by providers outside of a 
financial group and should therefore be subject to the same regulatory framework. However, when ICT services 
are provided from within the same financial group, financial entities might have a higher level of control over 
intra-group providers, which ought to be taken into account in the overall risk assessment.” 

223 

 
 
 
 
 
the case, it allows CSDs to the use commercial bank money to settle the cash leg of a securities 
transaction. In the latter case, the CSD can provide the commercial bank money itself (for that 
it needs to obtain a banking licence) or use the services of a credit institution or a CSD with a 
banking licence. Articles 54 and 55 of the CSDR detail, respectively, the requirements that need 
to be fulfilled under all three of those scenarios and the procedures for obtaining the relevant 
authorisations to provide banking-type ancillary services – e.g. providing cash accounts to, and 
accepting deposits from, participants, providing cash credit, engaging in treasury activities etc. 
–  under  those  scenarios. A  recent  international  review  of  the  EU’s  implementation  of  the 
internationally agreed principles for financial market infrastructures339 noted that central bank 
money should be the default settlement asset but recognised the EU framework’s additional 
requirements for commercial bank settlement and thus considered the ‘gap’ to be minor.340  

If a CSD wishes to avail itself of the services of a credit institution, certain conditions apply. 
For example, the credit institution must have a limited banking licence that allows it to provide 
only accounts for the cash payments341 of securities transactions or the banking-type ancillary 
services  listed  in  Annex  C  to  the  CSDR.  That  credit  institution  must  also  comply  with 
additional capital, reporting and disclosure requirements. As an exception, if the total value of 
cash  settlement  through  the  accounts  opened  with  such  credit  institution  is  below  a  certain 
threshold, the CSD can designate any credit institution. Among the 25 CSDs authorised under 
the CSDR, five CSDs are authorised to offer banking-type ancillary services. So far, one CSD, 
Euronext  Securities  Porto,  has  designated  a  credit  institution  that  falls  under  the 
abovementioned exception. According to ESMA’s CSD register,342 no CSD has designated a 
credit  institution  with  a  limited  banking  licence  as  apparently  no  such  credit  institution 
currently exists. One respondent to the targeted consultation noted that credit institutions that 
wish to designate them for the provision of banking-type ancillary services do not because it is 
not viable to create a subsidiary with a limited banking licence to provide such services. 

This limits a CSD’s available options for settlement in commercial bank money in a foreign 
currency  (i.e.  a  currency  other  that  the  one  available  in  the  CSD’s  Member  State  of 
establishment). In principle, the CSD still has plenty of options to choose from: it can (i) obtain 
itself a banking licence, (ii) avail itself of the services of a CSD with a banking licence, or (iii) 
attempt  to  gain  access  to  the  central  bank  of  the  foreign  currency.  In  reality,  option  (iii)is 
theoretically possible, but it can be challenging to pursue for a CSD that is not domiciled in the 
jurisdiction of the central bank that issues the foreign currency or economically unviable, and 
option (ii) may also prove not economically viable, in particular when the settlement volumes 
may at first be small. This can make the provision of settlement services for certain instruments 
difficult,  if  not  impossible.  For  example,  this  is  particularly  an  issue  for  the  settlement  of 
exchange-traded  funds  (ETFs),  which  are  composite  instruments  with  underlying  assets 
denominated in multiple, often non-EU (hence difficult to access for those CSDs), currencies 
as the CSD may be unable to offer the settlement in the currency of the denomination of the 
financial instrument.  

339 Principles for Financial Market Infrastructures.  
340 Implementation monitoring of PFMI: Level 2 assessment report for the European Union – PSs and CSDs/SSSs 
341 Those cash payments can only be in currencies that are not issued in the country where the CSD is established.  
342 ESMA70-155-11635 CSD Register 

224 

 
 
 
 
 
This issue was also raised, albeit in a broader context, under CSDR Refit,343 which noted that 
apart  from  being  authorised  themselves  to  provide  banking  services,  CSDs  may  also  use  a 
designated  credit  institution  for  such  services.  That  impact  assessment  also  noted  that  the 
conditions set out in the CSDR for such institutions are very strict. 

As  regards  the  second  barrier,  as  noted  previously,  the  CSDR,  in  line  with  international 
standards, requires the settlement of transactions in central bank money where practical and 
available. Where the settlement of cash payments in central bank money is not practical and 
available, settlement may be undertaken in commercial bank money. For a CSD operating a 
DLT-based securities settlement system that wishes to use an asset that is directly compatible 
with the technology underpinning that system to settle the cash leg of a transaction, settlement 
in central bank money is currently not an option because currently EU central banks do not 
offer  digital  central  bank  money344  for  settlement  on  DLT  platforms  outside  of  trial 
environments  (although  the  ECB  recently  announced  a  plan  that  will  enable  settling  DLT 
transactions using central  bank money345). While theoretically, technology  could  be used to 
bridge the gap between settlement via DLT and central bank money, it would involve creating 
an additional layer, entailing costs and complexity, as well as reducing the potential benefits of 
settlement via DLT. As such, at present, although some experimentation346 has taken place, no 
such system exists. Such CSDs therefore need to use commercial bank money. However, while 
the DLTPRR allows for settlement to take place through tokenised forms of commercial bank 
money, or e-money tokens, at present, the concept of ‘cash’ used in the CSDR (and also in the 
SFD and the FCD)347 lacks clarity on its scope, in particular in terms of new tokenised forms 
of money.  

Respondents  to  the  targeted  consultation  noted  that  CSDs  wishing  to  operate  DLT-based 
systems  within  the  CSDR  framework348  cannot  use  any  form  of  tokenised  money  as  a 
settlement asset without legal ambiguity. 29 out of 33 of the respondents to these questions in 
the targeted consultation underlined the need to update the definition of cash to include certain 
forms of tokenised money. They argued that making use of the infrastructure for the variety of 
settlement assets, such as crypto-assets, would help pooling of assets, leveraging the existing 
market connectivity for bigger scalability for all relevant actors, further integration of diverse 
markets, injecting further safety and investor protection in these markets and would support 
the modernisation and positioning of European markets as global financial champions. Another 
respondent noted that the lack of a harmonised EU-level definition or regulatory framework 
explicitly recognising tokenised forms of money as cash represents a regulatory gap that limits 
the seamless integration of these instruments in DLT-based settlement infrastructures, stifling 

343  Commission  Staff  Working  Document,  Impact  Assessment  Report  accompanying  the  Proposal  for  a 
Regulation of the European Parliament and of the Council amending Regulation (EU) No 909/2014, 16.3.2022, 
SWD(2022) 75 final. 
344 Central bank digital currency or CBDC is used interchangeable in this IA as referring to money issued digitally 
by a central bank immediately compatible to use with DLT technology and DLT based systems.  
345 ECB commits to distributed ledger technology settlement plans with dual-track strategy 
346  See,  for  example,  https://www.bundesbank.de/en/tasks/payment-systems/trigger-solution/trigger-solution-
920174  
347 Of the three pieces of legislation, only the FCD contains a definition of ‘cash’; it defines it as money credited 
to an account in any currency, or similar claims for the repayment of money, such as money market deposits. 
348 As explained above, they can use certain tokenised forms of money in the context of the framework of the 
DLTPRR. 

225 

 
 
 
 
 
innovation and risking unregulated activity proliferating without the appropriate safeguards in 
place. 

3.2.4.  Underuse of T2S and the fragmented settlement landscape 

Although  settlement  via T2S is  growing,  the platform  continues to  be underused by market 
participants.  Despite  23  EU  CSDs  being  connected  to  T2S,  transactions  settled  through  it 
represent less than 30% of the value of securities transactions settled in all CSDs.349. This is in 
part because two of the largest CSDs, namely the two ICSDs are still not settling through T2S; 
of the two, Euroclear Bank350 is expected to start settling euro-denominated securities through 
T2S in Q2 2026 (this could lead to a substantial increase in the percentage of the total value of 
securities settled in T2S), while it remains unclear if and when Clearstream Bank SA intends 
to join. In addition, an important share of settlement, in particular over 80% in terms of volume 
and approximately 70% in terms of value of equity instruments, happens “outside” of CSDs at 
the level of settlement internalisers hence “outside” of T2S (see Section 2.4.2.3 and Section 
3.2.5). 

As regards the volume of transactions, T2S represents  slightly less than half of the volume 
(number) of transactions settled in EU CSDs. The relatively low settlement volumes have an 
impact on the fees charged by T2S: given the latter’s pricing strategy, which is based on the 
full recovery of the Eurosystem’s expenses for operating the platform (including the original 
investment for its development),351 lower settlement volumes therefore automatically mean a 
higher  fee352  per  transaction  settled.  . The  total  fees  charged  to  participating  CSDs  in  2023 
amounted to EUR  121 million, which remains insufficient to cover the T2S operating costs of 
EUR 133 million.353  In  general,  settlement  costs  (both  within  and  outside  T2S)  remain  a 
concern, with almost all stakeholder participating in the targeted consultation noting that these 
costs should be reduced to improve competitiveness of EU capital markets. Nevertheless, some 
EU  stakeholders354  estimate  that  T2S  can  help  by  contributing  to  the  harmonisation  of 
settlement  processes  and  standards  but  only  to  a  limited  extent  given  the  specific  (notably 
domestic) requirements stemming from cross-border, cross-CSD settlement and given the fact 
that  not  all  CSDs  or  currencies  are  connected  to  or  available  on  T2S.  Nevertheless,  some 
estimates  indicate  that  using  T2S  could  potentially  reduce  transaction  costs  by  30%  when 
compared to settling in a CSD not connected to the platform.355 This would translate to a saving 
of at least EUR 0.15 per transaction and a settlement cost of EUR 0.37. In addition,  further 
costs savings generated by T2S would help further bridge the gap to US settlement costs of 
EUR  0.25  Euro  per  transaction. A  user  directly  connected  to  T2S  noted  that  once  the T2S 
investment costs are fully amortised (in the near future), T2S settlement costs should decrease 
significantly.356 These costs however can be substantial. Joining T2S has cost CSDs anywhere 
between EUR 23 million and EUR 113 million, more than half of which can be attributed to IT 

349 Estimates based on the data from ECB Securities Settlement Statistics, see: 
https://www.ecb.europa.eu/stats/payment_statistics/securities/html/index.en.html  
350 Euroclear Bank settlement represents approximately half of EU settlement value.  
351 The initial investment is expected to be fully amortised by 2029, at which point the settlement fees are expected 
to decrease. 
352 T2S charges a single fee per transaction, irrespective of the volume of transactions settled through it by a CSD 
participant. 
353  ”Study  in  consolidation  and  reducing  fragmentation  in  trading  and  post-trading  infrastructures  in  Europe” 
Bourse Consult & Civitta, 2025: https://op.europa.eu/en/publication/doi/10.2874/2649452  
354 Confidential data provided to DG FISMA services.  
355 Confidential data provided to DG FISMA services. 
356 Confidential data provided to DG FISMA services. 

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development costs, followed by testing, and staff support. In addition, maintenance costs can 
be up to EUR 1 million per year.357 

The  existing  barriers  that  relate  to  market  structure  have  also  reinforced  the  high  level  of 
fragmentation  in  the  market  for  CSD  services.  While  T2S  has  centralised  settlement 
infrastructure in the markets served by participating CSDs, its introduction was not sufficient 
to support seamless operations across borders.  

As mentioned earlier, one way in which the CSDR tried to address this fragmentation was by 
facilitating the establishment of links between CSDs. However, as explained in Section 2.4.2.3, 
while links between CSDs in the EU have become more numerous, they are underutilised and 
with very few exceptions, most CSDs maintain only a small number of links (i.e. four or fewer). 
Furthermore, the existence of a link between two CSDs does not mean that a participant in 
either CSD can settle transactions in securities issued in the other. This depends on the type of 
financial  instruments  supported  by  a  link  (e.g.  many  of  the  existing  links  only  support  the 
settlement of bonds, but not shares), as well as on whether the link is unidirectional or two 
reciprocal links (i.e. a ‘bidirectional link’) have been established. When a link is unidirectional, 
the CSD requesting the link (known as an ‘investor CSD’) opens an account at a recipient CSD 
(i.e. an issuer CSD). When such a link is established, only participants in the investor CSD may 
settle  a  security  held  at  an  issuer  CSD.  In  order  to  allow  for  the  reciprocal  scenario,  a 
bidirectional link is needed, i.e. the two CSDs need to open an account at the other CSD to 
which the link is being established. As a result, although there are numerous links in place, the 
network they create is not complete and therefore the participants in all CSDs cannot settle, 
directly or indirectly, their transactions in all other CSDs. This is a particular obstacle for the 
growth and tapping into a European liquidity pool for smaller markets. Using as a case study358 
the operation of Nasdaq CSD in the Baltic states, the study on post-trade integration notes the 
limited  connectivity  with  Euroclear  and  partial  links  to  Clearstream  as  a  factor  deterring 
international investors from participating in IPOs in the Baltic states. 

In order for a CSD to establish a link with another CSD, it must comply with EU regulatory 
requirements (Article 48 of the CSDR and the related regulatory technical standards)359 and 
idiosyncratic  national  legal  regimes  (e.g.  corporate,  insolvency  and  tax  laws),  conduct  risk 
assessments  and  technical  verifications,  set  up  internal  procedures  and  appropriate  IT 
infrastructure  (e.g.  to  facilitate  reconciliation  and  ensure  secure  compatibility  and  data 
integrity, among other things), establish contractual arrangements and service level agreements 
with the CSD it is connecting to and ensure compliance with the membership and operational 
requirements  of  that  CSD.  In  addition,  it  has  to  perform  ongoing  due  diligence  in  order  to 
ensure ongoing compliance with all those elements, as well as part of the periodic CSD review 
and evaluation. As such, there are both one-off, initial costs related to the establishment of links 
(e.g.  those  related  to  IT  setups,  account  setup  and  management,  administrative  work, 
coordination, and legal and risk assessments, among others), as well as ongoing maintenance 
costs to ensure, e.g. up-to-date legal opinions. According to several sources, the establishment 

357 Confidential data provided to DG FISMA services. 
358 “Study on consolidation and reducing fragmentation in trading and post-trading infrastructures in Europe”, 
Final Report, Bourse Consult & Civitta, September 2025: 
https://op.europa.eu/en/publication/doi/10.2874/2649452 . 
359 For example, a CSD wishing to establish a standard link must either submit an application for authorisation to 
its  competent  authority  (for  interoperable  links)  or  notify  that  authority  (for  standard  links),  manage  risks 
stemming from links etc. 

227 

 
 
 
 
 
of an inbound link can vary widely in terms of cost. On the low end, two CSDs with similar IT 
systems, harmonised messaging standards and minimal divergences in legal frameworks that 
wish to establish a link for a narrow set of instruments and straightforward services (e.g. for 
settling  government  bonds  with  standard  interest  payments)  could  do  so  for  a  one-time 
establishment cost of EUR 30 000 to EUR 60 000 and EUR 30 000 to EUR 50 000 in annual 
maintenance  costs.  More  complex  arrangements  involving,  for  example,  new  markets  and 
setting up bespoke services could cost between EUR  670 000 and EUR  1 330 000, especially 
in the case that changes would be needed to IT infrastructure and with ongoing maintenance 
costs of up to 2 bps in the most expensive markets. In any event, the establishment of a link 
could take up to six months. Altering an existing settlement arrangement could cost well over 
EUR 1 000 000 to complete, depending on the level of complexity and simply adding a new 
instrument category to the range of those covered by an existing link could cost almost EUR 
200 000.360 Over 85% of entities that provided a response to the question on links in the targeted 
consultation361 indicated that there are barriers to the establishment of links, citing in particular 
issues with respect to compliance with EU regulatory requirements (notably the CSDR) and 
national  laws,  as  well  as  market  practices  (i.e.  lack  of  harmonisation  in  operational  aspects 
including settlement cut-offs or corporate actions processing). 

Although the CSDR has facilitated the establishment of cross-CSD links, this has not resulted 
in a fully integrated market for CSD services. Furthermore, existing barriers and frictions in 
cross-border settlement have spawned other avenues through which settlement can take place. 
In  particular,  settlement  outside  CSDs  is  growing  through  internalised  settlement  (see  next 
section).  Such  developments  raise  level  playing  field  considerations  as  well  as  growing 
challenges to the creation of an integrated and well-functioning EU settlement market, while 
also potentially creating increasing risks to transparency and systemic stability. 

3.2.5.  Internalised settlement 

The  barriers  to  settling  across  borders  between  CSDs  have  facilitated  the  entrance  of 
intermediaries  that  act  as  a  single  entry-point  within  the  fragmented  settlement  landscape. 
These  intermediaries  are  connected  to  multiple  CSDs  and  provide  custody  and  settlement 
services to clients who wish to invest in securities issued in those CSDs. By virtue of their role, 
these intermediaries usually also act as settlement internalisers. 

On the one hand, settlement internalisers play an important role in cross-border settlement: the 
networks created by these intermediaries help  bridge gaps  in  the interconnectedness  among 
CSDs (particularly in equity markets) thus reducing the costs of fragmentation of settlement 
infrastructure362 and hence facilitate trading of financial instruments across the EU; they also 
provide custodial (and related) services and are a form of competition for CSDs in the provision 
of service to the benefit of market participants. On the other hand, these networks are opaque, 
contribute to maintaining the existing fragmentation of settlement infrastructure, as they reduce 
the economies of scale that could be achieved through the establishment of CSD links, thereby 
undermining  the  business  case  for  those  links.  The  concentration  of  activity  in  a  systemic 
internaliser  may  bear  risks  if  the  settlement  internaliser  frequently  facilitates  timing 

360 Confidential information provided to DG FISMA services. 
361 Thirty responses were received on this question. 
362 This is because using intermediaries avoids clients the need to connect to multiple CSDs themselves and thus 
incur the related costs. Anecdotal evidence points to cost savings for clients of up to 60%. 

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mismatches by providing intraday credit or own inventory363 and may lead to higher costs for 
end-investors than would be the case if the level of integration of settlement infrastructure(s) 
were  higher.    These  additional  costs  make  it  more  difficult  for  those  end-investors  to  take 
advantage of investment opportunities or of capital flows pooling, thus affecting the efficient 
allocation of capital.   

The growth  of internalised settlement  raises the question of whether all entities involved in 
settlement operate on a level playing field as CSDs face requirements under the CSDR when 
carrying out their activities, while settlement internalisers face much lighter requirements under 
the CSDR when carrying out those same activities. Indeed, the only requirement settlement 
internalisers are currently subject to under the CSDR (see Article 9 thereof) is to report to their 
competent authorities, on a quarterly basis, the aggregate volume and value of all securities 
transactions  that  they  settle  outside  of  a  securities  settlement  system.  This  is  because  most 
settlement internalisers are supervised as banks and investment firms. However, although most 
settlement  internalisers  are  also  credit  institutions  and  therefore  face  broader  prudential 
requirements under the relevant banking legislation, the CSDR has additional requirements, 
e.g. for the provision of intraday credit, and other requirements, e.g. settlement discipline to 
which internalised settlement is not subject. Furthermore, ESMA’s 2020 report on settlement 
internalisation noted that the main risks introduced by settlement  internalisers are legal  and 
operational.364 

The responders to the targeted consultation did not call, with the exception of CSDs and a few 
Member States, for additional regulatory requirements. Still, the lack of transparency concerns 
authorities  and  raises  the  question  of  how  the  prominence  of  this  activity  impacts  the 
integration and efficiency of post-trade processes. In the conclusions of the abovementioned 
report on settlement internalisers, ESMA highlighted the importance of continuing to monitor 
this  activity  to  assess  whether  it  should  be  regulated  in  the  future.  ESMA  stated  that  this 
monitoring is  particularly important  due to the high,  and increasing,  values and volumes of 
internalised settlement activity, as well as the high level of concentration in this space. 

3.2.6.  Lack of transparency on prices charged, and service provided, by CSDs 

The  CPMI-IOSCO  Principles  for  Financial  Market  Infrastructures  state  that  “transparency 
helps ensure that relevant information is provided to an FMI’s participants, and the public to 
inform sound decision making and foster confidence”. One of the key aspects related to this is 
transparency of prices and fees for services offered by CSDs. While the CSDR requires that 
CSDs publicly disclose their prices and fees and provide clients with information that allows 
them to reconcile invoices, this is not often accomplished in a very clear and straightforward 
way.365  The  total  fee  schedules  of  all  EU  CSDs  are  estimated  to  amount  to  1000  pages, 
underlining both the lack of standardisation in terms of terminology and categorisation as well 

363 Feedback from the targeted consultation. 
364 2020 ESMA Report on Internalised Settlement. See also Section 2.4.2.3 on provision of cross-border CSD 
services.  
365 In a survey on CSD fee schedules 13 market participants (out of 14) indicated that CSD fees schedules are 
too complex. Source: “Study on consolidation and reducing fragmentation in trading and post-trading 
infrastructures in Europe”, Final Report, Bourse Consult & Civitta, September 2025: 
https://op.europa.eu/en/publication/doi/10.2874/2649452 . 

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as  opaque  disclosure  of  tariffs.366,367  A  lack  of  consistent  price  transparency  across  the 
settlement  landscape  hinders  competition  by  preventing  market  participants  from  making 
effective comparisons between CSDs and thus making informed decisions on where to settle 
transactions. It also creates additional costs for market participants in reconciling fees across 
multiple CSDs. This is particularly relevant in the context of settlement in T2S. As CSDs have 
different practices in terms of how they pass on T2S charges and what fees they charge in order 
to facilitate settlement in T2S, it is important for the participant to have transparency on these 
practices in order to make informed decision on where to execute settlement for their trades.  

A related issue is transparency with respect to the services provided by individual CSDs. The 
CSDR requires that ESMA publish a register368 that includes the name of each CSD operating 
in the Union, the services provided, as well as information related to cash settlement and the 
provision of banking-type ancillary services. However, the information is currently provided 
by CSDs in an unclear and complex manner, making it difficult for market participants to have 
clarity on the services provided by CSDs. For example, in the case of links between CSDs, it 
is not straightforward to identify the instruments that can be settled via those links. 

3.2.7.  Insufficient compatibility of existing rules with DLT369 

Even though legislation aims to cater for technology available at the time when it is drafted, it 
cannot predict how technology will develop in the future, and hence cannot ex ante ensure its 
future compatibility with new technology. When new technology does appear, the application 
and  interpretation  of  existing  law  can  be  such  that  the  law  itself  becomes  a  barrier  to  the 
adoption of the technology.370  

Current EU legislation in the settlement area predates DLT and was therefore not designed with 
it in mind. Indeed, given that the current rules are designed to cater for centralised structures, 
which  are,  in  many  aspects,  fundamentally  different371  from  the  decentralised  structures 
introduced by DLT, many of the definitions and concepts relevant to the provision of post-trade 
services  and  in  particular  settlement  services  -  and  consequently  the  corresponding 
requirements - are not (fully) compatible with DLT.372 This gives rise to legal uncertainty or, in 
extreme  cases,  may  prevent  DLT-based  structures  to  comply  with  certain  requirements. 

is  available  at  https://www.esma.europa.eu/sites/default/files/library/esma70-155-

366 “Study on consolidation and reducing fragmentation  in trading and post-trading infrastructures in Europe”, 
Bourse Consult & Civitta, 2025. 
367 “Analysis of CSD fees in major European markets”, AFME, October 2025 
368  The 
registered 
11635_csds_register_-_art_21.pdf.  
369 See Annex 10 – Innovation (DLT) for further details on DLT aspects and on the DLTPRR in particular.  
370  “Distributed  ledger  technology  for  securities  clearing  and  settlement:  benefits,  risks,  and  regulatory 
implications”, R. Priem, Financial Innovation 6, 11 (2020). 
371  As  a  respondent  to  the  targeted  consultation  noted,  “[t]he  emergence  of  DLT-based  tokenised  financial 
instruments  challenges  the  traditional  roles  and  mandatory  use  of  CSDs.  In  a  DLT  environment,  core  CSD 
functions such as notary services, safekeeping, and settlement can be fulfilled by registrars, custodians, or wallet 
operators.  The  integrity  of  the  issue  is  ensured  through  recording  on  the  distributed  ledger  itself,  with  smart 
contracts governing the issuance. This makes a separate book-entry system operated by a CSD non-essential for 
creation  or  transfer  of  the  asset.  Settlement  can  occur  directly  on-chain  between  custodians  or  even  between 
investors, eliminating the need for CSD-operated settlement accounts.” 
372  This  is  why  the  DLTPRR  was  introduced:  to  create  an  environment  that  would  enable  the  use  and 
experimentation with DLT in this area. 

230 

 
 
 
 
 
According to some stakeholders,373 this hinders the introduction of new business models using 
DLT, which could achieve greater connectivity, innovation and competition. 

One example of a concept that creates legal uncertainty is that of ‘book-entry form’. The CSDR 
requires issuers to ensure that the securities admitted to trading, or traded, on a trading venue 
are recorded in book-entry form and specifies that the method for such an initial book-entry 
recording should not be imposed by the Regulation.374 In addition, the CSDR requires that for 
a  transaction  in  transferable  securities,  the  transferable  security  is  previously  recorded  in  a 
CSD. Respondents to the targeted consultation pointed out that, for some DLT-based structures, 
ensuring compliance with the requirement (for a transferable security to be recorded in a CSD) 
is not straightforward and may require a significant level of legal interpretation. This can raise 
uncertainty  as  to  whether  certain  DLT-based  securities  can  be  recorded  and  represented  in 
book-entry form in a CSD and hence whether they can be admitted to trading, or be traded, on 
trading venues. This can lead to costs for developing legal opinions in different jurisdictions. 
Those  who  responded  to  questions  on  this  subject  in  the  targeted  consultation  as  well  as 
stakeholders375 noted that the "book-entry form" requirement in Article 3(2) of the CSDR is 
seen as a barrier and that the entry in the books of a CSD is not compatible with DLT. While 
national laws offer legal certainty within a Member State, they may also create fragmentation 
across the EU. Given that many definitions and requirements in the CSDR, as well as the SFD 
and the FCD, incorporate, directly or indirectly, the concept of book-entry, the legal uncertainty 
related to that concept has wider knock-on effects for legal certainty when those definitions 
and  requirements  are  applied  to  DLT-based  structures.  Examples  are  the  definitions  of 
‘immobilisation’376  and  ‘dematerialised  form’377  in  the  CSDR,  the  definition  of  ‘transfer 
order’378 in the SFD and the definition of ‘book entry securities collateral’379 in the FCD.  

The  consequences  extend  beyond  the  abovementioned  EU  acquis.  For  example,  under  the 
Eurosystem’s rules securities need to be recorded in book-entry form in an eligible securities 

373 See for example, “Use of DLT and Tokenisation in Financial Markets”, November 2024, 20241104_AFME 
Submission to EC_Final.pdf 
374 Recital 11, Regulation No. 909/2014 of 23 July 2014 on improving securities settlement in the European Union 
and on central securities depositories. OJ L257, 28.8.2014. 
375 “The law and regulation of TradFi has developed over hundreds of years and may operate in a way which is 
incompatible with DLT technology. Legislation and regulation should be technology agnostic based on "same 
activity, same risk, same regulatory outcome". For example: A clear advantage of a DLT blockchain is its ability 
to keep immutable and dematerialized records. Under EU law  (the Central Securities Depositories Regulation 
(CSDR)) it is a requirement that for a security to be  traded on a trading venue (an exchange or a multilateral 
system)  it  must  be  recorded  in  book-entry  form  in  a  centralized  securities  depository  (CSD).  Whilst  these 
obligations do not actually prohibit the issuance of DLT-based financial instruments they are a fetter on DLT's 
development and the ability to harness its many advantages including the development of a secondary market.” 
The Impact of Distributed Ledger Technology in Capital Markets Ready for Adoption, Time to Act, August 2025, 
https://www.gfma.org/policies-resources/joint-trades-publish-report-on-the-impact-of-dlt-in-capital-markets/  
376 Defined as the act of concentrating the location of physical securities in a CSD in a way that enables subsequent 
transfers to be made by book entry. 
377 Defined as the fact that financial instruments exist only as book entry records. 
378 Defined as i) any instruction by a participant to place at the disposal of a recipient an amount of money by 
means of a book entry on the accounts of a credit institution, a central bank, a central counterparty or a settlement 
agent, or any instruction which results in the assumption or discharge of a payment obligation as defined by the 
rules of the system, or ii) an instruction by a participant to transfer the title to, or interest in, a security or securities 
by means of a book entry on a register, or otherwise. 
379 Defined as financial collateral provided under a financial collateral arrangement which consists of financial 
instruments,  title  to  which  is  evidenced  by  entries  in  a  register  or  account  maintained  by  or  on  behalf  of  an 
intermediary. 

231 

 
 
 
 
 
settlement system in order to be eligible as marketable-assets collateral for Eurosystem credit 
operations, meaning that where a DLT platform is not a securities settlement system, assets 
may be considered ineligible for classification as marketable assets for collateral purposes.380  

A qualified majority of the respondents,  covering different categories of respondents, to the 
question in  the targeted  consultation  also  pointed to  some difficulties with the definition of 
‘CSD’381  as  provided  in  the  CSDR,  raising  questions  about  whether  it  restricts  new  market 
entrants focusing on only one core service as well as whether they could provide other services 
at the same time and nearly all (with the exception of some CSDs) of the respondents noted 
that functions reserved for CSDs may be safely, securely and effectively performed by other 
participants in a DLT environment.  

As  the  scope  of  the  protections  granted  under  the  FCD  and  the  SFD  depends  on  several 
concepts  and  definitions  specified  therein,  legal  uncertainty  as  regards  the  compatibility  of 
those  concepts  and  definitions  to,  or  their  outright  incompatibility  with,  certain  DLT-based 
structures results in those structures not being  able to benefit from the protections provided 
under  the  two  Directives  (e.g.  settlement  finality,  netting  and  enforcement  of  collateral).  In 
addition  to  the  definition  of  ‘transfer  order’  and  ‘cash’382  mentioned  above,  the  following 
definitions and concepts play an important role in determining the protections under the two 
Directives: 

• 

• 

‘settlement account’: as noted by respondent to the targeted consultation,383 settlement via 
a DLT-based settlement system is concluded in a decentralised manner,384 (i.e. there is no 
real registration on an account);  
‘settlement  finality’:  stakeholders385  as  well  as  nearly  all  of  the  respondents386  to  the 
question  in  the  targeted  consultation  pointed  out  that  a  general  understanding  on  how 
different  DLT-based  systems  can  achieve  finality  is  needed  and  the  importance  of  DLT 
settlement systems being able to benefit from settlement finality under the SFD. At present, 
it is not clear whether it is possible to identify certain finality moments for certain type of 

380 “Scaling DLT Capital Markets Enabling Central Bank Money Settlement and Collateral Eligibility for DLT-
based Securities”, May 2025 Enabling Central Bank Money Settlement and Collateral Eligibility for DLT-based 
Securities  Final-1.pdf  and  “Scaling  DLT-based  Capital  Markets,  A  Policy  Roadmap  for  the  EU”,  July  2024 
AFME_DLT_SSA_Bonds_Policymaker_EU_05.pdf 
381  Defined  as  a  legal  person  that  operates  a  securities  settlement  system  and  provides  at least  one  other  core 
service listed in Section A of the Annex to the CSDR. 
382 See Section 3.2.7. 
383  A  few  respondents  noted  the  need  to  clarify  the  definition  explicitly,  whilst  all  respondents  answering  a 
question if the definitions create barriers, where they all noted that the definitions should already be technology 
neutral but  a clarification to this effect would be beneficial and this request can also be found in many of the 
responses to other questions related to post-trade.  
384 For example, a respondent to the targeted consultation noted that under the definition of ‘securities account’ in 
the CSDR, it is unclear whether DLT addresses could be considered as accounts.  
385 The report “The Impact of Distributed Ledger Technology in Capital Markets Ready for Adoption, Time to 
Act” call for the establishment of clear and consistent legal and regulatory frameworks for tokenized financial 
instruments, focusing on asset classification, settlement finality, contract enforceability, consumer protection, and 
cross-border  recognition  and  states  “Clarify  the  application  of  settlement  finality  frameworks  to  DLT-based 
systems, including permissionless networks where risk controls and validator governance are robust, August 2025, 
https://www.gfma.org/policies-resources/joint-trades-publish-report-on-the-impact-of-dlt-in-capital-markets/. 
386 Among the 22 respondents to the question if SFD protection is important for settlement systems based on DLT 
that settle trades instantly and atomically, and not on a deferred net basis or in settlement batches, there was a very 
strong support for the ability to designate DLT systems under SFD.  

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• 

• 

tokenised 

DLT-based settlement systems, including the moment of entry of a transfer order into that 
system;387,388 
‘settlement  agent’389:  a DLT-based settlement  system  would not  necessarily  qualify as a 
system due to its participants and because the definition assumes traditional CSD features, 
for  example  it  refers  to  settlement  accounts  used  for  settlement  (see  above)  thereby 
potentially limiting the uptake of DLT-native solutions;  
‘financial instrument’ and ‘securities’: the CSDR, the FCD and the SFD contain different 
definitions  of  those  terms:  the  CSDR  uses  a  definition  that  treats  those  terms  as 
synonymous,390 the FCD defines the former term as a set list of instruments,391 whereas the 
SFD defines the latter term.392 Of the three definitions, the one in the CSDR refers to DLT-
based  financial  instruments  with  most  legal  clarity  albeit  via  a  reference  to  Directive 
2014/65/EU  (‘MiFID  II’),  which  is  transposed  by  Member  States.  The  divergent 
approaches and different formulations393 result in legal uncertainty as regards whether and 
how 
‘financial 
instruments’/‘securities’,  how  their  ownership  is  defined,  and  when  their  settlement 
becomes  legally  final  in  a  DLT-based  system.  The  lack  of  legal  certainty  as  to  the 
applicability  of  specific  SFD  concepts  for  certain  DLT-based  systems  might  prevent 
Member  States  from  designating  DLT-based  systems  which  limits  competition  with 
conventional systems (e.g. because large or institutional customers are not willing to use 
systems  that  do  not  benefit  from  SFD  protections  (see  Section  3.2.12). This  is  likely  to 
hinder  competition,  innovation,  and  the  development  of  a  more  integrated  and 
technologically advanced financial market in the EU. In addition, the lack of legal certainty 
as to the applicability of the protections granted by the FCD can reduce the attractiveness 
of DLT-based assets for investors as in the case of lack of eligibility for central bank credit 
operations  (see  above).  This  reduces  collateral  mobility,  a  key  efficiency  aspect  for  an 
integrated  market.  However,  it  should  also  be  noted  that  the  diverging  definitions  of 
financial instruments and securities are also due to the different scope and purpose of the 
cited  legislation  (CSDR,  SFD,  FCD).  See  also  Section  3.2.11  on  the  harmonisation  of 
eligible securities under the SFD. 

instruments/securities 

recognised 

financial 

are 

as 

Aside from the issues related to definitions and concepts described above, respondents to the 
targeted  consultation  also  flagged  issues  related  to  specific  requirements  set  out  in  EU 
legislation.  One  respondent  pointed  to  certain  requirements  in  the  CSDR  that  create  legal 

387 There are different views presented among the respondents to the question if settlement systems that achieve 
probabilistic (operational) settlement finality should be designated and benefit from SFD protections.  
388 A respondent to the targeted consultation noted that cross-border transactions within the EU face uncertainty 
regarding which national laws apply, especially when DLT-based assets are involved, and that the conflict of laws 
between different jurisdictions can hinder the finality of transactions. 
389 Defined as an entity providing to institutions and/or a central counterparty participating in systems, settlement 
accounts through which transfer orders within such systems are settled and, as the case may be, extending credit 
to those institutions and/or central counterparties for settlement purposes. 
390 It defines ‘financial instruments’ or ‘securities’ as financial instruments as defined in point (15) of Article 4(1) 
of Directive 2014/65/EU. The latter Directive defines ‘financial instruments’ as instruments specified in Section 
C of Annex I, including such instruments issued by means of distributed ledger technology. 
391 Shares in companies and other securities equivalent to shares in companies and bonds and other forms of debt 
instruments if these are negotiable on the capital market, and any other securities which are normally dealt in and 
which give the right to acquire any such shares, bonds or other securities by subscription, purchase or exchange 
or which give rise to a cash settlement (excluding instruments of payment), including units in collective investment 
undertakings, money market instruments and claims relating to or rights in or in respect of any of the foregoing. 
392 ‘Securities’ is defined as all instruments referred to in Section C of Annex I to Directive 2004/39/EC. 
393 This issue can be further exacerbated by divergent transpositions of the FCD, the SFD and MiFID II. 

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uncertainty  including  how:  i)  requirements  on  outsourcing  create  legal  uncertainty  as  to 
whether  the  use  of  certain  distributed  validation  models  are  considered  as  outsourcing,  ii) 
requirements  on  messaging-based  communication  relate  to  DLT-based  systems  that  rely  on 
direct  ledger  interactions  or  smart  contract  triggers,  and  iii)  requirements  on  account 
segregation result in legal uncertainty as to how segregation requirements are met when using 
DLT-based infrastructures, particularly regarding how on-ledger addresses should be treated 
for regulatory purposes. 

3.2.8.  Lack of harmonised conflict-of-law rules 

In the absence of harmonisation of securities law at EU level, different interpretations of the 
existing conflict-of-law rule in the SFD and the FCD may create legal uncertainty, which is 
detrimental to cross-border investment. 

The existing conflict-of-law rule in the SFD referring to the rights in relation to collateral in 
the system states that the law determining the rights of holders of a collateral security is the 
law  of  the  Member  State  where  that  right  “is  legally  recorded  in  a  register,  account  or 
centralised deposit system”. However, the SFD does not provide further details to help identify 
more  precisely  the  country  where  the  right  is  recorded.  As  noted  in  the  Commission 
Communication on the applicable law to the proprietary effects of transactions in securities,394 
Member States have interpreted and/or developed the above conflict-of-law rule in different 
ways to be able to apply them in practice. Even if a Member State did not clarify in its national 
laws implementing the relevant provisions of the SFD, other elements in that Member State 
may  provide  some  (diverging)  guidance  as  to  how  to  determine  the  location  of  the 
register/account/centralised deposit system in practice, such as case law or academic literature. 
These  differences  result  in  potentially  different  determinations  as  to  the  national  regime 
applicable  to  the  rights  over  securities,  depending  on  the  Member  States  of  the  (judicial) 
authorities which make that determination based on the conflict-of-law rule. 

In  particular,  the  absence  of  a  uniform  solution  as  to  where  the  register/account/centralised 
deposit  system  is  recorded,  the  majority  of  Member  States  rely  on  objective  factors  to 
determine the location of the securities.395 Some Member States refer to a specific location and 
some leave it to market practice to determine the location of the account provider.396,397 The 
uncertainty created by the different approaches as to the applicable national legal regime to 
rights over securities makes those transactions more expensive as market participants need to 
mitigate or reduce that legal uncertainty by asking for costly legal opinions and/or by ensuring 
compliance with different legal regimes. Consequently, this uncertainty may even discourage 
EU and non-EU investors from engaging in cross-border transactions. 

394 Communication from the Commission to the European Parliament, the Council, the European Economic and 
Social Committee and the Committee of the Regions on the applicable law to the proprietary effects of transactions 
in securities, COM(2018) 89 final. 
395 For example, in Germany it is the law of the country which supervises the relevant registrar or account, in the 
Slovak Republic it is the law of the register where the collateral is recorded. 
396 For example, in Austria it is the place where the account is effectively maintained, in Belgium it is the main 
establishment of the account provider, in Estonia the place where the register is placed, and in Finland it is the 
branch of the account provider. 
397 Communication from the Commission to the European Parliament, the Council, the European Economic and 
Social Committee and the Committee of the Regions on the applicable law to the proprietary effects of transactions 
in securities, COM(2018) 89 final. 

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Moreover, respondents to the targeted consultation noted that the SFD conflict-of-law rule was 
not adapted, and might not be able to be applied, to certain type of DLT-based systems and 
tokenised securities. As pointed out by a respondent to the targeted consultation, the current 
legal  frameworks  rely  on  clear,  centralised  record-keeping  and  concepts  such  as  ‘securities 
accounts’.  Such  assumptions  are  incompatible  with  certain  DLT  systems  that  may  be:  (i) 
decentralised  and  not  tied  to  a  single  operator  or  location;  (ii)  peer-to-peer  and  accountless 
(users  hold  keys  rather  than  accounts);  (iii)  immutable  and  autonomous,  with  finality  and 
transfers handled algorithmically. Consequently, in some of those systems is not possible to 
identify an account, register or centralised deposit system in order to apply the conflict of law 
rule in SFD.  

A similar problem arises in relation to the lack of a conflict-of-law rule applicable to proprietary 
aspects of securities transactions for CSDs. Although the Commission’s CSDR proposal did 
include such rule - the Commission proposed to use the law of the country where the account 
is maintained398 - the provision was removed by the co-legislators during the negotiations. In 
the  absence  of  a  conflict-of-law  rule,  Member  States  have  developed  and  apply  their  own 
conflict-of-law rules, which sometimes differ and even contradict each other.  Consequently, 
the rights of the counterparties to a cross-border securities transaction may differ depending on 
the  authorities  competent  to  assess  the  case  and  the  determination  they  make  as  to  the 
applicable national law. This legal uncertainty theoretically translates into higher costs of cross-
border securities transactions which may limit or even deter investors from engaging in cross-
border transactions. Nevertheless, feedback from the targeted consultation is showed that views 
both  the  existence  and  size  of  the  problem  as  well  as  the  potential  solutions  differed 
considerably. 

3.2.9.  Diverging protections for participation of EU entities in third-country 

systems 

The SFD does not apply to third-country systems. However, Member States are able to adopt 
legislation to extend SFD-like protections to domestic entities participating directly in third-
country systems and to any relevant collateral they provide in those systems (‘extension for 
third-county  systems’).399  By  applying  those  protections,  the  national  law  is  disapplied  for 
orders that those entities enter into the covered third-country systems thereby contributing to 
the settlement finality of those orders. 

13 Member States400 have not adopted legislation introducing a regime for an extension for 
third-county systems, while 10 Member States401,402 have. The latter group of Member States 
introduced this legislation to ensure, in particular, that their banks would continue to be able to 
participate  in  third-country  systems  after  the  UK’s  departure  from  the  EU.  However,  the 

398 “That account shall be presumed to be maintained at the place where the CSD has its habitual residence.” 
399 Recital 7 of the SFD states that “[…]whereas Member States may apply the provisions of this Directive to their 
domestic institutions which participate directly in third country systems and to collateral security provided in 
connection with participation in such systems”. 
400 AT, BG, CY, CZ, ES, HR, HU, LT, PT, SI, SK, RO, PL. 
401 BE, DE, DK, EE, FI, FR, IT, LU, NL, SE. 
402 The remaining Member States have not provided any information as to whether they grant protection to their 
domestic institutions participating in third-country systems. 

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approaches they have chosen to follow in their legislation differ, i.e. they apply different criteria 
and different procedures to grant the extension.403  

Third-country systems have an interest in legal certainty and settlement finality protection in 
the case of the insolvency of their EU participants. Hence there is a risk that participants from 
Member States that have not provided an extension for third-country systems might be refused 
access to third-country systems or might be subject to higher collateral requirements in case 
they maintain such access. Because not all Member States have provided such extensions and 
because those Member States that have done it adopted different approaches, there is also a 
lack of a harmonised treatment of participation in those systems in the EU. This has an impact 
on both third-country systems and EU entities. For the latter, the fragmentation in approaches 
has created an unlevel playing field between different EU entities seeking to use third-country 
systems.  

Divergent transpositions in relation to participants and indirect participants under the SFD 

The SFD defines a ‘participant’ as “an institution, a CCP, a settlement agent, a clearing house, 
a  system  operator  or  a  clearing  member  of  a  CCP  authorised  pursuant  to  Article  17  of 
Regulation  (EU)  No  648/2012”  and  an  ‘indirect  participant’  as  “an  institution,  a  central 
counterparty,  a  settlement  agent,  a  clearing  house  or  a  system  operator  with  a  contractual 
relationship with a participant in a system executing transfer orders which enables the indirect 
participant to pass transfer orders through the system, provided that the indirect participant is 
known to the system operator”. There are several issues related to these concepts. 

One issue is the definition of ‘participant’. Unlike CCPs, CSDs are not explicitly mentioned in 
the list of participants. This does not necessarily mean that when a CSD that participates in a 
system designated under the SFD (e.g. because it has a link with the CSD operating that system) 
it  is  not  protected;  in  principle,  it  can  still  be  considered  as  a  ‘participant’  in  its  role  as 
‘settlement  agent’  or  ‘system  operator’.  However,  the  lack  of  an  explicit  reference  creates 
uncertainty. During the 2021 targeted consultation that was carried out as part of the review of 
the functioning of the SFD, respondents pointed out this issue and were in favour of adding an 
explicit  reference  to  CSDs  to  the  definition  of  ‘participant’;  the  same  issue  was  pointed  to 
during the 2025 targeted consultation.  

Another issue relates to Member States’ interpretation of whether the list of entities included 
in  the  definition  of  ‘participant’  is  exhaustive.  Some  Member  States  consider  the  list  as 
exhaustive  and  have  hence  extended  the  SFD’s  protections  solely  to  those  entities  that  are 
explicitly  referred  to  in  the  definition.  Other  Member  States  consider  that  the  list  is  not 
exhaustive and have therefore decided to include additional entities in their transposition of the 
definition in national law. As a result of these divergent interpretations, costly legal assessment 
and legal opinions are required to understand which entities are considered participants under 
the national transpositions of the SFD. 

403 7 Member States assess a third-country system’s compliance on a case-by-case basis with certain criteria and 
if  they  are  satisfied  that  those  criteria  are  met,  the  system  is  granted  an  extension  for  third-county  systems.  3 
Member States do not assess the compliance of a third-country system upfront. Instead, only third-country systems 
that correspond to the definition of a system under the SFD can be subject to such extension; where an extension 
is granted, if insolvency proceedings are opened for a domestic participant, the rules governing the third-country 
system apply to the domestic participant to such third-country system. 

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A further issue with  the  definition of ‘participant’ is  that it provides  challenges for systems 
based on new technologies, in particular those based on DLT. The decentralised nature of those 
systems  and  the  likely  difference  in  their  structure  compared  to  the  structure  of  systems 
currently designated under the SFD means that the participants in the former can differ from 
the  participants  in  the  latter404  and  may  not  be  explicitly  covered  by  the  definition  of 
‘participant’.  Respondents  to  the  targeted  consultation  raised  several  issues  in  this  context. 
First,  they  noted  that  an  operator  of  a  DLT-based  settlement  system  that  settles  tokenised 
securities might not be eligible to be a participant in an SFD-designated system because the 
SFD requires participants to be entities listed in Article 2, point (f), of the SFD. Second, and 
applying to systems more broadly, if that system wants to include types of participants beyond 
those included in the definition (e.g. non-financial companies and investors), it will not fit the 
letter of the SFD’s list of participants and may therefore not be considered a ‘system’405 under 
that Directive. Finally, because of the link between the definitions of ‘participant’ in the SFD 
and the CSDR, the operator of that system will not be able to be authorised as a CSD under the 
latter.406 Combined with the abovementioned issue of how exhaustive list of entities included 
in the definition is considered by Member States, this can lead to different outcomes in different 
Member States. 

Finally, one issue is related to the possibility that the SFD gives to Member States to consider 
an ‘indirect participant’ as a ‘participant’, if justified on the grounds of systemic risk. Where 
an indirect participant is considered to be a participant on grounds of systemic risk, this does 
not  limit the responsibility  of the ‘participant’ through which the indirect  participant passes 
transfer orders to the system to comply with the SFD requirements and those of the system.  
During  the  abovementioned  2021  consultation,  some  stakeholders  also  pointed  out  that 
different Member States took different approaches as regards the protections granted in relation 
to indirect participants: in some Member States indirect participants in systems could enjoy 
SFD protections (for more information on SFD protections see Section 3.2.12), while in others 
they could not. They complained that the lack of a harmonised approach to this issue, created 
an unlevel playing field across Member States 

3.2.10. Divergent transpositions in relation to securities eligible for SFD 

protection 

The SFD provides protection for payment systems as well as securities settlement systems (see 
Section 3.2.12 for more information on SFD protections). For a securities settlement system to 
benefit from the protections granted under the SFD, it has to execute securities transfer orders. 
Article 2, point (h), of the SFD defines securities as “all instruments referred to in section C of 
Annex I to Directive 2004/39/EC”. 

In bilateral discussions, stakeholders raised an issue that is analogous to the one described in 
Section 3.2.10 in relation to the definition of ‘participant’, namely that Member States have 
different  interpretations  as  to  whether  the  list  of  instruments  included  in  the  definition  of 
‘securities’  is  maximum  or  minimum  harmonisation.  Based  on  the  information  provided,  it 

404 See Section 3.2.9 for further details. 
405 The SFD defines a system as a formal arrangement between three or more participants excluding the system 
operator. 
406 The risk that the direct participation of retail investors in a DLT-based settlement system would disqualify the 
operator  of  that  system  to  be  authorised  under  the  SFD  was  recognised  in  the  DLTPRR,  which  provides  an 
exemption for such cases. 

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would appear that at least some Member States have included additional instruments in their 
national transpositions of the definition. In addition, since the definition contains a reference 
to  a  list  of  instruments  provided  in  the  annex  of  a  Directive,  the  above  issue  may  be 
compounded, at least in theory, by different transpositions by Member States of that list under 
that Directive. This creates market fragmentation.  

The same issue of fragmented application of the SFD also concerns the concept of ‘payment’ 
falling  within  the  protections  under  the  SFD.  Differing  transpositions  of  the  concept  of 
‘payment’ in Member States can lead to a different degree of protection. The SFD (Article 2, 
point (i), first indent) defines a payment transfer order as “any instruction by a participant to 
place  at  the  disposal  of  a  recipient  an  amount  of  money  by  means  of  a  book  entry  on  the 
accounts of a credit institution, a central bank, a central counterparty or a settlement agent, 
or any instruction which results in  the assumption or discharge of  a payment  obligation as 
defined by the rules of the system”. For instance, interpretations can differ when it comes to the 
definition of money or book-entry as both terms are not defined in the SFD. The transposition 
of  some  Member  States  might  for  instance  be  more  accommodating  to  new  regulatory  and 
technological developments than others. 

3.2.11. Diverging SFD designation practices for EU systems 

Another source of fragmentation is the way in which Member States have transposed the SFD 
as regards the designation process of EU systems. 

The SFD does not provide rules on the procedural aspects to be followed (including timelines, 
information to be requested from a system operator and how the assessment of a system should 
be carried out), and the criteria to be used, by Member States when designating a system. As a 
result, Member States have adopted different solutions that can lead to very different outcomes. 
For example, systems operated by CCPs are designated in different ways in different Member 
States: some are designated as settlement systems, some as payment systems, and some system 
operators operate more than one designated system.  

Divergent  national  practices,  specifically  as  regards  i)  concrete  timelines  regarding  the 
designation process, ii) an explicit requirement for regular checks by Member States whether 
their SFD-designated systems are still SFD-compliant, and iii) a clear requirement for operators 
of  the  SFD-designated  systems  to  notify  the  national  competent  authority  of  any  relevant 
changes in the rules of the system it operates, are also likely behind some of the past issues 
related to the list of SFD-designated systems that is publicly available on ESMA’s website.407 
For example, in one instance the list contained information that hadn’t been updated to reflect 
changes  to  the  name  of  the  operator  of  an  SFD-designated  system,  which  created  legal 
uncertainty for market participants as they did not know whether the system in question was 
still covered by the SFD’s protections. Coupled with diverging transpositions as regards the 
scope  of  the  SFD  (see  Sections  3.2.10  and  3.2.11  respectively),  the  above  create  legal  and 
operational uncertainty as different systems have different scope of protection under national 
law, which exacerbates fragmentation and creates unnecessary costs. 

407 List of designated authorities, payment systems and securities settlement systems 

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3.2.12. Different levels of transparency under the SFD 

The rules put in place by the SFD do not ensure an adequate level of transparency in relation 
to the information on systems designated under that Directive. Under the SFD, Member States 
are only required to notify the systems, and the respective system operators, which benefit from 
the protections granted under that Directive to ESMA; ESMA is then required to publish that 
information  on  its  website.  However,  neither  Member  States408  nor  system  operators  are 
required  to  disclose  information  on  the  participants  in  those  systems  or  the  main  rules 
governing them. This obligation falls on the participants in those systems, but only upon request 
of anyone with a legitimate interest. As a result of this approach, there are differences in the 
amount and type of information made publicly available in relation to the systems designated 
under the SFD, their participants and the rules governing their functioning. These differences 
result in information asymmetry among systems designated in different Member States or even 
in the same Member State. In turn, this information asymmetry creates an unlevel playing field 
for market participants, which is detrimental to the performance of risk assessments related to 
participation  in  a  designated  systems  and  to  the  trust  in  those  systems.  Respondents  to  the 
targeted consultation claimed this prevented them from obtaining a comprehensive picture of 
the scope of the protections granted under the SFD. 

A  similar  issue  arises  in  relation  to  the  notification  of  the  decision  to  open  insolvency 
proceedings against a participant in an SFD-designated system. Currently, the relevant judicial 
or administrative authority must notify the appropriate authority chosen by the Member State 
of the decision regarding the opening of insolvency proceedings against a participant in an SFD 
designated system. That Member State authority must also immediately notify the European 
Systemic  Risk  Board,  other  Member  States  and  ESMA.  Market  participants  asked  for  this 
decision to be made available to other market participants for whom such a decision would be 
important as well, including the system operator and the system’s other participants, or even 
made publicly available. They also pointed to some related uncertainty regarding the moment 
that the notification of the system becomes valid (e.g. what happens if a participant becomes 
insolvent after notification but before publication on ESMA’s website). 

3.2.13. Different moments of settlement finality 

The  SFD  leaves  the  determination  of  the  different  moments  of  settlement  finality  to  each 
system.409 There are three such moments commonly referred to: i) the moment of entry of a 
transfer  order  into  a  system,  ii)  the  moment  at  which  an  order  that  entered  into  the  system 
cannot be revoked, and iii) moment of finality of transfers of securities and cash.  Under the 
SFD, each system is left to define the first two of those moments. The SFD does not explicitly 
refer to the third of those moments.  

This can result in different finality moments being defined by different systems (even in the 
same Member State).410 These differences may, in turn, result in some market fragmentation 
and may make the setting up of interoperable links between CSDs more difficult.411 Indeed, 

408 Nb. Member States receive this information from system operators as part of the designation process. 
409 Nb. Member States may set out conditions on the moment of entry of a transfer order into a system in the law 
governing their systems. In such cases, differences in implementation are not due solely to choices made by CSDs. 
410 Even if a Member State’s law sets out conditions as to the moment of entry, different systems in that Member 
State might designate slightly different moments of entry of transfer orders into the system. 
411 Nb. this remark is not applicable to CSDs connected to T2S since the T2S framework agreement mandates a 
harmonised settlement finality among the CSDs connected to T2S.  

239 

 
 
 
 
 
according to Article 48(8) of the CSDR, interoperable securities settlement system and CSDs 
using a common settlement infrastructure must establish identical moments of entry of transfer 
orders  into  the  system  and  of  moments  of  irrevocability  of  transfer  orders  entered  into  the 
system; they must also have equivalent rules concerning the moment of finality of transfers of 
securities and cash. In practice, interoperable links may not be possible if there are differences 
on the settlement  finality moments of the systems at stake, to the detriment of cross-border 
settlement, and in turn the benefits for the EU economy and EU investors as described in the 
main report.412 

In  addition,  although  the  different  systems  document  and  communicate  their  settlement 
moments,  participants  in  several  systems,  in  particular  in  different  Member  States,  need  to 
know  the  moments  of  finality  in  each  market/system. As  these  moments  may  not  align,  a 
payment deemed final in one system might not yet be final in another if it is part of a chain of 
transactions, and this legal uncertainty may discourage market participants from entering into 
cross-border transactions. 

4.  OBJECTIVES 

4.1.  GENERAL OBJECTIVES 

The general objective of the proposed reforms is to promote market integration and efficiency, 
in particular for cross-border transactions. To achieve this, it is imperative to address existing 
fragmentation  and  inefficiencies  that  act  as  barriers  to  modern,  frictionless  cross-border 
issuance and settlement of financial instruments. To this end, necessary steps should be taken 
to  promote  competition  in  the  post-trading  sector,  ensure  robust  supervision,  provide  legal 
clarity in a uniform manner across the EU, provide an environment that would allow to take 
full advantage of the benefits brought by new technologies, reduce unnecessarily burdensome 
requirements  that  act  as  impediments  to  market  growth,  and  ultimately  reduce  costs  and 
maximise benefits for consumers and firms. 

This  initiative  is  also  in  line  with  the  broader  objectives  of  the  SIU  in  tackling  barriers  to 
financial  market  integration  and  fostering  competitiveness  of  the  EU  capital  markets  at  the 
global level. As mentioned in the Communication on SIU as pertains post-trade, “it is important 
to  enhance  the  interoperability,  interconnection  and  efficiency  of  EU  […]  post-trading 
infrastructures”. This effort is not, however, restricted to what can be accomplished at EU level; 
it  also  encompasses  steps  to  be  taken  at  the  level  of  Member  States,  as  they  too  bear  the 
responsibility of achieving the goals of this EU-wide effort. 

4.2.  SPECIFIC OBJECTIVES 

Linked to the problem drivers discussed above are the three specific objectives of the proposals 
put forward to promote market efficiency, in particular with respect to cross-border post-trade 
services. These are (i) enable further market integration and scale effects by increasing cross-
border activity, (ii) improve supervision by reducing divergences, and (iii) facilitate innovation 

412 Nb. for CSDs participating in T2S this problem cannot arise as all those CSDs must use the same settlement 
finality moments, namely those defined by T2S. 

240 

 
 
 
 
 
by enabling the use of new technologies. The specific objectives are without prejudice to the 
ultimate constraint of not undermining financial stability, as well as the integrity of markets 
and the entities that participate therein.  

4.2.1.  Enable further market integration and scale effects by increasing cross-

border activity 

To enable true market integration and foster cross-border scale effects in the Union, the post-
trade framework must be adapted to support a more seamless, competitive, and future-proof 
environment. A key priority is to strengthen the CSDR to ensure freedom of issuance so that 
issuers  can  choose  any  CSD  in  the  Union  without  facing  unnecessary  legal  or  operational 
barriers  imposed  at  national  level.  Relatedly,  passporting  provisions  should  be  modified  to 
prevent national authorities from restricting the ability of CSDs to offer services across borders. 
Furthermore, to support market development, restrictions in the ability of CSDs to designate 
third-party entities for cash settlement in commercial bank money should be eased, in particular 
for  non-EU  currencies.  In  parallel,  barriers  to  establishing  links  between  CSDs  should  be 
reduced  to  promote  efficient  interconnections.  Greater  use  of  T2S,  which  should  continue 
evolving  as  the  central  pillar  of  an  integrated  EU  settlement  ecosystem,  should  also  be 
encouraged. 

The CSDR should seek to ensure a level playing field between entities providing settlement 
services.  It  should  also  permit  corporate  groups  operating  multiple  post-trade  entities  to 
outsource core and related services within the group, allowing them to benefit from economies 
of scale and consolidation. A related aspect to help promote market integration and scale entails 
increasing  transparency.  The  relevant  CSDR  provisions  should  be  strengthened  to  promote 
greater price transparency by clarifying the type and format of information that CSDs must 
provide to their participants. This should be done in a way that enables market participants to 
more  easily  compare  service  costs  across  CSDs  in  the  Union,  enhancing  competition  and 
informed decision-making. In parallel, transparency around settlement carried out by the banks 
and investment firms that operate as settlement internalisers should be improved to ensure that 
authorities  can  monitor  market  developments,  identify  emerging  risks  early,  and  determine 
whether regulatory intervention may be warranted. Further transparency regarding the scope 
of settlement finality protections would also increase market participants’ willingness to enter 
into  cross-border  transactions  on  the  basis  of  more  sound  risk-based  decision-making. 
Together,  these  measures  will  contribute  to  a  more  open,  efficient,  and  resilient  settlement 
landscape.  

4.2.2.  Improve supervision by reducing divergences 

See Annex 11 on supervision, Section 4, Option 2.  

4.2.3.  Facilitate innovation by enabling the use of new technologies 

To enable the safe and effective adoption of new technologies in post-trade, and in particular 
the settlement space, relevant Union legislation must be fit for purpose in a future shaped by 
innovation. To this end, greater legal  and regulatory certainty should be provided to market 
participants and definitions – such as ‘book-entry form’ and ‘securities account’ – should be 
modernised  to  ensure  they  reflect  technological  developments.  Moreover,  rules  should  be 
adapted to account for activities using DLT-based assets, and steps should be taken to ensure 
that the regulatory environment supports the use of such assets for satisfying cash obligations, 
ensuring consistency, flexibility, and resilience in a rapidly evolving financial ecosystem.  

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The CSDR is complemented by the DLTPRR that enables innovation and experimentation to 
take  place  for  activities  undertaken  by  CSDs  including  settlement,  maintenance  and  notary 
services. Any amendments to the CSDR should aim to bring clarity to the application of CSDR. 
As such, the aim is to ensure that the CSDR (as well as other legislation, e.g. SFD) is applicable 
to  DLT-based  structures  in  a  manner  equal  to  its  application  to  conventional  post-trade 
structures and entities. The DLTPRR today limits the authorisations it provides in order to allow 
for experimentation, for example in relation to product coverage compared to the CSDR and 
applies thresholds to limit risks. This initiative would provide more clarity on how conventional 
CSDs could provide DLT based services as part of their services under the CSDR as well as 
provide more room for the possibility of scaling up for entities under the DLTPRR.  

5.  POLICY OPTIONS AND ASSESSMENT  

5.1.  POLICY OPTIONS RELATED TO THE CSDR 

5.1.1.  Option 1 (CSDR): Status quo 

This option introduces no amendments to the CSDR. It is the ‘do-nothing’ option against which 
the other policy options will be assessed.  

5.1.2.  Option 2 (CSDR): Broad review to enhance the functioning of market 

infrastructure  

This  option would present  targeted, but  ambitious amendments  to  the CSDR to  address  the 
individual problem drivers described in Section 3.2, in particular Sections 3.2.1  - 3.2.8, and 
address  the  outlined  barriers.  Given  the  multiplicity  of  issues  identified,  a  wide  range  of 
targeted measures will be needed to address them; those measures are described below. 

Option 2.1 (CSDR): Ensuring freedom of issuance and facilitating passporting and the cross-
border provision of services 

To facilitate the freedom of issuance and promote the SIU objectives more broadly, this option 
would limit the possibility of Member States to impose additional requirements on issuers that 
act as a barrier to cross-border issuance. To achieve this, changes to Article 49 of the CSDR 
would be required, in particularthe broad references to national laws in Article 49 of the CSDR 
would be removed as they create uncertainty (issuers have to comply with national law and the 
governing contractual law of the securities regardless of those references). 

The requirements under Article 23 of the CSDR on offering CSD services in other Member 
States would be simplified. A right for authorised CSDs to automatically provide services, or 
set  up  a  branch,  in  any  Member  State  in  the  EU  would  be  introduced. There  would  not  be 
additional requirements – other than a simple notification – (other requirements, such as the 
requirement for CSDs to provide a complex and burdensome assessment of how they intend to 
allow  their  users  to  comply  with  host  Member  State  law  in  relation  to  shares,  would  be 
removed).  

Within this framework, where the CSD would provide the relevant information, the possibility 
for denying the provision of CSD services would be effectively removed. 

Moreover, where there are potential breaches of EU law, these would be investigated and, if 
needed, enforcement ensured. 

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Option 2.2 (CSDR): Supporting outsourcing  

Under  this  option,  the  procedures  to  be  used  (including  timelines)  and  information  to  be 
provided in case of the outsourcing of non-core CSD services would be clarified;  a distinct 
procedure would be developed for outsourcing core CSD services to entities within the same 
group and a Level 2 mandate given to ESMA to determine the circumstances that would qualify 
as outsourcing of core services.  

This option would also clarify that the use of DLT by a CSD to provide services as set out in 
the  CSDR  should  not  necessarily  be  considered  as  outsourcing  within  the  meaning  of  the 
CSDR, but should however be approved. 

Option 2.3 (CSDR): Cash settlement 

In order to introduce more flexibility for CSDs that wish to designate a credit institution for the 
settlement of cash payments in non-EU currencies, this option would remove the requirement 
for such designated credit institution to have a special purpose authorisation that allows them 
to  only  provide  such  services  without  the  ability  to  carry  out  other  activities,  provided  that 
where such a credit institution is designated, settlement only happens in real time, and that the 
real-time settlement entails minimal credit or liquidity risks for the designated credit institution 
and the participants of the CSD concerned.  

As  proposed  by  some  stakeholders413,  digital  forms  of  money  including  some  forms  of 
tokenised cash  would be permitted for settlement of the cash leg of transactions (as needed 
until  tokenised  central  bank  money  would  be  made  available  and  thereafter  to  complement 
such central bank money, for cases in which settlement in the latter would not be required). 
Certain  tokens,  for  example,  asset  referenced  tokens,  would  however  be  excluded. 
Nevertheless, the general principle that settlement should continue to be done in central bank 
money  where  practical  and  available  should  be  maintained  in  the  CSDR  in  order  to  ensure 
compliance with international standards.  

Option  2.4  (CSDR):  Promoting  the  use  of  T2S  and  connecting  the  fragmented  settlement 
landscape  

To promote the use of T2S, all EU CSDs would be mandated to connect to the T2S platform in 
the case that they settle in a T2S-supported currency. To achieve this, the Commission would 
encourage the Eurosystem to expand the platform’s functionalities, including the possibility to 
serve a broader range of currencies issued in the EU (the Commission would also encourage 
the central banks issuing those currencies to make them available in T2S), as well as improve 
the  handling  of  corporate  actions  and  asset  servicing  by  standardising  related  processes, 
including  messaging  protocols  for  processing  settlement  instructions  and  codifying 
communication  procedures  between  CSDs  and  market  participants,  as  well  as  with  other 
market  infrastructures.  The  Commission  would  also  encourage  the  Eurosystem  to  continue 
exploring  ways  to  improve  and  expand  the  functionality  of T2S in  a  cost-effective  manner, 
including reviewing the current pricing arrangements. 

413  The  respondents  across  categories  of  respondents  broadly  supported  that  the  concept  of  cash  needs  to  be 
updated  to  generally  include tokenized  forms  of  money,  particularly  the  emergence of  tokenised  central bank 
money, tokenised commercial bank money and electronic money tokens and a few respondents was broadly of 
the view that tokenised versions of cash was already included.  

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Under this option, the notion of CSD hubs would be introduced. The concept would cover, in 
particular, CSDs providing services in several Member States and those processing a high value 
of settlement instructions relative to all settlement in the EU. In order to optimise the impact 
of the above measure pertaining to the use of central bank money for cash settlement as well 
as to ensure greater interconnectedness between CSDs, all EU CSDs considered to be hubs 
would be required to  establish links with  one another, while the remaining  CSDs would be 
required to establish links with at least one EU CSD hub (to the extent that such link is not 
already in place). All the aforementioned links (i.e. links between CSD hubs and links between 
those CSD hubs and the remaining CSDs) would be required to be bi-directional, interoperable 
and able to settle all financial instruments available for settlement within the given CSD. This 
option  would  also  require  CSDs  operated  by  public  sector  bodies414  to  adhere  to  the 
interconnectedness  requirements,  including  the  requirement  to  establish  and  maintain  links 
with other CSDs.415 This would create a settlement network with several key, interconnected 
nodes through which the remaining CSDs would be able to access any other CSD via a relayed 
link  arrangement.  CSDs  operating  one  or  more  DLT-based  securities  settlement  system 
authorised under the DLTPRR would not  be required to  link those systems  to  conventional 
securities settlement systems authorised under the CSDR at this point in order to enable them 
to experiment with different technologies.  

In  addition,  to  streamline  the  establishment  of  interoperable  links,  ESMA  should  be  the 
authority authorising such links. The process would be simplified. ESMA would not be allowed 
to refuse the establishment of an interoperable link unless it would threaten the smooth and 
orderly functioning of financial markets or cause systemic risk. For standard and customised 
links,  the  requirements  under  Article  52  of  the  CSDR  would  be  amended  to  remove  the 
possibility for a recipient CSD to refuse to establish such links. 

Finally, to further improve the harmonisation of standards in settlement operations this option 
would mandate ESMA to codify, through Level 2, the relevant harmonised standards.  

Option 2.5 (CSDR): Increasing transparency  

To increase transparency of prices and fees  of CSD services, ESMA would  be mandated to 
create a harmonised template and/or structure for the public disclosure of those prices and fees. 
This  option  would  also  introduce  a  similar  public  disclosure  by  ESMA  of  the  information 

414 In the EU, there are six CSDs operated by central banks and the Cypriot CSD is owned and operated by the 
Ministry of Finance of Cyprus. In Belgium, the National Bank of Belgium Securities Settlement System (NBB-
SSS  is  operated  by  the  National  Bank  of  Belgium.  In  Bulgaria,  the  Bulgarian  National  Bank  Government 
Securities Settlement System (BNBGSSS)  is operated by the Bulgarian National Bank. In Czechia, the Short-
Term Bond System (SKD) is operated by the Czech National Bank. In Greece, the Bank of Greece Securities 
Settlement System (BOGSSS) is operated by the Bank of Greece. In Poland, Skarbnet4 is operated by the National 
Bank of Poland. In Romania, Safir is operated by the National Bank of Romania.  
415 Article 1(4) of the CSDR exempts members of the European System of Central Banks (ESCB), Member State 
national bodies, and other public bodies involved in public debt management that offer core CSD services through 
a  CSD  under  their  responsibility,  from  certain  requirements  of  that  Regulation.  Specifically  those  articles  on 
authorisation (Articles 10 to 20 and Article 30(4)), an aspect of the user committee (Article 28(6)), supervision 
(Article 22 on review and evaluation, Article 24 on the freedom to provide services in another Member State, and 
Article 24 (cooperation between home and host Member States), Article 27 on management)), investment policy 
(Article 46), prudential (capital) requirements (Article 47) and recovery (Article 22a). Moreover, in accordance 
with Article 1(4), the requirements to report to competent authorities or relevant authorities or to comply with 
their orders under CSDR do not apply.  

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reported by settlement internalisers and a mandate for the transparency of prices and fees for 
services that they provide to their clients. 

In addition, to increase overall transparency in settlement in the EU and to level the playing 
field across the entities that provide settlement services, this option would expand the existing 
ESMA mandate under Article 74(1c) to produce a report on settlement internalisers’ activity 
based  on  collected  data,  including  data  on  settlement  efficiency,  as  well  as  on  the  fees  and 
pricing of services in the area of settlement, and to issue any policy recommendations it deems 
appropriate  (e.g.  with  respect  to  preventing  settlement  fails,  measures  to  address  settlement 
fails,  more  frequent  and  more  granular  reporting,  increasing  transparency,  the  protection  of 
securities of participants and those of their clients, settlement finality, etc.).  

Option 2.6 (CSDR): Legal certainty 

This  option  would  amend  the  CSDR  to  provide  legal  certainty  as  well  as  introduce  more 
technological neutrality in the relevant definitions, concepts and requirements, thus ensuring 
that the CSDR applies equally to CSDs irrespective of the technology used in the provision of 
services. For example, the concept of ‘book-entry form’ would be amended to clearly include 
DLT-based records. In addition, this option would amend the definition of ‘securities account’ 
to ensure that the terminology works for transactions on a ledger, which would then include 
records  using  distributed  or  otherwise  shared  electronic  ledgers  to  credit  and  debit  such 
securities. 

The  above  clarifications  would  also  bring  legal  clarity  to  other  concepts,  definitions  and 
requirements  under  the  CSDR  that  use  the  above  concepts  and  definitions  (directly  or 
indirectly).  

5.1.3.  Option 3 (CSDR): Far-reaching review to impose an integrated market  

This option would include even more ambitious amendments to the CSDR than option 2. As is 
the  case  for  the  latter,  given  the  multiplicity  of  issues  identified,  a  wide  range  of  targeted 
measures will be needed to address them; those measures are described below. 

Option 3.1 (CSDR): Ensuring freedom of issuance and facilitating passporting and the cross-
border provision of services 

The CSDR would be amended to effectively remove any additional requirements – including 
with relation to relevant national law – prior to a CSD being able to offer CSD services, or set 
up a branch, in another Member State. Article 23 of the CSDR would be amended to explicitly 
enshrine the right of an authorised CSD to automatically be able to provide services, or set up 
a branch, in any Member State in the EU without any additional requirements, including no 
need for a notification. Under this option, a CSDs would be able to provide services in relation 
to securities issued according to the law of all Member States, regardless of whether there is 
any intention to serve markets in a particular Member State. The simplifications to Article 49 
of the CSDR proposed under Option 2 would apply under this option as well.  

Option 3.2 (CSDR): Supporting outsourcing  

This option would treat any kind of services – be they core or non-core – delegated to another 
entity  within  the  same  corporate  group  as  if  they  were  carried  out  by  the  entity  itself. This 
would  effectively  limit  the  scope  of Article  30  of  the  CSDR,  applying  no  requirements  for 
outsourcing of core and non-core CSD services to other entities in the same group. 

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The same clarification in relation to DLT as in Option 2 would be included in this option as 
well. 

Option 3.3 (CSDR): Cash settlement 

The requirement for a designated credit institution that provides banking-type ancillary services 
to have a limited authorisation that allows them to only provide such services without the ability 
to  carry  out  other  activities  would  be  deleted  in  its  entirety.  This  would  allow  any  credit 
institution  to  provide  such  banking-type  ancillary  services  to  CSDs  for  any  currency  and 
without any further restrictions.  

Compared to Option 2, this option would allow CSDs operating DLT-based systems to operate 
using  a  wide  range  of  stablecoins  under  MiCA,  for  example,  asset-referenced  tokens,  for 
settling the equivalent of the cash leg of securities transactions.  

Option 3.4 (CSDR): Promoting the use of T2S and connecting the fragmented settlement  

To  further  promote  the  use  of  T2S,  it  would  be  transformed  into  a  CSD  (‘T2S  CSD’),  as 
proposed in the Noyer report,416 and all CSDs in the EU would be required to connect to it via 
bidirectional links.417 To facilitate this arrangement, T2S CSD would need to effectively serve 
all  EU  currencies  for  settlement  in  central  bank  money  (both  existing  and  CBDC,  once 
available) and would be required to allow settlement in commercial bank money (both non-
digital and digital, including DLT-based) for settling transactions in securities denominated in 
non-EU currencies (e.g. Eurobonds and ETFs).  

This would allow any participant in any EU CSD to access markets served by any other CSD 
in the Union.  

Option 3.5 (CSDR): Increasing transparency 

In addition to what is proposed under Option 2 to increase transparency of fees and prices, this 
option would also require CSDs and settlement internalisers to charge the same fees and prices 
for cross-border services as they charge for domestic services. 

Option 3.6 (CSDR): Legal certainty 

The  CSDR  was  developed  following  the  financial  crisis  and  a  subsequent  a  call  from  the 
Financial Stability Board418 for more robust financial market infrastructures. The 2012 impact 
assessment  on  CSDR  noted  that  there  was  no  common  definition  of  a  CSD,  but  in  general 
terms, there is nevertheless a range of functions that are performed by many CSDs.419 With this 
in  mind, the CSDR defined a CSD as one entity providing two or more core services. This 
allowed the entity to keep the record of the information feed during the whole lifecycle of a 
security  (issuance,  multiple  trading,  redemption).  In  a  DLT  environment,  however,  the 

416 See Section 5.3.1 of the Noyer report. 
417 Nb. The establishment of bi-directional links between all CSDs could also be done  without converting T2S 
into a CSD.  
418 On 20 October 2010, the  Financial Stability Board meeting in Seoul called for updated standards for more 
robust core market infrastructures.  
419 Impact assessment accompanying the document Proposal for a Regulation of the European Parliament and of 
the  Council  on  improving  securities  settlement  in  the  European  Union  and  on  Central  Securities  Depositories 
(CSDs) and amending Directive 98/26/EC, SWD(2012) 23 final, 7 March 2012. 

246 

 
 
 
 
 
provision of these core services could be unbundled and provided by different entities. Under 
this option, the CSDR would therefore be fully revised to cater for functional or service-based 
authorisations  reflecting  structures  that  cover  the  whole  chain  of  trading,  clearing  and 
settlement and therefore would move away from the traditional sectorial separation between 
functions and services and would focus on the services provided rather than the entity providing 
them. For example, it would allow for per-service authorisation and would adjust requirements 
to  the  service  provided.  Similarly  to  Option  2,  this  option  would  also  amend  definitions, 
concepts and requirements to make them compatible with DLT-based structures.  

5.2.  POLICY OPTIONS RELATED TO THE SFD 

5.2.1.  Option 1 (SFD): Status quo 

This  option  introduces  no  amendments  to  the  SFD.  It  would  remain  a  Directive.  Differing 
national transpositions would remain, with the consequent impacts on and additional costs for 
market participants. It is the ‘do-nothing’ option against which the other policy options will be 
assessed.  

5.2.2.  Option 2 (SFD): Comprehensive review to enhance the functioning of 

market infrastructure 

The SFD would be converted into a Regulation (Settlement Finality Regulation (SFR)). This 
would require setting out in a more precise way matters related to protections granted by the 
SFD in order to achieve a harmonised approach across the EU. Given the multiplicity of issues 
identified, a wide range of targeted measures would be required to address them; the main ones 
of those measures are described below. 

Option 2.1 (SFD): Legal certainty for digital innovation  

To  ensure  legal  certainty  and  to  enable  certain  DLT-based  systems  to  benefit  from  the 
protections under the SFR (via designation under the Regulation), this option would amend 
definitions, concepts and requirements to make them DLT compatible. These would include 
changes  to  several  definitions  and  concepts,  such  as  ‘system’,  ‘participant’,  ‘institution’, 
‘settlement agent’, ‘settlement account’, ‘transfer order’, ‘settlement finality’ (see Section 3.2.7 
for details), ‘securities’, and ‘collateral security’.  

This option would also clarify that the concept of payment includes certain tokenised versions 
thereof to ensure a harmonised approach to novel forms of money and cash.  

Option 2.2 (SFD): Conflict-of-law rule 

To address the problems identified (see Section 3.2.8) arising from the current conflict-of-law 
rule in the SFD, this option would clarify and develop the existing conflict-of-law rule so that: 
(i) market participants and (judicial) authorities could apply it directly - without the need for 
further developments or interpretations by Member States; and (ii) the revised conflict-of-law 
rule can be applied also directly to designated DLT-based systems and tokenised securities – 
since tokenised securities may not necessarily be maintained in an account located in a Member 
State in all cases.  

In particular, this option would complement the current conflict-of-law rule in the SFD by:  (i) 
for traditional systems, further specifying concretely how to determine the Member State where 
securities are legally recorded on a register, account or centralised deposit system; and (ii) by 

247 

 
 
 
establishing as a "fall-back" connecting factor where the account based conflict of law as in (i) 
cannot  be  applied,  the  law  governing  the  system  –  the  law  of  the  Member  State  which 
designated the system as per Article 2 SFD.  

Option 2.3 (SFD): Participation of EU entities in third-country systems 

Third-country  systems  would  need  to  be  registered420  in  the  EU  for  those  systems  to  be 
protected in case of insolvency of any of the EU entities participating in them. ESMA and the 
ECB/ESCB  would  also  be  the  single  contact  point  for  third-country  systems  for  securities 
settlement  systems  and  payment  systems  respectively  and  help  those  systems  to  find  and 
contact the relevant authorities in Member States for registration. The assessment itself would 
however be undertaken by Member States as certain aspects of national law might need to be 
taken  into  consideration.  ESMA/ECB/ESCB  would  also  ensure  that  there  is  coordination 
between  different  Member  States  with  participants  in  the  third-country  system  and  thus 
undertaking the assessment to ensure a consistent approach across the EU. 

Absent harmonisation of EU insolvency law, Member States would be left to implement the 
registration in their national law but the new SFR would harmonise the rules of the relevant 
assessment of such third-country systems by mandating ESMA and ECB/ESCB respectively 
for securities settlement/clearing systems and payments systems - in close cooperation with the 
ESCB  - to  develop  Level  2 measures to  ensure that  the assessment criteria are applied in  a 
consistent way across Member States.  

ESMA  would  publish  the  list  of  third-country  systems  registered  by  Member  States  (see 
Section 5.2.2.7).  

Option 2.4 (SFD): Scope of participants  

To ensure a harmonised approach to the scope of participants under the new SFR, this option 
would explicitly include CSDs in the list of participants.421  

This option would further expand the list of participants by allowing, in addition to the existing 
list of participants, all legal entities that qualify to participate in a system by complying with 
certain conditions set out in the SFR and in the rulebook of the system. Those conditions would 
consider the risks the participants may present to the system and specify how such risks would 
be mitigated by the participant, for example by having competent personnel and appropriately 
designed risk functions relevant for the participant; the conditions would be proportionate. A 
Level  2  mandate  for  ESMA  and  EBA,  in  cooperation  with  the  ESCB,  to  amend  the  list  of 
participants and to further specify the conditions, differentiating, if necessary, by the type of 
system,  would  be  included  as  well. This  would  create  a  level  playing  field  among  systems 
regarding  participants  and  the  set-up  would  mimic  and  build  on  the  current  protection  that 

420 Currently, SFD designation requires a system to be governed by the law of a Member State. As third-country 
systems are systems governed by the law of a third country, a designation under the SFD as it currently stands is 
not possible. Therefore, this section talks about registration to differentiate. The concept of registration would 
need to be defined in the SFD.  
421 Since the adoption of EMIR, CCPs have been added to the list of eligible direct SFD participants.  However, 
the definition of ‘CSD’ set out in Article 2(1), point (1), of the CSDR are not explicitly included although their 
participation is implicitly covered as ‘settlement agents’ and ‘system operators’. Yet, Article 39(1) of the CSDR, 
requires Member States to designate and notify securities settlement systems operated by CSDs in accordance 
with the SFD. Therefore, it would follow that CSDs should be explicitly added to the list of eligible participants 
in the SFD. 

248 

 
 
 
 
 
exists for clearing members that participate in a CCP where the CCP needs to ensure that the 
participants admitted have sufficient resources and operational capacity to meet the obligations 
arising  from  participation  in  the  system(s)  operated  by  the  CCP  and  where  all  the  other 
requirements set by the system have to be met by the participants. 

Option 2.5 (SFD): Scope of eligible securities  

This option would introduce a common definition of eligible securities under the new SFR in 
all Member States, establishing a harmonised list with all securities that would be eligible. This 
would be done by amending the definition by way of a reference to the definition of ‘financial 
instruments’ set out in Article 4(1), point (15), of MiFID II. This option would also introduce 
a mandate for a Level 2 act enabling the list of eligible securities to be amended in the future 
to  take  into  account  market  developments  and/or  further  specify  the  instruments  to  ensure 
greater harmonisation. 

Option 2.6 (SFD): Designation practices for EU systems 

Under this option, the new SFR would introduce harmonised requirements for the designation 
of systems and streamline designation practices. Specifically, the amendments would include 
clear requirements on what information to provide in the notification, provide the assessment 
criteria and the procedures and timelines to be followed. This would be complemented with a 
mandate to develop the details in Level 2. Member States would continue to designate systems 
under  their  national  laws.  ESMA  and  the  ECB/ESCB  would  be  mandated  to  check  the 
alignment of designations of, respectively, securities settlement systems and payment systems 
across Member States in order to ensure a harmonised approach across the EU.  

Option 2.7 (SFD): Transparency  

To  ensure  that  the  publicly  available  information  about  valid  designations  is  accurate,  this 
option would include a requirement for Member States to provide ESMA with accurate and up-
to-date information related to the designated EU systems that ESMA would then publish on its 
website. In addition, Member States would be required to provide more information to ESMA 
than they currently do including on direct participants in the designated systems, the rules of 
those  systems  and  how  those  systems  ensure  settlement  finality  protection  (some  of  that 
information may not be published on ESMA’s website). ESMA would be required to publish 
information  on  the  third-country  systems  registered  by  Member  States  on  its  website  as  it 
currently does for designated EU systems, as well as clarity on the scope of that registration. 
In  order  to  facilitate  comparability  of  the  information  to  be  published,  this  option  would 
mandate  ESMA  to  develop  a  template  for  Member  States’  notification  of  systems  with  the 
required related information. 

Option 2.8 (SFD): Settlement finality moments  

Under this option, the new SFR would determine the moments of entry of transfer orders into 
the system, irrevocability of such transfers orders, and possibly, the moment of finality of the 
execution of the transfer order. The ability of Member States under the current SFD to apply 
national conditions would be removed. ESMA, in cooperation with the ECB/ESCB, would be 
mandated to further specify, if necessary, the above moments of finality for systems other than 
securities settlement systems operated by CSDs (for the latter, see Section 5.1.2.4) in Level 2, 
taking into account the specificities of the different types of systems.  

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5.2.3.  Option 3 (SFD): Extensive review to impose an integrated market 

This option would include even more ambitious amendments to the SFD than option 2. As is 
the  case  for  the  latter,  given  the  multiplicity  of  issues  identified,  a  wide  range  of  targeted 
measures will be needed to address them; those measures are described below. 

Option 3.1 (SFD): Legal certainty for digital innovation 

In addition to ensuring legal certainty on concepts, definitions and requirements and to enable 
certain  DLT-based  systems  to  benefit  from  the  protections  under  the  Settlement  Finality 
Regulation (via designation under Settlement Finality Regulation), this option would also aim 
to provide legal certainty in relation to other aspects on the holding of securities as well as 
further harmonising the designation of systems where they are operated by using DLT.  

Option 3.2 (SFD): Conflict-of-law rule 

This  option  would  include  in  the  new  SFR  the  conflict-of-law  rule  set  out  in  the  Hague 
Convention  on  the  applicable  law  to  certain  rights  in  respect  of  securities  held  with  an 
intermediary.  The  applicable  law  would  be  the  law  of  the  country  named  in  the  account 
agreement with the relevant intermediary, backed by a so-called ‘reality test’ intended to ensure 
that the intermediary does actually conduct securities business in that jurisdiction, even though 
not necessarily in relation to the account in question. 

Option 3.3 (SFD): Participation of EU institutions in third-country systems 

The responsibility for registering third-country systems would be given to ESMA (for securities 
settlement systems) and ECB/ESCB (for payment systems).  

Option 3.4 (SFD): Scope of participants  

Under this option, any entity that is allowed by a system operator to participate in a system 
based on the admission criteria of the system would be considered a participant (as opposed to 
only  certain  regulated  financial  entities).  Amendments  would  also  be  made  to  sectoral 
legislation, such as the CSDR, to ensure alignment.  

Option 3.5 (SFD): Scope of eligible securities  

Under this option, any instrument would be considered an eligible security. This option would 
allow operators of designated systems to choose the instruments that would be included in the 
protections provided under the new SFR. 

Option 3.6 (SFD): Designation of EU systems 

Under  this  option,  ESMA  (for  securities  settlement  systems)  and  ECB/ESRB  (for  payment 
systems) would be given the responsibility for the assessment and designation of EU systems 
under the new SFR.  

Option 3.7 (SFD): Transparency 

This option would fully harmonise the information that is to be published by ESMA, including, 
among others, the designated system, its rules and its direct and indirect participants, as well 
as  the  third-country  systems  to  which  Member  States  extended  their  domestic  participants’ 
protection. ESMA would also publish with unrestricted access information on the opening of 
insolvency proceedings against a direct or an indirect participant of any designated EU system. 

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Information on other matters related to SFR-designated systems would also be made public in 
a centralised form. The additional elements of information to be published would be identified 
by ESMA as necessary and included in Level 2 legislation.  

Option 3.8 (SFD): Settlement finality moments 

This  option  would  fully  harmonise  the  three  settlement  finality  moments  at  EU  level  in  a 
uniform way for all types of systems, without taking into account the specificities of different 
types of systems.  

6.  IMPACT OF THE POLICY OPTIONS 

This section describes the impact of the policy options presented above. 

6.1.  IMPACT OF THE POLICY OPTIONS REGARDING THE CSDR 

6.1.1.  Option 1 (CSDR) – Status quo 

Since this option would not amend the CSDR, the problems and problem drivers described, 
respectively, in Sections 3.1 and 3.2 would persist and would not be resolved. Consequently, 
potential improvements would be left to initiatives from the private sector or Member States, 
which  are  however  not  likely  to  result  in  the  removal  of  the  existing  barriers  to  market 
integration and cross-border activities. 

6.1.2.  Option 2 (CSDR) – Comprehensive review to enhance the functioning of 

market infrastructure 

Option 2.1 (CSDR): Ensuring freedom of issuance and facilitating passporting and the cross-
border provision of services 

This option would be effective in directly meeting one of the specific objectives of the overall 
proposal in that it enables further market integration and scale effects by facilitating passporting 
of CSD services in the EU and ensuring that freedom of issuance is effective, thus increasing 
the supply of CSD services cross-border. This would also be complemented with measures to 
improve transparency of fees and prices of CSDs to enable issuers and investors to compare 
offers and services throughout the EU (see Section 3.2.6) in order to stimulate the demand side.  

In their replies to the targeted consultation, several stakeholders (including CSDs and national 
authorities)  highlighted  that  the  complex  passporting  processes  entail  high  costs  for  CSDs, 
particularly in terms of administrative burden, as well as legal analysis and compliance costs. 
Some respondents have also evidenced that there are costs due to missed opportunities where 
there is demand for cross-border issuance. In the targeted consultation,422 70% of stakeholders 
indicated  that  there  are  barriers  to  the  freedom  of  issuance  in  the  EU.  Moreover,  several 

422 See ”Targeted consultation of integration of EU capital markets”, Question 3.1.1. 

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stakeholders evidenced that fragmentation at the CSD level results in increased and persistent 
costs for end-investors.423  

On  the  other  hand,  it  should  be  noted  that  some  stakeholders  (including  a  few  national 
authorities)  denied  having  identified  any  regulatory  or  supervisory  barriers  to  freedom  of 
issuance and provision of cross-border services in the EU, albeit some (notably CSDs), while 
denying formal barriers, evidenced that practical challenges and compliance costs remain for 
CSDs, due to the costly assessments needed for passporting caused by the fragmentation of 
Member  States  requirements,  including  divergent  interpretations  of  the  relevant  CSDR 
provisions. Simultaneously, CSDs report disproportionate length and costs of the passporting 
process,  citing  administrative  burden,  supplementary  reporting  requirements,  transparency 
issues and unpredictability with regard to the costs of applying the passport.424  

Generally,  respondents  to  the  targeted  consultation  did  not  seem  to  envisage  that  any  costs 
could  stem  from  a  simplification  of  the  passporting  procedure  or  the  enhancement  of  the 
freedom of issuance in the EU.  

This option would accomplish the objectives of the overall proposal by reducing the burden for 
CSDs in providing services across borders, thus reducing the corresponding costs. Legal clarity 
would also reduce costs for issuers, ensuring freedom to issue their securities in whichever EU 
CSD  they  want  by  restricting  national  law  from  imposing  additional  requirements  that  go 
beyond EU law. This option, by enabling further market integration, would reduce costs for 
investors as well.  

The  above  would  be  achieved  at  no  additional  cost  for  CSDs  or  issuers  (in  fact,  the 
administrative costs related to the various procedures are expected to fall).  

As such, this option is also coherent with the objectives of the SIU to create a more harmonised 
and standardised market in that it helps reduce fragmentation in EU capital markets.  

Option 2.2 (CSDR): Supporting outsourcing 

Clarifying the procedures for outsourcing of CSD services and simplifying those procedures in 
case  of  the  outsourcing  of  those  services  to  other  entities  within  the  same  group  would  be 
effective in directly meeting one of the specific  objectives of the overall proposal  in  that  it 
would enable further market integration and scale effects by allowing CSDs to more efficiently 
outsource  their  activities,  in  particular  within  the  same  group,  leading  to  cost  savings  and 
increased competitiveness, while maintaining the relevant risk mitigation requirements. One 
corporate group that  comprises at  least  one CSD indicated that  more  accommodating intra-
group outsourcing provisions – e.g. with respect to IT and human resources – could yield a cost 
savings of approximately 15 percent.  

This option was generally supported by CSDs who responded to the targeted consultation and 
who highlighted that the current outsourcing framework is overly burdensome particularly with 
respect to staff sharing among CSDs belonging to the same group. Generally, respondents to 

423 “Study on consolidation and reducing fragmentation in trading and post-trading infrastructures in Europe”, 
Final Report, Bourse Consult & Civitta, September 2025:  
https://op.europa.eu/en/publication/doi/10.2874/2649452.  
424 “Provision of cross-border services by CSDs and handling of applications under Article 23 of CSDR from 
2020 to 2022”, European Securities and Markets Authority. See paragraphs 176 and 177.  

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the  targeted  consultation  did  not  seem  to  envisage  that  any  costs  could  stem  from  the 
clarification of outsourcing requirements and the simplification of outsourcing procedures with 
respect  to  intra-group  outsourcing  should  entail  additional  costs  for  stakeholders.  It  should 
however be noted that a small number of national competent authorities who responded to the 
targeted consultation considered that the current approval processes under the CSDR remain 
suitable,  as  they  correctly  cater  for  the  relevant  risks,  with  one  authority  cautioning,  for 
example,  on  the  risk  of  empty  shells  emerging  and  the  corresponding  risks  to  business 
continuity. As such, those authorities indicated that no changes are therefore necessary.   

This option would accomplish the objectives of the overall proposal by reducing the burden 
and costs for CSD groups in providing their services in the most efficient way in accordance 
with their business strategy.   

It will also help facilitate innovation by enabling the use of new technologies. By explicitly 
clarifying  the  use  of  DLT  and  how  outsourcing  rules  apply  to  such  new  technologies,  the 
proposal would facilitate innovation. This, in turn, would contribute to a more innovative EU 
capital market. Overall, the proposal is generally coherent with the objectives of the SIU, as it 
aims to promote a more integrated, innovative and efficient EU capital market, as well as the 
Commission’s Digital Europe Programme. 

Option 2.3 (CSDR): Cash settlement 

By facilitating CSDs’ ability to designate credit institutions for settling the cash leg of securities 
transactions in commercial bank money, this option would allow CSDs to offer settlement in 
services  for  which  access  to  central  bank  money  is  not  possible  or  very costly. This  option 
would not entail any significant costs for CSDs or for credit institutions they would designate; 
any costs that would be incurred would not be imposed, i.e. the CSD would incur them only if 
it decided to offer the service. This would increase the competition among EU CSDs for the 
provision of settlement services in financial instrument denominated in non-EU currencies.  

In  addition,  this  option  would  help  meet  the  specific  objective  of  facilitating  innovation  by 
enabling the use of new technologies, as it would facilitate the use of DLT by CSDs by allowing 
them to utilise digital forms of money, including tokenised cash, for settlement. The proposal 
would also contribute to improving supervision by reducing divergences, as it provides clarity 
on  the  use  of  different  forms  of  money  for  settlement  and  ensures  that  CSDs  can  operate 
efficiently  and  safely.  However,  in  the  short  term,  this  option  may  contribute  to  further 
fragmentation of the CSD market as it would facilitate the establishment of settlement systems 
that would not be able to interact in a straightforward fashion with one another (i.e. settlement 
systems settling in tokenised money would require different technical solutions to be able to 
settle  cross-border  transaction  with  settlement  systems  settling  in  traditional  central  bank 
money  or  in  commercial  bank  money). This  is  why  the  impact  on  enabling  further  market 
integration and scale effects  by increasing  cross-border activity would be less, although the 
increased efficiency  and reduced  costs resulting  from  the proposal  could  potentially  lead to 
increased cross-border activity. 

88% of respondents to this question in the targeted consultation representing a wide range of 
financial sector stakeholders and a few Member State authorities agreed that the definition of 
cash needed to be updated to include, for example, tokenised forms of money, in particular 
tokenised commercial bank money and electronic money tokens. Those who opposed an update 
to the definition of cash viewed the existing definition as already covering DLT versions of 
traditional cash. 

253 

 
 
 
This option is coherent with the objectives of the SIU, as it aims to promote a more integrated, 
innovative, and efficient EU capital market. By enabling the use of DLT and digital as well as 
tokenised forms of money, the proposal would contribute to a more modern and competitive 
market, which is in line with the broader goals of the SIU. Overall, the option has the potential 
to promote innovation, improve supervision, and increase efficiency in the market, making it a 
useful step towards achieving the objectives of the package. 

Option 2.4 (CSDR): Promoting the use of T2S, connecting the fragmented settlement landscape 
and enhancing the role of links between CSDs 

This option would help meet the specific objective of enabling further market integration and 
scale  effects  by  increasing  cross-border  activity,  as  requiring  a  connection  to T2S  and  thus 
facilitating settlement in central bank money would make settlement safer. It would facilitate, 
in  conjunction  with  mandating the establishment of links, cross-border settlement,  reducing 
barriers  and  increasing  efficiency.  It  would  create  a  settlement  network  with  several  key, 
interconnected  nodes  at  its  centre  allowing  participants  in  any  EU  CSD  to  settle  securities 
transactions  in  any  other  CSD  via  a  relayed  link  arrangement,  thus  increasing  competition 
between  CSDs. According  to  ECSDA,  relayed  links  are  an  efficient  means  to  connect  to 
markets where low volumes and relatively high legal, operational and legal costs would make 
a direct link not economically viable. In fact, the establishment of relayed link arrangements 
has  increased  over  the  past  few  years.  Since  2021,  while  the  number  of  direct  links  has 
remained  relatively  static  and  indirect  links  have  decreased  by  almost  40%,  the  number  of 
relayed links has increased by almost 30%.425    

Among  the  32  CSDs  established  in  the  EU,  23  are  connected  to  T2S.  This  option  would 
therefore incur the costs of those nine CSDs connecting to T2S. There are currently 180 links 
established between EEA CSDs. Under this option, the establishment of an additional 10 to 15 
inbound links would be needed. Since these links would be established among CSDs connected 
to T2S, which harmonises technical connectivity and settlement processes, the cost would be 
significantly  less  than  for  the  case  where  CSDs  would  need  to  make  changes  to  technical 
infrastructure  and  align  protocols. As  discussed  in  Section  3.2.4,  a  simple  link  established 
between two T2S-connected CSDs could entail an initial cost of EUR 30 000, whereas more 
complicated arrangements could increase that cost by at least an order of magnitude.  Some of 
the already established links would need however to be amended, notably to expand the scope 
of instruments that can be settled under that link in order to be able accept all the instruments 
issued by the issuer CSD via the link. Such costs would be offset by the fact that a peripheral 
CSD would only be required to establish a single link to one CSD hub, while markets served 
by other CSDs could be accessed through these central CSDs via relayed arrangements. If most 
CSDs in the EU currently maintain four or fewer links (see Sections 2.4.2.3 and 3.2.4), then up 
to  three  of  these  links  would  no  longer  necessarily  be  needed  to  be  maintained  leading  to 
conservatively estimated savings of at least EUR 100 000 per year, assuming the low end of 
the annual link maintenance costs quoted in Section 3.2.4. This approach in any case seems to 
be the direction of travel on the part of the industry. In July 2025, Euroclear issued a press 
release indicating their intention to provide a single point of access across all financial asset 
classes for all EU CSDs in the 27 Member States.426     

425 “CSD Links Report”, ECSDA, October 2025. 
426 https://www.euroclear.com/newsandinsights/en/press/2025/mr-19-connecting-eu-markets-across-asset-classes.html  

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The targeted consultation showed some support for establishing a minimum number of links in 
the targeted consultation. This was particularly the case from investor associations, investment 
firms in certain Member States, as well as a few market infrastructures. There was also support 
from  a  few  Member  States.  Although  the  question  of  a  hub  and  spokes  model  was  not 
specifically asked in the targeted consultation, one industry association supports the concept of 
a settlement system with hubs and spokes as a way to forward the integration of settlement in 
the EU. This option will also likely be supported by regulated market participants (including 
brokers, dealers, trading venues or intermediaries) which will be able to settle any instrument 
issued in an EU CSD for the cost of the connection to one of the CSD of substantial importance. 
On the contrary, “spoke” CSDs are likely to oppose the establishment of links in the case that 
they have not already established any links. Moreover, the hub CSD would be able to passport 
central maintenance services for all instruments issued by the hub to the ‘spoke’ Member State.  

In turn, greater use of T2S would drive down the cost of settling in T2S, thereby reducing post-
trading costs, and increase harmonisation as CSDs joining T2S would use common standards. 
If the volumes settled at the two ICSDs in the EU were to move to T2S and a 30% decrease in 
settlement fees can be expected when moving volumes to T2S from CSD internal settlement 
(see Section 3.2.4), this could lead to a total possible savings of approximately EUR 86 million 
across the EU settlement landscape. This figure takes as a starting point the 2024 settlement 
volumes processed by Euroclear Bank (200 nm) and Clearstream Banking SA (115 mn)427 and 
assumes that the average fee per settlement instruction at the ICSDs is EUR 0.91, as noted in a 
recent AFME publication.428  

In terms of costs for CSDs, connecting to T2S would imply an initial investment cost for CSDs 
to adjust their systems,  which can vary dramatically depending on the CSD as discussed in 
Section 3.2.4. As the CSDs in the EU that are not yet connected to T2S are relatively small, 
using an estimate on the low end of the range for connecting to T2S for those CSDs would 
yield a total cost of just over EUR 200 million. However, that would only apply for a small 
number of CSDs that are not already connected to T2S. The costs for CSDs of establishing 
links  would  include  an  initial  investment  cost  to  establish  a  link  and  then  limited  costs  to 
maintain it. The vast majority of CSDs would likely establish only one bidirectional link, so 
the costs of complying with the requirement set out in this option would likely be contained. 
They may be further reduced if a CSD already has such a link in place and if both it and the 
CSD with which it would establish a link are both connected to T2S. In terms of benefits for 
CSDs, they would depend on investor demand to use their services for settling cross-border 
transactions. 

At  the  same  time,  this  option  would  reduce  the  regulatory  burden  of  establishing  links  by 
simplifying the application process and replacing the current regime with a more streamlined 
one. Furthermore, this option would harmonise standards in settlement operations, facilitating 
further integration. The adoption of those standards would entail some initial investment costs 
for  those  CSDs  that  do  not  already  use  them.  For  example,  it  has  been  noted  by  some 
stakeholders  that  despite  the  existence  of  ISO  standards  providing  the  classification  of 
transactions and the associated codes, information on the types of transactions is not populated 
consistently  in  settlement-related  messaging.  The  lack  of  consistent  use  of  transaction  type 
codes  limits  and/or  prevents  straight-through-processing/automation  in  certain  post-trade 

427 Settlement volumes sourced from the ECB Statistical Data Warehouse. 
428 https://www.afme.eu/publications/reports/analysis-of-csd-fees-in-major-european-markets/ 

255 

 
 
 
 
 
also 

further 

prevents 

standards 

activities and, ceteris paribus, results in a higher number of errors. This applies also to know-
your-customer and customer due-diligence procedures. The coexistence of the ISO15022 and 
ISO20022  messaging 
of 
settlement/reconciliation,  asset  servicing  and  reporting  processes.429  Similar  problems  mar 
custody and asset servicing activities, i.e. activities aimed at ensuring that investors receive full 
information and comprehensive services during the lifetime of their assets. Although the 2017 
European  Post-Trade  Forum  report  indicated  significant  harmonisation,  the  2024  Corporate 
Events  Group  Report430  revealed  that  compliance  with  the  various  standards  was  limited. 
Specifically, only eight out of 40 markets met the market CA standards, 15 out of 28 markets 
adhered to the T2S CA standards and ten out of 31 markets complied with the market standards 
for shareholder identification. For instance, in its public consultation submission431 Deutsche 
Boerse estimated that around 50% of the cost to process  corporate events is spent today by 
custodians to source the correct information.  

harmonisation 

This  option  is  less  directly  related  to  facilitating  innovation  by  enabling  the  use  of  new 
technologies, although it would include the possibility of settling transactions in CBDCs once 
they would become available. 

This option would help meet the specific objective of enabling further market integration and 
scale effects by increasing cross-border activity, as it would facilitate cross-border settlement 
and hence of cross-border trading, reducing barriers and increasing efficiency. By facilitating 
the settlement of transactions across different Member States and currencies, this option would 
contribute to a more harmonised and standardised market, which is in line with the broader 
goals of the SIU. The proposal would  also contribute to improving supervision by reducing 
divergences, as it would promote a standardised and harmonised approach to settlement across 
the EU. Since CSDs authorised under the DLTPRR would not be required to link with other 
CSDs (although they would be free to do so, if they so wished), this option would contribute 
to facilitating the development of new services and technologies.  

The proposal is coherent with the objectives of the SIU, as it would promote a more integrated 
and efficient EU capital market. By facilitating the settlement of transactions across different 
EU CSDs and promoting a standardised and harmonised approach to settlement, the proposal 
would  contribute  to  a  more  harmonised  and  standardised  market,  which  is  in  line  with  the 
broader  goals  of  the  SIU.  Overall,  this  option  would  promote  market  integration  and 
innovation, improve supervision, and increase efficiency in the market, making it a useful step 
towards achieving the objectives of the package.  

Option 2.5 (CSDR): Increasing transparency 

By improving transparency and comparability of fees and prices that CSDs charge for their 
services, and in combination with the other measures (in particular the establishment of links), 
this option would facilitate competition between CSDs. Since the CSDR already requires CSDs 
to  disclose  publicly  their  fees  and  prices,  the  additional  administrative  costs  related  to  this 

429 “Remaining barriers to integration in securities post-trade services – Issues and Recommendations”, Advisory 
Group on Market Infrastructures for Securities and Collateral, September 2025. 
430 See Advisory Group on Market Infrastructures for Securities and Collateral (Ami-Seco), “Corporate Events 
Compliance Report – 2024 Monitoring Exercise”, ECB, December 2024. 
431 See Deutsche Börse Group’s response to the European Commission’s call for evidence on the Savings and 
Investment Union, Section 3.1.1 – Cross-border provision of CSD services and freedom of issuance. 

256 

 
 
 
 
 
adjusted  requirement  would  be  negligible.  The  majority  of  respondents  to  the  targeted 
consultation (in particular banks, markets associations and some NCAs and Finance Ministries 
from five Member States) agreed that the transparency of settlement pricing and CSD services 
should  be  improved,  noting  that  increasing  the  harmonisation  of  CSD  fee  schedules  would 
enhance  competition  and  market  efficiency.  One  CSD,  while  broadly  supporting  increased 
transparency  of  settlement  pricing,  cautioned  that  the  introduction  of  additional  reporting 
requirements  should  be  carefully  considered  to  avoid  undue  burdens  for  financial 
infrastructures. It should however be noted that three CSDs, including two major CSD groups, 
as well as two NCAs, considered that the requirements on transparency set out in the CSDR 
are already sufficient.  

In addition, this option would help meet the specific objective  of improving supervision, as 
improved transparency (i.e. reporting) for supervisors would allow them to better monitor and 
oversee  internalised  settlement  activity  and  act  in  case  of  reduced  settlement  efficiency  of 
settlement internalisers. This would help promote a more stable and efficient market. It would 
also help market participants to compare the settlement efficiency of settlement internalisers 
with that of CSDs. The administrative costs of the transparency requirements for settlement 
internalisers  would  be  minimal.  Many  respondents  to  the  public  consultation  (particularly 
banks and banking associations, but also some NCAs, Finance Ministries and Central Banks 
from  seven  Member  States)  consider  that  the  current  reporting  obligation  of  internalised 
settlement already allows for an accurate identification of the risks stemming from settlement 
outside  of  a  CSD,  and  considered  that  imposing  additional  obligations  on  settlement 
internalisers too burdensome and not sufficiently justified. However, it should be noted that 
several  other  NCAs  and  Ministries  of  Finance  from  six  Member  States  as  well  as  market 
infrastructures and financial market associations noted the lack of sufficient knowledge on the 
risks that could stem from settlement internalisation, notably in terms of concentration risk, 
and  the  absence  of  a  level  playing  field  between  settlement  internalisers  and  CSDs.  These 
respondents advocated for a more detailed reporting by settlement internalisers (or at least for 
those  with  very  high  volumes  of  activities)  and/or  the  publication  of  information  by 
internalisers on their activities, including settlement fail rates.  

Reducing  the burden for CSDs to  provide cross-border services, imposing a hub and spoke 
model for the settlement landscape and promoting the use of T2S will have the combined effect 
of  decreasing  existing  frictions  in  cross-border  settlement  operations  and  make  for  a  more 
interconnected settlement network in the EU. This will have implications for the transparency 
of settlement as there will be a decreased need for settlement internalisers to fill in the gaps 
inherent in the current fragmented settlement landscape. A decreased need for the services of 
settlement internalisers would increase settlement done directly in CSDs, which would allow 
these  infrastructures  to  reap  further  benefits  from  economies  of  scale  leading  ultimately  to 
lower costs for CSD participants and end investors. 

This option is coherent with the objectives of the SIU, as it would to promote a more integrated, 
efficient,  and  transparent  EU  capital  market.  By  increasing  transparency,  this  option  would 
contribute to a more harmonised and standardised information on CSD fees and services, which 
is in line with the broader goals of the SIU. Overall, this proposal would promote more effective 
supervision  and  further  market  integration,  making  it  a  useful  step  towards  achieving  the 
objectives of the package. 

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Option 2.6 (CSDR): Legal certainty 

This option would help meet the specific objective of facilitating innovation by enabling the 
use of DLT, as it would provide legal  certainty on the application of that technology  in  the 
context of securities settlement and post-trade activities more in general. The proposal would 
also contribute to improving supervision by reducing divergences, as it would help to ensure 
consistency in the application of the rules across different Member States and technologies. 
This would ensure that CSDs have clarity that they can also provide services using DLT under 
the CSDR, facilitating the use of new technologies in the provision of services by CSDs under 
the CSDR and innovation. This would allow the DLTPRR be able to focus on its core aim to 
enable innovation and the testing of new innovative post-trade structures and would facilitate 
a smooth transition (where this is opted for by a DLTPRR participant) into the CSDR regime.  

To improve the compatibility of the CSDR with DLT is generally supported by a wide range of 
respondents to the targeted consultation. One example of this is the technological neutrality of 
the definition ‘central securities depository’ that was labelled as a “strong concern” or “rather 
a  concern”.  Respondents  justified  the  need  for  clarity  to  ensure  how  this,  and  other  terms 
(“accounts”,  “book  entry”  or  “dematerialised  form”)  would  apply  in  a  DLT  environment. 
Respondents also viewed improving the technological neutrality of CSDR as the most efficient 
legislative path to integrating DLT securities into the single market.  

In terms of costs, clarity on the application of the CSDR would reduce costs for CSDs seeking 
to  provide  DLT-based  services  as  they  would  not  need  to  seek  as  much  legal  advice  as  is 
currently the case. In terms of costs for market participants, such as issuers and investors, clarity 
will also reduce implementation costs. The reduction in costs should be particularly marked for 
issuers of DLT-based securities and providers of DLT-based services, as they would not need 
to  seek  as  many  legal  opinions  to  ascertain  if  their  activities  are  in  line  with  the  different 
national laws. This would, in turn, reduce costs for the clients of those providers. No new costs 
related to this option were identified in the targeted consultation. 

This option would also provide further clarity on how conventional CSDs could provide DLT-
based  services  under  the  CSDR.  It  would  also  provide  CSDs  initially  authorised  under  the 
DLTPRR with a smoother path to compliance with the full requirements of the CSDR if they 
wished to scale up their activities beyond the limits provided under the DLTPRR. 

This option would be also coherent with the objectives of the SIU pertaining to the promotion 
of innovation as well as the objectives of the broader Digital Strategy, by promoting a more 
efficient, and innovative EU capital market and would ensure consistency and complementarity 
of the CSDR with the DLTPRR as the scope and objectives of the two Regulations differ, but 
complement each other as in the medium to long run, firms under the DLTPRR would be able 
to scale-up by moving to the broader CSDR regime. By providing legal certainty and clarity 
on the application of DLT, this option would help to promote the development of new financial 
products  and  services  and  would  contribute  to  a  more  competitive  and  innovative  market. 
Overall,  this  option  would  promote  innovation,  and  facilitate  more  effective  supervision, 
making it a useful step towards achieving the objectives of the package. 

This option would, however, at least initially, contribute to further fragmentation of the CSD 
landscape  by  facilitating  the  authorisation  of  new  entrants  operating  with  a  technology  not 
directly compatible with the other CSDs’ technology. This could lead to additional costs for 
financial intermediaries, including brokers, dealers or settlement agent as they would need to 
invest in specific operational features in order to connect to these new CSDs. 

258 

 
 
 
6.1.3.  Option 3 (CSDR) – Extensive review to impose an integrated market 

Option 3.1 (CSDR): Ensuring freedom of issuance and facilitating passporting and the cross-
border provision of services 

By removing barriers to freedom of issuance and facilitating passporting and the cross-border 
provision  of  services  this  option  would  help  meet  the  specific  objective  of  enabling  further 
market  integration  and  scale  effects  by  increasing  cross-border  activity,  as  it  would  reduce 
barriers to entry and allow CSDs to operate more easily across borders.  

In their replies to the targeted consultation, several stakeholders (including CSDs and national 
authorities)  highlighted  that  the  complex  passporting  processes  entail  high  costs  for  CSDs, 
particularly in terms of administrative burden, as well as legal analysis and compliance costs. 
Some respondents have also evidenced that there are costs due to missed opportunities where 
there  is  demand  for  cross-border  issuance.  Moreover,  several  stakeholders  noted  that 
fragmentation at the CSD level results in increased and persistent costs for end-investors.432  

On  the  other  hand,  it  should  be  noted  that  some  stakeholders  (including  a  few  national 
authorities)  denied  having  identified  any  regulatory  or  supervisory  barriers  to  freedom  of 
issuance and provision of cross-border services in the EU, albeit some (notably CSDs), while 
denying formal barriers, evidenced that practical challenges and compliance costs remain for 
CSDs, due to the costly assessments needed for passporting caused by the fragmentation of 
Member  States  requirements,  including  divergent  interpretations  of  the  relevant  CSDR 
provisions. Simultaneously, CSDs report disproportionate length and costs of the passporting 
process,  citing  administrative  burden,  supplementary  reporting  requirements,  transparency 
issues and unpredictability with regard to the costs of applying the passport.433  

Generally,  respondents  to  the  targeted  consultation  did  not  seem  to  envisage  that  any  costs 
could  stem  from  a  simplification  of  the  passporting  procedure  or  the  enhancement  of  the 
freedom of issuance in the EU.  

However, this option would also raise several concerns. For example, removing all additional 
requirements and notifications with respect to passporting could lead to a lack of transparency 
and  accountability,  as  the  home  authority  would  not  be  notified  of  the  intention  to  provide 
cross-border notary and central maintenance services by the CSD. Host Member States would 
also  not  be  notified  and  would  hence  have  limited  oversight  and  control  over  the  CSD's 
activities. The concerns would remain relevant also in the context of EU single supervision, as 
in the absence of a passporting notification the single EU supervisor would have less visibility 
on the cross-border activities of the CSDs it supervises. Hence, while integrating the market, 
this  option  would  also  present  potential  risks  to  financial  stability  as  well  as  in  ensuring 
compliance with national and EU law. 

Overall, while this option would promote freedom of issuance and facilitate passporting and 
the  cross-border  provision  of  services,  it  would  also  raise  significant  concerns. As  such,  it 

432 “Study on consolidation and reducing fragmentation in trading and post-trading infrastructures in Europe”, 
Final Report, Bourse Consult & Civitta, September 2025:  
https://op.europa.eu/en/publication/doi/10.2874/2649452 . 
433 “Provision of cross-border services by CSDs and  handling of applications under Article 23 of CSDR from 
2020 to 2022”, European Securities and Markets Authority. See paragraphs 176 and 177.  

259 

 
 
 
 
 
 
would not be coherent with the objectives of the SIU, which aims to promote an efficient and 
integrated EU financial system, while preserving financial stability.  

Option 3.2 (CSDR): Supporting outsourcing 

This option would eliminate costs related to procedures for outsourcing CSD services to entities 
within the same group, by removing any requirements related to such outsourcing. It would 
also reduce costs for CSDs outsourcing their services to third parties (i.e. entities outside the 
CSD’s group) by simplifying and harmonising the related procedures. Similarly to Option 2, 
by explicitly addressing the use of DLT and aiming to provide clarity on its application, this 
option would also facilitate innovation. Nevertheless, the legal and governance issues covered 
by Article 30 would still need to be covered by regulatory requirements as long as they are 
provided by different legal entities, even within the same group, and especially if these include 
non-regulated entities or non-EU entities. 

A simplification of the rules on outsourcing was generally supported by CSDs who responded 
to  the  targeted  consultation  and  who  highlighted  that  the  current  outsourcing  framework  is 
overly  burdensome,  particularly  with  respect  to  the  rules  on  staff  sharing  among  CSDs 
belonging to the same group. Generally, respondents to the targeted consultation did not seem 
to envisage any costs stemming from the clarification of outsourcing requirements. Moreover, 
the simplification of outsourcing procedures with respect to intra-group outsourcing should not 
entail  additional  costs  for  stakeholders.  It  should  however  be  noted  that  a  small  number  of 
national competent authorities who responded to the targeted consultation considered that the 
current approval processes under the CSDR remains appropriate, as the framework correctly 
caters for the relevant risks, with one authority cautioning, for example, on the risk of empty 
corporate shells emerging and the corresponding risks to business continuity. As such, those 
authorities indicated that no changes are therefore necessary.   

In terms of alignment with the specific objectives of the package, this option would help enable 
further market integration and scale effects by allowing CSDs to more efficiently outsource 
activities within their group, potentially leading to cost savings and increased competitiveness. 
It is estimated434 that savings, in terms of staff sharing and implementation of shared platforms, 
could reduce CSD costs by up to 15%. However, removing any requirements for outsourcing 
core CSDs activities within groups could endanger the robustness of the CSDs and hence have 
negative impacts on financial stability. Moreover, respondents to the targeted consultation did 
not  seem  to  advocate  for  the  removal  of  all  requirements  with  respect  to  intra-group 
outsourcing under the CSDR, also in light of the risks that need to be taken into account, as 
highlighted by some of the NCAs’ responses. In light of this, the solution proposed under option 
2 would provide a more balanced approach. 

The proposal is aligned with the objective of facilitating innovation by enabling the use of DLT. 

Overall,  this  option  is  only  partially  coherent  with  the  objectives  of  the  SIU,  as  it  would 
promote efficiency, competitiveness, and innovation in the industry, but would not necessarily 
ensure financial stability. By simplifying the outsourcing procedure and providing clarity on 
the use of new technologies like DLT, the proposal could be a useful step towards achieving 
the broader goals of the SIU. 

434 Confidential submission by an FMI conglomerate to DG FISMA services.  

260 

 
 
 
 
 
Option 3.3 (CSDR): Cash settlement 

EMTs under MiCA represent a highly resilient and programmable form  of on-chain money, 
suitable  for  settlement  and  collateral  purposes  in  tokenized  markets.  Current  frameworks 
(CSDR, DLTPR) artificially restrict the use of EMTs by requiring issuer-bank status, excluding 
most EMIs This  option would help  meet  the specific objective of facilitating innovation  by 
enabling  the  use  of  DLT,  as  it  would  allow  CSDs  to  use  digital  money  to  operate,  such  as 
tokenised  cash,  as  well  as  using  a  wide  range  of  stablecoins  under  MiCA,  including  asset-
referenced tokens, for settlement and provide more flexibility in the provision of banking-type 
ancillary  services.  It  would  also  contribute  to  enabling  further  market  integration  and  scale 
effects by increasing cross-border activity, as the use of such digital money and stablecoins 
would reduce barriers to cross-border transactions.  

Generally, 29 of the respondents (out of 33) to the targeted consultation supported updating the 
definition of cash needs to be updated to include tokenized forms of money, in particular the 
emergence of tokenised central bank money, tokenised commercial bank money and electronic 
money tokens. A few stakeholders supported going further by including asset-referenced tokens 
and a wider range of tokens, or even a non-exhaustive definition. Those stakeholders argued 
that the wider the range of acceptable assets, the more advantages including more pooling of 
assets,  better  leverage  of  exiting  market  connectivity  and  scalability. They  also  emphasised 
such  a  measure  would  support  the  modernisation  and  positioning  of  EU  financial  markets 
globally.  

However, this option would also raise several concerns. For example, removing the restrictions 
on  credit  institutions  providing  banking-type  ancillary  services  would  increase  the  risk  of 
systemic instability, as credit institutions may take on more risk, in particular intraday credit 
risk, which is not covered by prudential banking rules, and become more interconnected with 
CSDs. Furthermore, the use of stablecoins such as asset-referenced tokens for settlement would 
also raise concerns about financial stability, as these assets may not be as stable as non-digital 
forms of money and could be subject to significant price volatility. This could increase the risk 
of settlement fails and undermine the stability of the financial system. 

In terms of coherence with the objectives of the SIU, this option would not be entirely aligned, 
as it could have a negative impact on financial stability.  

Option  3.4  (CSDR):  Promoting  the  use  of  T2S,  connecting  the  fragmented  settlement 
landscape, and enhancing the role of links between CSDs 

A T2S CSD would compete with other EU CSDs in providing CSD services (the competition 
would be on equal terms from a regulatory perspective, as following the option described in 
Section  6.1.3.3  T2S  CSD  would  be  subject  to  the  full  set  of  CSDR  requirements),  and  its 
connection via links to all EU CSDs would facilitate cross-border settlement. Turning T2S into 
a CSD would require a significant initial investment to expand its functionalities which would 
have to be reflected in the price of its services.  

While T2S operating as a CSD of CSDs is technically feasible, the full benefits of this solution 
would only be available if issuers would issue directly in T2S CSD or if a common issuance 
scheme across CSDs would be established. In the former case, T2S CSD would need to operate 
under one of the existing national frameworks/laws (alternatively, an EU-level legal framework 
for issuance of securities in T2S CSDs would need to  be developed). Such solution  would, 
however, entail potential conflicts of laws with the other national laws that were not chosen 
(e.g. T2S CSD would not be able to support 27 different ways of executing corporate actions). 

261 

 
 
 
To avoid those conflicts, T2S would need to run multiple securities settlement systems (one for 
each Member State). In such case, however, it is questionable whether T2S CSD would solve 
any of the current issues identified in Section 3.2.4, as long as each Member State would have 
a different legal system ruling securities holdings.  

In addition, CSDs would need to establish links with T2S which would also entail some initial 
investment costs plus some costs to maintain those links. However, since a single link with the 
T2S  CSD  would  allow  any  linked  CSD  to  access  any  other  linked  CSD,  this  would  make 
existing bilateral links obsolete and hence eliminate the cost of maintaining them. This option 
would help meet the specific objective of enabling further market integration and scale effects 
by  increasing  cross-border  activity,  as  it  would  create  a  single,  interconnected  platform  for 
settlement across the EU. However, there are also potential drawbacks related to this option. 
The main one concerns the potential negative implications for competition and innovation if 
most of the issuance and settlement activity would get concentrated in T2S CSD over time. As 
pointed out by respondents to the targeted consultation, the public sector is considered as too 
slow to drive innovation. Consequently, this option is not fully aligned with the objectives of 
the SIU. 

Option 3.5 (CSDR): Increasing transparency 

In addition to what is proposed under Option 2 to increase transparency of fees and prices, this 
option would also require CSDs and settlement internalisers to charge. Mandating CSDs and 
settlement  internalisers to  charge the same fees and prices for cross-border services as  they 
charge for domestic services would most likely lead to lower fees and prices for cross-border 
post-trade services. However, this reduction would likely come at the expense of an increase 
in fees and prices for domestic post-trade services. 

While this option could theoretically have some merits, defining the scope of the requirement 
would be extremely challenging (e.g. what is cross-border, what is the service category being 
considered, how to distinguish cross-border within the EU compared to between the EU and 
the  rest  of  the  world).  The  complexity  of  designing  and  implementing  such  an  approach 
combined  with  the  additional  reporting  requirements  would  make  this  option  costly. These 
costs could in theory be passed on through the holding chain, potentially increasing the costs 
of investing and issuing in the EU, which would not be in line with the objectives of the SIU.  

Moreover, while the majority of respondents to the targeted consultation (in particular banks, 
markets associations and some NCAs and Finance Ministries) agreed that the transparency of 
settlement  pricing  and  CSD  services  should  be  improved,  there  did  not  seem  to  be  clear 
positions advocating for the solution analysed in this section. On a similar note, while several 
NCAs  and  Financing  Ministries  as  well  as  market  infrastructures  and  market  associations 
advocated for a more detailed reporting by settlement internalisers (or at least for those with 
very high volumes of activities) and/or the publication of information by internalisers on their 
activities, including settlement fail rates, there seemed to be no clear positions advocating for 
the option analysed in this section.  

Option 3.6 (CSDR): Legal certainty 

 Integrating  DLT-based  instruments  into  the  existing  framework  allows  for  consistent 
application of rules regarding ownership transparency, asset segregation, and corporate actions 
processing.  This  approach  also  simplifies  regulatory  oversight,  ensures  compliance  with 
AML/KYC  regulations,  fosters  interoperability  between  DLT  platforms  and  traditional 
markets, and provides much-needed legal certainty for market participants. Gradual adaptation 

262 

 
 
 
of CSD services to accommodate DLT-based instruments, rather than wide-ranging changes or 
exemptions,  ensures  continued  robust  protection  of  the  financial  system  while  fostering 
responsible innovation. 

There was some support by one association to integrate DLT trading and settlement systems 
(DLT  TSS)  within  a  modernised  CSDR  and  MiFID  II  frameworks.  Embracing  these 
technologies will enhance market efficiency and legal certainty, foster innovation, and support 
Europe’s competitive edge in global financial markets.   

A majority of the respondents, covering a wide range of respondents including fintech firms as 
well  financial  institutions,  note  that  the  rise  of  DLT-based  tokenised  financial  instruments 
necessitates a reassessment of how CSD services are defined, delivered, and regulated as DLT 
fundamentally  transforms  the  execution  of  core  post-trade  services  and  that  within  a  DLT 
context, many CSD core services can be automated, embedded, and verified directly on-chain. 

Nevertheless, the comprehensive revision of the CSDR envisaged under this option would be 
a  complex  task  that  would  require  a  considerable  amount  of  time  to  ensure  that  the  final 
outcome would not introduce new uncertainties and risks. The respondents opposing such an 
approached, including CSDs and some financial institutions, noted that the emergence of DLT-
based  tokenized  financial  instruments  does  not  necessitate  a  fundamental  change  in  the 
provision  of CSD services or the requirement to use a CSD their core function remains the 
same.  They  argued  that  integrating  DLT-based  instruments  into  the  existing  legislative 
framework allows for consistent application of rules regarding ownership transparency, asset 
segregation,  and  corporate  actions  processing,  and  that  it  simplifies  regulatory  oversight, 
ensures  compliance  with  AML/KYC  regulations,  fosters  interoperability  between  DLT 
platforms  and  traditional  markets,  and  provides  much-needed  legal  certainty  for  market 
participants.  Finally,  it  was  argued  that  a  gradual  adaptation  to  accommodate  DLT-based 
instruments,  rather  than  wide-ranging  changes  or  exemptions,  ensures  continued  robust 
protection of the financial system while fostering responsible innovation. As such, while this 
option could ultimately deliver on the objectives of greater innovation and consolidation in the 
post-trade sector, it is premature at this stage in view of the very limited evidence as to the 
consequences – benefits and costs - of such new approach.   

Legal certainty is also affected by the absence of harmonised securities law and whilst there is 
a broad consensus by the respondents, that they do not think that it is the national legal system 
itself that creates the barrier, as the national legal systems are clear, the differences between 
Member  States  introduces  a  level  of  complexity  in  cross-border  transactions  and  therefore 
results in practice that it is more difficult to reach legal certainty in cross-border transactions. 
Therefore, several respondents representing different stakeholders supported an enhanced EU-
wide harmonization of securities law and civil law and some stakeholders, mainly CSDs and 
fintech companies, advocated for the establishment of a 28th regime covering securities law. 
This was supported by AMI-SeCo in its response to the targeted consultation, noting that at 
least in the area of securities law, introducing an optional but comprehensive 28th (EU) legal 
regime is a promising approach. A full harmonisation of EU securities law would be a complex 
task that would require a considerable amount of time to ensure that the final outcome would 
not introduce new uncertainties and risks. However, more limited and directed measures should 
be carefully assessed within the deliverables of the SIU. In particular in  relation to systems 
operating using DLT as noted in the responses “The European Commission could tackle the 
legal  fragmentation  in  respect  of  the  issuance  and  transfer  of  digitally  native  securities  by 
creating a 28th legal regime that defines how a digitally native security can be validly issued 
and transferred, how ownership rights are evidenced on DLT and what the holding model is 

263 

 
 
 
(intermediated vs direct). For digital securities, instead of replicating 27 national regimes, we 
see a strong case for Member States to focus efforts on a 28th regime to pave the way for digital 
capital  markets.  This  includes  ensuring  that  a  28th  regime  is  designed  to  facilitate 
interoperability and acceptance of digital securities between DLT and the traditional systems.  
The benefits of a 28th should be available not just for FinTechs and digital securities, but also 
established market players and traditional systems and securities where it could contribute to 
EU integration and the removal of frictions. This cannot  be included under the revisions to 
CSDR but should be assessed were suitable within the EU acquis.  

The costs of this option would likely be significant, especially if new authorisations would be 
required. Such a major overhaul of CSDR would also have implications on the DLTPRR as the 
entities authorised under the latter must also comply with the CSDR unless a derogation has 
been decided upon within the remit  of the  DLTPRR authorisation  and where  compensatory 
requirements apply.  

Overall, a less radical intervention in the post-trade market is preferred at this stage. Hence, 
while this option has potential benefits and support among a few respondents, who view DLT 
as the main technology for the post-trade market, it also raises significant implementation risks 
and challenges that need to be carefully considered. 

6.1.4.  Choice of preferred policy option 

The table below shows a comparison of the merits of the individual options put forth above for 
each of the topics covered. Option 2 presents the way forward most closely aligned with the 
objectives of the SIU and which maintains the most appropriate balance between improving 
market  integration  and  supervision,  and  facilitating  innovation  in  post-trade  while  also 
reducing, to the extent possible, any administrative and/or regulatory burden. 

Coherence 

Efficiency 
(cost-
effectiveness) 

Effectiveness 

Enable further 
market 
integration and 
scale effects by 
increasing 
cross-border 
activity 

Improve 
supervision 
by reducing 
divergences 

Facilitate 
innovation by 
enabling the 
use of new 
technologies 

Option 1 (CSDR) – 
Status quo 
Option 2 (CSDR) – 
Comprehensive 
review to enhance 
the functioning of 
market 
infrastructure 
Option 3 (CSDR) – 
Extensive review to 
impose an integrated 
market 

0 

++ 

0 

0 

++ 

++ 

++ 

+ 

+ 

0 

+ 

-- 

0 

++ 

- 

264 

 
 
 
 
 
 
 
 
 
 
 
Legend: 
+++ = Very positive 
++ = Positive 
+ = Slightly positive 

+/- = Mixed effect 
0 = No effect 

- = Slightly negative 
-- = Negative 
--- = Very negative 

6.2.  IMPACT OF THE POLICY OPTIONS REGARDING THE SFD 

6.2.1.  Option 1 (SFD) – Status quo 

Since  this  option  would  not  amend  the  SFD,  the  problems  and  problem  drivers  described, 
respectively, in Sections 3.1 and 3.2 would persist and would not be resolved. Consequently, 
potential improvements would be left to initiatives from Member States (the private sector has 
little scope for action as the issues have their origin in law), which are however not likely to 
result in the removal of existing barriers to market integration and cross-border activities. 

6.2.2.  Option 2 (SFD) – Comprehensive review to enhance the functioning of 

market infrastructure 

Converting the SFD into a Regulation would allow for a more consistent and homogeneous 
approach across the EU. This could help reduce the fragmentation and associated costs. This is 
backed up by a recent study which noted that converting  the SFD into a directly applicable 
regulation would ensure uniform application of settlement finality rules, reduce legal risk, and 
strengthen the foundation for interoperable, consolidated market infrastructures. Such a change 
would align with recent policy calls, including from AMI-SeCo and the European Parliament, 
for greater legal convergence in post-trade processes.435At the same time, it was acknowledged 
by  some  market  participants  responding  to  the  targeted  consultation  that  converting  into  a 
Regulation would have some limitations given the current lack of a uniform EU insolvency 
framework. The benefits of greater harmonisation would therefore be less than if insolvency 
laws were also harmonised. In previous consultations in 2021 on this subject, some respondents 
also  noted  that  Directives  may  provide  a  better  tool  to  balance  between  harmonisation  and 
Member  States’  flexibility,  which  is  particularly  important  against  the  diverse  legal 
environments in Member States’ insolvency, corporate or securities laws, for which there is no 
full harmonization.436 

In  general,  in  the  targeted  consultation,  the  majority  of  market  participants437  favoured 
converting the SFD into a Regulation, with a minority disagreeing. Support came from CCPs, 
market participants promoting the use of new technologies, banks and banking associations. 
CSDs and regional financial market participants in contrast argued, that the current Settlement 
Finality Directive worked well in their view. In a discussion in 2020438, Member States that 
took the floor reserved judgement noting that further analysis would be needed, and careful 

435 “Study on consolidation and reducing fragmentation in trading and post-trading infrastructures in Europe”, 
Final Report, Bourse Consult & Civitta, September 2025:  
https://op.europa.eu/en/publication/doi/10.2874/2649452  
436 Commission Summary report of the targeted consultation on the review of the Directive on settlement finality 
in payment and securities settlement systems 12 February 2021 - 7 May 2021, page 44. 
437 Mainly, CCPs’ representatives, market participants promoting the use of new technologies, banks and banking 
associations. 
438 Expert Group meeting with Member States on SFD, 27 October 2020. 

265 

 
 
 
 
 
 
consideration should be given to possible changes resulting from the review. More recently, 
those Member States (2) that have expressed a view are split.  

Option 2.1 (SFD): Legal certainty for digital innovation 

This  option  would  help  meet  the  specific  objective  of  facilitating  innovation  by  providing 
clarity on concepts  currently used in the SFD as well as enabling DLT-based systems  to  be 
designated  under  the  new  SFR  subject  to  certain  requirements  being  met. Also,  while  the 
definition  of  collateral  security  under  the  old  SFD  and  the  new  SFR  is  broader  than  the 
definition of financial collateral under the FCD, the SFD/SFR has an explicit reference to the 
FCD for collateral security and updating the definition of financial collateral under the FCD in 
relation to DLT seems warranted to align with the DLT updates suggested under the SFR. This 
option would enable a level playing field in the protections provided under the SFR irrespective 
of  the  technology  used  (DLT  or  not)  for  settlement  services.  By  harmonising  definitions, 
concepts  and  related  requirements  it  would  avoid  the  proliferation  of  different  national 
approaches regarding DLT-based structures and would therefore support market integration and 
innovation, in line with the objectives of the SIU. 

In the 2021 targeted consultation  on SFD, while some potential areas for  clarification were 
already raised, a majority (28 respondents) replied that experience with the Pilot Regime for 
market infrastructures based on DLT should be gained before considering possible issues in the 
SFD. 12 did not consider that such experience necessary. Potential areas for clarifications were 
the concept and definition of ‘system’ (22 respondents thought it should be clarified or amended 
to apply explicitly in a permissioned DLT context), ‘transfer order’ (13 respondents in favour 
of clarification), book-entry (16 respondents in favour of clarification), ‘settlement account’, 
‘settlement agent’ (13 respondents in favour of clarification), links with other financial market 
infrastructures and trading venues (9 respondents in favour of clarification). 

The 2025 targeted consultation drew similar conclusions. While there was some support for 
clarifications of some of the definitions in order to facilitate its application in a technology-
neutral  manner,  around  half  of  the  respondents  considered  that  the  criteria  to  be  met  for  a 
system  to  be  designated  serve  their  purpose  to  ensure  the  integrity  of  financial  market 
infrastructures and financial stability and the current standards in that respect should not be 
lowered,  even  to  accommodate  new  technologies.  Nevertheless,  a  minority  of  respondents 
representing different types of stakeholders considered that the current criteria for designation 
under  SFD  criteria  may  not  allow  designation  of  innovative  or  smaller  systems  using  new 
technologies like DLT. They noted that it is difficult for non-traditional systems to fulfil those 
criteria even if they are secure.  

This  option  would  also  contribute  to  improving  supervision  by  reducing  divergences,  as  it 
would help to ensure consistency in the application of rules across different Member States and 
technologies.  In  this  respect,  an  association  of  different  types  of  stakeholders  expressed 
concerns about the inconsistent application of the settlement finality frameworks across the EU 
due to the fact that different Member States have varying regulatory approaches to settlement 
finality, especially with respect to digital assets and tokenisation. Clarity on the application of 
the SFR would therefore also facilitate innovation by ensuring systems have clarity that they 
may also provide services using DLT and still be able to benefit from the protections under the 
SFR on, for example settlement finality and enforceability of collateral. This would as a result 
facilitate the use of new technologies in the provision of settlement services.  

In terms of costs, clarity on the application of the SFR would reduce costs for system operators 
as they would not need to seek as much legal advice as they currently do on how to interpret 

266 

 
 
 
the rules. For market participants, the provided clarity would also reduce costs for the provision 
of cross-border settlement services, as they would not need to seek as many legal opinions as 
they currently do to see if their activities are in line with the different national laws. This would, 
in turn, reduce costs for the clients of those providers. No new costs related to this option were 
identified in the targeted consultation. 

This  option  is  also  coherent  with  the  objectives  of  the  SIU,  as  it  would  promote  a  more 
integrated, efficient, and innovative EU capital market. By providing legal certainty and clarity 
on the application of the SFD and the FCD, including in relation to the se of DLT, this option 
would help to enable the development of settlement structures and ensure equal treatment of 
financial instruments, independently of whether they are created on DLT and would therefore 
contribute to a more competitive and innovative market. Overall, this option would promote 
innovation,  effective  supervision,  and  market  integration,  making  it  a  useful  step  towards 
achieving the objectives of the package. 

Option 2.2 (SFD): Conflict-of-law rule 

The option to complement and further develop the existing conflict-of-law to allow a uniform 
interpretation  by Member States would allow increasing  legal  certainty as to  the applicable 
legal regime in case of conflicts regarding cross-border securities transactions. It would also 
prevent  market  fragmentation  arising  from  different  national  determinations  as  to  the 
applicable legal regime to cross-border securities transactions. This would lead to significant 
cost  savings  for  market  participants,  both  in  terms  of  seeking  costly  legal  opinions  and  in 
ensuring compliance with multiple legal regimes with different requirements. Increased legal 
certainty and the above-mentioned cost savings would facilitate cross-border transactions and 
attract non-EU investors.  

These  benefits  would  also  extend  to  DLT-based  systems.  It  is  to  be  noted  that  in  the  2021 
consultation, the majority of those who responded (i.e. 23 respondents out of 30) replied that 
the  concept  of  ‘conflict  of  laws’  should  be  clarified  or  amended  to  apply  explicitly  in  a 
permissioned DLT context. Several respondents pointed to the fact that conflict of law issues 
in the DLT context could arise from challenges in identifying the location of the asset (e.g. for 
exchange or transfer crypto-assets), or the participants (e.g. in permissionless DLT system) or 
the location of the register or account (in which Member State; where the relevant entries are 
made or maintained, are not meaningful concept, as the register or account could be stored on 
every node in a DLT network). Instead, they argued that governing law should be determined 
by the location of the central authority (Place of the Relevant Operating Authority approach, 
Place of the Relevant Intermediary approach set out in Article 9(2) of SFD) and one said that 
if there is no central operator, by the rules of the system. One respondent considered it best to 
enable participants in a system to agree on the governing law, but to avoid forum shopping 
there may be a need for regulatory constraints. Other respondents pointed out that this area of 
uncertainty  has  implications  beyond  the  SFD  and  may  require  attention  at  an  international 
level. 

In the 2025 targeted  consultation, there was also general  consensus  throughout  respondents 
which provided some explanations in their responses, that the current conflict of law rule in 
SFD should be clarified and/or adapted for DLT-based systems, in particular, since there is a 
general concern or uncertainty regarding how to define where the account or register is located 
or maintained in the meaning of SFD and FCD. Some respondents were in favour of having 
only one conflict of law rule for both traditional and DLT-based systems (though with further 
clarification for the latter), and some pointed out that the main connecting factor should be the 

267 

 
 
 
place of the operating authority of the system in permissioned systems. Other criteria should 
be developed for permissionless systems.  

All types of stakeholders would be positively affected by the increased legal certainty arising 
from  the  proposed  conflict-of-law  rule  in  the  new  SFR. The  costs  of  this  option  would  be 
minimal, mainly consisting of costs for Member States action to align their national laws in 
case it is not in line with the revised and potentially extended conflict-of-law rule in the SFR. 
At the same time, stakeholders would enjoy significant savings from the lack of necessary legal 
opinions in  the future and the need to  comply with  different  legal  requirements in  different 
Member States. 

This option is coherent with the objectives of the SIU, as it would promote a more integrated, 
efficient, and innovative EU capital market. This option would help reduce fragmentation and 
promote a more harmonised market, which is in line with the broader goals of the SIU. Overall, 
this option would promote innovation and market integration, making it a useful step towards 
achieving the objectives of the package. 

Option 2.3 (SFD): Participation of EU entities in third-country systems 

This option would formalise and harmonise the process for extending the protections of the 
SFR to EU participants in third-country systems. In doing so, it would ensure a level playing 
field for participants from different Member States, ensuring that they could participate in those 
systems or that they would not be subject to higher collateral requirements, as the case may be. 
As such, this option would contribute to market integration as – on the one hand - a formalised 
and  harmonised  process  ensures  clear  standards  and  sets  out  what  market  participants  can 
expect  across  Member  States  and  –  on  the  other  hand  –  ensure  a  streamlining  of  access 
conditions for all EU-institutions participating in a third-country system,  

Respondents  to  the  2025  targeted  consultation  considered  that  the  lack  of  or  inconsistent 
requirements as concerns SFD protections to institutions participating in third-country systems 
could be a barrier or at best create an unlevel playing field since some EU entities may benefit 
from protection while others not. Moreover, around half expressed concerns about the lack of 
transparency in the designation of third-country systems. Some of the respondents noted that 
the SFD should be amended to provide for a harmonised EU-wide approach to designation for 
third-country systems, allowing participants from all EU Member States to benefit from the 
protections of the SFD where they participate in third-country systems, and to consider whether 
an EU approach or a national approach would be best.  

It  was  also  noted  that  the  lack  of  transparency  about  which  jurisdictions  have  extended 
protection could discourage institutions’ cross border participation. This opacity may lead to 
legal uncertainty for EU entities participating in or interacting with these systems and result in 
an uneven playing field. ESMA or the Commission could maintain a public list.  

In the targeted consultation in 2021, the large majority (41 respondents) thought that EU entities 
that participate in third-country systems should benefit from protection under the SFD (three 
disagreed and 28 did not reply or expressed an opinion). Respondents said such an extended 
protection would be important for financial stability and ensure that EU participants are granted 
access  to  third-country  systems.  According  to  confidential  information  received  from 
stakeholders, some EU stakeholders have been refused access to third-country systems because 
of the lack of SFD-like protections in their Member State. Moreover, 22 respondents favoured 
a solution where the criteria for SFD-like protection would be set at EU level, but the decisions 
to extend SFD-like protections would continue to be taken at the level of the Member States. 

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In those respondents’ view, this solution would be greater harmonisation  within the EU but 
give  the  possibility  to  consider  national  market  characteristics  and  laws. This  was  the  most 
favoured option to cater for participation of EU entities in third-country systems. 

This option would be beneficial both for EU participants in third-country systems and for third-
country systems in which EU entities participate. In particular, EU participants would save the 
costs  of  the  higher  collateral  requirements  required  by  third-country  systems  if  the  SFR 
protections would not be applicable to EU entities participating in those systems. Third-country 
systems would benefit from the SFR protections in case of insolvency of an EU participant. 
The costs of this option would be comprised of the costs for Member States to adjust to the 
new process. 

Option 2.4 (SFD): Scope of participants 

Harmonising the list of eligible participants, as envisaged under this option, would ensure that 
the scope of protection under the SFR is the same across Member States. This would reduce 
the legal uncertainty that exists today and would help market participants avoid costs for legal 
opinions  as  well  as  facilitate  cross-border  access  to  other  systems  because  of  reduced  legal 
uncertainty  related  to  participation  in  those  systems.  Consequently,  it  would  enable  further 
market  integration  and  increase  cross-border  activity.  This  option  would  also  benefit  DLT-
based systems as it would allow them to be designated under the SFR and hence benefit from 
its protections. Some stakeholders noted in this respect that the current scope of participants in 
the SFD may constitute a barrier for new entrants. 

The costs of this option would largely be limited to costs for Member States to amend their 
legislation,  if  necessary.  Unless  a  Member  State  would  have  extended  the  list  of  eligible 
participants  beyond  what  would  be  covered  under  this  option,  there  would  not  be  any 
significant  impacts  for  the  operators  of  those  systems  or  the  participants  in  those  systems. 
However, where a Member State has adopted a broad definition of participant under its national 
law that would not fall within the harmonised definition of participant under the SFR, systems 
and  participants  in  that Member  State  would  incur  the  costs  of  adjustment  (including  those 
related to the exclusion of some of the participants from the system and its protections). 

This option is coherent with the objectives of the SIU, as it would promote a more integrated, 
efficient, and innovative EU capital market. This option would help reduce fragmentation and 
promote a more harmonised market, which is in line with the broader goals of the SIU. Overall, 
this option would promote innovation and market integration, making it a useful step towards 
achieving the objectives of the package. 

In the targeted consultation on the SFD in 2021, a majority (56 respondents) replied that the 
list of eligible SFD participants should be extended; four said that the list should be modified 
and two did not see any need for modifications. Some stakeholders pointed out that the SFD 
covers two types of systems (payment systems and securities settlement systems) operated by 
three types of market infrastructures (payment systems, CCPs and CSDs). In their view, each 
system would require different types of modifications of SFD. The main feedback from that 
consultation was the following:  

•  Legal versus natural persons: A majority of respondents (31) said that only legal persons 
should be allowed to participate; 10 did not consider such limitation useful and 31 did not 
reply. Those opposed to such a limitation argued that natural persons should be eligible as 
participants if they meet criteria under SFD (e.g. if they  are authorised under MiFID2). 

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Others said that it would not be justified to limit the possibility to take up certain activities 
based only on the legal nature of the entity and specific criteria addressing potential issues 
with the participation of natural persons in SFD systems should be considered, although 
recognising that such specific criteria could result in complex and burdensome legislation. 
Some said that participation of natural persons will in any event be exceptional as they are 
normally unable to meet the rules and requirements of systems (e.g. capital, organizational 
and technological requirements) and argued that there is no need to limit participation to 
legal persons. Regarding systems based on Distributed Ledger Technology (‘DLT’), some 
respondents  pointed  out  that  novel  systems,  potentially  fostered  by  DLT,  might  render 
designated systems accessible to natural persons too.  

•  CSDs: All respondents that replied to the question (24 respondents) agreed to add CSDs to 
the list of participants. No respondent disagreed. Respondents noted that although CSDs 
are covered as ‘settlement agents’ and ‘system operators’, they should be added to the list 
of  participants  in  SFD  to  provide  clarity  and  transparency,  especially  when  a  CSD 
participate  in  another  CSD  as  an  investor  CSD  or  in  a  third-country  system.  Some 
respondents,  mainly  representing  banks,  thought  that  SFD  finality  should  apply  to  any 
transaction settling in a CSD, including CSDs acting as participants in other CSDs. A CCP 
viewed  that  it  would  increase  the  protections  for  all  systems  to  add  CSDs  to  the  list  of 
participants and it would be important to minimise conflicts between different settlement 
finality provisions.  

•  Criteria: On replacing or complementing the current list of eligible participants by a risk-
based  approach  to  determine  participation,  19  respondents  replied  that  it  would  be  too 
difficult operationally and would jeopardize a risk-based approach; 12 respondents thought 
that it could be a good idea as it would ensure that only entities which are systemically 
important benefit from SFD protection, notwithstanding their legal form. 

The feedback to the 2025 consultation was more general, with a few respondents pointing out 
that  a  fixed  list  of  participants  may  hinder  innovation  and  discourage  open-access  models 
including  a  broad  range  of  participant  types.  One  respondent  noted  that  broadening  the 
potential participants in designated systems could open doors for new entrants and cross-border 
consolidation  of  services.  Other  respondents  had  a  different  view  and  considered  that  the 
current list of participants does not create any barrier to entrance. 

Option 2.5 (SFD): Scope of eligible securities 

This  option  would  harmonise  the  scope  of  protection  under  the  SFR  and  help  market 
participants to avoid costs for legal opinions and facilitate cross-border access to other systems 
because of reduced legal uncertainty. It would also reduce market fragmentation since the same 
types of securities would benefit from SFR protections across the EU and the costs of cross-
border transactions (please see Section 3.2.12 for more information on protections currently 
provided by the SFD). DLT-based systems would also benefit from this option, as the expanded 
scope would also cover DLT-based securities. 

The costs of this option would largely be limited to costs for Member States to amend their 
legislation,  if  necessary.  Unless  a  Member  State  would  have  extended  the  list  of  eligible 
securities beyond what would be covered under this option, there would not be any significant 
impacts for the operators of those systems or the participants in those systems. In those Member 
States, the harmonisation introduced by this option would cause adjustment costs for system 
operators and market participants. Overall, the harmonisation will bring clarity on the scope of 
the  protection  of  the  SFR  in  relation  to  eligible  securities  and  will  therefore,  reduce  legal 

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fragmentation and reduce costs and thereby facilitate cross-border access to other systems and 
cross-border transactions. 

This option is coherent with the objectives of the SIU, as it would promote a more integrated, 
efficient, and innovative EU capital market. This option would help reduce fragmentation and 
promote a more harmonised market, which is in line with the broader goals of the SIU. Overall, 
this option would promote innovation and market integration, making it a useful step towards 
achieving the objectives of the package. 

Although this issue was not explicitly asked in the 2025 targeted consultation, the issue was 
raised by at least one stakeholder, who emphasised the need to harmonise eligible securities. 
However, it is in line with the support for greater harmonisation that many stakeholders favour 
in the 2025 consultation on SFD as mentioned and explained in more detail in section 6.2.2. 

Option 2.6 (SFD): Designation practices for EU systems 

This option would harmonise the designation process and conditions for EU systems under the 
SFR. Combined with the closer involvement of ESMA and the ECB/ESCB, it would ensure a 
level playing field, facilitate cross-border settlement and contribute to reduced fragmentation. 
Since  this  option  would  also  cover  DLT-based  systems,  it  would  support  innovation.  This 
option would address the uncertainty as to the applicable laws that stakeholder claim results 
from the lack of harmonisation of the criteria used by Member States to designate systemically 
important  infrastructures  and  cause  discrepancies  in  the  entities  covered  by  the  settlement 
finality protections.439 

In  the  2025  consultation,  when  asked  whether  diverging  national  practices  for  notifying 
systems create an uneven level playing field or legal uncertainty, views were split with a slight 
majority not  viewing  them  as a barrier.  In particular, while a respondent  noted that  there is 
unlevel-playing  field  resulting  from  diverging  national  practices  for  notifying  designated 
systems  under  the  SFD  that  can  result  in  inconsistent  protection  levels  and  operational 
requirements, disadvantaging certain systems and reducing overall market efficiency, this was 
not  the  view  of  other  respondents.  Of  those  providing  further  input,  two  as  well  as  a  few 
Finance Ministries/competent authorities expressed the view that diverging national practices 
for  notifying  systems  under  the  SFD  can  create  an  uneven  playing  field  and  lead  to  legal 
uncertainty. One example provided was the absence of a clear definition of the term ‘adequacy 
of the rules of the system’ (see Art. 2 (a) SFD). Differences in how Member States interpret 
and  implement  notification  procedures  may  result  in  inconsistent  protection  levels  and 
operational  requirements,  disadvantaging  certain  systems  and  reducing  overall  market 
efficiency.  

This  option would entail some costs  for Member States, as they would have to  adjust their 
designation  processes.  The  need  to  re-designate  already  designated  systems  under  the  new 
conditions would likely entail some costs, although those should be contained for both Member 
States  and  system  operators  as  most  of  the  information  needed  for  re-designation  should 
already be available to Member States. Strengthening ESMA’s and the ECB/ESCB’s role may 
require some additional resources to fulfil their new tasks.  

439   Response to the 2025 targeted consultation by an association of stakeholders. 

271 

 
 
 
 
 
This option is coherent with the objectives of the SIU, as it would promote a more integrated, 
efficient, and innovative EU capital market. Some stakeholders also noted that improving the 
clarity of the designation process would foster mutual trust across jurisdictions. This option 
would help reduce fragmentation and promote a more harmonised market, which is in line with 
the  broader  goals  of  the  SIU.  Overall,  this  option  would  promote  innovation  and  market 
integration, making it a useful step towards achieving the objectives of the package. 

Option 2.7 (SFD): Transparency 

This option would increase transparency on the scope of settlement finality protections in a 
harmonised  way  across  Member  States.  It  would  address  the  current  market  fragmentation 
resulting from the current information asymmetry. At the same time, this option would allow 
market participants across Members States to obtain a comprehensive picture of the systems 
protected under the SFR and the scope of the protections for each of those systems. This would, 
in turn, foster trust in designated systems, including DLT-based systems.  

The  majority  of  respondents  to  the  2025  targeted  consultation  considered  that  a  centralised 
overview over the insolvency of participants of all SFD designated systems is not needed or 
that its absence does not create a legal barrier.  

However, more transparency could enhance legal certainty and facilitate the assessment of risk 
exposure.  In  this  respect,  several  respondents  to  the  2025  targeted  consultation  noted  that 
further transparency would also increase competition among designated systems in the EU. In 
particular,  the  reduction  in  legal  uncertainty  would  encourage  cross-border  membership  in 
designated  systems.  Consequently,  cross-border  activity  would  be  increased  and  would 
facilitate further market integration and scale effects. It would also foster confidence in DLT-
based systems designated under the SFR and therefore facilitate innovation.  

The reluctance of some market players to provide further transparency on some elements, e.g. 
on the rules of the systems and on their participants, based on the commercial or confidential 
nature of this information, may be nuanced by adopting the appropriate levels of disclosure, in 
particular when participants can be natural persons (the fact that some CSDs currently already 
publish a list of their participants would seem to indicate that disclosure is possible). Several 
respondents  (9)  to  the  targeted  consultation  expressed  concerns  about  the  commercial 
sensitivity of this data and noted that CSD participants already have the necessary access  to 
counterparty  information  in  the  CSD  for  purposes  of  their  use  of  the  CSD  services.  Others 
noted  that  for  certain  information,  iit  would  be  better  to  have  a  targeted  and  confidential 
communication framework between competent authorities and infrastructure operators.  

The related cost for publishing the additional information would be rather limited for system 
operators,  as  the  information  to  be  published  is  to  a  great  extent  already  provided  to  the 
designating authorities. ESMA might face slightly higher costs for personnel to do a quality 
check of the additional information received as well as publishing it. 

This option is coherent with the objectives of the SIU, as it would promote a more integrated, 
efficient, and innovative EU capital market. This option would help reduce fragmentation and 
promote a more harmonised market, which is in line with the broader goals of the SIU. Overall, 
this option would promote innovation and market integration, making it a useful step towards 
achieving the objectives of the package. 

Option 2.8 (SFD): Settlement finality moments 

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The  harmonisation  of  the  settlement  finality  moments,  at  least  for  certain  systems  such  as 
CSDs, would tackle potential market fragmentation resulting from different requirements and 
practices across Member States and systems. At the same time, harmonisation would facilitate 
interoperability  and  the  set-up  of  CSD  links,  and  therefore  it  would  support  cross-border 
settlement. However, for other types of systems covered by the SFR the level of harmonisation 
would  be  lower  and  would  focus  on  common  factors  established  by  the  SFR  to  ensure  the 
technical moments already defined in different types of systems remains valid. Since this option 
would clarify the common factors for settlement finality moments also for DLT-based systems, 
it would encourage innovation and accessibility to the protection under the SFR. 

In particular, as the harmonisation of the core terms of the moment of entry into the system and 
of irrevocability could take into account the specificities of the different types of systems and 
also  cater  for  the  specificities  of  DLT-based  systems,  and,  where  relevant,  the  current 
operationalisation  of  settlement  finality  moments  in  the  existing  CSD  links  and  other 
interoperability arrangements between designated systems – e.g. for CSDs the determination 
should  be  in  line  with  the  settlement  moments  in  T2S  –  this  option  would  not  involve 
substantial changes and/or costs for the existing EU systems. At the same time, it would address 
the  complexities  stemming  from  different  finality  moments  in  different  systems  that  cross-
border participants  operating in multiple systems need to  deal  with. This  option would also 
mitigate the uncertainties regarding the finality in cross-system transactions where the finality 
moments are not aligned, claimed by some stakeholders.440  

In  the  2021  consultation  on  SFD,  a  majority  (20  respondents)  agreed  that  the  SFD  should 
clearly  stipulate  the  legal  duty  for  SFD  systems  to  specify  the  moments  of  entry  and 
irrevocability and when settlement is enforceable and irrevocable; eight disagreed; two were 
neutral and 42 did not reply or express an opinion. The 2025 targeted consultation feedback 
was more nuanced with diverging views regarding whether the lack of harmonised settlement 
finality moments creates legal uncertainty or prevents the development of the single market. 

Those favouring more specifications, considered the SFD should specify the moment of entry 
into the system and irrevocability, and where the settlement is enforceable and irrevocable to 
avoid uncertainty, in particular with respect to third-country systems and interoperable systems 
(which  are  increasingly  important)  where  irrevocability  of  the  cash  and  security  legs  is  not 
simultaneous.  These  stakeholders  (which  included  banks,  investment  firms,  associations  of 
different types of stakeholders, Member States and innovative companies) noted that further 
harmonisation would enhance legal certainty in the provision of cross-border services through 
CSD  (interoperable)  links,  as  well  as  settlement  certainty  and  efficiency  across  the  Union, 
which would contribute in the end to making the EU a more attractive market, with reduction 
in  costs  and  the  risk  mitigation  needed  in  the  settlement  space.  Cross-border  participants 
operating in multiple systems, must understand and manage different points of finality in each 
market,  which  creates  complexity.  The  costs  of  these  barriers  are  mostly  hidden  risk  and 
complexity – participants may avoid connecting to certain systems or demand higher collateral 
to cover potential legal risk, which reduces efficiency. Finally, it was also noted that it may be 
beneficial to integrate settlement finality provisions within the CSDR framework.  

Several respondents opposing further clarifications argued that SFD is sufficiently clear and 
has provided a stable legal framework that has worked so far. The objective of SFD is to ensure 

440   Response to the 2025 targeted consultation by an association of stakeholders.  

273 

 
 
 
 
 
 
that  the  settlement  in  a  system  can  continue  despite  a  participant’s  insolvency. The  system 
therefore needs to have clear rules to which insolvency law can refer, but the SFD should not 
design those rules Other respondents considered the SFD should specify the moment of entry 
into the system and irrevocability, and where the settlement is enforceable and irrevocable to 
avoid uncertainty, in particular with respect to third-country systems and interoperable systems 
(which  are  increasingly  important)  where  irrevocability  of  the  cash  and  security  legs  is  not 
simultaneous. Regulation could incentivise system operators to establish such rules.  

Finally, one stakeholder  pointed out  the limitations  of further harmonisation noting that the 
harmonisation of settlement finality moments is also linked to the harmonisation of securities 
laws and insolvency laws. In their view, only with clarity about when transfers of securities 
and cash become unconditional, irrevocable and enforceable (in all EU jurisdictions), a real 
break-through would be achieved. 

This option is coherent with the objectives of the SIU, as it would promote a more integrated, 
efficient, and innovative EU capital market. This option would help reduce fragmentation and 
promote a more harmonised market, which is in line with the broader goals of the SIU. Overall, 
this option would promote innovation and market integration, making it a useful step towards 
achieving the objectives of the package. 

6.2.3.  Option 3 (SFD) – Extensive review to impose an integrated market 

As  with  Option  2,  conversion  into  a  Regulation  with  greater  harmonisation  would  bring 
benefits. See also Section 6.2 above.  

Option 3.1 (SFD): Legal certainty for digital innovation 

A large proportion of those respondents that provided detailed replies to the questions on this 
topic  in  the  targeted  consultation  supported  provided  greater  legal  certainty  about  the  legal 
status of tokenised securities, including rules around dematerialisation, transfer of ownership, 
and finality, remains unclear or fragmented.  They asked for legislation to explicitly recognise 
digital tokens or ledger entries as carrying the same (or comparable) legal rights as traditional 
securities, potentially by developing an optional EU-level legal framework for digital securities 
(i.e. a 28th regime).441  

The additional measures contained in this option (compared to Option 2), while desirable, go 
beyond the scope of the SFR and would warrant consideration as part of the SIU reflections on 
a 28th regime, in  line with  what  suggested by stakeholders, or the potential revisions of the 
Shareholders Rights Directive.442  

441 They proposed creating a framework that would not replace national laws in their entirety. Rather, it could be 
narrowly focused on critical legal aspects directly impacted by the shift to digital infrastructures, notably i) the 
holding model, including the legal recognition of direct or indirect holding structures in DLT environments; and 
ii) the legal certainty regarding the moment and conditions under which title is effectively transferred in DLT 
environments. 
442 “The Commission will assess the need for, and consider a potential review of the Shareholders Rights Directive 
by Q4 2026 to make it easier for investors, intermediaries and issuers to operate across Member States”, Savings 
and  Investments  Union  ,  A  Strategy  to  Foster  Citizens’  Wealth  and  Economic  Competitiveness  in  the  EU, 
Brussels, 19.3.2025, eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52025DC0124,  

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Option 3.2 (SFD): Conflict-of-law rule 

This option, based on the conflict-of-law rule in the Hague Convention on the applicable law 
to certain rights in respect of securities held with an intermediary, would increase legal certainty 
and reduce the high costs of legal opinions and compliance with the requirements of different 
legal  regimes  achieved  to  address  legal  uncertainty.  However,  market  fragmentation  would 
remain as the applicable legal regime would vary from one system to another, due to the choice 
of law element of the conflict of law of the Hague Convention. This would likely also have a 
negative impact on the overall protection of the system as it could result in fragmentation in 
the way the different  laws chosen by parties ensure protection under the SFR. These issues 
were  also  pointed  out  by  the  ECB  in  its  Opinion  concerning  the  signing  of  the  Hague 
Convention  on  the  Law  applicable  to  certain  rights  in  respect  of  securities  held  with  an 
intermediary.443 

As such, this  option  would  not  be fully in line with  the SIU objective of increasing  market 
integration and efficiency. Moreover, this option would involve a complete change from the 
existing conflict of laws contained in the SFD and the FCD, which none of the respondents to 
the 2025 targeted consultation requested. Instead, further clarification of the existing conflict 
of laws rule and in particular as regards DLT-systems seem to be more appropriate. 

Option 3.3 (SFD): Participation of EU entities in third-country systems 

To  empower  ESMA  (for  securities  settlement  systems)  and  the  ECB/ESCB  (for  payment 
systems) the assess and register third-country systems under the SFR would ensure maximum 
harmonisation,  both  of  processes  and  criteria  used  for  decisions.  It  would  also  have  the 
advantage  that  decisions  would  be  automatically  applicable  throughout  the  EU.  However, 
given that the assessment needs to be undertaken in relation to national insolvency law, they 
may not be very familiar with national insolvency laws of all the Member States [or would 
have to obtain legal knowledge in this area], this may make their work challenging. In terms of 
costs, ESMA and the ECB/ESCB would need to be given substantial resources to take up this 
new role. 

In the 2021 consultation on SFD, stakeholders saw the benefits as well as the drawbacks of this 
option. While respondents favoured a solution where criteria for SFD-like protections would 
be set at EU level, but the decisions to extend SFD-like protections would be taken at the level 
of the Member States, respondents considered that decisions to extend SFD-like protections to 
third-country systems to be taken at EU level on the basis of EU-wide criteria as a second-best 
option,  as  it  would  ensure  a  level  playing  field  in  the  EU  and  predictability  for  market 

443 “Indeed, determining the law applicable to the rights resulting from book-entry securities on the basis of the 
law chosen in the agreement between the SSS or CSD and its account holder could theoretically lead to various 
laws governing these proprietary aspects within one SSS or CSD, including one or more laws from outside the 
jurisdiction  where  the  SSS  or  CSD  is  located  or  even  from  outside  the  Community.  If  these  laws  are  not 
harmonised, the effects of such diversity on settlement finality, in particular where the law(s) chosen in the account 
agreement does not offer protection comparable to the protection under the Settlement Finality Directive, might 
potentially  endanger  the  soundness  of  the  entire  system  and  entail  systemic  risks”.  Opinion  of  the  European 
Central Bank of 17 March 2005 at the request of the Council of the European Union on a proposal for a Council 
decision concerning the signing of the Hague Convention on the Law applicable to certain rights in respect of 
securities held with an intermediary (COM(2003) 783 final, OJ C 81/10. 

275 

 
 
 
 
 
 
participants. However, the inability to consider national market characteristics and laws was 
raised as a potential drawback of such solution. 

As such, while this option would be in line with the SIU objective of increasing integration, it 
may not  be in line with the objective of efficiency and could  lead  to  substantial delays and 
costs. 

Option 3.4 (SFD): Scope of participants  

Allowing system operators to choose who can participate in their systems would provide most 
flexibility  to  system  operators  and  ensure  that  they  can  quickly  react  to  new  market 
developments, including the use of new technologies. In particular, it would provide DLT-based 
systems with the ability to achieve protection under the SFR without the hurdles that exists 
today as this option would enable the extension of the protections under the SFR to all DLT-
based system and their participants.   

Granting  DLT-based  systems  and  their  participants  protection  without  any  conditions 
applicable under sectoral legislation would further enable and support innovation. It could help 
preserving systemic stability if the DLT-systems in question were to be considered systemically 
important and could not be protected by the SFR if they would not be able to comply with the 
SFR participation requirements. 

While facilitating innovation, this option would, however, also come with less certainty to other 
market  participants  as  it  would  be  less  clear  who  could  participate  in  which  system.  The 
potentially diverging approaches would lead to more fragmented markets and would thus not 
be in line with the objectives of the SIU. In addition, more divergences regarding the scope of 
participants  would  make  supervision  more  difficult.  Consequently,  this  option  would  come 
with high costs related to legal opinions which market participants might want to obtain before 
participating in a system as well as significantly increased supervisory costs given the various 
diverging aspects to consider for supervisors. 

While  a  majority  of  respondents  to  the  2021  consultation  on  the  SFD  were  in  favour  of 
extending the list of participants, they also said that only legal persons should be allowed to 
participate,  thus  limiting  the  potential  eligible  participation.  (please  see  Section  6.2.2.4  for 
more details regarding the consultation responses). 

In  the  2025  targeted  consultation,  specific  views  on  participants  were  expressed  by 
respondents.  For  example,  a  bank  argued  that  it  is  necessary  to  harmonise  how  different 
Member  States  handle  the  insolvency  of  indirect  participants  under  the  SFD  and  financial 
collateral rules. It also considered that payment and e-money institutions should be able to be 
recognised as participants in a settlement system for SFD purposes.444 In this same vein, an 
industry association claimed that the protection in Article 9(1) of SFD should be available to 
clients  of participants, in  the event  of the insolvency of that participant. A market  authority 
considered that limiting the participants of SFD-designated systems is adequate, as institutions, 
as defined in Article 2 of the SFD are in many cases subject to special insolvency rules, namely 
resolution.  They  were  also  not  in  favour  of  broadening  the  scope  of  participants  to  retail 

444 Please note that this is already the case following the amendments to the SFD introduced by Regulation (EU) 
2024/886. 

276 

 
 
 
 
 
investors as it may be the case potentially in infrastructures authorised under the DLTPRR, not 
subject for example to insolvency law. 

Another request  put  forward by  respondents  to  the 2025 targeted  consultation  was to  apply 
settlement finality protections to all activity processed by the system (whether CSD, CCP or 
payment system), independent of the regulatory status of the participant in the system. In the 
case of CCPs, they wanted this protection to also cover clients and indirect clients (also in the 
interest of safeguarding the default management procedures of CCPs, in particular the transfer 
of client positions in the event of a default of a clearing member). 

While this option would enable the market to respond to market developments and evolving 
technologies, allowing the same disapplication of national insolvency law for retail investors 
as for institutions could raise questions as the former are much less likely to have an impact on 
the stability of the system. At the same time, it would be important for the market and other 
participants to the system to have clarity on the scope of protection and that all participants to 
the system would be protected (and not just some) as any discrepancies in the protection would 
result in legal uncertainty on the scope of the protection provided under the SFR and result in 
less  trust  in  designated  systems.  It  could  further  be  argued  that  retail  investors  cannot  be 
required to familiarise themselves with the law governing the system which might be different 
from the law of the Member State they are established in/are familiar with. However, again the 
counter argument would be that it is more important to protect the system as a whole and ensure 
the same law applies to insolvency of its participants and all participants are protected. Overall, 
this option would allow the system operator to decide its participants and thereby decide over 
a  topic  that  Member  States  might  want  to  decide  on  given  it  disapplies  certain  national 
insolvency law provisions. Also, this option would lead to more fragmented markets and hence 
be against one of the objectives of the SIU.  

At the same time, it would create an unlevel playing field between DLT operators and operators 
of systems that do not use DLT. As such it would increase market fragmentation and this option 
would, therefore, not be in line with the SIU objective of increasing market integration and 
efficiency. 

Option 3.5 (SFD): Scope of eligible securities 

Leaving it to system operators to choose which securities are eligible under the SFR for their 
respective system comes with similar benefits and risks as outlined above for letting system 
operators  choose  who  can  participate  in  their  SFR-designated  system.  This  would  be  sub-
optimal.  While  it  gives  system  operators  greatest  flexibility  and  might  to  a  certain  extent 
facilitate the use of new technologies as doubts about the eligibility of securities using new 
technologies  could  easily  be  addressed  by  the  system  operator,  it  would  lead  to  more 
fragmented  markets  and  hence  be  against  the  objectives  of  further  market  integration  and 
improved supervision by reduced divergence the SIU. Consequently, this option would come 
with high costs related to legal opinions which market participants might want to obtain when 
participating in a system as well as significantly increased supervisory costs given the various 
diverging aspects to consider for supervisors. These costs might occur on a regular basis as 
system operators could change the accepted securities at their discretion. 

In the targeted consultation on the SFD in 2021, some stakeholders, mainly representing banks, 
argued that the protection of the finality of transfer orders should apply to any transfer executed 
within an SFD-designated system. 

277 

 
 
 
Option 3.6 (SFD): Designation practices for EU systems 

This option would ensure an even more harmonised approach to the designation of EU systems 
across  Member  States  than  one  based  on  Member  States’  designation  on  the  basis  of 
harmonised criteria and procedures, but it would also require significant effort and resources 
for ESMA and the ECB/ESCB to build the necessary expertise and infrastructure to run the 
designation process.  

While  this  option  would  foster  market  integration  and  ensure  harmonisation  to  the  greatest 
extent possible, it would - for instance - not be suited to cater for differences in Member States 
insolvency law and it would come with high costs for ESMA and the ECB/ESCB to build the 
necessary expertise and infrastructure that might not be justified given the occasional nature of 
the designation process and total number of systems designated.  

The  2021  consultation  on  the  SFD  did  not  include  a  question  asking  stakeholders  for  their 
opinions on transferring from Member States to ESMA or ESCB/ECB the power to designate 
systems  under  the  SFD.    In  the  2025  targeted  consultation  a  market  participant  supported 
moving the designation of systems under the SFD to the EU level. 

Option 3.7 (SFD): Transparency 

This policy option would aim to harmonise in a more far-reaching way the information to be 
published by ESMA in order to provide full transparency on designated systems across Member 
States.  

The additional information to be published would facilitate the establishment of links, i.e. the 
assessment of moments of finality, between CSDs as well as access for participants across the 
EU, for example who could see and choose which system offers the best option to choose for 
settlement and payment. Under the option described in Section 5.2.2.3, ESMA would also have 
the  information  on  which  third-country  systems  have  been  registered  by  Member  States.  It 
would  also  facilitate  convergence  in  market  practices  as  ESMA  would  be  able  to  identify 
divergences and inconsistencies more easily.  

However, it is expected that providing transparency on additional elements than the designated 
systems, its rules and its participants would be unlikely to provide additional benefits in terms 
of competition, trust in the systems and sound risk decision making that would allow to further 
integrate the fragmented EU market and promote cross-border settlement.  

At the same time, this option would entail some risks. For example, transparency on indirect 
clients may not provide further insights on the protection of the systems to foster trust – as they 
generally  do  not  benefit  from  SFD  protection  as  they  do  not  pose  systemic  risk  (for  more 
information regarding protections provided by the SFD, see Section 3.2.12). Information on 
indirect  participants  could  however  be  considered  as  business  secrets  of  participants.  The 
publication  of  the  opening  of  insolvency  proceedings  may  also  present  different  legal 
challenges on the basis of national insolvency rules.  

While this option would facilitate further market integration by enabling market participants to 
take decisions based on the most comprehensive information provided for systems across the 
EU,  not  all  the  information  might  be  necessary  but  might  create  undue  burden  for  system 
operators and ESMA to ensure accuracy and regular updates of the data, in addition to privacy 
concerns. 

278 

 
 
 
Option 3.8 (SFD): Settlement finality moments 

Full harmonisation of the three settlement finality moments for all the different types of systems 
– without taking into account their respective characteristics and specificities – may be to the 
detriment of the well-functioning and optimisation of some types of systems. Moreover, this 
option would not take into account the current operationalisation of existing different finality 
moments by different types of systems and would require substantial implementing changes 
and costs. This option is also hindered by the fact that only with clarity on when transfers of 
securities and cash become unconditional, irrevocable and enforceable (in all Member States) 
would this be feasible. Moreover, for DLT-based systems, probabilistic settlement cannot, in 
principle,  ensure  irreversibility  so  this  option  would  need  to  be  accompanied  by  additional 
safeguards to address this issue.  

As pointed out in Section 6.2.3.8, in the 2021 consultation on SFD, several respondents 
argued that the SFD is sufficiently clear and has provided a strong and stable legal framework 
that has worked so far. They were of the view that, as the objective of SFD was to ensure that 
the settlement in a system could continue despite a participant’s insolvency, the system 
needed to have clear rules to which insolvency law could refer, but the SFD should not design 
those rules. They pointed out that, on the basis of the SFD, system operators have developed 
robust technical and legal systems, and that a change would involve more than changing rules 
(e.g. technical developments, reassessments). One respondent argued that clarifications in 
sectoral regulation would be more proportionate. Other respondents considered that the SFD 
should specify the moment of entry into the system and irrevocability, and where the 
settlement was enforceable and irrevocable to avoid uncertainty, in particular with respect to 
third-country systems and interoperable systems (which are increasingly important) where 
irrevocability of the cash and security legs is not simultaneous. They were of the view that 
regulation could incentivise system operators to establish such rules. 

6.2.4.  Choice of preferred policy option 

Coherence 

Efficiency 
(cost-
effectiveness) 

Effectiveness 

Enable further 
market 
integration and 
scale effects by 
increasing 
cross-border 
activity 

Improve 
supervision 
by reducing 
divergences 

Facilitate 
innovation by 
enabling the 
use of new 
technologies 

Option 1 (SFD) – 
Status quo 
Option 2 (SFD) – 
Comprehensive 
review to enhance 
the functioning of 
market 
infrastructure 
Option 3 (SFD) – 
Extensive review to 
impose an integrated 
market 

0 

++ 

0 

+ 

0 

++ 

+ 

++ 

++ 

0 

+ 

-- 

0 

++ 

- 

279 

 
 
 
 
 
 
 
 
Legend: 

+++ = Very positive 
++ = Positive 
+ = Slightly positive 

7.  MONITORING  

+/- = Mixed effect 
0 = No effect 

- = Slightly negative 
-- = Negative 
--- = Very negative 

The options laid out above aim to reduce fragmentation and barriers in post-trade processes, as 
well as ensure that the EU financial acquis is sufficiently technologically neutral to allow for 
the uptake and implementation of novel technologies. To achieve these aims, the Commission 
has proposed a set of comprehensive and targeted amendments to the CSDR and the SFD. The 
resulting amendments should include a provision stating that an evaluation of the outcomes 
should be carried out in order to evaluate the extent to which the stated aims have been met. In 
principle, this should take place after five years of their entry into force. In particular, there 
should be a focus  on whether the proposed amendments will have reduced the barriers that 
exist in cross-border operations and are fit-for-purpose in an evolving technological landscape. 
The evaluation should consider all aspects of the CSDR and SFD, with a particular focus on 
those laid out below. 

Specific 
objective to 
measure 
Enable further 
market integration 
and scale effects by 
increasing cross-
border activity 

Monitoring indicators  When will 
monitoring 
start 
Date of 
application. 

Total cross-border settlement 
activity (volume/value by 
instrument) 

By whom 

Source of 
information 

ESMA/ESCB 

ESMA/ESCB 

Total cross-border issuance 
(value/volume) 

Number of CSDs that are 
part of a group that engage 
in intra-group outsourcing of 
core CSD activities 

Number of CSDs 
experimenting with new 
technologies 

Volume and value of 
settlement conducted by 
settlement internalisers 

Number of CSDs that 
designate credit institutions 
to provide banking-type 
ancillary services 

Volume and value of 
settlement activity taking 
place in T2S 

Total number of CSD links 

280 

 
 
 
 
 
 
 
 
 
 
 
 
Specific 
objective to 
measure 

Monitoring indicators  When will 
monitoring 
start 

By whom 

Source of 
information 

Total number of third-
country systems designated 
under the SFD 

Total number of systems 
designated under the SFD 

Total number of participants 
that benefit from SFD 
protection 
Settlement activity (in 
volume and value terms) 
executed using novel 
technologies 

Total amount of cash leg 
settlement executed with 
digital money 

Total number of DLT based 
SFD designated systems 

Facilitate 
innovation by 
enabling the use of 
new technologies 

Date of 
application. 

ESMA/ESCB 

ESMA/ESCB 

281 

 
 
 
 
 
 
 
ANNEX 9: SECTORAL ANNEX ON ASSET MANAGEMENT 

1.  INTRODUCTION 

Creating a unified single market for investment funds and asset managers is a key part of the 
SIU because it would help raise capital in the EU, allocate that capital  more efficiently and 
provide  greater  choice  and  better  value  to  EU  investors.  A  single  market  for  the  asset 
management sector has not been fully achieved to date. This is due to persistent regulatory and 
operational barriers as well as diverging supervisory practices, at European and Member State 
levels, despite the adoption of the CBDR and CBDD in 2019 (the ‘CBD framework’). 

Indeed, the CBD framework introduced measures to impose certain requirements and increase 
transparency,  including  requiring  ESMA  to  establish  a  central  database  of  national  rules 
concerning  marketing  requirements,  as  well  as  requiring  competent  authorities  to  publish 
information  on  regulatory  fees  and  charges.  The  Commission’s  assessment  shows  that 
transparency has not resulted in improved convergent approaches by Member States.  

Notification processes to exercise the marketing and management passports in the UCITS and 
AIFM frameworks can often amount to a “re-authorisation” at host Member State level, making 
cross-border  marketing  an  administrative  and  financial  challenge  for  fund  viability.  Indeed, 
when national requirements are different or too complex, asset managers often set up new local 
funds instead, or limit fundraising to familiar jurisdictions.445 This results in smaller fund sizes, 
higher fees, fewer investment choices for investors, and smaller investing tickets. This latter 
aspect  is  of  particular  significance  for  the  SIU,  especially  in  innovative  sectors  and,  more 
broadly,  in  infrastructure,  where  the  small  size  of  the  EU  fund  sector  remains  a  structural 
weakness. In addition, there is currently no effective mechanism to address passport-related 
issues  between  Member  States  in  an  efficient  and  timely  manner.  The  absence  of  such 
alignment can lead to divergences between NCAs and Member States, which may in turn create 
or reinforce barriers to cross-border activities. 

As well as national requirements, provisions in the EU framework also hinder efficient time 
and access to the single market.  There are variations in the UCITS authorisation process across 
Member  States,  even  though  funds  are  authorised  under  the  same  EU  framework.  The 
notification requirements for new UCITS share classes, as well as material changes to  fund 
documentation, are unnecessarily lengthy. The de-notification processes have also become too 
complex,  and  the  pre-marketing  ban  under AIFMD  unnecessarily  blocks  marketing  of  new 
AIFs.  These  provisions  can  be  simplified  to  create  a  more  streamlined  single  market  for 
investment funds, while at the same time ensuring the same level of investor protection that 
exists today.  

Asset managers often operate through group structures with regulated subsidiaries across the 
EU. The  current  regulatory and supervisory frameworks do not  reflect  these structures, and 
duplicative requirements are often imposed on entities of the same group operating  in more 
than one Member State. Simplifying compliance and easing delegation rules for EU regulated 
group entities operating in the single market would reduce administrative burdens and improve 
scalability of the EU asset management sector. 

445  Study of barriers to, and drivers of, the scaling-up of funds investing in innovative and growth companies 

282 

 
 
 
 
 
Under current rules, AIFs and UCITS funds are required to appoint a depositary located in the 
same  Member  State  where  the  investment  fund  is  authorised.  In  Member  States  lacking 
depositary services or with highly concentrated depositary markets where sometimes less than 
a handful of entities offer depositary services, this requirement can limit operational flexibility 
and  increase  costs  for  both  UCITS  and AIFs  and  for  investors  or  limit  the  growth  of  the 
investment fund sector for certain markets. During the most recent AIFMD review446, smaller 
markets were permitted to appoint depositaries established in other Member States, but only 
under strict economic conditions and at the discretion of the Member State concerned. The new 
rules  will  apply  from April  2026.  For  UCITS,  the  appointment  of  a  depositary  in  another 
Member State is still not possible. Allowing UCITS and AIFs to freely appoint depositaries in 
Member States other than their home Member State, without preconditions such as economic 
thresholds or Member State specific restrictions would help reduce market concentration, lower 
costs, and enhance the overall efficiency and competitiveness of the EU depositary market. 

Finally,  the  supervisory  framework  for  the  asset  management  sector  would  benefit  from 
enhanced coordination.  This is addressed in Annex 11 on supervision.  

2.  THE EU ASSET MANAGEMENT SECTOR AND LEGAL FRAMEWORK 

2.1.  SIGNIFICANT GROWTH BUT RELATIVE DECLINE GLOBALLY  

The EU's asset management sector has undergone remarkable expansion over the past decades, 
establishing itself as a central pillar of the region’s financial ecosystem. At the heart of this 
growth  lies  the  development  of  a  minimum  common  regulatory  framework  most  notably 
through the introduction of the UCITS Directive in 1985 followed by the AIFMD in 2011.  

The UCITS framework is the EU’s flagship regime for retail investment funds. It provides a 
harmonised  set  of  rules  on  eligible  assets,  diversification,  and  investor  protection,  allowing 
UCITS funds to be marketed to retail and professional investors and managed across the EU 
via a passport. This cross-border distribution mechanism is a key feature, supporting a deep 
and integrated single market for collective investment funds and asset managers. 

The  AIFMD  framework  governs  managers  of  AIFs  such  as  private  equity,  hedge,  and  real 
estate funds. It establishes a regulatory framework focused on transparency, risk management, 
and  investor  protection,  particularly  for  professional  investors.  Like  the  UCITSD,  AIFMD 
provides  a  passport,  enabling  authorised  EU  AIFMs  to  manage  and  market  EU  AIFs  to 
professional  investors  across  the  EU  under  a  single  regulatory  approval.  The  UCITSD  and 
AIFMD underpin the EU’s asset management landscape, offering distinct but complementary 
frameworks with single market scalability at their core.  

In terms of growth in collective investment schemes in the EU, as at end 2024, the total NAV 
in the EU asset management industry amounted to approximately EUR 20.5 trillion447, of which 

446  Directive  (EU)  2024/927  of  the  European  Parliament  and  of  the  Council  of  13 March  2024  amending 
Directives 2011/61/EU and 2009/65/EC: Directive - EU - 2024/927 - EN - AIFMD II - EUR-Lex  
447  EFAMA  Factbook  2025,  page  14.  Available:  https://www.efama.org/sites/default/files/fact-book-
2025_lowres.pdf; supported by internal calculations. 

283 

 
 
 
 
 
 
 
 
 
approximately EUR 12.6 trillion (61%) was held in UCITS funds448 and EUR 7.9 trillion449 
(39%) in AIFs. Net assets of EU funds have effectively doubled over the past ten years (i.e. 
95% growth over the decade). Between approximately 46% of this total net assets growth was 
attributed to new net inflows and around 54% to asset appreciation.450 Taking inflation into 
account,  in  inflation-adjusted terms,  the real  growth of the European  fund segment over 10 
years is approximately 60%.451 The growth of exchange-traded funds (‘ETFs’) in recent years 
is  also  noteworthy.  ETFs  have  become  a  widely  popular  investment  vehicle  with  European 
ETFs reaching a record of almost EUR 2.2 trillion in AuM at the end of 2024 (a 33% increase 
from the previous year)452, with EUR 2 trillion consisting of UCITS funds.453 

Overall, the above figures demonstrate that the EU fund industry has recorded steady growth 
over the past decade. However, this growth should be contrasted to global peers, as  well as 
roughly  estimated  in  inflation-adjusted  terms.  The  EU  fund  industry  growth  over  the  past 
decade lagged global and US trends in aggregate net assets growth. Notably, global investment 
fund assets rose from USD 17.7 trillion (~ EUR 14.5 trillion) in 2014 to over USD 39 trillion 
(~EUR 37.7 trillion) by end 2024, corresponding to a 120% growth over that time.454 Graph 1 
shows  that  the  US  has  the  largest  share  of  total  NAVs  of  worldwide  regulated  open-ended 
funds. 

448 EFAMA 2025 calculations and internal calculations conducted by Commission services based on commercial 
databases that contain UCITS data. 
449 ESMA data, from the AIFMD reporting. 
450  EFAMA  Factbook  2025,  page  8.  Available:  https://www.efama.org/sites/default/files/fact-book-
2025_lowres.pdf 
451 Based on estimates of the global consumer price inflation rates (annual % change) for 2014 to 2024, based on 
FRED data from the World Bank / IMF, the cumulative price increase of assets (global inflation with a CAGR of 
around 3.2%) from 2014 to 2014 was about 37%. 
452  Source:  European  ETFs  Attract  Record  Inflows  in  2024,  Morningstar,  28  January  2025.  Available  here: 
European ETFs Attract Record Inflows in 2024 | Morningstar Europe 
453 Source: EFAMA Industry perspective, Issue No. 1, April 2025. Available: efama-industry-perspective_active-
etfs_april-2025_0.pdf  
454  Investment  Company  Institute  (ICI)  2025  Investment  Company  Fact  Book.  Available:  2025  Investment 
Company Fact Book, and Worldwide Public Tables. 

284 

 
 
 
 
 
 
Graph  1:  Total  NAVs  of  worldwide  regulated  open-ended  funds  (trillions  of  USD  by 
region, year-end)455 

2.2.  UNEVEN DEVELOPMENT OF FUND MARKETS ACROSS THE EU  

Large asymmetries exist between Member States in terms of fund domiciliation. The top four 
Member States for fund domiciles, Luxembourg, Ireland, Germany and France, held around 
82% of total EU fund assets at the end of 2024. Luxembourg alone accounts for EUR 6.8 trillion 
(33% of the EU total AuM). Ireland follows with EUR 4.9 trillion AuM (24% of the total). 
These figures reflect the development, over several decades, of infrastructure conducive to fund 
domiciliation, as well as favourable regulatory, tax and administrative environments. 

The asymmetries are also apparent when comparing the aggregate net size of EU investment 
funds  with  the  total  GDP.  If  the  total  EU AuM  amounts  to  about  110%  of  EU  GDP,  the 
divergences  across the Member States are extreme. For example, if France and Sweden are 
performing  above  the  EU  average  at  90%  and  120%  of  GDP  respectively  (around  the  EU 
average  of  110%),  several  Member  States  are  falling  behind.  For  instance,  Spain  has 
investments at 28% of GDP, Italy at 20% and Poland at 13.6%. 

This, combined with the very limited degree of cross-border provision of investment funds in 
the EU generally (see below), shows that there is a low market penetration of investment funds 
in many Member States and hence that many EU markets are underinvested. 

455 ICI 2025 Investment Company Fact Book, page 14. 

285 

 
 
 
 
 
 
 
Table 1: Net assets and number of funds in the EU (Q4 2024 data)456 

Member State 

Austria 
Belgium 
Bulgaria 
Croatia 
Cyprus 
Czech 
Denmark 
Estonia 
Finland 
France 
Germany 
Greece 
Hungary 
Ireland 
Italy 
Latvia 
Lithuania 
Luxembourg 
Malta 
Netherlands 
Poland 
Portugal 
Romania 
Slovakia 
Slovenia 
Spain 
Sweden 

Total 

 Total  
 200.827  
 276.212  
 1.898  
 4.528  
 8.623  
 57.876  
 307.360  
 2.300  
 185.667  
 2.135.150  
 2.945.331  
 19.694  
 34.193  
 4.920.103  
 453.502  
 500  
 500  
 6.836.951  
 32.111  
 766.535  
 93.682  
 39.143  
 8.088  
 11.400  
 6.850  
 461.025  
 671.868  
 20.481.913  

Total Net Assets  
(millions of EUR) 
 UCITS  

 105,827  
 229,112  
 1,498  
 3,228  
 623  
 13,576  
 199,299  
 -    
 164,067  
 976,950  
 549,131  
 17,894  
 3,793  
 4,043,403  
 309,702  
 -    
 -    
 4,776,451  
 3,111  
 98,335  
 36,782  
 20,043  
 4,688  
 7,600  
 6,250  
 381,225  
 631,068  

Number of funds 

 AIFs  

 95.000  
 47.100  
 400  
 1.300  
 8.000  
 44.300  
 108.061  
 2.300  
 21.600  
 1.158.200  
 2.396.200  
 1.800  
 30.400  
 876.700  
 143.800  
 500  
 500  
 2.060.500  
 29.000  
 668.200  
 56.900  
 19.100  
 3.400  
 3.800  
 600  
 79.800  
 40.800  
 7.898.261  

Total 
 1.902  
 1.064  
 163  
 146  
 361  
 932  
 959  
 147  
 661  
 8.628  
 9.418  
 359  
 579  
 8.363  
 2.233  
 50  
 11  
 18.596  
 430  
 2.607  
 1.251  
 560  
 126  
 117  
 125  
 4.561  
 1.012  
 65.361  

UCITS 

 874  
 583  
 127  
 117  
 31  
 119  
 694  

 -    

 390  
 3,093  
 2,959  
 312  
 53  
 5,531  
 1,115  

 -    
 -    

 9,746  
 112  
 94  
 257  
 166  
 92  
 67  
 71  
 2,854  
 609  

AIFs 
 1.028  
 481  
 36  
 29  
 330  
 813  
 265  
 147  
 271  
 5.535  
 6.459  
 47  
 526  
 2.832  
 1.118  
 50  
 11  
 8.850  
 318  
 2.513  
 994  
 394  
 34  
 50  
 54  
 1.707  
 403  

12,583,652  

30,066  

35.295  

2.3.  LIMITED CROSS-BORDER PROVISION OF INVESTMENT FUNDS  

Despite  decades  of  regulatory  efforts  to  create  a  single  European  capital  market,  the  cross-
border marketing of investment funds within the EU remains limited. While the UCITSD and 

456 Source: Data on UCITS based on  EFAMA Quarterly statistical release Q4 2024, available here:  quarterly-
statistical-release-q4-2024.pdf. Data on AIFs provided by ESMA.  

286 

 
 
 
 
 
 
 
 
the  AIFMD  have  enabled  the  cross-border  marketing  of  investment  funds  through  an  EU-
passport, both the share of assets, as well as the absolute number of investment funds marketed 
on a cross-border basis continues to be disproportionately small compared to the size of the EU 
net assets. To date, many EU-domiciled funds are still predominantly sold in their country of 
domicile, and a significant portion of national fund markets remain highly fragmented. 

The low cross-border activity of funds throughout the EU can be illustrated by the fact that, 
despite the EU passport, UCITS funds are on average marketed in only one Member State in 
addition to the home Member State of their domicile. There is only a noteworthy cross-border 
activity  from  Ireland  and  Luxembourg  in  the  EU.  However,  in  contrast,  UCITS  funds 
domiciled in Spain, Italy, Denmark, Portugal and Poland are often exclusively marketed in the 
countries of domicile and are not marketed beyond these Member States.  

Table  2:  Average  number  of  Member  States  where  UCITS  are  marketed  on  a  cross-
border basis457  

Range  
(average number of 
Member States) 

UCITS Domicile  
(average number of Member States where funds are marketed 
cross-border) 

More than 4 
Between 2 and 4 

Less than 2 

Luxembourg (4.8), Lithuania (4.8), Ireland (4.1) 
Estonia (3.3), Malta (2.4) 
France (1.7), Belgium (1.5), Finland (1.6), Sweden (1.5), 
Netherlands (1.5), Germany (1.3), Austria (1.3), Latvia (1.3), 
Denmark (1.1), Spain (1.0), Italy (1.0), Portugal (1.0), Poland (1.0) 

Average across the 
EU Member States 
Average per fund 

2.0 

3.2 

2.4.  FRAGMENTED INVESTMENT FUND MARKETS  

The EU investment  fund market  is  fragmented,  which is  apparent  from  the high  number of 
investment funds and the small size of funds.  

•  There are approximately 35,000 EU AIFs and 4,500 AIFMs, which translates into an 
average net asset size of an EU AIF of approximately EUR 224 million (EUR 318 
million in terms of AuM).458  

•  There are approximately 30,000 UCITS funds and 1,700 UCITS management 

companies459, which translates into an average net asset size of an EU UCITS fund of 
approximately EUR 420 million.  

•  There are approximately 11,400 UCITS funds smaller than EUR 100 million, 

accounting for 2% of UCITS assets.460  

•  With approximately 65,000 EU investment funds and the total net size of the EU asset 
industry representing EUR 20.5 trillion in terms of net assets (EUR 23.5 trillion in 

457 Source: Morningstar data; internal calculations by the Commission. 
458 ESMA data, June 2025. 
459 EFAMA data and ESMA database (quarterly-statistical-release-q4-2024.pdf), UCITS entities, available here: 
https://registers.esma.europa.eu/publication/searchRegister?core=esma_registers_upreg 
460 Morningstar data, by end 2024. 

287 

 
 
 
 
 
 
terms of AuM), the average size of the EU investment fund is approximately EUR 313 
million (EUR 365 million in terms of AuM). 

In contrast, US-domiciled investment funds tend to be significantly larger, on average, than 
their EU counterparts. The average US fund has approximately EUR 2.3 billion in assets461, 
which partially reflects a different market structure as well as the high degree of market scale 
and  consolidation  of  the  US  fund  industry.  Furthermore,  the  average  size  of  UK-domiciled 
authorised investment funds is smaller than that of the US but significantly larger than that in 
the EU. Based on industry-wide net assets of approximately EUR 2.2 trillion, the average UK 
fund size is estimated at EUR 660 million.462 

These  figures  highlight  the  scale  advantage  enjoyed  by  funds  domiciled  outside  the  EU, 
particularly in the US, where deeper capital markets, distribution efficiencies and regulatory 
scale effects enable greater fund consolidation. Scale is critical in investment funds because 
many  costs  (legal,  IT,  reporting,  compliance)  have  a  fixed  component.  Larger  funds  spread 
these  costs  over  more  assets,  lowering  unit  costs  and  investor  fees.  Scale  also  increases 
bargaining powers with service providers and counterparties, securing better terms. Finally, it 
enables access to larger investment tickets, such as infrastructure or private markets, expanding 
diversification  for  investors  and  providing  investees  with  deeper  capital  pools. An  ESMA 
study463  has  shown  that  in  the  EU  and  US  fund  markets,  larger  share  classes  and  parent 
companies have lower costs, confirming the importance of economies of scale. Furthermore, 
the  study  shows  that  the  negative  relationship  between  share  class  size  and  costs  is  more 
pronounced  in  the  US  market:  this  seems  to  indicate  that,  as  they  grow,  US  funds  achieve 
greater cost efficiencies than their EU peers. All this suggests that a single market with less 
fragmentation and larger funds can – assuming unimpaired competition – bring efficiency gains 
to the EU fund sector, and ultimately lower investor costs and provide greater value for money.  

Therefore,  the  EU  market  suffers  from  both  the  size  of  its  investment  funds  and  its  asset 
managers.  There  is  evidence  in  academic  literature  that  this  also  negatively  affects 
performance.464 A study from the Investment Company Institute465 shows that the EU’s cross-
border fund market tends to have larger costs (on average +20% for a fixed income fund). 

461 ICI, 2025 Investment Company Fact Book, available here: 2025-factbook-quick-facts-guide.pdf  
462  The  Investment  Association,  Investment  Management 
https://www.theia.org/sites/default/files/2024-10/Investment%20Management%20in%20the%20UK%202023-
2024.pdf.  
463 ESMA, The scale factor: Impact of size on EU fund cost structures, February 2025 
464 Ibid. 
465 ICI Research perspective, October 2022, available: Ongoing Charges for UCITS in the European Union, 2021 

the  UK  2023-2024,  available  here: 

in 

288 

 
 
 
 
 
 
Graph 3: Costs for equity and fixed income funds466 

In addition to the small average size of EU investment funds, it is noteworthy that both the 
UCITS and the AIFs segments are characterised by extremely high fragmentation with a pattern 
of a relatively small number of funds concentrating the bulk of the assets and a large number 
of small and very small funds. Notably: 

•  UCITS market: Only around 3,500 UCITS funds (13% of the total number of UCITS 
funds) were above EUR 2 billion, whilst the remaining 87% of the UCITS funds were 
below EUR 2 billion. Furthermore, approximately 5,300 funds (37% of the total 
UCITS number) were below EUR 50 million. 467 

•  AIFs market: This market fragmentation is even more pronounced where a few large 
EU AIFs accounted for most of the AIF market. In 2020, AIFs with a NAV larger 
than EUR 1 billion accounted for less than 3% of all AIFs but for 54% of the NAV. In 
contrast, smaller AIFs with a NAV lower than EUR 500 million accounted for 93% of 
all AIFs but only 32% of the NAV.468 

Instead  of  relying  on  the  cross-border  passport,  managers  often  create  similar  but  legally 
separate investment structures that are tailored to the regulatory, fiscal and commercial needs 
of distinct EU local markets. This, in turn, results in fragmentation and duplication, since the 
funds  may  (and  often  do)  have  the  same  investment  strategy,  portfolio  composition  and 
management  team,  but  are  domiciled,  authorised  and  supervised  separately  in  different 
Member  States.  Local  regulatory  restrictions  or  differences  in  marketing  requirements  or 
duplicative  authorisation  needs  often  imply  that  fund  managers  either  cannot  or  are 
disincentivised to establish a single vehicle to raise capital across all EU Member States.  

466 ICI Research perspective, Ongoing Charges for UCITS in the European Union, 2021, page 19. 

1.1. 

467 INTERNAL CALCULATIONS BY COMMISSION SERVICES; MORNINGSTAR UCITS DATA, MAY 2025. 

468 ESMA Annual Statistical Report of AIFs, 2022, available here: esma50-165-1948_asr_aif_2022.pdf  

289 

 
 
 
 
 
 
2.5.  LARGE PARTS OF DEPOSITARY SERVICES MARKETS ARE UNDER-SERVED OR HIGHLY 

CONCENTRATED     

As  regards  underserved  depositary  markets,  the  breakdown  of  depositaries  across  Member 
States  is  the  same  as  the  breakdown  of  UCITS  domiciliation,  since  depositaries  must  be 
established in the Member State where the UCITS are domiciled.  

2.6.  FRAGMENTATION  IN  THE  EU  ASSET  MANAGEMENT  MARKET  STRUCTURE  AND 

OPERATIONS  

The EU asset management industry is, just like the fund sector, fragmented with a mix of large, 
mid-sized and small asset managers that operate in different Member States to a varying degree. 
For  UCITS  funds,  the  top  five  asset  management  groups  manage  over  EUR  3.5  trillion  in 
UCITS assets, which corresponds to 28.6% of total UCITS net assets, compared to more than 
60% in the US. The top 10 groups manage around EUR 5 trillion of UCITS and account for 
about 40% of total UCITS assets, and the top 20 manage over EUR 6.65 trillion in UCITS 
assets, or about 53% of total UCITS assets. The relative size for the fund sector and comparison 
with the US is depicted in the graph 4 below. 

Graph 4: Relative size of the largest EU asset management groups469  

This pattern reflects a broader structural feature of the EU fund market, i.e. the persistence of 
nationally siloed competitive dynamics and fragmentation, despite the existence of the UCITS 
and AIFMD regimes. Competitive pressure across borders may be negatively affected, as the 
leading asset managers in one Member State are often largely absent from the top rankings in 
another. 

469  ESMA  TRV  Risk  Analysis  The  scale  factor:  Impact  of  size  on  EU  fund  cost  structures,  available  here: 
ESMA50-524821-3575 The scale factor: Impact of size on EU fund cost structures  

290 

 
 
 
 
 
 
 
Table 3: Market share of the top 5 largest asset managers by Member State470  

Top 5 Managers’ 
market share (%) 

Above 75% 

Between 75% and 
50% 

Between 50% and 
25% 

Countries (with %) 

Slovenia (100%), Slovakia (91%), Greece (92%), Denmark (90%), 
Finland (83%), Czech Republic (76%) 

Croatia (74%), Belgium (71%), Hungary (68%), Austria (66%), 
Romania (63%), Spain (62%), Bulgaria (60%), Sweden (59%), 
Poland (58%), Portugal (57%), Germany (57%), Italy (54%), 

France (46%), Ireland (42%), Cyprus (35%), Malta (35%) 

Differences  in  business  models  explain  part  of  the  fragmentation:  some  groups  consolidate 
operations into a few cross-border hubs, while others maintain networks of local entities with 
duplicated functions. A degree of localisation is often justified by investor expectations and 
customer support needs. However, fragmentation also reflects non-commercial factors such as 
divergent tax, corporate, securities and regulatory frameworks across Member States. This can 
lead to inefficient resource allocation, hinder scale economies, and increase costs for investors. 
It  further  complicates  supervision,  as  oversight  is  spread  across  multiple  legal  entities  and 
jurisdictions,  obscuring  group-level  risks  and  hampering  timely  cross-border  coordination, 
especially in times of stress. 

Table 4: Number of EU entities composing the top 30 EU asset management groups471 

Number of UCITS 
management companies and 
AIMFs within large EU asset 
management groups 
Between 1 to 4 asset managers 
Between 5 to 10 asset managers 
Between 11 to 15 asset 
managers 
>15 asset managers 

% of asset 
manager 
groups  

Number of entities within 
large EU asset manager 
groups 

% of asset 
manager 
groups 

43% 
37% 

17% 

3% 

  Between 1 to 4 entities 
  Between 5 to 10 entities 

Between 11 to 15 entities 

  >15 entities 

23% 
33% 

27% 

17% 

3.  ASSESSMENT OF PROBLEMS AND NEED TO ACT  

3.1.  PROBLEM DEFINITION – BARRIERS TO CROSS-BORDER ACTIVITIES OF THE EU FUND 

VALUE CHAIN 

The value chain for the EU fund market remains fragmented and lacks scale, as evidenced in 
Section 2.4. of this Annex, with declining competitiveness compared to other regions, under-
served investor segments, limited cross-border marketing activity and a patchwork of fund and 
asset manager rules. Together, these weaknesses prevent the emergence of a truly integrated 
and scalable ecosystem.     

470 Source: EFAMA data and DG FISMA internal calculations and estimates, June 2025. 
471 Source: Morningstar and ESMA Database of UCITS management companies and AIFMs. 

291 

 
 
 
 
 
 
 
 
The specific barriers described in this section are:  

•  Barriers to cross-border activities of investment funds (section 3.2);   
•  Barriers to cross-border activities of depositary services (section 3.3); 
•  Barriers to cross-border activities of asset managers and asset management groups (section 

3.4); and 

•  Other barriers to the growth of the investment fund sector stemming notably from some 

UCITS investment limits on securitisations and indices (section 3.5). 

This  analysis  focuses  only  on  barriers  arising  from  financial  regulation  and  its  application, 
excluding those related to tax, corporate, or securities law.   

3.2.  BARRIERS TO CROSS-BORDER ACTIVITIES OF INVESTMENT FUNDS  

Desk  research  by  the  Commission  together  with  the  Commission  consultation  and  bilateral 
engagements  with  stakeholders  show  that  EU  and  national  requirements  and  practices  still 
makes the EU marketing passport extremely difficult to navigate. The CBDR created an ESMA 
database with hyperlinks of NCAs’ websites with information on national marketing rules and 
fees which enhanced the transparency somewhat. However, transparency alone cannot address 
the root problem, which is the barriers themselves. 

Barriers in the EU framework include the current notification procedure for the UCITS and 
AIFM  marketing  passport  (which  is  unnecessarily  time  consuming  and  administratively 
demanding  especially  where  a  manager  seeks  to  market  a  fund  in  EU  27),  the  one-month 
notification of new share classes of a UCITS fund, the ability for Member States to impose ex-
ante  verification  requirements  on  marketing  communications  and  translation  requirements. 
requirements, 
Barriers 
administrative and operational issues (e.g. bespoke filing systems), additional marketing rules, 
regulatory fees and charges, reporting obligations, and local physical presence requirements. 

include  country-specific  disclosure 

in  national 

frameworks 

There are several causes for these barriers. First, while notification rules have been harmonised 
through changes to the UCITSD472 and AIFMD, a broad margin of discretion is left to Member 
States, allowing them, to a large degree, to impose their own procedures, regulatory fees, IT 
systems,  and  requirements.  Second,  under  the  fund  frameworks,  Member  States  can  adopt 
national rules where EU rules are absent. Since EU marketing rules are mostly principle-based 
(e.g. requiring  that information  is  clear, not  misleading,  and consistent  with pre-contractual 
documents), many Member States set out detailed marketing rules, which in turn affect product 
design. Indeed, marketing is essential for raising capital. If a fund cannot be sold in a Member 
State,  managers  must  adapt  to  comply  with  local  marketing  rules,  creating  fund-specific 
versions for national markets that can pass regulatory scrutiny. This fragmentation reduces the 
overall size and growth of investment funds in the Union. These barriers impact the growth of 
all fund types, including ETFs, which have experienced exponential levels of growth in recent 
years, due to their attractiveness which can be attributed to their relative low cost, the ability 
to invest in a simple and transparent manner in products that are diversified and liquid.  

472 Notably through the introduction of a system of “pre-authorisation” from the host NCAs (until UCITS III) to 
a “notification-only” to host NCAs introduced by UCITS IV. 

292 

 
 
 
 
 
 
It is questionable whether those diverging national requirements deliver any real benefits to 
consumers.  Where  regulation  of  certain  aspects  is  indeed  needed,  such  rules  should  be 
harmonised and applied consistently across the EU market.  

A more detailed description of the problem drivers is presented below. 

a)  Barriers related to the authorisation and notification requirements  

In  the  consultation,  68%  of  respondents  reported  divergent  UCITS  authorisation  practices 
across  Member  States  and  NCAs,  noting  that  inconsistencies  in  procedures,  information 
requirements and timelines create complexity and inefficiency. Examples include the need for 
board approval for a new sub-fund in some jurisdictions but not others, shareholder approval 
for changes of investment objectives, and a general lack of transparency on approval timelines, 
all of which hinder the seamless operations of investment funds across the Union.473 

On the UCITS and AIFM passporting framework, 73% of  respondents (asset managers and 
professional  associations)  indicated  that  current  marketing  passport  provisions  are  not 
sufficiently  simple  or  proportionate.  They  argued  that  passporting  should  be  reduced  to  a 
straightforward  notification  process  given  that  funds  are  already  authorised  by  their  home 
NCA. The existing web of bilateral notifications imposes unnecessary administrative burdens 
on  funds,  fund  managers  and  regulators.474  One  large  asset  manager  in  the  Nordic  region 
specifically mentioned challenges in processing passporting notifications, necessitating a one-
month  timeframe  before  it  can  effectively  begin  marketing  in  host  Member  States  due  to 
frequent delays in the process. 

b)  Marketing requirements 

Most respondents to the targeted consultation noted that approaches to marketing rules differ 
substantially  across  Member  States,  with  the  EU  framework  notably  the  CBDR  offering 
Member State discretion in this regard. Some NCAs require pre-approval (ex-ante verification) 
of  marketing  communications,  while  others  do  not.  Requirements  around  content  standards 
also vary, making it difficult for fund managers to use standardised marketing communications 
in  the  single  market.  Respondents  also  noted  that  some  Member  States  have  requirements 
regarding country-specific disclosures in fund documentation.  One prominent fund industry 
association noted that a country fund supplement is required in seven Member States (Austria, 
Belgium,  Denmark,  France  (in  some  cases),  Germany,  Ireland,  Poland).  A  mid-sized  fund 
manager reported the cost of compliance with country-specific disclosure rules as EUR 65,000 
annually.  

The UCITS and AIFM marketing passport enables funds authorised in one Member State to be 
marketed across the EU via a notification procedure between NCAs. In principle, host NCAs 
cannot  block  access  or  challenge  the  home  authorisation.  In  practice,  however,  divergent 
national  marketing  requirements,  especially  relating  to  the  form  and  content  of  marketing 

473 In response to the targeted consultation, one mid-sized fund manager noted variable authorisation processing 
times across NCAs, ranging from a couple to several months regardless of the complexity of the case, as well as 
the variation in the level and style of information to be provided to, and approved by, NCAs which can complicate 
cross-border operations and lead to an uneven playing field across Member States. 
474  Examples:  new  share  classes  of  an  existing  UCITS  must  be  notified  one  month  before  marketing,  the  de-
notification process and obligation to publish an intention to terminate marketing even where no investors remain, 
or the 36-month pre-marketing blackout for similar strategies to the one of the AIF that was de-notified.  

293 

 
 
 
 
 
materials and ex-ante checks of marketing communications, create burdens and delays. A mid-
sized fund manager reported the cost of compliance with marketing communication rules as 
EUR 100,000 annually.  

Finally, most industry respondents reported not using ESMA’s database on national marketing 
requirements due to complex, incomplete, or outdated information. As a result, fund managers 
face higher costs and slower market access, while the database underscores the complexity of 
national rules despite common UCITD and AIFMD texts. 

c)  Administrative requirements – national rules concerning local physical 

presence, regulatory fees and translations 

The CBD framework prohibits host Member States from requiring UCITS and AIFs that are 
marketed in their territory to have a local physical agent in their host jurisdiction or to appoint 
a third party for the performance of certain tasks. Many respondents to the targeted consultation 
reported that in practice several Member States continue to require funds from other Member 
States to appoint such local agents. Consultation feedback highlighted that these requirements 
undermine  the  UCITS  and  AIFM  passport  and  can  often  deter  managers  from  adopting  a 
European strategy. One large asset manager reported such requirements in Austria, Germany, 
Italy, Spain Poland and Portugal.  

Desk-based research and consultation responses shows that at least 11 Member States require 
UCITS  and  AIFs  to  appoint  a  local  agent  for  varying  reasons  (tax  representation, 
payments/redemptions,  regulatory  fee  handling,  intermediary  activities,  reporting).  In  some 
cases, this stems from NCA expectations rather than law. Information provided by a mid-sized 
asset manager and  a prominent  industry association shows the average annual  cost  of EUR 
42,500 for appointing a local physical agent in one Member State, with the highest reported 
cost for one Member State being EUR 80,000. 

On regulatory fees and charges levied by some NCAs, of the stakeholders that replied to this 
part of the targeted consultation 58% considers fees and charges a significant  barrier to  the 
distribution  of  investment  funds.  Stakeholders  explain  that  whilst  each  individual  fee  may 
sometimes appear as immaterial, it can very quickly lead to significant costs when taking into 
account the administration burden of keeping track with all annual fees and the time they are 
due. Respondents also noted that, for both UCITS and AIFs marketed in host Member States, 
information on the fees levied by host competent authorities is not easily available, e.g. poorly 
structured and hard to find fee information on NCAs websites, often resulting in the need to 
engage local counsel for advice. Case Study 2 highlights a cost of EUR 65,000 associated with 
the payment of regulatory fees for one AIF marketing on a pan-EU basis.  

The cross-border distribution framework sought to enhance transparency, including in relation 
to fees and charges levied by host competent authorities for UCITS and AIFs marketed in their 
territories,  and  to  limit  burdensome  or  opaque  practices.  One  measure  required  NCAs  to 
publish  applicable  regulatory  fees  online  and  ESMA  to  maintain  a  database  of  such 
information. However, in practice, fee transparency remains limited. In many cases, fees are 
not clearly presented, complicated to follow or easily accessible on NCA websites, and fund 
managers may only become aware of the full cost late in the registration process. 

294 

 
 
 
 
Administrative issues linked to fees include:  

(i) 

(ii) 

(iii) 

(iv) 

variability – the extent and clarity of fee disclosure varies across jurisdictions. 
Some NCAs provide clear, comprehensive schedules, while others offer only 
limited or outdated information;  

structuration – differences in how fees are defined, structured, and presented make 
it difficult for fund managers to compare costs across Member States. Some 
NCAs aggregate multiple services into a single fee, others itemize extensively, 
complicating cost transparency;  

accessibility – fee information is not always easy to find or available in English, 
which can hinder access for non-domestic managers; and  

timing – it is frequent that authorities continue to request fee payments even after 
fees have been paid and marketing has been closed. 

The Impact Assessment undertaken in 2017 showed that the level of fees levied by host NCAs 
varies  considerably,  both  in  absolute  amount  and  how  they  are  calculated.475  Significant 
variations  in  the  levels  of  fees  charged  remain  today. Table  5  provides  an  overview  of  the 
regulatory fees imposed on incoming funds by EU 27 host NCAs, based on research by the 
Commission  Services  during  H1  2025.    It  is  based  on  one  single  sub-fund  being  marketed 
cross-border  and  is  compiled  on  a  best-efforts  basis,  due  to  some  constraints  in  finding  the 
correct information on NCA’s websites, and variations such as indexing, the number of sub-
funds and applying conversion rates in some cases.  

Table 5 – Fees charged by NCAs on a UCITS fund operating on a cross-border basis 

Number of NCAs charging regulatory fees (initial and/or annual) 

Approx. 18 

Number of NCAs that do not charge regulatory fees 

Approx. 9 

Number of NCAs where information is unclear 

Highest initial fee (EUR) 

Highest annual fee (EUR) 

Average initial fee (EUR) 

Average annual fee (EUR) 

14 

4400 

3452 

985 

1061 

On  translation  requirements,  most  asset  management  industry  association  cite  national 
requirements on translating documents as a barrier. One prominent industry association noted 
that  there  is  no  uniformity  in  local  language  translation  obligations,  meaning  that  in  some 

475 For example, ongoing regulatory fees for a UCITS fund with five sub-funds marketed to retail investors vary 
from EUR 0 to EUR 10,275 and for an AIF with the same structure marketed to professional investors vary from 
EUR 0 to EUR 15,000. 

295 

 
 
 
 
 
Member States, every investor-facing document, including prospectuses and key information 
documents,  must  be  translated  into  the  local  language  unless  investors  explicitly  consent 
otherwise,  while  other  Member  States  take  a  more  flexible  approach,  permitting  a  single 
marketing package to be used across borders. This fragmentation prevents the use of a single 
marketing  communication  package  across  multiple  countries,  increasing  administrative 
burden. 

3.3.  BARRIERS TO CROSS-BORDER ACTIVITIES FOR DEPOSITARY SERVICES  

One of the main pillars of the AIFMD and UCITSD frameworks that protects investors is a 
depositary regime. AIFMs  and UCITS managers are  required to  appoint for each fund they 
manage  a  single  depositary  that  should  be  authorised  in  the  same  country  as  the  fund.  For 
AIFMs, the adoption of this regime was accompanied by a transitional period that lasted until 
July 2017, during which the competent authorities of the home Member State of an AIF could 
allow  the  appointment  of  a  depositary  established  in  another  Member  State.476  Several 
competent authorities made use of this possibility to avoid a market concentration, which could 
pose risks to the financial stability in the concerned Member States.  

The  end  of  the  transitional  period  caused  difficulties  for  many  UCITS  and AIFs  in  smaller 
markets  where  there  was  still  a  lack  of  supply  of  depositary  services,  mainly  due  to  some 
Member States having an extremely concentrated depositary market. Notably, in one Member 
State two depositaries hold over 40% of the financial instruments and four depositaries hold 
70% of the financial instruments. In another Member State, only three depositaries offer their 
services.  

To address the challenges faced by certain Member States in ensuring an adequate supply of 
depositary  services,  the  co-legislators  recently  amended AIFMD  to  introduce  a  derogation 
allowing certain AIFMs to appoint a depositary in a Member State other than the Member State 
of the AIF.477 Such an appointment is subject to number of conditions:  

• 

• 

• 

that the competent authorities have received a reasoned request from an AIFM 
demonstrating the lack of depositary services in the home Member State of the AIF; 
the aggregate amount in the national depositary market of the home Member State of 
the AIF of assets entrusted for safekeeping on behalf of EU AIFs authorised or 
registered managed by an EU AIFM does not exceed EUR 50 billion; and 
the Member State of the AIF has decided to allow the appointment of a depositary in 
other Member States. 

Even when the above-mentioned conditions are fulfilled, national authorities may still refuse 
the  appointment  of  a  depositary  located  in  another  Member  State,  based  solely  on  their 
assessment that adequate depositary services are already available domestically, without being 
required to provide justification or supporting evidence. 

First,  while  the  new  rules  introduce  the  possibility  for  cross-border  provision  of  depositary 
services for AIFs, the EUR 50 billion threshold significantly limits their application to only a 
few Member States. Second, as EU financial markets evolve, several Member States currently 
below the threshold may soon exceed it, potentially losing access to cross-border depositary 

476 Article 61(5) of AIFMD. 
477 Article 21(5a) of AIFMD, introduced by Directive (EU) 2024/927. 

296 

 
 
 
 
 
services  shortly  after  the  rules  come  into  effect.  Third,  allowing  Member  States  to  decide 
whether to permit the appointment of a depositary in another Member State, even when the 
economic conditions are met, adds further fragmentation and undermines the creation of a truly 
integrated single market for AIFs, AIFMs and depositaries. 

As regards the UCITS depositary regime, under the current framework, UCITS are not allowed 
to appoint a depositary in a Member State other than the home Member State of the UCITS. 
While  this  requirement  was  initially  introduced  to  ensure  strong  regulatory  oversight  and 
investor  protection,  it  presents  several  challenges  that  negatively  affect  the  functioning  and 
competitiveness of the UCITS market across the EU.  

One public sector stakeholder replied to the targeted consultation that the AIFMD and UCITSD 
should be revised to ensure authorised depositaries are allowed to provide depositary services 
without  restrictions  across  the  EU.  In  their  view,  the  recent  amendments  to  the  AIFMD 
introduce too many conditions for allowing the appointment of a depositary in another Member 
State and consider those conditions “restrictive and protectionist for no apparent reason.” In 
addition, a large asset manager marketing UCITS in 16 Member States and AIFs in 18 Member 
States  supports  the  development  of  a  European  passport  for  depositaries  and  reported  that 
recognising a depositary established in another Member State should be allowed. 

In  particular,  Member  States  with  a  limited  number  of  licensed  depositaries  often  face 
difficulties in ensuring a sufficient and competitive supply of depositary services. This lack of 
competition can result in higher fees for UCITS and AIFs, lower service quality, and reduced 
operational  efficiency, ultimately  harming investors through increased costs  and diminished 
returns. 

Moreover,  this  limitation  acts  as  a  barrier  to  market  entry  and  growth,  discouraging  fund 
promoters from establishing UCITS and AIFs in Member States where the depositary market 
is underdeveloped. This contributes to a concentration of UCITS and AIFs in a few Member 
States  with  large  and  mature  financial  sectors,  while  limiting  the  development  of  the  fund 
industry  in  others. As  a  result,  the  rule  undermines  the  objectives  of  the  single  market  by 
perpetuating geographic disparities and hindering the integration of EU financial markets. 

The  inability  of  UCITS  and  the  limited  ability  for AIFs  to  appoint  a  depositary  in  another 
Member State also creates regulatory fragmentation within the single market. It prevents funds 
from benefiting from cross-border efficiencies and accessing potentially more competitive or 
specialised depositary services available elsewhere in the EU. This constraint is increasingly at 
odds with the promotion of the freedom to provide services. 

For smaller Member States in particular, the domestic supply of depositary services may be 
insufficient to support a growing or diverse investment fund sector. In some cases, the volume 
of activity is too low to attract multiple providers, which can result in over-reliance on one or 
two institutions. This  not  only  restricts competition but  also  raises concerns about  financial 
resilience and systemic risk. 

Finally, the requirement to appoint a depositary in the same Member State as the UCITS or AIF 
no  longer  fully  reflects  technological  progress,  as  depositary  functions  (e.g.  safekeeping, 
oversight,  and  record-keeping)  can  increasingly  be  performed  efficiently  across  borders 
without the need for a physical presence in the same jurisdiction. Modern communication and 
supervisory technologies facilitate the provision and monitoring of these services, suggesting 

297 

 
 
 
that the current rule may impose unnecessary restrictions on cross-border integration of the EU 
fund market. 

3.4.  BARRIERS TO CROSS-BORDER ACTIVITIES FOR ASSET MANAGERS  

The current regulatory framework under UCITSD and AIFMD does not recognise the group 
dimension.  Asset  management  groups  operate  based  on  authorisations  of  individual  asset 
management  companies,  with  organisational  requirements  being  met  at  the  level  of  each 
individual management company.  

First,  when  functions  of  a  management  company  are  delegated  to  another  entity  within  the 
same group, the delegating entity remains subject to the same stringent requirements that apply 
to a delegation to a third party (e.g. due-diligences, monitoring, resource requirements). This 
can be disproportionate and inefficient in cases where the delegate is another EU authorised 
asset  manager  within  the  same  group,  placed  under  the  supervision  of  an  NCA.  Several 
respondents to the consultation (asset managers and professional associations) also indicated 
that  the  obligation  to  maintain  effective  oversight  of  delegated  functions  in  EU  intra-group 
delegation  constitutes  the  main  obstacle  to  the  consolidation  of  the  functions  of  asset-
management groups in the EU. One large asset manager, which is authorised in four Member 
States and has branches in seven Member States noted, in its response to the consultation, that 
it sees merit in recognising the notion of asset management group in the specific case of intra-
group delegation arrangements to avoid duplication of reporting, including to the same NCA. 
It noted that reporting just once, instead of twice on the exact same things would substantially 
alleviate the regulatory burden.  

Second, although the AIFMD and UCITSD frameworks have introduced harmonised rules for 
the authorisation of AIFMs and UCITS management companies, as well as for the information 
to  be  submitted  to  national  competent  authorities,  divergent  national  practices  in  the 
authorisation process continue to persist. 82% of respondents to the Commission’s consultation 
(asset  managers  and  professional  associations)  mentioned  they  face  differing  authorisation 
processes  and  interpretations  of  key  concepts  by  NCAs. The  issue  is  particularly  acute  for 
groups of asset management companies with subsidiaries in several Member States, as they 
must  comply  with  multiple  diverging  requirements,  authorisation  processes  and  regulatory 
interpretations when establishing operations across the EU. It also affects the ability of AIFMs 
and  management  companies  to  manage  funds  in  Member  States  other  than  their  home 
jurisdiction,  since  they  must  navigate  additional  requirements,  procedures,  and  disclosures 
imposed by host authorities, which may diverge from those applicable in their home Member 
State. These inconsistencies complicate cross-border operations and hinder the functioning of 
the management passport, leading most respondents to call for greater harmonisation. 

Third,  the AIFMD  and  UCITSD  frameworks  follow  a  minimum  harmonisation  approach, 
meaning that they set only a baseline of rules and allow Member States significant discretion 
in transposing and implementing the provisions. These national discretions vary in form and 
impact. In many instances, Member States are permitted to authorise or restrict certain activities 
by AIFMs  and UCITS beyond the minimum  requirements set  by EU law. For example, the 
Directives  allow  Member  States  to  permit  or  prohibit  AIFMs  and  UCITS  management 
companies from carrying out certain ancillary services or set out an open list of reporting or 
disclosure  requirements,  allowing  Member  States  to  require  additional  information  beyond 
what  is  mandated  at  the  EU  level.  Similarly,  under  the  UCITSD,  Member  States  can  allow 

298 

 
 
 
UCITS  to  exceed  investment  and  diversification  limits,  leading  to  divergent  portfolio  rules 
across jurisdictions. 

Such  regulatory  flexibility  results  in  significant  disparities  in  the  legal  and  operational 
conditions applicable to asset managers and investment funds across the EU. Particularly, fund 
managers operating cross-border and asset management groups are confronted with a complex 
patchwork  of  national  rules,  creating  legal  uncertainty,  increasing  compliance  burdens,  and 
discouraging cross-border scalability. For example, a management company managing UCITS 
across multiple Member States must ensure that each fund complies with the investment and 
diversification  limits  as  implemented  in  each  jurisdiction,  significantly  increasing  the 
operational  burden and costs of cross-border  activities. Similarly, asset management groups 
with subsidiaries in multiple Member States must navigate varying disclosure and reporting 
requirements, as well as differing rules on whether ancillary services may be performed and 
must adapt their IT systems to the specificities of each Member State in which they operate. 
Stakeholders have consistently highlighted that divergent national practices and interpretations 
hinder fund managers’ ability to operate cross-border and increase operational complexity, as 
they  must  comply  not  only  with  the  rules  of  their  home  Member  State  but  also  with  host 
Member States’ requirements, which often diverge due to the flexibility allowed under UCITS 
and AIFMD. This fragmented landscape particularly affects smaller and newer fund managers 
who may lack the resources to adapt to different regulatory regimes, effectively limiting their 
ability to expand their operations beyond their domestic markets. 

Moreover, regulatory divergence complicates supervisory cooperation between home and host 
Member States and weakens the overall coherence of the EU framework. It undermines the 
level playing field among funds and asset managers and creates inefficiencies for both market 
participants and national competent authorities. Investors, too, may face inconsistent levels of 
investor  protection  depending  on  the  jurisdiction  in  which  a  fund  and/or  its  manager  are 
domiciled or marketed. To illustrate the extent of the issue, the Commission has identified at 
least  20  instances  of  national  discretion  in  the  AIFMD  and  UCITSD  frameworks,  which 
contribute  to  inconsistent  national  practices,  increase  regulatory  fragmentation,  and  create 
unnecessary barriers to cross-border activity within the internal market. Appendix A provides 
a list of relevant national discretions identified in UCITSD and AIFMD respectively.  

Fourth, the UCITSD requires each Member State to establish its own set of prudential rules 
and rules of conduct applicable to management companies authorised within their jurisdiction 
(Articles 12 and 14 UCITSD). AIFMD equally lacks a harmonised EU framework in this area. 
Consequently,  Member  States  have  developed  their  own  national  rules,  resulting  in 
considerable divergences in the regulatory and supervisory treatment of UCITS management 
companies and AIFMs across the Union. This has led to national discrepancies that concern, 
for  example,  organisational  arrangements,  risk  management  procedures  or  rules  relating  to 
conflicts of interest and best execution. The problem is particularly acute for asset management 
groups operating through subsidiaries in multiple Member States, as they must monitor and 
comply with divergent national prudential requirements and conduct standards depending on 
the  jurisdiction  of  each  subsidiary.  The  lack  of  harmonised  prudential  and  conduct  rules 
undermines  the  goal  of  a  uniform  regulatory  framework  for  UCITS  and AIFMs,  creating 
market fragmentation, hindering cross-border activity, and raising costs for managers who must 
adapt to varying national standards. Addressing it is essential to strengthen the integrity and 
competitiveness of the market. 

299 

 
 
 
3.5.  OTHER BARRIERS TO THE GROWTH OF INVESTMENT FUNDS 

The UCITSD establishes investment and diversification limits, which are designed to ensure 
investor protection by promoting risk-spreading and limiting excessive exposure to any single 
issuer or asset, reflecting the retail nature of the UCITS product. However, market participants 
have  expressed  concerns  that  certain  limits  may  hinder  investment  and  the  development  of 
specific market segments, particularly securitisations and equities held by active funds, thereby 
undermining the competitiveness and growth of these segments in the EU. 

First,  under Article  56(2)(b)  UCITSD,  a  UCITS  may  not  acquire  more  than  10%  of  debt 
securities from a single issuer. Intended to limit concentration in corporate debt, this rule also 
affects  securitisations.  Most  consultation  respondents  (72%,  mainly  large  asset  managers) 
argued that  the rule, which was adopted before  Regulation  (EU) 2017/2402, is  outdated, as 
securitisations are more diversified and subject to strict regulatory requirements. They stressed 
that  the  10%  cap  prevents  meaningful  portfolio  allocations  to  securitisations  and  called  for 
exemptions or tailored adjustments to support competitive, diversified strategies. On the other 
hand,  several  respondents  to  the  consultation  noted  that  their  investments  in  securitisations 
remain well below the 10% limit, and therefore they do not consider this restriction to be a 
barrier to UCITS investing in such products. A few respondents also emphasized that UCITS 
is a retail product, cautioning that greater exposure to securitisations would be inconsistent with 
its retail character and could pose risks to investor protection. 

Second, under the 5/10/40 rule in Article 52(2) UCITSD, as a general rule UCITS cannot invest 
more than 10% in one issuer, and holdings above 5% cannot exceed 40% of assets. This seeks 
to  protect  retail  investors  and  prevent  concentration  risks.  However,  asset  managers  that 
responded  to  the  consultation  noted  it  constrains  equity  fund  managers  in  single  European 
markets, as they must underweight or sell outperforming companies exceeding 10% of assets. 
On the contrary, passive funds replicating indices benefit from higher thresholds (20%, up to 
35% under Article 53). 

4.  OBJECTIVES:  ENABLE  MARKET  INTEGRATION  AND  SCALE  EFFECTS  IN  CROSS-BORDER 

ACTIVITIES FOR THE EU FUND MARKET VALUE CHAIN    

The objectives  are to  foster market  integration and scale in  the fund and asset management 
sectors  by  enabling  seamless  cross-border  operations.  Greater  competition  will  pressure 
uncompetitive players to cut costs or exit, driving consolidation and specialisation. This should 
generate scale benefits for investors while avoiding higher regulatory entry barriers, ensuring 
competition remains strong and cost savings are passed on. Ultimately, the initiative seeks to 
reduce  costs  borne  by  EU  investors  and  remove  barriers  to  sector  growth  and  cross-border 
activity.  

4.1.  REDUCTION  OF  COSTS  AND  BURDENS  STEMMING  FROM  THE  UNNECESSARY 

ADMINISTRATIVE BARRIERS  

Unnecessary  administrative  barriers  continue  to  impose  significant  costs  on  EU  asset 
managers. These costs are higher particularly when funds are being marketed on a cross-border 
basis.  The  burdens  arise  from  persistent  regulatory  fragmentation,  duplicative  procedures, 
divergent local interpretations of EU rules, and the lack of fully harmonised digital processes 
among  NCAs.  Launching  a  UCITS  fund  still  typically  requires  between  EUR  300  000  and 
EUR  500  000  in  upfront  costs,  which  among  other  costs  comprises  legal  structuring, 

300 

 
 
 
documentation, registration, and compliance with local marketing rules.  The administrative 
costs of registering a UCITS in one additional Member State can range from EUR 20 000 to 
EUR 60 000, depending on translation, legal, and agent fees. For an EU AIFM, depending on 
the Member State in question, the size and the intended investment and the marketing strategy, 
the AIFMD authorisation costs can exceed EUR 750 000.478  

Taking account of pre-authorisation discussions with NCAs, the average time-to-market for a 
UCITS fund on a cross-border basis is estimated at 4 to 6 months (with reports of much longer 
timelines), while for an EU AIF it ranges from 6 to 12 months, particularly when marketed to 
retail or semi-professional investors in jurisdictions with stricter local rules.479  

The  costs  borne  by  investors  reflect  all  these  factors.  For  instance,  US  mutual  funds 
demonstrate significantly lower asset-weighted average product costs—0.65% for active funds 
and 0.05% for index equity funds—compared to UCITS.480  ESMA showed that the total costs 
of smaller equity, bond and mixed funds are higher by respectively 14%, 27% and 17% than 
the total costs of larger funds. This is aggravated by the size of the management company. 

Coupled with the fragmentation due to distinct national requirements described earlier, this also 
results in significant heterogeneity in the costs borne by investors for the same product across 
Member States,  which provides an indication of  the benefits  that further  market  integration 
could bring. 

Graph 5: Ongoing costs of investing in funds across Member States481 

Ongoing costs across countries - UCITS 
       Significant heterogeneity across MS 

Ongoing costs across countries - AIFs 
       Significant disparity across MS 

478 Source: DG FISMA calculations based on document annexed to Invest Europe’s contribution to the Targeted 
consultation on integration of EU capital markets submission, 2025.  
479 Ibid. 
480 Source : EFAMA report, February 2025 A like-for-like comparison of the cost of US mutual funds and UCITS 
is missing from the latest ESMA report 
481 ESMA Report on total costs of investing in UCITS and AIFs, 2025 

301 

050100150200250300Ongoing costsOngoing costs withoutinducementsNote:Distributionofthemedianongoingcostsandongoingcostswithoutinducementspaidbyinvestorfora10,000investmentforequity,bondandmixedUCITSacrossjurisdictions,inEUR.Sampleincludesshareclassessoldtoretailandinstitutionalinvestorsandpayingrebates.Theboxrepresentstheinterquartilerange(25thto75thpercentiles),withthemedianshownasthecentralline.Thewhiskersextendtotheminimumandmaximumvalues,illustratingthefullrangeofcostobservations.Sources:NationalCompetentAuthorities,ESMA.050100150200250Ongoing costsOngoing costs withoutinducementsNote:Distributionofthemedianongoingcostsandongoingcostswithoutinducementspaidbyinvestorfora10,000investmentforotherAIFs,fundsoffundsandrealestateAIFsshareclassesacrossjurisdictions,inEUR.Sampleincludesshareclassessoldtoretailandinstitutionalinvestorsandpayingrebates.Theboxrepresentstheinterquartilerange(25thto75thpercentiles),withthemedianshownasthecentralline.Thewhiskersextendtotheminimumandmaximumvalues,illustratingthefullrangeofcostobservations.Sources:NationalCompetentAuthorities,ESMA. 
 
 
 
 
  
 
  
 
  
 
 
 
 
Case studies 

Case study 1 – Costs as represented by a P&L model 

The costs can be illustrated through a simplified P&L model. For a UCITS fund managing 
EUR 100 million in assets, earning a management fee of 0.75%, annual gross revenues 
would  be  EUR  750,000,  possibly  supplemented  by  EUR  50,000  in  other  income  (e.g. 
performance  fees  or  securities  lending).  However,  administrative  burdens  erode  this 
margin.  Operating  costs  for  fund  administration,  custody,  legal,  regulatory  and 
compliance—including those directly attributable to fragmented EU rules - can total EUR 
600,000 to EUR 700,000.  

This  leaves  a  net  profit  before  tax  in  the  range  of  EUR  100,000  to  EUR  200,000, 
corresponding  to  a  margin  of  just  13  to  25%,  far  below  the  global  average  for  asset 
management profitability. A reduction of EUR 100,000 in administrative burden could 
boost profits by  50% or more, significantly improving  scalability  and attractiveness  of 
cross-border operations. 

Moreover,  indirect  costs  arise  from  delayed  market  entry,  missed  investment 
opportunities,  and  the  legal  complexity  of  maintaining  multiple  small-scale  fund 
structures rather than consolidating operations. Eliminating administrative inefficiencies 
and  gold-plating  across  Member  States  is  estimated  to  have  the  potential  to  generate 
annual  savings  of  EUR  1.5  to  EUR  2  billion  for  the  EU  fund  industry  (European 
Commission, CMU 2021 Progress Report). 

Case study 2 – Costs associated with cross-border marketing of UCITS funds 

As  asset  manager  with  a  pan-European  strategy  for  two  UCITS  umbrella  funds, 
comprising  almost  50  sub-funds,  incurs  almost  EUR  1  million  in  annual  costs  when 
distributing  those  sub-funds  across  14  Member  States  due  to  host  Member  State 
requirements  regarding  regulatory  fees,  local  agents  and  translations,  together  with 
associated legal fees related to the maintenance of fund registrations. 

Initial regulatory registration costs 

600,000 

Once-off (EUR)  Annual (EUR) 

Annual maintenance regulatory costs 

Facilities Agent costs 
Legal costs related to the maintenance 
of fund registrations 
Translation requirements 

Total annual 

Source: European asset manager  

600,000 

250,000 

90,000 

45,000 

EUR 985,000 

302 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Case study 3 – Cost of NCA fees for a AIFM with an EU strategy for one AIF 

The table below sets out the costs associated with the payment of NCA fees in respect of 
one AIF with a pan-EU strategy, as reported by a large AIFM. In short, one manager must 
pay EUR 65,000 to adopt an EU-wide strategy for one AIF only, as a consequence of NCA 
fees and charges.  

Type of cost 

Total NCA fees 

Use of “local agents” 
Internal  costs  of  organising 
these arrangements 
Total cost for one AIF 

Costs of EU strategy for one AIF 
EUR  38,000  (fees  vary  from  EUR  800  to  EUR 
1,400 per fund/per year) 
EUR 25,000 

EUR 2,000 

EUR 65,000 

The AIFM reported some additional costs for complying with marketing rules as follows: 

•  Costs associated with hiring 2-3 FTE compliance roles 
•  Approx. EUR 400,000 on costs of hiring secondees  
•  Approx.  EUR 400,000 on ad-hoc legal advice 

Source: Invest Europe 

303 

 
 
 
 
 
 
 
 
Case study 4 – Cost savings and EU expansion potential for one large EU asset 
manager  

An asset manager with a focus in the Nordic region faces significant costs and barriers in 
the  few  Member  States  where  its  funds  are  marketed  and  even  more  challenges  with 
developing  a  pan-European  strategy  for  its  funds.  It  currently  manages  more  than  100 
funds and discretionary  mandates on behalf of institutional investors and offers  a wide 
range of products and advisory services aimed at private individuals, institutional investors 
and distributors. Its funds are currently available for marketing in four Member States, 
including the home Member State.  

The total annual value of the managers distribution costs, excluding headcount, within the 
EU,  but  outside  the  Nordic  region,  is  approx.  EUR  665,000.  If  the  below  proposals 
(explained further in Section 5) were adopted, this would result in annual cost savings for 
the manager and ultimately EU investors of EUR 673,900, as set out below. The manager 
would also consider developing a true single market strategy by expanding the marketing 
of its funds in 17 Member States. 

Proposal 

A  more  harmonised  authorisation 
procedure 

Passporting upon authorisation 

Removal  of  pre-marketing  rules 
under Articles 32a(3) and 32a(4) of 
AIFMD 

Estimated costs savings 
(annually in EUR) 
300,000 on regulatory fees 

20,000 on country specific 
market research 
10,000 on legal opinion to 
enter a new market 
400 per requested country 
+ 1 month time to market  

4,500  
(expected to increase) 

Estimated 
headcount savings 

1 

None reported 

None reported 

Strengthen  existing  prohibition  on 
local physical agent  

144,000 for local agents in 
3 Member States  

None reported 

Marketing  communications  at  EU 
level   

Removal 
disclosures in fund documents  

county 

of 

specific 

Limit  translation  requirements  to 
key  information  document  referred 
to in Article 78 of UCITSD 

Total  estimated  savings  if  these 
proposals are adopted 

Additional  Member  States  where 
marketing would take place if no 
barriers  
Source: European asset manager 

for  marketing 

50,000 
communications tool 
50,000 on legal opinions 

30,000 for production  
35,000 for translation 

20,000 for production  
10,000 for translation 

EUR 673,900 

17 

2 

1 

1 

5 

304 

 
 
 
 
 
 
Evidence of the adverse impacts of administrative barriers on cross-border funds can also be 
found by comparing the costs of cross-border vs single-country funds. For example, a report 
by  the  Investment  Company  Institute482  shows  that  in  2022  the  fixed  costs  of  cross-border 
funds,  measured  as  a  percentage  of  the  fund’s  size,  were  8.2%  higher  than  those  of  single-
country funds: when applied to the average size of an equity cross-border fund of EUR 504 
million, this results in an average extra cost of EUR 400,000 per cross-border fund per year.  

The  lack  of  supervisory  convergence  and  digital  interoperability  further  exacerbates  these 
burdens. As  of  2024,  only  a  limited  number  of  NCAs  offer  end-to-end  digital  submission 
systems, and the absence of a unified passporting database means fund managers must often 
duplicate filings and notifications.  

5.  POLICY OPTIONS  

5.1.  POLICY OPTIONS FOR INVESTMENT FUNDS  

This  chapter  sets  out  and  assesses  policy  options  linked  to  the  problem  drivers,  covering 
authorisation  and  notification,  marketing,  and  administrative  requirements,  with  the  aim  of 
increasing  harmonisation  and  transparency  to  improve  single  market  access  and  ultimately 
deliver benefits to EU investors.  

5.1.1.  Baseline/Status quo 

This  option  introduces  no  amendments  to  the  asset  management  framework.  It  is  the  ‘do-
nothing’ option against which the other policy options will be assessed. 

5.1.2.  Comprehensive review to enhance the functioning of investment funds  

This option introduces targeted but ambitious measures to re-organise the marketing of UCITS 
and AIFs in the single market, harmonise and streamline rules (e.g. relating to disclosures in 
fund  materials),  reduce  time,  costs,  and  documentation  for  fund  marketing,  thereby  easing 
single market access, lowering investment costs, and expanding choices for EU investors. 

a)  Standardise authorisation and notification procedures  

This option would entail new proposals relating to the current fund authorisation and marketing 
notification  and  de-notification  rules  for  funds  operating  under  the  UCITS  and  AIFMD 
frameworks.  The  proposals  will  necessitate  amendments  to  the  UCITSD, AIFMD,  and  the 
CBDR. In particular, the new proposal for passporting upon authorisation seeks to dramatically 
reduce  the  current  time  and  administration  involved  for  UCITS  funds  and  certain  AIFs 
accessing  host  Member  States.  It  also  aims  to  increase  harmonisation  in  marketing 
requirements and notifications by importing the provisions on the marketing of UCITS and EU 
AIFs managed by EU AIFMs to CBDR.  

Specifically, these proposals will: 

1.  Harmonise  authorisation  procedures  and  timelines  to  bring  more  predictability  and 
transparency to the authorisation processes, enabling pan-European managers to better plan 
a  European  strategy,  thereby  reducing  costs  through  efficiencies  and  potentially 

482 ICI research perspective: Ongoing Charges for UCITS in the European Union, 2022 (2023). 

305 

 
 
 
 
 
encouraging  access  to  more  Member  States  and  to  better  serve  EU  investors.  For  pan-
European managers, predictability regarding the timing of authorisations and other aspects 
of the process in the EU is essential. Areas to be harmonised cover: 

(i)  UCITS fund authorisations, to cover inter alia the information to be submitted 

(ii) 
(iii) 

as part of the fund authorisation application; 
subsequent notification of changes in the scope of the initial authorisation; and 
the timelines that managers can expect to experience for the above, subject to 
complete information being submitted.  

2.  To improve timeliness and broaden access to the single market, a new regime would be 
introduced  to  allow  immediate  single  market  access  for  UCITS  upon  authorisation 
(“passporting  upon  authorisation”).  Under  this  regime,  UCITS  funds  would  have 
immediate access on authorisation to their chosen Member States. Operationally, the home 
NCA would liaise with ESMA and the relevant host NCAs through an ESMA data platform, 
ensuring that information on fund authorisations and related documentation is shared in a 
harmonised and transparent manner. From the date of authorisation, UCITS would be able 
to  market  in  all  designated  Member  States  without  additional  notifications.  The  same 
simplified procedure would  also  apply  to  authorised AIFMs  seeking  to  market  the AIFs 
they manage on a cross-border basis. The aim is to reduce time, costs and administrative 
burdens  for  UCITS, AIFMs  and  NCAs  by  replacing  the  current  fragmented  system  of 
bilateral notifications with a streamlined and centralised process and common rules.  

3.  Improve  time  to  market  and  reduce  administrative  burden  by  introducing  a  simplified 
procedure  for  the  notification  of  material  changes  to  marketing  notifications  and  fund 
documents by reducing the current one-month notice period to 15 business days. Material 
changes  will  be  shared  swiftly  with  host  NCAs  and  ESMA  through  the  ESMA  data 
platform.  

4.  Improve time to market, reduce administrative burdens and improve investor experience, 
by  removing  the  requirement  for  one-month  notification  of  new  share  classes  in  the 
UCITSD.  The notification requirement does not add value as investors must receive pre-
contractual registration documents before investing regardless of registration. According to 
a  large  European  funds  industry  association,  this  requirement  impacts  the  timeline  for 
revenue  earning  for  managers  (e.g.  USD  100m  investment  at  15bps;  one  month  of  not 
earning revenue will cost the business USD 12,500 over that month). 

5.  Improve  procedures  and  timelines  for  the  de-notification  of  funds,  which  should  be 
processed by the home NCA and transmitted to the relevant host Member States and ESMA 
through the ESMA data platform within five working days. This will trigger more timely 
and  accurate  updates  to  ESMA’s  register,  making  it  clear  where  funds  are  no  longer 
marketed, bringing certainty to this area. Specifically on de-notifications relating to AIFs, 
under this option, the 36-month pre-marketing ban contained in Article 32a(3) of AIFMD 
would  be  repealed.  The  pre-marketing  ban  has  the  following  negative  impacts:  (i) 
additional  cost  to  investors,  if  the AIFM  has  no  mechanism  by  which  to  test  investor 
appetite  other  than  by  registering  the  fund  under  marketing  in  the  EU;  (ii)  barrier  to 
investment opportunities for investors, if the AIFM is disincentivised from registering for 
marketing and distortion in demand for similar strategy products; (iii) barrier to investment 
capital in EU investee companies, resulting in slower European economic growth; and (iv) 
increased bureaucracy, and administrative and compliance costs for the AIFM. AIFMs need 
to adjust internal processes and systems to ensure that (a) a new offer is not inadvertently 

306 

 
 
 
 
 
 
 
made to investors in the relevant Member State in respect of an AIF which has been de-
notified,  and  (b)  an AIF  with  "similar  investment  strategies  or  investment  ideas"  is  not 
subsequently pre-marketed in that Member State. This measure will result in substantial 
costs savings as illustrated by the below example provided by a fund association of behalf 
of a large AIFM: 

Taking an example of an AIF with a 10-year lifespan marketing in 10 EU jurisdictions, 
this could  incur approximately EUR 210,00 per AIF in  fees payable for  registration 
outside of the fundraising period. Where a manager has a single vintage of a full range 
of AIFs (18 different AIFs across various strategies, including master/feeder and sleeve 
structures), this could amount to EUR 3,780,000. 

b)  Harmonise and enhance marketing rules  

Streamlining some of the current marketing rules and regimes at EU and national level would 
involve  repealing  some  EU  provisions  and  addressing  national  frameworks.  A  more 
harmonised framework would promote access for funds to enter more markets and improve 
time to market. The CBD framework covers different aspects of marketing, including bringing 
more  transparency  on  national  frameworks.  However,  such  national  frameworks  inhibit 
investment funds from being marketed in a seamless way in the single market, thus impacting 
the experience for the end-user, i.e. EU investors.  

This  option  would  entail  various  revisions,  as  well  as  new  proposals  relating  to  the  current 
marketing rules and regimes for funds operating under the UCITS and AIFMD frameworks.  
The proposals to introduce enhancements will necessitate amendments to the CBDR.  

Specifically, these measures would: 

1.  Replace  Article  7  of  the  CBDR  concerning  ex-ante  verification  of  marketing 
communications. This provision allows Member States/NCAs to require prior notification 
of marketing communications which AIFMs/ UCITS management companies intend to use 
directly or indirectly in their dealings with investors. This provision impacts time to market 
and has very little added value considering that UCITS and AIFMs are authorised products. 
In addition, the NCA from only one jurisdiction (Belgium) carries out systematic ex-ante 
verifications  of  marketing  communications.483  It  is  therefore  proposed  to  replace  this 
optionality with the possibility for NCAs to verify  marketing communications ex post and 
to request home competent authorities to take action, where they have reasonable grounds 
to suspect that marketing communications do not comply with the requirements of CBDR. 
ESMA’s  powers  to  address  cross-border  barriers  would  allow  home  and  host  NCAs  to 
exchange  views  and  reach  consensus  where  issues  on  marketing  communications  arise. 
Where necessary, ESMA could also exercise binding mediation powers. Convergence in 
this area allows for the use of a single marketing communication package across the single 
market.  

2.  Remove Member States’ discretion as regards national laws, regulations and administrative 
provisions  governing  the  marketing  requirements  for  UCITS  and AIFs  concerning  the 
format and content of marketing material.  It is proposed to introduce an empowerment for 

483 ESMA report on Marketing requirements and marketing communications under the Regulation on cross-border 
distribution of funds, 3 July 2023, at page 8, available here.  

307 

 
 
 
 
 
 
 
 
a  Commission  delegated  act,  specifying  the  content  and  format  of  marketing 
communications.  The  intention  of  these  reforms  would  be  to  have  harmonised,  pan-
European  standards  for  marketing  materials,  whilst  preventing  Member  States  from 
imposing additional elements and requirements, thereby reducing administrative burdens 
and making access to the single market easier. According to a review performed by ESMA, 
NCAs  broadly  apply  the  rules  on  marketing  materials  stemming  from  the AIFMD  and 
UCITS  Directive,  including  the  provisions  introduced  by  the  CBD  framework  and  the 
ESMA Guidelines.  However, it is reported that the NCAs from two jurisdictions (Bulgaria 
and  Ireland)  apply  additional  requirements  on  the  content,  format  and  manner  of 
presentation  of  marketing  communications, 
including  compulsory  warnings  and 
restrictions on the use of certain words or phrases.484  

3.  Address divergences in Member State rules concerning disclosures in fund documentation 
(e.g.  country-specific  disclosures  in  the  prospectus  or  supplements)  by  harmonising  the 
existing requirements in the UCITSD and AIFMD on disclosures in fund documentation 
(i.e. the content of the prospectus and annual and half-yearly reports), resulting in a truly 
pan-European framework for disclosures in fund documentation.    

4.  Harmonise marketing communication rules and reduce national divergences, by repealing 

the following provisions of the CBDR: 

•  Article 5 – Publication of national provisions concerning marketing 

communications;  

•  Article 6 – ESMA central database on national provisions concerning marketing 

requirements; and 

•  Article 8 – ESMA report on marketing communications.  

c)  Strengthen provisions to prohibit host Member States from requiring the 

appointment of local physical agents, streamline regulatory fees information 
and translation requirements  

On physical local presence regimes, Article 92(2) UCITSD provides that Member States shall 
not require a UCITS to have a physical presence in the host Member State or to appoint a third 
party for the purposes of undertaking various activities relating to the fund, such as processing 
subscription, repurchase and redemption orders, making information and documents available 
to  investors  and  acting  as  a  contact  point  for  communicating  with  the  NCAs.  A  similar 
requirement exists for AIFs  that are marketed to  retail  investors under Article 43a(2) of the 
AIFMD.  

Under this option, it is proposed to strengthen the UCITSD and AIFMD rules to solidify this 
provision so that host Member States and NCAs no longer require a local presence, through 
any means, such as law, handbooks, market practice or otherwise and under all circumstances, 
not only those currently listed in the above-mentioned Articles.  

On  regulatory  fees,  Article  10  CBDR  requires  host  competent  authorities  to  publish  and 
maintain up-to-date information on their websites listing the fees or charges that they levy on 
UCITS and AIFs that are marketed in their territory. Under this option, it is proposed remove 

484 ESMA report on Marketing requirements and marketing communications under the Regulation on cross-border 
distribution of funds, 3 July 2023, at page 7, available here: ESMA34-45-1814 - 2023 Report to EU Institutions 
on national rules governing marketing requirements  

308 

 
 
 
 
 
 
 
this obligation and instead introduce an obligation for NCAs to communicate information on 
the applicable fees and charges, their frequency and the modalities of their payment to ESMA, 
which should in turn publish this information on its website. NCAs can still choose to publish 
the information on their own website, but it is only the information on ESMA’s website that 
should be relied on, the rationale being that the ESMA resource should be a “one stop shop” 
for funds operating in the single market. This streamlined approach should dramatically reduce 
costs  on  funds/managers  associated  with  the  administration  burden  of  keeping  track  of  all 
annual fees and the time they are due (see Case Study 2 and Case Study 3 in Section 4.1 on 
costs). In addition, ESMA would be tasked with conducting a review of the NCA regulatory 
fees and charges in relation to the activities of AIFs and UCITS marketed in their territory and 
shall submit a report to the Commission indicating whether such fees or charges are consistent 
with the overall cost relating to the performance of the functions of those competent authorities 

On translation requirements, fragmented national rules prevent the use of a single marketing 
communication package across the single market and increase the administrative burden for 
managers wishing to follow a pan-European strategy. Under this option, it is proposed to limit 
translation requirements to the key investor information referred to in Article 78 UCITSD and 
the  key  information  document  referred  to  in  Article  82a  UCITSD,  while  all  remaining 
documentation  should  be  provided  at  least  in  a  language  customary  in  the  sphere  of 
international finance. The ESMA data platform should allow for the automatic translation of 
all documentation accompanying marketing notifications in any official language of the Union.  

5.2.  POLICY OPTIONS FOR DEPOSITARIES 

5.2.1.  Baseline/Status quo 

In  the  absence  of  any  policy  action,  the  baseline  scenario  applies. The  current AIFMD  and 
UCITS frameworks on the provision of depositary services would remain unchanged, leaving 
existing challenges unresolved. For instance, economic research485 concluded that despite the 
CBDR  that  aimed  to  drive  convergence  or  complete  removal  of  local  requirements  that 
Member  States  impose  on  cross-border  funds,  some EU  Member  States  have  sought  to 
maintain or even strengthen their requirements. 

5.2.2.  Comprehensive review:  EU-depositary passport 

This option would introduce an additional building block to the internal market by creating an 
EU-level depositary passport, complementing the existing AIFM management and marketing 
passports. Considering that most depositaries are credit institutions or investment firms, the 
EU-level  depositary  passport  would  build  on  the  passport  that  already  exists  for  those 
institutions under Directive 2013/36/EU and Directive 2014/65/EU. Limiting the passport to 
such  entities  would  also  be  more  optimal  from  a  financial  stability  and  investor  protection 
perspective,  as  they  are  already  subject  to  harmonised  EU-level  authorisation,  prudential 
requirements, and supervision, ensuring consistent safeguards across Member States. 

485 Investment Company Institute (ICI), Cross-Border Frictions Within EU Capital Markets Can Drive Up Costs, 
June 2023, available here: Cross-Border Frictions Within EU Capital Markets Can Drive Up Costs | Investment 
Company Institute  

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A  depositary  passport  would  enable  AIFMs  and  UCITS  to  appoint  a  depositary  located 
anywhere within the EU, while allowing depositaries to offer their services on a cross-border 
basis.  In  practice,  this  would  remove  the  current  restriction  requiring  the  depositary  to  be 
established in the same Member State as the fund, thereby facilitating cross-border access to 
depositary services.  

5.3.  POLICY OPTIONS FOR ASSET MANAGERS 

5.3.1.  Baseline/Status quo 

Under the baseline scenario, divergent national practices in the authorisation and operations of 
AIFMs and UCITS management companies, as well as national discretions would persist. Asset 
managers  and  asset  management  groups  operating  across  several  Member  States  would 
continue to  face duplicative and inconsistent  requirements, such as differing  documentation 
standards, and procedural variations.  

5.3.2.  Comprehensive review: Standardise the authorisation process, streamline 
organisational and delegation requirements for asset management groups 
and eliminate national divergences for asset managers 

a)  Policy options for asset management groups 

Option 2 would necessitate to define the notion of the EU group of a management company or 
AIFM  for  the  purposes  of  UCITS/AIFMD,  building  on  the  existing  acquis  with  possible 
adaptations  where  required.  Said  notion  would  comprise  all  management  companies  and 
AIFMs,  as  well  as  investment  firms  and  credit  institutions  that  are  duly  authorised  under 
Directive 2013/36/EU  and Directive 2014/65/EU, respectively. All  entities within the group 
should be established in the EU and controlled by the same parent.  Option 2 would further 
allow EU-based management companies and AIFMs that form part of a group to be able to 
utilise the human and technical resources of other entities within the group in order to conduct 
their  business.  This  option  would  require  an  amendment  to Article  7(1)  UCITSD  and  7(2) 
AIFMD to clarify that an EU management company within a group will be able to rely on the 
human and technical resources of other entities within the group to  conduct its business. In 
those cases, the management should specify in its application for authorisation the human and 
technical resources that are utilised for this purpose within the group.  

National  competent  authorities  should  neither  prohibit  nor  discourage  such  intra-group 
resource sharing. Instead, they should recognise and actively facilitate the consolidation and 
optimisation of group-wide resources if so wished, provided that robust governance and risk 
management arrangements are in place. 

In addition, Option 2 would amend the delegation provisions in the AIFMD (Article 20) and 
UCITSD  (Article  13)  to  exclude  intra-group  delegation  arrangements  (i.e.  specifically,  the 
mutualisation  of  functions  between  entities  within  the  same  EU  group)  from  the  scope  of 
delegation rules. This would apply to all groups independently of their size.486 Such amendment 
would  clarify  that  the  transfer  of  functions  between  management  companies,  AIFMs, 

486  See  Sectoral  Annex  11  on  supervision  as  regards  suggested  enhanced  supervisory  arrangements  for  large 
groups, intended to facilitate the supervision in case of such arrangements for such groups.   

310 

 
 
 
 
 
 
investment  firms  and  credit  institutions  within  the  same  EU  group  should  not  qualify  as 
delegation  within  the  meaning  of Article  20 AIFMD  and Article  13  UCITSD. Accordingly, 
these intra-group arrangements would no longer be subject to the full set of delegation-related 
compliance requirements, with the exception of the obligation to inform the national competent 
authorities of the delegation arrangement, alleviating unnecessary administrative burdens while 
preserving  high  supervisory  standards.  However,  management  companies  and AIFMs  will 
remain fully liable for any functions or services carried out by other entities within their EU 
group and should ensure that reliance on such entities does not render them mere letter-box 
entities. 

To ensure legal certainty, enhance the competitiveness of the EU asset management sector and 
strengthen  the  EU’s  open  strategic  autonomy  in  financial  services,  Option  2  would  apply 
exclusively  to  delegation  arrangements  between  entities  within  the  same  group  that  are 
established in the Union. Limiting this option to EU-based regulated firms would ensure that 
all entities within the same group operate under a common legal, regulatory, and supervisory 
framework, which is essential for maintaining a high level of investor protection and effective 
oversight. EU management companies are subject to harmonised rules under the AIFMD and 
UCITSD,  as  well  as  to  supervision  by  national  competent  authorities  within  the  European 
System of Financial Supervision. Similarly, investment firms and credit institutions are duly 
authorised  and  supervised  in  the  Union  and  are  subject  to  prudential  and  organisation 
requirements.  This  shared  regulatory  environment  facilitates  mutual  trust  and  consistent 
supervisory practices.  

b)  Policy options to remove barriers arising from national divergences 

First,  Option  2  seeks  to  harmonise  authorisation  requirements  by  clearly  defining  the 
information that management companies and AIFMs must submit as part of the authorisation 
process. This would ensure that all applicants are subject to consistent regulatory expectations 
and reporting standards across the EU. With a view to eliminating national divergences and 
ensuring consistent harmonisation of the authorisation process across the EU, this option would 
require ESMA to develop Regulatory Technical Standards specifying the information that must 
be submitted to competent authorities as part of an authorisation application. In parallel, ESMA 
would  also  be  empowered  to  develop  Implementing  Technical  Standards  to  define  the 
standardised format, templates, and procedures for submitting such information. 

Second, Option 2 proposes amending the UCITSD and AIFMD to remove the provisions that 
allow Member States to interpret, supplement, or derogate from core rules and which impose 
barriers to the development of the single market. Instead, the Directives would be revised to 
provide  fully  harmonised  requirements  that  all  UCITS  management  companies  and AIFMs 
must follow across the EU, irrespective of where they are established or operate. In particular, 
Option 2 would entail the replacement of optional provisions such as those allowing Member 
States to authorise additional services (e.g. Article 6(3) UCITSD and Article 6(4) AIFMD) with 
uniform  rules  defining  the  permissible  scope  of  services.  It  would  also  seek  to  establish 
harmonised EU rules on investment and diversification limits for UCITS, removing Member 
States’ discretion to raise or lower those limits (Article 51-57 UCITSD). In addition, this option 
aims  to  standardise  rules  for  depositaries,  eliminating  Member  State  discretion  to  allow 
alternative depositary models.  

Moreover, Option 2 proposes to align reporting and disclosure standards, ensuring that periodic 
reporting  (e.g. Article  21  UCITSD  and Article  22 AIFMD)  and  prospectus  disclosures  are 
consistent across Member States, and have the same exemptions or transitional periods, such 

311 

 
 
 
 
as  the  6-month  derogation  for  newly  authorised  UCITS  to  comply  with  certain  UCITS 
requirements (Article 57(1) UCITSD). 

Finally, Option  2 proposes to  further harmonised conduct  and prudential  rules, by allowing 
ESMA to develop guidelines, so that each management company and AIFM would be subject 
to the same risk management, organisational, and conduct-of-business obligations regardless 
of their home jurisdiction. 

5.3.3.  Extensive review: Group level authorisation of asset managers  

This option would entail a fundamental overhaul of the current authorisation regime for asset 
manager groups under the AIFMD and UCITS frameworks. Specifically, it would introduce a 
group-level authorisation mechanism whereby, in cases where asset managers operate as part 
of  a  group,  a  single  authorisation  would  be  granted  to  the  parent  undertaking  of  the  group. 
Under this option, organisational and prudential requirements (own funds, full-time employees, 
human and technical resources etc.) will no longer be assessed at the level of each individual 
management company but will be consolidated and assessed at the level of the group.   

The  competent  authority  of  the  parent  entity  would  be  responsible  for  granting  this 
authorisation and would be in charge of supervising all companies within the group. National 
competent authorities in other Member States where the group operates will no longer have 
supervisory powers over the companies within the group that operate in their territory but could 
have the right to regularly receive information from the NCAs of the parent company of the 
group on group operations and to inform those national competent authorities where they have 
grounds to believe that the subsidiaries of the group in their jurisdictions act contrary to the EU 
acquis. Once authorised at group level, the home NCA would notify the competent authorities 
of all Member States in which the group operates through subsidiaries. This would allow all 
EU-based management companies within the group to  carry out  activities  across the Union 
based on this single authorisation, significantly reducing regulatory duplication for each group. 
Where this is not already the case, EU financial conglomerates would have to designate a parent 
for the asset management part of a conglomerate. Similarly, third country conglomerates or 
standalone asset management groups would also have to designate an EU parent. The parent 
would also need to effectively control all subsidiaries and branches for the purposes of this 
framework.  

This  option would not  affect  asset managers operating as stand-alone entities, which would 
continue to be authorised individually under existing national procedures. 

This option would require an amendment to AIFMD and UCITSD to introduce a group level 
authorisation by the NCA of the parent company or another designated entity within the group. 
Similarly  to  Option  2,  this  option  would  also  necessitate  clarifying  what  is  an  “asset 
management group” for the purposes of UCITS/AIFMD. Existing mechanisms for interaction 
with other legal frameworks would be maintained but attached to the group level. In addition, 
this  option  may  affect  all  investment  funds,  as  the  designated  asset  manager  (or AIFM  or 
UCITS management company), which is responsible for managing the fund, would need to be 
replaced  in  all  fund  documentation  to  reflect  the  new  functioning  of  the  asset  management 
framework.  

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5.4.  POLICY OPTIONS FOR OTHER BARRIERS TO THE GROWTH OF THE INVESTMENT FUND 

SECTOR 

5.4.1.  Baseline/ Status quo 

Under  the  baseline  scenario,  the  current  UCITS  framework  would  remain  unchanged.  The 
existing investment and diversification limits would continue to apply, including the 10% cap 
on debt securities issued by a single body under Article 56(2)(b), which also covers investments 
in  securitisations,  and  the  5/10/40  issuer  concentration  rule  under  Article  52.  The  higher 
thresholds  of  20%  and  35%  for  index-tracking  UCITS  under Article  53  would  also  remain 
limited to passive funds. No exemptions or adjustments would be introduced for securitisations 
or for actively managed funds seeking to replicate or outperform indices. 

5.4.2.  Comprehensive review: UCITS investment limits 

Under Option 2, the UCITSD would be amended to allow greater flexibility in specific cases.  

The current 10% cap on debt securities under Article 56(2)(b) UCITSD would be increased to 
15% only for UCITS investing in securitisations recognising their distinct characteristics and 
regulatory  safeguards.  During  the  consultation,  some  large  asset  managers  and  professional 
associations advocated for removing the limit entirely or raising it to 50%, citing the inherently 
diversified nature of securitisations. At the same time, several smaller asset managers noted 
that their current allocations to securitisations are well below the existing 10% threshold. A few 
stakeholders  (notably  NCAs)  also  highlighted  potential  financial  stability  and  investor 
protection risks arising from excessive exposure to securitisations, stressing that UCITS is a 
retail product primarily targeted at retail investors. Given that diversification and investment 
limits  are  a  fundamental  principle  of  the  UCITS  framework,  designed  to  ensure  investor 
protection and financial stability, a more moderate adjustment is warranted. Increasing the limit 
to  15%  strikes  a  sensible  balance:  it  reflects  the  consultation  feedback,  acknowledges  the 
current  market  practices,  and  allows  UCITS  greater  flexibility  to  invest  in  securitisations 
without undermining the core principles of risk-spreading and investor protection.  

In addition, the 20% issuer limit currently applicable to index-tracking UCITS under Article 
53 UCITSD would also be extended to UCITS that are managed by reference to an index that 
is be recognised by ESMA. ESMA would establish and regularly update a list of recognised 
indices, providing clarity and ensuring consistency across the EU. 

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6.  IMPACT OF POLICY OPTIONS 

6.1.  IMPACT OF THE POLICY OPTIONS REGARDING INVESTMENT FUNDS  

6.1.1.  Baseline/Status quo 

PROS: 

An  advantage  of  “doing  nothing”  would  mean  that  stakeholders  and  NCAs  do  not  have  to 
consider any changes to their current operating and compliance frameworks and can continue 
operating in the existing environment in the same manner. 

CONS: 

Conversely,  the  disadvantage  of  “doing  nothing”  would  be  that  stakeholders’  continue 
operating in an environment which is not conducive to a “single market” for investment funds.  
Asset managers will continue to have to manage barriers and inconsistencies in operating in 
different Member States.  This exiting environment will continue to have a detrimental impact 
on the end user, i.e. EU investors, in terms of lack of choice and competition and unnecessary 
costs.  

Option  1  did  not  receive  support  during  the  targeted  public  consultation.  A  majority  of 
stakeholders, including industry representatives, supported improvements in this regard. 

6.1.2.  Comprehensive review to enhance the functioning of investment funds 

PROS: 

First, Option 2 directly addresses shortcomings, recognised by the Commission services and 
reported  by  stakeholders,  in  the  current  regulatory  framework  by  introducing  explicit 
provisions to harmonise and improve time and access for funds entering the single market, as 
well as repealing unnecessary provisions that hinder market access. These enhancements will 
address the current fragmented nature for UCITS and AIFs accessing EU markets outside their 
home  Member  State.  Moreover,  importing  marketing  rules  from AIFMD  and  UCITSD  into 
CBDR would achieve greater harmonisation and eliminate diverging national interpretations 
in that area.  

Second, standardising and simplifying the procedures and timelines for the fund authorisation, 
marketing  notification  and  de-notification  procedures  will  bring  more  predictability  and 
transparency  around  these  processes,  supporting  consistency,  convergence  and  enabling 
stakeholders to have clear expectations and be better placed to plan. This will save time and 
costs, which will ultimately benefit EU investors. 

Third, the development of a data platform that would allow NCAs to share information and 
documentation on the cross-border marketing of UCITS and AIFs would simplify and expedite 
the marketing procedure, facilitate market access and increase transparency and cooperation 
among NCAs.  

Fourth,  Option  2  will  improve  time  to  market,  reduce  administrative  burdens  and  improve 
investor  experience,  by  removing  the  requirement  for  one-month  notification  of  new  share 

314 

 
 
 
classes in the UCITSD. The current notification requirement does not add value as investors 
must receive pre-contractual registration documents before investing regardless of registration.  

Fifth, standardising the framework for marketing communications, in particular under CBDR 
will  bring  more  predictability  and  transparency,  supporting  consistency,  convergence  and 
enabling stakeholders to have clear expectations and be better placed to plan. This will save 
time and costs, which will ultimately benefit EU investors.   

Sixth, Option 2 would greatly reduce unnecessary complexity and burdensome requirements 
(and associated costs) for funds and fund managers, as they would have more certainty that a 
local physical agent is no longer needed or required in host Member States. It will remove the 
uncertainty brought about in some host Member States, where the market practice is to appoint 
a local agent in all circumstances. Fund managers would have less need to obtain legal advice 
to understand national requirements for funds accessing the single market.  

CONS:  

Implementing Option 2 would necessitate a comprehensive review of the current authorisation 
timelines and procedures, as well as assessing what is considered material and non-material 
changes.  

Finally,  strengthening  the  requirement  against  physical  presence  in  the  host  Member  State 
might be perceived as affecting negatively the effectiveness of investor protection, whereby 
investors will not know where or how to access relevant fund information, particularly in their 
own  language.  However,  the  language  requirement  for  investor  communication  will  be 
maintained, in view of digitalisation, this requirement anyhow is inefficient and outdated, and 
investors will continue to have the choice to opt for an asset manager with physical presence 
in their jurisdiction.    

6.1.3.  Comparison of the options 

Effectiveness  Efficiency  Coherence 

Overall 
score 

- 

Option 1 Baseline scenario  
Option 2  
Comprehensive review 
regarding investment funds 
authorisation and marketing 
Legend: +++ = very positive ++ = positive + = slightly positive +/- = mixed effect 0 = no effect  
 - = slightly negative -- = negative --- = very negative  

+++  

++  

++  

++  

- 

- 

- 

6.1.4.  Preferred option  

Option 2 is the preferred option because it directly addresses recognized shortcomings in the 
cross-border operations of investment funds in a targeted manner by harmonising procedures 
for fund authorisation, marketing notification and de-notification procedures across the EU. It 
removes unnecessary provisions that hinder cross-border market access, standardises timelines 
and establishes a common data platform for the sharing of marketing notifications, resulting in 
greater predictability, transparency, and convergence for both UCITS and AIFs. These changes 
would reduce administrative burdens, simplify regulatory obligations and save time and costs 
for  funds  and  fund  managers,  while  facilitating  a  faster  access  to  the  single  market  for 
investment funds. 

315 

 
 
 
  
 
Additionally, Option 2 would improve the single market environment by removing the need 
for local  agents  in  host jurisdictions. This  would simplify administration, lower compliance 
costs and encourage fund managers to market in more Member States, increasing competition 
and investment choices for EU investors.  

6.2.  IMPACT OF THE POLICY OPTIONS REGARDING DEPOSITARY SERVICES 

6.2.1.  Baseline/Status quo 

PROS: 

An advantage of “doing nothing” would mean that fund managers would not have to consider 
any  changes  to  their  current  frameworks  on  the  provision  of  depositary  services  and  could 
continue operating in the existing environment in the same manner. 

CONS: 

First,  under  Option  1,  the  recent  targeted  amendment  of  AIFMD  allowing  cross-border 
depositary appointments would have limited positive effects, as the EUR 50 billion threshold 
restricts  its  use  to  only  a  few  Member  States,  with  others  likely  to  lose  eligibility  as  their 
markets grow. Second, national authorities would retain broad discretion to refuse cross-border 
appointments  even  where  conditions  are  met,  perpetuating  fragmentation  and  uncertainty. 
Smaller  markets  with  few  depositary  providers  would  therefore  continue  to  face  structural 
difficulties, discouraging the establishment of AIFs in those jurisdictions. 

Third, maintaining  the status  quo would imply  that for  UCITS the historical  prohibition  on 
appointing a depositary in another Member State would sustain high concentration and limited 
competition in smaller markets, resulting in higher costs, lower service quality, and operational 
risks from over-reliance on a small number of providers. Investors would ultimately bear these 
costs, while fund promoters would be discouraged from setting up UCITS in Member States 
with underdeveloped depositary markets.  

Overall, Option 1 would preserve market fragmentation, reinforce geographic imbalances, 
and undermine the creation of a more integrated and competitive single market for funds. 

6.2.2.  Comprehensive review: EU-depositary passport 

PROS:  

Option  2  would  allow  the  cross-border  provision  of  depositary  services  across  all  Member 
States. It aligns with the principles of the internal single market and would be the most effective 
way to enhance competition in the depositary sector.  

A depositary passport would promote integration of EU financial markets and strengthen the 
cross-border  provision  of  depositary  services.  At  the  same  time,  it  would  foster  greater 
competition among depositaries and improve the quality and cost of depositary services which, 
according to  some stakeholders (asset managers  and NCAs from  Member States with  more 
concentrated depositary markets), are prohibitive in some smaller Member States. Moreover, a 
depositary passport would help jurisdictions with limited local depositary capacity by widening 
access to services and addressing supply shortages. This, in turn, would support the growth of 
their  investment  fund  markets,  which  are  often  constrained  by  the  scarcity  of  depositary 
providers, ultimately benefiting fund investors across the EU. 

316 

 
 
 
CONS:  

This  option  is  not  supported  by  the  majority  of  stakeholders  (asset  managers,  business 
associations and NCAs), who argue against the need for an EU-wide depositary passport and 
emphasise the risks and operational complexities of having depositaries and funds supervised 
by different national authorities. The idea of a depositary passport was already examined during 
the recent review of the AIFMD and UCITS frameworks, where it met with strong resistance 
from both Member States and stakeholders. Feedback to the current consultation confirms that 
these positions have not changed, with stakeholders continuing to oppose the introduction of 
such a passport. 

6.2.3.  Comparison of the options 

Option 1 Baseline scenario  

- 

- 

- 

- 

Effectiveness  Efficiency  Coherence  Overall score 

Option 2  
Comprehensive review  
Legend: +++ = very positive ++ = positive + = slightly positive +/- = mixed effect 0 = no effect  
 - = slightly negative -- = negative --- = very negative  

+++ 

+++ 

++ 

+ 

6.2.4.  Preferred Option  

Option 2 would be the preferred option as it delivers a fully integrated internal market solution 
and directly addresses the structural fragmentation of the EU depositary market. Unlike more 
limited  measures,  a  full  depositary  passport  would  create  a  coherent  EU-wide  framework, 
complementing  the  existing  UCITS  and  AIFM  management  and  marketing  passports  and 
ensuring  consistency  across  fund  regulation.  By  allowing  fund  managers  to  appoint  a 
depositary  located  anywhere  in  the  Union,  this  option  removes  national  barriers,  enhances 
competition,  and  encourages  greater  efficiency  in  the  provision  of  depositary  services. 
Increased  competition  is  expected  to  lower  costs  for  fund  managers  and,  ultimately,  for 
investors, while also incentivising improvements in service quality. 

From  a  policy  perspective,  Option  2  supports  the  SIU  by  removing  one  of  the  remaining 
barriers to an integrated invest funds marker. Importantly, the passport would build on existing 
EU-level  authorisations  and  prudential  rules  for  credit  institutions  and  investment  firms, 
ensuring high standards of investor protection and supervisory consistency. In this way, Option 
2  represents  a  proportionate  and  future-proof  response  to  the  shortcomings  of  the  current 
system, offering clear benefits for both fund managers and investors across the Union. 

6.3.  IMPACT OF THE POLICY OPTIONS REGARDING ASSET MANAGERS 

6.3.1.  Baseline/Status quo 

PROS:  

An advantage of “doing nothing” would mean that fund managers would not have to consider 
any changes to their current frameworks on the operations of asset managers and their groups 
and could continue operating in the existing environment in the same manner. Option 1 will 
not disturb the current well-established national supervisory and regulatory practices and will 

317 

 
 
 
  
 
not  require  management  companies  and AIFMs  to  adapt  their  organisational  structures  and 
portfolios to a new set of requirements. 

Moreover,  retaining  the  current  system  preserves  the  flexibility  of  Member  States  to  adapt 
regulatory requirements to their specific market structures, supervisory traditions, and investor 
profiles.  This  flexibility  can  be  useful  in  ensuring  that  rules  are  proportionate  to  national 
conditions, allowing national competent authorities to respond to local market risks. However, 
such  flexibility  creates  barriers  to  the  cross-border  operations  of  asset  managers  and  to  the 
development of an integrated market for investment funds.  

CONS: 

First, under Option 1, divergent national practices in the authorisation and operations of AIFMs 
and  UCITS  management  companies  would  persist.  This  Option  would  perpetuate  the 
fragmentation  of  supervisory  and  regulatory  practices  across  Member  States.  This  would 
maintain  high  administrative  costs,  prolong  authorisation  timelines,  and  discourage  cross-
border activity, ultimately reinforcing market fragmentation and limiting the competitiveness 
of EU asset managers. 

Second,  asset  management  groups  would  continue  to  face  duplicative  and  inconsistent 
requirements  and  intra-group  delegation  would  remain  subject  to  the  same  requirements  as 
third-party delegation, creating inefficiencies and disproportionate compliance burdens.  

Third,  noting  the  EU’s  broader  objectives  to  advance  the  SIU,  a  policy  option  to  retain  the 
current regime would represent a missed opportunity to reduce barriers to market integration, 
streamline regulatory oversight, and enhance investor confidence across the EU. 

6.3.2.  Comprehensive review: Standardise the authorisation process, streamline 
organisational and delegation requirements for asset management groups 
and eliminate national divergences for asset managers 

PROS:  

First,  Option  2 would alleviate some of the operational  and financial burden that groups of 
management companies currently face. Permitting the sharing of resources would contribute 
to avoiding unnecessary duplication of resources across different entities within the group and 
would allow the efficient centralisation of resources, such as IT systems, compliance teams, 
risk  management  functions,  or  administrative  staff.  Recognising  the  concept  of  an  asset 
management  group  would  also  enhance  the  effectiveness  of  supervisory  oversight  of  such 
entities, as further detailed in the Annex on supervision. 

Second,  as  regards  delegation,  Option  2  would  substantially  reduce  the  burden  asset 
management groups, as  it will remove the need  to  establish and maintain distinct resources 
dedicated solely to the oversight and monitoring of delegated activities carried out by another 
group  entity.  Requiring  duplicative  oversight  structures  for  intragroup  arrangements  creates 
unnecessary  administrative  complexity  and  costs,  without  enhancing  investor  protection  or 
improving risk management outcomes. Option 2 also enjoyed the support of the majority of 
stakeholders (mainly asset managers and business associations) that responded to the public 
consultation. Third,  by  harmonising  the  content  and  structure  of  authorisation  submissions, 
Option 2 would enhance legal clarity, improve the consistency of assessments across Member 
States, and increase the overall efficiency of the authorisation process, thereby fostering greater 
supervisory convergence. 

318 

 
 
 
Fourth,  eliminating  national  discretions  and  replacing  them  with  harmonised  rules  would 
significantly reduce regulatory fragmentation. This would create a more level playing field for 
UCITS and AIFMs, facilitating cross-border activity and contributing to the creation of a truly 
integrated  internal  market  for  investment  funds.  Harmonisation  would  also  improve  legal 
clarity for fund managers operating across multiple Member States by replacing a patchwork 
of national rules with a single set of EU rules.  

Fifth, better harmonised conduct and prudential rules would help ensure consistent standards 
of investor protection across the EU, regardless of the jurisdiction in which a fund is domiciled 
or marketed. 

CONS:  

First, Option 2 alone would not address the existing divergences in supervisory practices among 
national competent authorities, since supervision would remain fragmented. Each entity within 
the group would continue to fall under the jurisdiction of its respective home NCA, preventing 
a unified supervisory approach. However, other measures are proposed under the SIU proposal 
to give ESMA a stronger operational coordination role over groups of asset managers, with the 
aim  of  increasing  supervisory  cooperation  and  convergence  in  their  oversight  (see  Sectoral 
Annex 11 on supervision). 

Second, Option 2 would be administratively complex and may involve significant transition 
costs for both regulators and fund managers that would be required to abandon well-established 
market  practices  and  national  requirements  and  adapt  their  organisational  and  prudential 
frameworks  as  well  as  the  portfolios  of  the  funds  they  manage  to  the  new  requirements. 
However,  these  transitional  costs  are  expected  to  be  outweighed  by  long-term  cost  savings 
resulting  from  compliance  with  a  single,  harmonised  set  of  rules  rather  than  navigating  27 
different national regimes. 

6.3.3.  Extensive review: Group level authorisation of asset managers 

PROS:  

First, Option 3 directly addresses a significant shortcoming in the current regulatory framework 
by  introducing  explicit  provisions  for  asset  management  groups,  which  are  currently  not 
formally  recognised  nor  subject  to  coordinated  supervision.  By  establishing  a  group-level 
authorisation regime, Option 3 would streamline regulatory oversight, reduce administrative 
and compliance burdens, and promote greater integration of the EU asset management market. 
It  would  eliminate  duplicative  and  potentially  inconsistent  authorisation  processes  across 
Member  States,  allowing  groups  to  consolidate  internal  functions  (e.g.  compliance,  risk 
management, IT systems) and achieve operational efficiencies. Option 3 would also enhance 
supervisory consistency and effectiveness by ensuring that the entire group is overseen by the 
competent authority of the parent entity. This centralised supervision would provide a holistic 
and comprehensive view of the group’s operations, reducing the risk of conflicting supervisory 
practices and improving the quality of oversight across jurisdictions.  

Second, by standardising the information to be provided as part of the authorisation procedure, 
Option  3  would  contribute  to  greater  legal  certainty,  comparability,  and  efficiency  in  the 
authorisation process, while supporting supervisory convergence across Member States.  

CONS:  

First, under Option 3, the authorisation and supervision of the entire asset management group 
would  be  centralised  under  the  competent  authority  of  the  parent  entity  requiring  host 

319 

 
 
 
supervisors to relinquish oversight of local subsidiaries and raising concerns about the loss of 
local insight. It also risks weakening supervision, as home authorities may lack knowledge of 
specific  activities  and  risks  in  other  Member  States.  Moreover,  it  would  require  a  major 
overhaul of current procedures and supervisory frameworks also in areas where problems were 
not  identified,  creating  significant  disruption  and  transitional  challenges  for  regulators  and 
market participants.  

Second, this option may affect all investment funds, as the designated asset manager (AIFM or 
UCITS management company), which is responsible for managing the fund, would need to be 
replaced  in  all  fund  documentation  to  reflect  the  new  functioning  of  the  asset  management 
framework. 

Third, Option 3 did not receive broad support during the public consultation. The majority of 
stakeholders (55%), including industry representatives and national authorities, did not identify 
significant issues with the current authorisation framework for asset management groups, apart 
from  national  divergences,  and  expressed  reservations  about  introducing  a  group-level 
authorisation  regime.  Those  respondents  argued  that  asset  managers  operate  under  diverse 
business models with no uniform structure, and that granting an AIFMD/UCITSD licence to 
an  entity  other  than  the  one  carrying  out  regulated  activities  could  create  supervisory  and 
investor  protection  risks. They  also  cautioned  that  concentrating  resources  in  a  few  entities 
might raise substance-related challenges and additional risks.  

6.3.4.  Comparison of the options 

Effectiveness  Efficiency  Coherence  Overall score 
- 
- 

Option 1 Baseline scenario  
Option 2  
Comprehensive review 
Option 3  
Extensive review  
Legend: +++ = very positive ++ = positive + = slightly positive +/- = mixed effect 0 = no effect  
 - = slightly negative -- = negative --- = very negative  

+++  

++  

++  

++  

++ 

+ 

+ 

+ 

- 

- 

6.3.5.  Preferred Option  

Option  2  is  considered  the  most  appropriate  and  proportionate  solution.  It  addresses 
inefficiencies in authorisation and delegation requirements for asset management groups in a 
targeted  way  while  preserving  the  current  regime,  which  stakeholders  generally  view  as 
functioning  well.  It  would  enable  groups  to  use  resources  across  subsidiaries  without 
duplicating  core  functions  such  as  compliance  or  IT,  resulting  in  significant  savings.  By 
streamlining intra-group delegation and oversight, Option 2 removes the need to create parallel 
resources solely for monitoring activities performed by other group entities. Unlike a shift to 
group-level  authorisation  this  option  also  avoids  investor  protection  risks  linked  to  limited 
supervisory insight into cross-border operations. 

Compared  with  other  options,  Option  2  strikes  the  right  balance  between  effectiveness  and 
proportionality, as it removes national discretions and divergent rules and replaces them with 
harmonised  rules  across  the  EU,  enhancing  legal  clarity,  ensuring  consistent  investor 
protection,  and  facilitating  cross-border  activity.  It  would  also  improve  supervisory 
convergence  and  cooperation,  strengthening  the  EU’s  competitiveness  as  a  global  asset 
management hub and advancing the broader objective of a strong SIU. 

320 

 
 
 
  
 
6.4.  IMPACT OF THE POLICY OPTIONS REGARDING OTHER BARRIERS TO THE GROWTH OF 

INVESTMENT FUNDS 

6.4.1.  Baseline/ Status quo 

PROS:  

Maintaining the current framework under the UCITSD would preserve the existing investment 
and  diversification  limits.  This  would  ensure  continuity  and  stability  in  the  regulatory 
framework,  but  it  would  also  mean  that  the  concerns  raised  by  stakeholders  regarding 
investments  in  securitisations  and  high-performing  equities  through  an  active  investment 
strategy remain unaddressed. 

CONS: 

First, maintaining the current 10% limit for investments in securitisations would continue to 
restrict UCITS’ ability to allocate meaningful portions of their portfolios to these asset classes, 
hindering the development of the EU securitisation market, and failing to acknowledge that 
securitisations are diversified and well regulated under the Securitisation Regulation. 

Second, Option 1 would continue to force active managers, with an investment strategy aimed 
at outperforming a benchmark, to underweight or divest from successful companies once their 
index weight exceeds 10%. As a result, actively managed funds would remain disadvantaged 
compared to passive funds, with constraints that could narrow investor choice and potentially 
dampen returns. 

Third, under the baseline scenario, successful companies whose growing market capitalisation 
leads to an increased weight in major indices would remain penalised, which could hinder the 
development of the European equity market. 

Fourth, Option 1 does not enjoy the support of the majority of stakeholders (mainly large asset 
managers), most of whom called for targeted adjustments to both the equity and securitisation 
limits. 

6.4.2.  Comprehensive review: other barriers to the growth of investment funds 

PROS: 

First,  Option  2  would  provide  a  targeted  and  proportionate  adjustment  to  the  UCITSD, 
addressing  two  areas  where  the  current  limits  have  been  criticised  as  overly  restrictive.  By 
raising  the  10%  cap  for  securitisations  to  15%,  the  framework  would  better  reflect  the 
diversified  nature  of  securitisations,  and  the  regulatory  safeguards  introduced  under  the 
Securitisation  Regulation.  This  would  give  UCITS  managers  greater  flexibility  to  allocate 
meaningful  exposures  to  securitisations  and  contributing  to  the  development  of  the  EU 
securitisation market. 

Second,  Option  2  would  level  the  playing  field  between  passive  and  active  index  funds.  It 
would enable active strategies to better reflect the composition of relevant indices and allow 
investors broader access to  high-performing equities. Option  2 would also  contribute to  the 
development and growth of the European equity market. ESMA’s role in maintaining a list of 
recognised  indices  would  enhance  legal  certainty  and  ensure  consistent  application  across 
Member States. 

Third, Option 2 enjoyed the support of the majority of the respondents to the consultation.  

CONS: 

321 

 
 
 
Option 2 introduces additional complexity to the framework by creating differentiated rules 
depending on the type of assets and the active or passive strategy of a fund. This may require 
UCITS  managers  to  adapt  compliance  and  reporting  systems,  while  national  competent 
authorities would need to monitor adherence to ESMA’s evolving list of benchmarks. 

6.4.3.  Comparison of the options 

Effectiveness  Efficiency  Coherence  Overall score 
- 

Option 1 Baseline scenario   - 
Option 2  
Comprehensive review 
Legend: +++ = very positive ++ = positive + = slightly positive +/- = mixed effect 0 = no effect  
 - = slightly negative -- = negative --- = very negative  

++  

++  

++  

++ 

- 

- 

6.4.4.  Preferred option 

Option  2  is  the  preferred  choice  as  it  offers  a  targeted  and  proportionate  adjustment  that 
addresses key shortcomings of the current UCITS framework without requiring a full overhaul. 
By modestly raising the securitisation cap and aligning rules for active and passive funds, this 
option  enhances  diversification,  supports  the  development  of  EU  securitisation  and  equity 
markets, and improves investor choice. 

322 

 
 
 
  
 
 
APPENDIX A – LIST OF NATIONAL DISCRETIONS 

The table below provides a list of national discretions in the UCITS Directive and AIFMD that 
constitute barriers to cross-border activities in the asset management sector. 

No. 

Article 

Description 

UCITS Directive 

1.   Article 6 

2.   Article 7 

3. Member States  may authorise management  companies  to  provide, in 
addition to the management of UCITS, the following services: 
1.  Without  prejudice  to  other  conditions  of  general  application  laid 
down  by  national  law,  the  competent  authorities  shall  not  grant 
authorisation to a management company unless the following conditions 
are met: 

(c) the application for authorisation  is  accompanied by a programme of 
activity  setting  out,  at  least,  the  organisational  structure  of  the 
management company  

(e) information is provided by the management company on arrangements 
made for the delegation and sub-delegation to third parties of functions in 
accordance with Article 13, comprising at least the following: 

For the purposes of point (a) of the first subparagraph, Member States may 
authorise  management  companies    not  to  provide  up  to  50  %  of  the 
additional amount of own funds referred to in point (i) of point (a) if they 
benefit from a guarantee of the same amount given by a credit institution 
or an insurance undertaking which has its registered office in a Member 
State, or in a third country where it is subject to prudential rules considered 
by  the  competent  authorities  as  equivalent  to  those  laid  down  in 
Community law. 
1.  Without  prejudice  to  other  conditions  of  general  application  laid 
down  by  national  law,  the  competent  authorities  of  the  investment 
company's  home  Member  State  shall  not  grant  authorisation  to  an 
investment  company  that  has  not  designated  a  management  company 
unless the investment company has a sufficient initial capital of at least 
EUR 300 000. 
6.  Member  States  may,  in  accordance  with  the  second  subparagraph  of 
Article 57(1), provide for a derogation from Articles 52 to 55 for receiving 
UCITS.  
2. Without prejudice to paragraph 1, for mergers between UCITS and by 
way  of  derogation  from  Article  84(1),  Member  States  may  allow  the 
competent authorities to require or to allow the temporary suspension of 
the  subscription,  repurchase  or  redemption  of  units  provided  that  such 
suspension is justified for the protection of the unitholders. 
2.  Member  States  may  authorise  UCITS  to  employ  techniques  and 
instruments  relating  to  transferable  securities  and  money  market 
instruments  under  the  conditions  and  within  the  limits  which  they  lay 
down  provided  that  such  techniques  and  instruments  are  used  for  the 
purpose of efficient portfolio management.  

323 

 3.   Article 29 

4.   Article 39  

5.  Article 45 

6.  Article 51 

 
 
 
  
  
  
6.    Article 52 

8.  Article 53  

9.  Article 54 

10.  Article 55 

3.  Member  States  may  provide  that  a  UCITS  invests  in  index-based 
financial derivative instruments, those investments are not required to be 
combined for the purposes of the limits laid down in Article 52. 
2.  Member  States  may  raise  the  5  %  limit  laid  down  in  the  first 
subparagraph  of  paragraph  1  to  a  maximum  of  10  %.  If  they  do  so, 
however,  the  total  value  of  the  transferable  securities  and  the  money 
market  instruments  held  by  the  UCITS  in  the  issuing  bodies  in  each  of 
which it invests more than 5 % of its assets shall not exceed 40 % of the 
value  of  its  assets.  That  limitation  shall  not  apply  to  deposits  or  OTC 
derivative  transactions  made  with  financial  institutions  subject  to 
prudential supervision 

3.  Member  States  may  raise  the  5  %  limit  laid  down  in  the  first 
subparagraph of paragraph 1 to  a maximum of 35 % if the transferable 
securities  or  money  market  instruments  are  issued  or  guaranteed  by  a 
Member State, by its local authorities, by a third country or by a public 
international body to which one or more Member States belong.  

4.  Member  States  may  raise  the  5  %  limit  laid  down  in  the  first 
subparagraph of paragraph 1 to a maximum of 25 % where bonds were 
issued  before  8  July  2022  and  met  the  requirements  set  out  in  this 
paragraph  as  applicable  on  the  date  of  their  issue,  or  where  bonds  fall 
under the definition of covered bonds in point (1) of Article 3 of Directive 
(EU) 2019/2162 of the European Parliament and of the Council. 

5.  Member  States  may  allow  cumulative  investment  in  transferable 
securities and money market instruments within the same group up to a 
limit of 20 %. 
1. Without prejudice to the limits laid down in Article 56, Member States 
may raise the limits laid down in Article 52 to a maximum of 20 % for 
investment  in  shares  or  debt  securities  issued  by  the  same  body  when, 
according to the fund rules or instruments of incorporation, the aim of the 
UCITS' investment policy is to replicate the composition of a certain stock 
or debt securities index which is recognised by the competent authorities, 
on the following basis: […] 
1. By way of derogation from Article 52, Member States may authorise 
UCITS to invest in accordance with the principle of risk-spreading up to 
100 % of their assets in different transferable securities and money market 
instruments issued or guaranteed by a Member State, one or more of its 
local authorities, a third country, or a public international body to which 
one or more Member States belong. 

The competent authorities of the UCITS home Member State shall grant 
such a derogation only if they consider that unitholders in the UCITS have 
protection equivalent to that of unitholders in UCITS complying with the 
limits laid down in Article 52.  
1. A UCITS may acquire the units of UCITS or other collective investment 
undertakings referred to in Article 50(1)(e), provided that no more than 10 
% of its assets are invested in units of a single UCITS or other collective 

324 

 
 
 
  
  
  
  
  
11.  Article 56 

12.  Article 57 

13.  Article 69 

14.  Article 83 

15.  Article 6 

16.  Article 7 

17.  Article 9 

18.  Article 21 

investment  undertaking.  Member  States  may  raise  that  limit  to  a 
maximum of 20 %.  

2.  Member  States  may,  where  a  UCITS  has  acquired  units  of  another 
UCITS or collective investment undertakings, provide that the assets of 
the respective UCITS or other collective investment undertakings are not 
required to be combined for the purposes of the limits laid down in Article 
52. 
3.    Member  State  may  waive  the  application  of  paragraphs  1  and  2  as 
regards: […] 
1. While ensuring observance of the principle of risk spreading, Member 
States may allow recently authorised UCITS to derogate from Articles 52 
to 55 for six months following the date of their authorisation. 
2. The prospectus  shall contain  at least the information provided for in 
Schedule A  of Annex  I,  in  so  far  as  that  information  does  not  already 
appear  in  the  fund  rules  or  instruments  of  incorporation  annexed  to  the 
prospectus in accordance with Article 71(1).  

4. The half-yearly report shall include at least the information provided 
for in Sections I to IV of Schedule B of Annex I. 
2. By way of derogation from paragraph 1, a Member State may authorise 
a UCITS to borrow provided that such borrowing is: 

AIFMD 

4. By way of derogation from paragraph 2, Member States may authorise 
an external AIFM to provide the following services: […] 
2.  (e)  information  on  arrangements  made  for  the  delegation  and  sub-
delegation  to  third  parties  of  functions  in  accordance  with Article  20, 
comprising at least the following: […] 
6. Member States may authorise AIFMs not to provide up to 50 % of the 
additional amount of own funds referred to in paragraph 3 if they benefit 
from a guarantee of the same amount given by a credit institution or an 
insurance undertaking which has its registered office in a Member State, 
or in a third country where it is subject to prudential rules considered by 
the competent authorities as equivalent to those laid down in Union law.  
3. In addition, Member States may allow that in relation to AIFs which 
have no redemption rights exercisable during the period of 5 years from 
the date of the initial investments and which, in accordance with their core 
investment policy, generally do not invest in assets that must be held in 
custody in accordance with point (a) of paragraph 8 or generally invest in 
issuers or non-listed companies in order to potentially acquire control over 
such companies in accordance with Article 26, the depositary may be an 
entity which carries out depositary functions as part of its professional or 
business activities in respect of which such entity is subject to mandatory 
professional  registration  recognised  by  law  or  to  legal  or  regulatory 
provisions  or  rules  of  professional  conduct  and  which  can  provide 
sufficient  financial  and  professional  guarantees  to  enable  it  to  perform 
effectively  the relevant  depositary functions and meet  the commitments 
inherent in those functions.  

325 

 
 
 
  
  
19.  Article 22 
20.  Article 29 

2. The annual report shall at least contain the following: […] 
2. The additional information  to  be included in  the annual  report of the 
company or the AIF, in accordance with paragraph 1, shall include at least 
a fair review of the development of the company's business representing 
the situation at the end of the period covered by the annual report. 

326 

 
 
 
ANNEX 10: SECTORAL ANNEX ON INNOVATION (DLTPR) 

1.  INTRODUCTION  

Stifled  innovation  is  one  of  the  problems  negatively  impacting  SIU  progress.  This  annex 
elaborates the problem through the lens of problems affecting the DLTPR framework, which 
was set up precisely to support DLT-based innovation in financial services. After describing 
the problem and its drivers, the annex explores a set of targeted policy measures aimed at 
making  the  DLTPR  more  usable  for  the  issuance,  trading,  settlement  and  safekeeping  of 
tokenised  financial  assets. The  policy  measures  analysed  aim  at  ensuring  that  the  DLTPR 
attracts the observed increase in market interest, globally and in Europe, in leveraging DLT 
for  financial  services.  The  annex  concludes  with  the  choice  of  the  preferred  option  for 
mitigating the problem drivers contributing to the identified problem of low participation rate 
in  the  DLTPR,  based  on  three  analytical  dimensions:  effectiveness  in  achieving  the  stated 
objectives, efficiency (costs and risks) and coherence with other policy objectives pursued by 
the Commission.  

2.  DESCRIPTION OF MARKET AND ENVIRONMENT  

ledgers) 

Use of DLT in financial markets (MIFID instruments) is considered by parts of the financial 
industry  to  represent  the  next  step  in  the  evolution  of  financial  market  architecture.  This 
evolution  has  many  aspects.  One  important  feature  of  DLT-based  infrastructure  is  that  it 
represents a shift from market structure based on distinct but interconnected intermediaries and 
systems (trading venues, clearing and settlement systems, payment systems etc) to a platform-
based financial architecture. This allows various intermediaries in the financial value chain to 
provide  services  on  common  platforms  (distributed,  shared 
that  enable 
cryptographically  secure  and  programmable  execution  of  transactions,  as  well  as  direct 
deployment of software applications. By moving financial activities to a common platform, or 
set  of  common  platforms,  DLT-based  infrastructure  could  provide  a  simpler  financial 
architecture, compared to today’s multi-layered trading and post-trading ecosystem supported 
by varied intermediaries and marked by many inefficiencies. This type of market structure may 
make reconciliation of data across intermediaries easier, as distributed ledgers can provide a 
golden record of market events retrievable by interested parties. This supports straight-through 
processing of financial activities and reduces costs. In post-trading processes, DLT is currently 
considered by parts of the industry as the most promising way to simplify procedures, reduce 
costs, and increase efficiency and security of transactions. It therefore has the potential to alter 
the post-trade landscape and transform how securities are held and recorded. While they hold 
many  promises  and  can  move  markets  toward  more  integrated  and  transparent  post-trade 
structures,  DLT  market  infrastructures  (DLT  MI)  and  markets  organised  around  them  are 
however still at an early stage of development. Today’s deployment remains incremental and 
layered, with a number of challenges that pose a question to its wider up-take. For example, 
there  is  no  market  consensus  around  which  distributed  ledgers  should  be used  for  financial 
activities. Parts of the market prefer to engage with permissioned blockchains487, which provide 

487  Permissioned  blockchains  are  a  type  of  distributed  ledger  where  the  rights  to  validate  transactions  and 
participate in the network are limited to authorised parties only.  

327 

 
 
 
 
 
greater controllability of the key elements of the platform and may ensure enhanced privacy as 
compared  to  permissionless  blockchains.  Other  industry  participants  prefer  permissionless 
blockchains488 because they are open to any and all participants, allowing them to attract more 
liquidity.  They  also  guarantee  greater  system  resilience  due  to  greater  distribution  of  the 
network.  Greater  maturity  of  interoperability  solutions  between  DLTs  may  help  resolve  or 
mitigate  some  of  these  issues.  Ensuring  privacy  of  transactions489  and  automating  identity 
(KYC) checks on DLT are another area where more progress is needed to facilitate adoption of 
the technology.   

Regardless of outstanding challenges, in the past few years, especially in Asia, Europe and the 
US, the financial industry has been increasingly engaging with DLT. Asset managers have taken 
to  tokenising490  funds,  in  particular  money  market  funds491,  to  make  them  available  to 
customers  that  want  to  hold  funds  on  distributed  ledgers  (‘on-chain’),  such  as  crypto-asset 
traders.  Issuers,  together  with  banks  and  financial  market  infrastructures  (FMIs)  have  been 
tokenising increasing volumes of debt instruments (albeit from a low base)492, with the aim of 
enhancing  the efficiency of bond markets,  including  liquidity, issuances costs and yields.493 
The industry is also using DLT to speed up the exchange of collaterals, introducing efficiencies 
and  lowering  risk.494  Certain  incumbent  FMIs,  in  particular  CSDs  have  set  up  DLT-based 
platforms to support issuance and transfer of tokenised financial instruments.495 Certain large 
banks have also been building tokenisation platforms, while fintech entrants are setting up their 
own DLT-powered trading and settlement  platforms.496 According to  the European Banking 
Authority  (EBA),497  in  2023  more  than  60%  of  surveyed  EU  banks  were  exploring, 
experimenting with, or using DLT solutions. Finally, recognising the interest of the wholesale 
financial  market  in  DLT  and  the  potential  of  the  technology,  the  Eurosystem  held  in  2024 
exploratory experiments with DLT-adapted technical solutions for settlement in central bank 
money. The trials included a total of 64 participants, comprising central banks, financial market 
participants  and  DLT  operators,  and  tested  a  wide  range  of  use  cases  such  as  securities 
settlement,  domestic  payments,  and  FX  transactions.498  Following  successful  market 
engagement, in June 2025 the ECB Governing Council approved a plan that will enable settling 
of DLT transactions using central bank money.  

Against these industry and public sector developments, the DLT Pilot represents the main pillar 
of Commission’s policy to support DLT-based innovation in Europe. Adopted in 2022 as an 

with 

services 

financial 

enhancing 

blockchains, 

permissionless 

488  Permissionless  blockchains  are  a  type  of  distributed  ledger  where  the  rights  to  validate  transactions  and 
participate in the network are open to any party without the need for a prior authorisation 
489 On technical solutions for enhancing privacy on distributed ledgers, see p. 25 of the EC-commissioned study 
on 
at:  
https://op.europa.eu/en/publication-detail/-/publication/cab54e8e-ad3b-11ef-acb1-01aa75ed71a1/language-en  
490 I.e. representing assets as cryptographically secured entries in distributed ledgers  
491  For  example  https://securitize.io/learn/press/blackrock-launches-first-tokenized-fund-buidl-on-the-ethereum-
network  
492 See on tokenisation of government bonds https://www.bis.org/publ/bisbull107.pdf  
493 https://www.bis.org/publ/bisbull107.pdf  
494  See  most 
mobilisation-transaction-on-eurex-clearing/  
495 Examples include the US DTCC, Euroclear, Clearstream, Swiss SDX, which is part of the SIX Group 
496 In Europe, examples include 21X (holder of DLT Pilot licence) and Axiology 
497https://www.eba.europa.eu/sites/default/files/2024-04/69001f7d-be44-456e-a40a-
2d2f0e5a84f4/factsheet%20on%20uses%20of%20DLT%20in%20the%20EU%20banking%20and%20payments
%20sector.pdf 
498 https://www.ecb.europa.eu/press/intro/news/html/ecb.mipnews241204.en.html  

recently  https://www.thetradenews.com/jp-morgan-executes-first-live-dlt-enabled-collateral-

available 

328 

 
 
 
 
 
important  plank  of  the  Commission’s  Digital  Finance  Strategy,  its  aim  was  to  establish  a 
flexible  regulatory  framework  that  would  enable  the  industry  to  use  DLT  to  introduce 
efficiencies in the issuance, trading and transfer of financial instruments, while ensuring risks 
are appropriately mitigated. It aspired to create a flexible framework that would allow certain 
derogations  from  the  standard  rulebooks  (CSDR  and  MIFID)  to  make  it  easier  for  Pilot 
participants  to  leverage  DLT  for  trading  and  CSD  services.  It  has  been  in  application  since 
March  2023,  and  has  so  far  attracted  four  participants  that  have  received  the  permission  to 
operate under the DLT Pilot, while several other applications are in the pipeline. 

3.  ASSESSMENT OF PROBLEMS AND NEED TO ACT 

Drivers:  

Driver 1: Disproportionate and inflexible regulatory obligations for DLTPR applicants 

Driver 2: Regulatory barriers to scale, scope and long-term investments 

↓ 
Problem:  

Stifled innovation: Low take-up of the DLT pilot regime 

Consequences:  

➢  Reduced innovation and lower efficiencies in issuance, trading and settlement of 

financial instruments in Europe  

➢  Lower competitiveness of EU capital markets 

↓ 
General objective 

1)  Adjust the DLTPR to facilitate DLT-based financial innovation 
2)  Maintaining regulatory standards which effectively capture and address risks of 

respective activities 

↓ 
Specific objectives 

SO1: Ensure that DLTPR lays down proportional and principles-based regulatory 
requirements for small businesses participating in the Pilot  

SO2: Remove regulatory barriers to support long-term investments under the Pilot [duration], 
broad-based participation [large firms, CASPs] and varied projects under the DLTPR [asset 
scope] 

3.1.  PROBLEM DEFINITION AND DESCRIPTION OF CURRENT STATE-OF-PLAY  

Innovation  is  one  of  the  strongest  drivers  of  efficiency  gains  in  financial  markets.  Stifled 
innovation  is  one  of  the  main  barriers  to  the  development  of  an  efficient  SIU.  DLT  is  a 
technology  that  currently  has  the  most  potential  to  impact  market  structure  and  is  seeing 
increased use by a wide spectrum of market participants. The Commission considers DLTPR 

329 

 
 
 
 
as  a  key  enabler  for  responsible  DLT  innovation  in  trading  and  CSD  services.499  This 
innovation  necessitates  sufficient  regulatory  flexibility  to  accommodate  the  specificities  of 
DLT and novel business models that arise from its use. To fulfil its objective, it is important 
that DLTPR appropriately reflects market needs,  while ensuring appropriate risk mitigation. 
Failing  to  channel  innovation  through  the  framework  may  result  in  reduced  deployment  of 
DLT-based  solutions  in  Europe’s  financial  markets,  leading  to  loss  of  efficiencies  and 
competitiveness.  Given the intrinsic connection between the success  of the DLTPR and the 
uptake of DLT innovation in Europe, the problem of stifled innovation can be viewed through 
the lens of problems affecting the ability of the DLTPR to attract innovative projects.  

The DLTPR set out to achieve two narrowly connected objectives. Firstly, to support innovation 
in  DLT  by  attracting  businesses  to  deploy  their  solutions  within  an  adapted  but  limited 
framework. The DLTPR created an adapted elective rulebook which Pilot participants can use 
to set up DLT-based trading and settlement infrastructures and seek specified derogations from 
those provisions in the standard rulebooks (CSDR, MIFID) that were considered incompatible 
or poorly adapted to DLT, and instead applying alternative or compensatory obligations. For 
example, to ensure DLT can be robustly leveraged for settlement of assets against money, the 
DTLRP explicitly allowed the use of electronic-money tokens500 as means of payment. This 
allowed  DLT  market  infrastructures  to  make  use  of  the  functionality  to  programmatically 
‘swap’ tokens  in  an  efficient manner  between two  accounts on DLT, organising delivery vs 
payment  of  e.g.  a  tokenised  bond  against  tokenised  electronic  money.  This  would  not  be 
possible with traditional forms of money eligible for use in settlement under the DLTPR – (non-
tokenised) commercial bank money and central bank money.  

Accounting  for  the  needs  and  specificities  of  DLT-based  market  infrastructures,  the  regime 
sought to identify and address legal and operational barriers to broader adoption of DLT in the 
EU  financial  sector.  Furthermore,  its  aim  was  to  attract  projects  under  a  closely  supervised 
framework that would allow supervisors and policy makers to learn from the concrete projects 
leveraging DLT deployed within the DLTPR. Learnings about different business models, risk 
profiles of various activities, roles of intermediaries participating in the ecosystem as well as 
technological challenges would form an analytical basis for changes to the standard rulebook, 
to ensure it is adapted to DLT and therefore technologically neutral, allowing Pilot participants 
to  continue  their  activity  under  the  sectoral  legislation  (CSDR,  MIFID).  However,  these 
objectives were not fully realised. 

Since its entry into force (May 2022) over more than three years ago, the DLTPR has attracted 
only four participants. One of those participants is an established CSD (CSD Prague), while 
three others are fintech entrants to the market (360X, 21X and Axiology). DLTPR was set up 
precisely  to  allow  innovative  new  entrants  to  leverage  DLT  in  providing  trading  and  CSD 
services.  Comparatively,  the  UK’s  Digital  Securities  Sandbox,  which  is  a  similar  regime  to 
EU’s Pilot, has attracted notably more interest: eleven applicants have checked into the sandbox 

499 The three core CSD services as defined in CSDR are as follows: initial recording of securities in a book-entry 
system (notary service), providing and maintaining securities accounts at the top tier level (central maintenance 
service) and operating a securities settlement system (settlement service). CSDR lists additional ancillary services. 
500 In accordance with MiCA, electronic money tokens are a type of crypto-asset that purport to maintain a stable 
value by referencing the value of one official currency. 

330 

 
 
 
 
 
since its start at the end of 2024.501 This divergence suggests a mismatch between framework 
design  and  business  models  in  the  EU  context  rather  than  an  absence  of  market  interest  in 
tokenisation .While the Pilot has been useful for a handful of applicants, it has not scaled in 
line with market developments, which has limited its learning potential. 

At  the  same  time,  market  interest  in  using  DLT  for  financial  services  has  been  gradually 
increasing since the DLTPR framework was set up. In 2024, private sector involvement in DLT 
for  financial  services  accelerated,  with  active  participation  from  banks,  payment  service 
providers, stock exchanges, and clearing and settlement companies. The sharp increase in DLT 
based issuance volumes from 2023 to 2024 (albeit from a low base) signals growing acceptance 
and experimentation with DLT for bond issuance, especially in Europe and Asia. According to 
a 2025 AFME report502, €3 billion in DLT-based fixed income instruments were issued globally 
in 2024-a 260% increase from €848 million in 2023. BIS Economic Report for 2025 also notes 
the nascent yet increasing size of tokenised bond markets.503 The projected issuance in 2025 is 
€10 billion and €35–40 billion for 2026 if current trends continue.504 

Because  the  relatively  low  market  participation  in  the  Pilot  is  set  against  a  backdrop  of 
increased industry interest in DLT and tokenisation, it can be concluded that the Pilot has not 
fully  achieved  its  objective  of  attracting  and  supporting  DLT  innovation  in  Europe. This  is 
further  supported  by  feedback  from  key  stakeholders.  The  SIU  targeted  consultation  and 
bilateral contacts with the industry have revealed certain drawbacks of the Pilot that hamper its 
ability to attract projects. These have been also elaborated by ESMA505 and certain NCAs.506  

What are the consequences of the problem? 
It is difficult to estimate the long-term impact of missed innovation opportunities, especially 
since the extent of future integration of DLT into financial markets is not yet clear. Innovation 
trends  and  their  effects  on  the  financial  industry  are  difficult  if  not  impossible  to  forecast. 
However, given the low participation rates in the Pilot, the industry’s criticism of some of its 
features, and a globally increasing interest in using DLT for financial services and activities, 
an  unchanged  DLTPR  risks  failing  in  its  objective  of  attracting  innovation  in  Europe  and 
providing experience-driven lessons for policy makers on how standard frameworks ought to 
evolve  to  accommodate  this  technology  and  intermediaries  using  it. This  may  have  serious 
repercussions. 

https://www.afme.eu/news/press-releases/details/afme-launches-data-report-series-on-dlt-based-

501  Full  list  available  at  https://www.bankofengland.co.uk/financial-stability/digital-securities-sandbox/digital-
securities-sandbox-dashboard  
502  Source: 
capital-market-  
503 https://www.bis.org/publ/arpdf/ar2025e3.pdf  
504 Source: https://www.fi-desk.com/measuring-digital-bond-issuance/ 
505  ESMA’s 
460_DLT_Pilot_Regime_-_Letter_to_EU_Institutions.pdf 
https://www.esma.europa.eu/sites/default/files/2025-06/ESMA75-117376770-
460_Report_on_the_functioning_and_review_of_the_DLTR_-_Art.14.pdf  
506 
france.org/sites/institutionnel/files/private/2025-04/amf_consob_position-paper-towards-a-more-competitive-
european-pilot-regime.pdf 

https://www.esma.europa.eu/sites/default/files/2024-04/ESMA75-117376770-
and 

Joint  AMF-CONSOB 

https://www.amf-

on  DLTPR: 

position: 

example 

paper 

See 

the 

for 

331 

 
 
 
 
 
 
 
If the EU fails to establish a sufficiently adapted and attractive framework for DLT deployment, 
it risks not fully benefiting from capital market efficiencies introduced by the technology. This 
would  harm  the  industry  and  investors  and  lead  to  a  loss  of  attractiveness  of  EU’s  capital 
markets. For example, DLT may, among others, lead to a reduced cost of issuance (due mainly 
to  fewer  intermediaries),  faster  settlement,  disintermediation,  creation  of  new  markets, 
improved data flows between intermediaries and regulators and increased automation. More 
generally, it may lead to a financial system with less layers, where greater parts of the financial 
value chain are conducted on a single (DLT-based) platform.507 DLT has the potential to move 
many  elements  of  the  financial  value  chain  –  such  as  issuance,  recording  and  transfer  of 
tokenised assets - to common and interoperable platforms (distributed ledgers, blockchains) on 
which regulated services are provided. Broad-based adoption of DLT promises to improve the 
efficiency  of  financial  markets,  by  reducing  settlement  times,  establishing  new  markets, 
entering into cross border/international markets, facilitating data reconciliation and increasing 
programmability of financial market activities.508 509 

Comparatively,  the  multi-layered  market  architecture  of  today,  with  functions  like  trading, 
clearing and settlement conducted within separate systems, results in many inefficiencies. This 
compression of layers may improve market efficiency, not least by supporting straight-through-
processing of transactions.  

Given the potential widespread impacts of this technology across the financial market value 
chain,  stifled  innovation  in  this  area  may  compromise  the  long-term  objectives  of  the  SIU. 
Firstly, it could compromise the objective of the SIU to achieve greater market integration and 
efficiency  through  deployment  of  new  technologies.  Secondly,  tokenisation  of  securities, 
through fractionalisation, cheaper issuance processes, easier transferability and direct holding 
models  in  digital  wallets,  may  lead  to  a  broader  and  more  accessible  offering  of  capital 
investment  opportunities  for  retail  investors  in  Europe.  Tokenisation  makes  traditionally 
illiquid assets—such as  private debt, corporate bonds, less liquid investment and real  estate 
funds, SME debt and equity—more tradable.510 By lowering barriers to entry, fractionalisation 
expands  the  investor  base  and  stimulates  activity  in  assets  that  once  saw  limited  trading.511 
Incentivising retail participation in capital markets and mobilising investments in the European 
economy are one of the key objectives of the SIU. It should be noted, however, that some of 
these  developments  are  already  taking  place  outside  the  DLTPR,  often  under  existing 

507  There  are,  however,  many  challenges  to  DLT  underpinning  a  more  integrated  financial  architecture,  most 
notably  the  current fragmentation  of  DLT-based  activity  across  various  distributed  ledgers  with  low  levels  of 
interoperability among them. 
508 See OECD on the qualitative description of benefits: 
https://www.oecd.org/content/dam/oecd/en/publications/reports/2025/01/tokenisation-of-assets-and-distributed-
ledger-technologies-in-financial-markets_be149012/40e7f217-en.pdf  
509 The 2023 report from AFME and Boston Consulting Group gives some projections: ~$15-20 billion (USD) 
in annual global infrastructure operational cost savings, ~$100+ billion (USD) annually in freed financial 
collateral and balance sheet efficiencies. See page 11 at 
https://www.afme.eu/Portals/0/DispatchFeaturedImages/20230512%20GFMAImpactofDLT%20FullReport%20
FINAL%20FULL.pdf  
510 See The Impact of Distributed Ledger Technology in Capital Markets by GFMA  https://www.gfma.org/wp-
content/uploads/2025/08/1.-full-report-impact-of-dlt-in-cap-mkts-final-1.pdf 
511 See OECD Business and Finance Policy Papers, No. 75, 2025 Tokenisation of assets and distributed ledger 
technologies in financial markets 

332 

 
 
 
 
 
frameworks or in parallel initiatives by incumbents and fintechs. The challenge is therefore less 
about whether tokenisation will happen, but about whether the EU’s dedicated pilot framework 
is sufficiently adapted to attract and retain such activity within its perimeter, so that the benefits 
and supervisory learnings accrue in Europe rather than elsewhere. 

At the same time, these benefits and opportunities of tokenisation also bring risks that could 
negatively affect the stability of the EU’s financial system, including heightened cyber-security 
vulnerabilities, operational  resilience  challenges,  legal  and market  risks. Tokenisation  could 
lead  to  increased  interconnectedness  between  traditional  financial  institutions,  technology 
providers, and decentralised networks, which may amplify systemic risks and the potential for 
contagion in the event of a disruption or cyberattack.512 The distributed ledger infrastructures’ 
underlying tokenised assets could also introduce new points of failure, especially if they rely 
on untested smart contracts, interoperable systems, or concentration in a few key technology 
providers.  Furthermore,  the  borderless  nature  of  token  markets  may  complicate  regulatory 
oversight  and  crisis  management,  as  financial  stability  risks  could  propagate  across 
jurisdictions with limited coordination mechanisms.513 

Legal  uncertainties  may  arise  when  tokenised  assets  are  issued  or  transferred  across 
jurisdictions,  and  inconsistent  legal  frameworks  may  lead  to  disputes  over  ownership, 
settlement finality, or the legal recognition of digital records. This lack of harmonisation can 
result  in  market  fragmentation  and  pose  challenges  in  crisis  scenarios  where  investor 
protections  or  enforceability  of  claims  become  crucial.  From  a  market  perspective,  the 
increased liquidity and 24/7 trading of tokenised assets could heighten volatility and contribute 
to procyclical behaviours, particularly during periods of stress when tokenised assets might be 
rapidly  sold  off  or  when  automated  smart  contract  liquidations  are  triggered. Additionally, 
valuation and settlement risks could arise if the integrity or reliability of distributed ledger data 
were compromised, undermining confidence in tokenised financial instruments and the wider 
market.514 

Most of the cyber and operational risks are already addressed under the Digital Operational 
Resilience Act (DORA), which establishes a harmonised framework in the EU requiring all 
financial entities to effectively withstand, respond to, and recover from ICT-related disruptions 
and cyberattacks through robust risk management, incident reporting, resilience testing, and 
oversight of critical third-party service providers. 

Use of DLT for financial services should be industry- and use case-driven, as it is for the market 
to  determine  the  economic  efficiencies  stemming  from  applying  a  specific  technology. 

512 ECB: Decrypting financial stability risks in crypto-asset markets https://www.ecb.europa.eu/press/financial-
stability-publications/fsr/special/html/ecb.fsrart202205_02~1cc6b111b4.en.html?utm 
513 CEPR Crypto, tokenisation, and the future of payments, https://cepr.org/voxeu/columns/crypto-tokenisation-
and-future-payments?utm 
514 BIS Financial stability implications of tokenisation 
https://www.bis.org/fsi/fsisummaries/exsum_23905.htm?utm  
BIS Tokenisation in the context of money and other assets: concepts and implications for central banks 
https://www.bis.org/cpmi/publ/d225.pdf 
OECD Regulatory Approaches to the Tokenisation of Assets 
https://www.oecd.org/content/dam/oecd/en/publications/reports/2021/03/regulatory-approaches-to-the-
tokenisation-of-assets_da7ae482/aea35466-en.pdf 

333 

 
 
 
 
 
However, maladapted legal frameworks represent a barrier to the market in realising potential 
efficiencies using DLT. The need to adapt the framework stems from the fact that the financial 
markets value chain can be organised differently on DLT, in a way that does not map neatly to 
the market structure of today, and the standard rulebooks that codified business models and 
intermediary  roles  of  traditional  markets.  For  example,  permissionless  blockchains  such  as 
Ethereum can perform some of the technical functions that are performed by a CSD: they can 
facilitate trusted issuance and transfer of assets.  However, permissionless  blockchains  are a 
decentralised computing infrastructure with verifiable execution and are not carriers of legal 
liability for ensuring certain outcomes in the market, the way that CSDs and other regulated 
financial  entities  do.  Therefore,  permissionless  blockchains  do  not  obviate  the  need  for  a 
regulated entity to ensure certain outcomes – e.g. legally protected and enforceable settlement 
of assets in a predictable manner. However, permissionless blockchains may facilitate a market 
structure that is different than that of today, whereby a wider set of regulated entities beyond 
the CSD may directly interact with a distributed ledger to provide for, among others, issuance, 
custody and settlement of assets, and use its functionalities to conduct peer to peer transactions. 
If the DLTPR does not create sufficient opportunities and clarity for EU market actors to make 
the  necessary  investments  in  DLT-based  projects,  the  competitiveness  and  efficiency  of  EU 
capital markets may be harmed by pushing DLT investments elsewhere. Lack of home-grown 
know how in  the area may compound  over time  and lead to dependencies on third country 
services providers for DLT-based service solutions. 

Who is affected by the problem? In what ways, and to what extent?  
The  low  uptake  of  the  DLT  pilot  regime  indirectly  poses  challenges  for  a  broad  range  of 
stakeholders  across  the  real  economy  and  the  financial  industry. While  it  is  true  that  many 
market participants have so far found ways to innovate outside the DLTPR framework — for 
instance by using existing MiFID/CSDR channels or bespoke platforms — the limited take-up 
still  matters.  Businesses,  which  are  issuers  of  financial  instruments,  may  miss  out  on  key 
benefits  of  DLT,  such  as  reduced  costs  and  faster  settlement.  One  paper  by  the  Bank  of 
International  Settlements515  noted  that  despite  being  in  experimental  phase,  there  is  already 
evidence  to  suggest  that  issuance  costs  of  tokenised  bonds  are  comparable  with  traditional 
bonds,  while  liquidity  may  improve. As  tokenisation  solutions  and  processes  mature,  and 
market adoption spread, it can be reasonably expected that costs and liquidity improve further, 
bringing benefits to both issuers and investors. Low uptake tokenisation in the EU could mean 
missing  out  on  these  benefits.  Small  and  Medium-Sized  Enterprises  (SMEs)  could  be 
disproportionately impacted. DLT could serve to reduce costs of issuance in particular for less 
liquid and less developed markets, such as capital markets for SME securities, be it public or 
private.516 DLT-based financial market infrastructures may therefore support SMEs in raising 
debt  and  equity  capital,  which  is  one  of  the  key  objectives  of  the  SIU.  Furthermore,  in  the 
absence  of  a  DLTPR  adapted  to  their  needs,  Financial  Market  Infrastructures  (FMIs)—
including trading venues and CSDs —could struggle to modernise their operations and enhance 

515 https://www.bis.org/publ/bisbull107.pdf  
516 See for example the SME-focused business model of CSD Prague’s DLT settlement system and LISE’s trading 
and  settlement  system,  on  p.  8  and  p.11 
the  DLTPR. 
https://www.esma.europa.eu/sites/default/files/2025-06/ESMA75-117376770-
460_Report_on_the_functioning_and_review_of_the_DLTR_-_Art.14.pdf  

respectively  of  ESMA’s  Report  on 

334 

 
 
 
 
 
 
service  delivery  through  DLT.  Greater  use  of  DLT  could  help  overcome  barriers  to  market 
integration by automating and streamlining clearing and settlement, reducing costs. As multi-
purpose platforms for asset issuance, holding, and transfer using distributed ledgers can also 
enhance  interoperability  between  CSDs  and  other  market  operators  where  liquidity 
concentrates across platforms. The use of DLT based wholesale central bank digital currency 
(WCBDC)  could  make  settlement  on  DLT  platforms  even  more  secure  and  coherent  with 
existing settlement rules, which favour central bank money due to its credit risk-free nature, 
superior liquidity, and scalability. 

Furthermore,  the  low  uptake  of  DLTPR  means  there  is  less  competitive  pressure  from 
innovative  businesses,  in  particular  in  the  area  of  post-trading.  CSD  markets  feature  high 
barriers  to  entry  and  are  fragmented  along  national  lines  and  therefore  subject  to  low 
competitive  pressure  and  pressure  to  innovate.  If  regulation  does  not  adequately  support 
entrants  to  the  CSD  services  market  that  wish  to  leverage  new  technologies,  this  acts  as  a 
further market barrier, ultimately leading to lost efficiencies in financial market infrastructure 
overall. At  the  same  time,  the  goal  is  not  to  multiply  CSDs  indefinitely  (which  would  run 
counter  to  the  consolidation  objectives  of  the  SIU)  but  rather  to  enable  technology-driven 
consolidation.  Well-designed  DLT  infrastructures  could  reduce  duplication,  allow  smaller 
players  to  interconnect  via  shared  platforms,  and  over  time  help  rationalise  the  number  of 
infrastructures while improving efficiency and resilience. 

In  the  absence  of  developed  DLT-based  market  infrastructures,  asset  managers  may  have 
difficulties  in  tokenising  fund  units,  which  may  result  in  missed  opportunities  to  introduce 
efficiencies  in  managing,  distributing  and  transferring  funds.  Investors,  both  individual  and 
institutional,  may  be  unable  to  take  advantage  of  the  greater  transparency,  efficiency,  and 
potential for real-time asset transfers offered by DLT. Finally, consumers of financial services 
may  be  indirectly  affected,  as  they  would  be  unable  to  benefit  from  the  enhanced  financial 
products and services that DLT could help enable—such as faster payments, lower fees, lower 
switching costs between intermediaries. 

How will the problem evolve if not addressed?  
The problem will likely persist. Enduring low participation rates in the Pilot means that the 
innovation potential demonstrated by the globally increasing interest in using DLT will either 
not be fully reached in the EU, or will be realised outside of the DLTPR, within or outside the 
standard  framework  but  subject  to  legal  uncertainty  as  well  as  (costly)  adaptations  and 
compromises to operational and business models. Incumbents have innovated outside DLTPR 
with limited success, rather opting to rely on the standard rulebook which is less adapted to 

335 

 
 
 
 
DLT (CSDR). Clearstream517, and Euroclear518, two largest CSD groups in Europe, have both 
developed digital asset platforms. However, such innovation initiatives may be forced to make 
certain compromises to remain compliant with the standard framework. These compromises 
may stem from the assumptions of intermediary roles, definitions and requirements embedded 
in CSDR as well as due to the lack of general flexibility to organise service provision in a way 
that leverages the full potential of the technology.519 For example, settlement in the only DLT-
available form of money – stablecoins – is not currently possible under the CSDR, requiring 
those operating under its framework to synchronise payment on traditional payment rails and 
asset  settlement  on  DLT  infrastructure.  Use  of  permissionless  blockchains,  which  are 
decentralised registers and settlement facilitators not operated by any single entity, may not be 
well  accounted  for,  while  the  requirement  to  register  assets  in  book-entry  form  may  not  be 
compatible with the use of DLT-based wallets.  

Furthermore, the consequences of the problem may compound over time. Where EU start-ups 
and incumbents do not benefit from a well-adapted framework for the use of DLT in financial 
services,  leading  to  the  identified  problem  of  low  Pilot  uptake,  they  may  look  to  other 
jurisdictions  that  are  better  adapted  to  welcome  their  solutions.  This  will  result  in  lost 
innovation opportunities. Failing to capitalise on the opportunity to attract innovation at this 
relatively early stage of DLT-based market development may have long-term consequences as 
accommodating  jurisdictions  establish  themselves  as  hubs  for  DLT  activity  and  draw  in 
additional investment. 

While not addressing the problem would likely result in some degree of DLT innovation in the 
EU, it is nonetheless likely to lead to lower levels of innovation overall. A poorly calibrated 
DLTPR  may  result  in  DLT-based  solutions  being  developed  outside  of  the  EU  and  merely 
‘imported’ via outsourcing agreements into EU. In this scenario, most software and financial 
know-how would reside outside the EU. This lack of home-grown know-how at the intersection 
of DLT and finance could have material long-term consequences on the competitiveness and 
efficiency of EU’s capital markets, depending on the general level of DLT adoption in finance. 

517 Clearstream, through its D7 digital post-trade platform, has become a leading provider for digital securities 
issuance in Europe. In January 2025, Evonik Industries AG, supported by Deutsche Bank, issued a €500 million 
five-year green senior bond via Clearstream’s D7 platform. In 2024, KfW issued two digital bonds totalling €8.5 
billion via D7, with another €9 billion already issued in 2025.  Source: https://www.ledgerinsights.com/digital-
bonds-show-significant-growth-afme/ 
518  Euroclear  has  recently  facilitated  several  notable  digital  bond  issuances  using  its  Digital  Financial  Market 
Infrastructure  (D-FMI),  which  is  based  on  Distributed  Ledger  Technology  (DLT).  Caisse  des  Dépôts  et 
Consignations (France): Issued the first Digital Native Note (DNN) in bearer form under French law on the D-
FMI platform, with a size of €100 million. The Asian Infrastructure Investment Bank (AIIB) issued a USD 300 
million DNN, marking the first digital issuance by an Asia-based issuer on Euroclear’s platform. The International 
Bank for Reconstruction and Development issued a €100 million digital bond on Euroclear’s D-FMI, listed on the 
Luxembourg Stock Exchange. These issuances are fully dematerialized, settled same-day, and integrated with 
Euroclear’s 
Source: 
liquidity. 
https://www.euroclear.com/services/en/primary-issuance/digital-financial-market-infrastructure.html 
519  For  example,  many  industry  players  are  interested  in  setting  up market  infrastructures  that  engage  in both 
trading and settlement of financial instruments, which is uniquely supported by instant gross settlement at the time 
of trade enabled by DLT. These hybrid trading and settlement infrastructures cannot be easily set up under the 
regular framework, which reflects the traditional separation of trading and settlement functions. 

compliance 

traditional 

settlement 

ensuring 

systems, 

and 

336 

 
 
 
 
 
 
3.2.  PROBLEM DRIVERS 

3.2.1.   Disproportionate and inflexible regulatory obligations for DLTPR 

applicants 

The DLTPR provides the regulatory flexibility necessary for the market to leverage DLT. It 
does  so  by  granting  its  participants  targeted  exemptions  from  the  standard  rulebook.  In 
exchange,  participants  must  demonstrate  how  they  will  achieve  regulatory  objectives  with 
alternative  measures.  While  proved  to  be  useful  for  DLTPR  applicants,  the  mechanism  of 
creating  flexibility  for  innovation  solely  based  on  pre-identified  derogations  from  specific 
provisions  listed  in  DLTPR  has  shown  its  limitations,  as  the  vast  majority  of  the  rules 
comprising the standard rulebook also apply in the Pilot.  

Bilateral feedback from fintech companies highlighted that having to comply with CSDR and 
MIFID level 1, and especially the more detailed level 2 requirements, amounts to a compliance 
burden that is not appropriate for small business that want to enter the market by building small 
scale trading and settlement solutions and have limited resources. This is confirmed in ESMA’s 
2025 DLTPR Report to the Commission520, where ESMA, having taken stock of the DLTPR’s 
application,  called  for  smaller  businesses  (SMEs  or  start-ups)  to  benefit  from  regulatory 
requirements adapted to their risk profile.521 Regulatory constraints and compliance costs were 
also flagged by certain regulators implementing the Pilot.522 Furthermore, some respondents to 
the SIU targeted consultation called for size-proportional compliance requirements under the 
Pilot. Additionally,  CSDR  requirements,  which  most  DLTPR  applicants  must  comply  with, 
were established for CSDs that are systemic in nature and at a moment when many CSDs in 
Europe were already mature businesses. This reflected market reality; typically, in the EU, there 
is a single CSD servicing the entire capital market of a Member State, and such a CSD can 
therefore be considered of systemic importance for the capital market of that Member State. 
However, while appropriate for the types of entities it sought to regulate, this high regulatory 
standard  in  CSDR  may  represent  a  regulatory  hindrance  to  entry  for  businesses  wishing  to 
provide small-scale CSD services under the DLTPR, which are by no means systemic. Similar 
conclusions can be drawn for MIFID, where requirements at level 2, while justified in general 
for  trading  venues,  may  lead  to  a  disproportionate  and  maladapted  rulebook  for  start-ups 
wishing to use DLT for trading services and gradually scale their operations. Furthermore, the 
detailed obligations laid down in level 1 and 2, while essential for an integrated market, can 
constrain the flexibility that small firms need to experiment with new business models, since 
they were designed with systemic infrastructures in mind. Therefore, the combined effect of 
Level 1 and Level 2 creates a de facto barrier to the uptake of new technologies by smaller 
actors. 

520https://www.esma.europa.eu/sites/default/files/2025-06/ESMA75-117376770-
460_Report_on_the_functioning_and_review_of_the_DLTR_-_Art.14.pdf  
521 See p. 31 of ESMA’s 2025 DLTPR Report. 
522  https://www.amf-france.org/sites/institutionnel/files/private/2025-04/amf_consob_position-paper-towards-a-
more-competitive-european-pilot-regime.pdf  

337 

 
 
 
 
 
 
The initial success of UK’s Digital Securities Sandbox (DSS)523 – the equivalent of the EU’s 
DLT Pilot in the UK - further supports the conclusion that MIFID and CSDR rules as currently 
modified  by  DLTPR  are  disproportionally  cumbersome  for  small  businesses.  The 
comparatively  more  flexible  and  proportional  DSS524  has  already  attracted  16  participants, 
mostly fintech companies525, despite the sandbox being in application less than a year and the 
UK being a comparatively smaller jurisdiction.  

Finally, regulatory requirements in MIFID and CSDR may prove to be too rigid for deployment 
of innovative trading, issuance and settlement solutions. Based on historical market practice, 
current trading and post-trading frameworks assume the existence of intermediaries that have 
a particular role and risk profile in the market structure, which are then granularly regulated. A 
more fundamental issue is that MiFID/CSDR were designed for traditional infrastructures and 
cannot easily be “bent” to fit DLT models through derogations alone. Their Level 1/Level 2 
layering reflects assumptions about intermediaries and risk profiles that may not map to DLT-
based businesses. The objective should be to give startups and innovative entrants a workable, 
DLT-specific framework while safeguarding core regulatory outcomes.526  

Relatedly, CSDR reflects the business practice of traditional market infrastructure, whereby a 
CSD infrastructure keeps securities accounts as entries on its IT systems, and also often runs 
an  issuance  register,  with  some  CSDs  (authorised  as  credit  institutions)  also  managing 
settlement in commercial bank money on their banking systems, separate from asset registers. 
DLT represents an omni-asset platform527 that can support representations of money and asset 
that  is  normally  not  controlled  by  any  single  entity,  with,  large  permissionless  blockchains 
featuring robust decentralisation and platform accessibility open to all. In this architecture asset 
custodians can hold assets directly on DLT, without the need of using CSD systems for top tier 
account maintenance. Money can also be represented on the DLT platform, rather than existing 
as an entry on the bank’s own systems. The notary function can be largely provided through 
control of the smart contract representing an asset (issuance) on-chain. Therefore, DLT-based 

523 The UK Digital Securities Sandbox (DSS) is a regulatory initiative jointly operated by the Financial Conduct 
Authority (FCA) and the Bank of England to allow firms to test and scale new technologies—such as distributed 
ledger technology (DLT)—in the trading and settlement of digital securities. The DSS is open to both established 
financial institutions and new market entrants legally established in the UK. 
524 The UK Digital Securities Sandbox (DSS) is notably broader and more flexible than the EU DLT Pilot Regime. 
It  allows  experimentation  with  a  wider range  of  "developing  technologies"  (not  limited  to  DLT),  welcomes a 
broader  set  of  participants  (not  just  established  financial  market  infrastructures  but  also  smaller  fintech),  and 
permits a wider array of financial securities and activities. The DSS allows regulators (the Bank of England and 
FCA) to modify or temporarily waive certain legal and regulatory requirements that would otherwise apply to 
financial market infrastructure providers. The BoE has used its powers to disapply broad parts of CSDR level 2 
to  streamline  and  simplify  the  rulebook  for  sandbox  participants.  The  DSS  also  uses  a  staged  approach  with 
"gates," allowing firms to gradually increase their activities as they demonstrate compliance and robustness, which 
can be less risky for small entrants. 
525 https://www.fca.org.uk/firms/innovation/regulatory-sandbox/accepted-firms 
526 One example of this is operational risk requirements laid out in level 2 of CSDR. While operational risks must 
be mitigated, some level 2 requirements are formulated with a presumption there is an identifiable service provider 
to the CSD. With DLT, some critical services may be provided by the DLT itself, which can be a decentralised 
infrastructure without an identifiable operator. Therefore, a more principles-based approach to operational risk 
management  may  be  warranted  to  appropriately  cover  this  interaction  between  DLT  and  a  DLT  market 
infrastructure. 
527  See  Bindseil,  Malekan,  Public  crypto  networks  as  financial  market 
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5138052  

infrastructures,  2025  at 

338 

 
 
 
 
 
infrastructure underpinned by open programmable platforms allows for a different distribution 
of intermediary roles than the one contemplated by CSDR, which largely implies that all three 
core  CSD  services  are  provided  by  one  entity  that  is  the  operator  of  systems  used  for 
representing  assets  and  sometimes  money.  This  creates  a  barrier  to  the  emergence  of  new 
business  models  that  may  seek  to  leverage  all  the  advantages  of  DLT.  From  a  commercial 
perspective, the requirement in the CSDR for a CSD to provide multiple CSD services also 
represents a high barrier to entry, requiring new entrants to establish both a (one-sided) network 
connecting  trading  parties  (i.e.  a  settlement  system)  and  a  (two-sided)  network  connecting 
issuers  and  investors  (notary,  account  maintenance),  both  subject  to  strong  network 
externalities. These assumptions about intermediary roles and functions may negatively impact 
the  development  of  DLT-based  CSD  services.  At  the  same  time,  DLT-based  market 
infrastructure is still in early stages of development, and therefore, intermediary roles and their 
risk profiles in the context of DLT should be assessed and tested carefully.  

3.2.2.  Regulatory barriers to scale, scope and long-term investments 

The DLTPR laid down various limits to the scale of activities carried out under the Pilot. It 
sets a limit to the issuance size and market capitalisation of eligible assets (asset-specific caps), 
and an aggregate cap that limits the total value of financial instruments intermediated by a DLT 
market infrastructure. This cap was set at EUR 6 bn. The main objective of these limits was to 
preserve investor protection, market integrity and, in particular, financial stability in light of 
the novel nature of this technology and business models that leverage it.  

However, these thresholds have been deemed too low by large financial entities, such as banks 
and CSDs. Feedback by market participants from the SIU targeted consultation and bilateral 
interviews  reveals  that  the  fear  of  breaching  the  thresholds  in  case  of  large  issuances  for 
corporates and sovereigns has kept certain large market participants away from applying for 
the Pilot. Indeed, a bond issuance for a large corporate can have a nominal size of billions of 
euros.528 For a Pilot applicant recording or  admitting to trading a few such issuances would 
either mean that it could not accept any further business, or worse, that it would need to wind 
down its operations. This makes larger projects under the Pilot commercially unviable, even 
though the DLTPR was also aimed at large stakeholders.  

This conclusion is further supported by ESMA’s 2025 DLTPR Report, noting that feedback 
from NCAs and industry stakeholders support the conclusion that the current thresholds are too 
restrictive and ‘exclude many large-cap issuers and well-established instruments, limiting the 
commercial  viability  and  attractiveness  of  DLT  infrastructures.’529  Additionally,  SIU 
consultation  feedback  showed  that  the  majority  of  the  respondents  believed  that  current 
thresholds are too low, significantly limiting scalability, calling for their removal or significant 

528 The dominant format for single corporate bond issuances in Europe in 2024 was in the size range of €500 
million  to  €1  billion.  The  most  prominent  corporate  issuers,  particularly  those  in  the  financial  sector  or  large 
multinational  corporations,  often 
the  €1–2  billion  range  per  transaction.  Source: 
in 
https://www.helaba.de/blueprint/servlet/resource/blob/docs/638282/a3bff4f794f4322256956420a0397776/prima
erm-eur-corpbonds-20240327-data.pdf 
529https://www.esma.europa.eu/sites/default/files/2025-06/ESMA75-117376770-
460_Report_on_the_functioning_and_review_of_the_DLTR_-_Art.14.pdf 

issued  bonds 

339 

 
 
 
 
 
 
increase.  While  the  goals  of  the  caps  -  market  integrity,  investor  protection,  and  financial 
stability - remain legitimate, the regulators' and industry's deeper experience with DLT suggests 
the  possibility  of  mitigating  risks  without  hindering  the  commercial  viability  of  large-scale 
projects. Experience with the DLTPR has demonstrated that setting product and aggregate caps 
on  financial  instruments  intermediated  by  DLT  market  infrastructures,  resulted  in  de  facto 
regulatory  barriers  to  the  participation  of  large  financial  entities  in  the  Pilot,  thus  limiting 
uptake.  This  runs  counter  the  objective  of  the  Pilot  to  support  innovation  and  leverage 
experience with concrete projects to inform further policymaking.  

Furthermore,  with  the  stated  aim  of  preserving  investor  protection,  market  integrity  and 
financial stability, DLTPR limits the scope of eligible assets that can be intermediated by 
DLT MIs to simple instruments: certain shares, bonds and UCITS. Bilateral interviews with 
the industry, as well as ESMA’s 2025 DLTPR report and reports by certain regulators530 point 
to this limited scope of eligible assets as a material barrier for the broader take up of the Pilot. 
Notably, ESMA highlighted that DLT and the automation it can bring about may be particularly 
suited for markets in complex assets and less liquid assets (AIFs, complex bonds, structured 
products), while AMF531 and CONSOB532 additionally noted that adding derivatives under the 
scope of the Pilot may also attract new participants. Furthermore, certain academic articles also 
point  to  the  missed  innovation  opportunities  from  excluding  derivatives  from  the  Pilot 
regime.533 Enlarging the scope of eligible assets was seen as a key priority for enhancing the 
attractiveness of the Pilot by the majority of respondents to the SIU consultation – noting that 
extending the scope of assets into more complex products would attract professional investors 
– a key component in developing capital markets. To note that the scope of eligible assets in 
the DLTPR has been limited to simple instruments, in part, because retail investors can have 
direct  access  to  trading  and  settlement  infrastructures  under  the  Pilot  and  therefore,  it  was 
deemed prudent to limit the types of instruments that retail investors can have direct access to 
on DLT MIs. However, MIFID investor protection rules can and should be applied in the DLT 
Pilot also in the scenario of expanded eligible assets. Put differently, the possibility of broad-
based direct access to trading and settlement infrastructures should not govern the type of assets 
that are offered on those infrastructures, provided existing investor protection rules are applied 
by investment firms that grant access to such products.  

DLTPR  limits  the  types  of  entities  that  can  participate  in  the  Pilot;  eligible  entities  are 
either licenced MIFID trading venues or CSDs. Each of these entities may under the DLTPR 
licence  provide  trading  and  CSD  services  where  they  comply  with  applicable  legislation 
(CSDR, MIFID, DLTPR). This approach is limitative as there may be other business models 
that may want to leverage other financial service licences to participate in the DLTPR, beyond 
a  MIFID  trading  firm  licence  or  a  CSD  authorisation.  Narrow  eligibility  for  the  Pilot 
participation may have deprived the Pilot from other participants that may wish to combine 

530  https://www.amf-france.org/sites/institutionnel/files/private/2025-04/amf_consob_position-paper-towards-a-
more-competitive-european-pilot-regime.pdf  
531 Autorité des marchés financiers (AMF) is the French financial market regulator. 
532 Commissione Nazionale per le Societa e la Borsa (CONSOB) is the Italian financial market regulator. 
533 See for example for energy derivatives, Priem, Randy, Enhancing energy derivatives trading: Assessing the 
need 
(March  22,  2025).  Available  at 
SSRN: https://ssrn.com/abstract=5189300   

the  European  DLT  Pilot  Regime  Regulation 

to  update 

340 

 
 
 
 
 
DLT-based trading  and  CSD services with  their existing  or prospective licences. Within  the 
DLT ecosystem, new combinations of services are arising, with banks setting up tokenisation 
platforms for issuance and transfer of securities, and crypto-asset service providers (CASPs) 
increasingly  interested  in  offering  MIFID  financial  instruments.534  The  latter  category  of 
service providers did not exist when the Pilot was established, however, with MiCA535 now 
attracting  many  DLT-native  firms  to  seek  a  CASP  a  licence  in  Europe,  not  allowing  their 
participation in the Pilot may appear to be a missed opportunity. Crypto exchanges licenced 
under MiCA operate trading and settlement systems handling crypto assets in scope of MiCA. 
Since this activity requires infrastructure and business solutions identical or similar to those 
required for intermediating DLT (tokenised) financial instruments, there may be synergies that 
CASPs can leverage for the activity of issuing, trading and transferring financial instruments 
using DLT. 

Finally, another significant barrier to deployment of projects under the DLTPR have been the 
ambiguities around the long-term viability of the Pilot regime. These include references in 
the DLTPR to ‘exit strategies’ in case of discontinuation of the Pilot, capping DLTPR licences 
to a period of six years536 and references to a possible termination of the Pilot in the DLTPR 
review provisions.537 Feedback from the SIU consultation, ESMA’s 2025 DLTPR Report and 
statements from certain regulators have all highlighted that the industry perceives these time-
caps  and  limitations  as  having  a  cliff  effect:  businesses  are  unwilling  to  make  long-term 
investments under a pilot regime that might be discontinued in the medium term, rendering 
those investments commercially unviable. This issue has already been raised by ESMA’s letter 
to the Commission and the co-legislators in 2024.538 The Commission attempted to provide 
comfort to the market by noting in a published response539 that the DLTPR does not contain an 
explicit sunset clause, however, in light of the current wording of the regulation, the market 
harbours lingering concerns about the long-term viability of the Pilot that stifle participation.  

4.  OBJECTIVES 

4.1.  GENERAL OBJECTIVE 

It  is  imperative  that  EU  capital  markets  are  attractive  for  innovators,  to  support  the  digital 
transition  and  efficiencies  it  brings,  support  market  competition  and  maintain  EU’s 
competitiveness  vis-à-vis  other  jurisdictions.  The  regulatory  framework  and  related 
supervisory  practices  play  an  important  role  in  establishing  a  broader  market  environment 

534 Kraken and Robinhood, both holders of CASP licences, recently announced the offering of ‘tokenised stocks’. 
While these instruments may not legally qualify as stocks, these market developments demonstrate the appetite 
for  CASPs  to  provide  both  MiCA  and  MIFID  instruments  to  customers.  We  also  observe  the  opposite  trend 
(MIFID to MiCA product expansion).  
535 Fully in application since 30 December 2024. 
536 Article 8(11) of DLTPR. 
537 See for example Article 14(2) of DLTPR. 
538 
_Letter_to_EU_Institutions.pdf  
539https://www.esma.europa.eu/sites/default/files/2024-
05/3056562_030524_Reply_Verena_Ross_on_DLT_Pilot_Regime_Implementation.pdf  

https://www.esma.europa.eu/sites/default/files/2024-04/ESMA75-117376770-460_DLT_Pilot_Regime_-

341 

 
 
 
 
 
conducive  to  the  uptake  of  new  technologies,  such  as  DLT.  The  general  objective  of  the 
proposed  reforms  is  to  better  support  DLT-related  innovation  in  Europe  by  adjusting  the 
DLTPR  requirements  while  maintaining  regulatory  standards  which  effectively  capture  and 
address risks of activities undertaken under the Pilot. This objective is in line with the SIU, 
which  specifically  refers  to  role  of  DLT  and  tokenisation  in  enhancing  the  interoperability, 
interconnection and efficiency of EU trading and post-trading infrastructures. 

4.2.  SPECIFIC OBJECTIVES 

Linked  to  the  problem  drivers  discussed  above,  there  are  two  specific  objectives  of  the 
proposals put forward to promote market efficiency. They are (i) ensuring that DLTPR lays 
down  proportionate  and  flexible  regulatory  requirements  for  businesses  participating  in  the 
Pilot and (ii) removing regulatory barriers to achieving scale and scope of projects and activities 
under the Pilot. The specific objectives are without prejudice to the ultimate constraint of not 
undermining  financial  stability,  as  well  as  the  integrity  of  markets  and  the  entities  that 
participate therein. 

4.2.1.  Proportionate and flexible regulatory requirements for businesses 

participating in the Pilot 

DLTPR  creates  flexibility  for  its  participants  by  providing  for  certain  specified  derogations 
from standard rulebooks (CSDR, MIFID). While this has  been helpful in supporting certain 
DLT-based  projects,  the  mechanism  of  identifying  in  a  regulation  (DLTPR),  in  advance  of 
experience with concrete projects, targeted provisions in CSDR and MIFID that were deemed 
to be incompatible or maladapted to DLT, has shown its limitations. These derogations target a 
limited number of level 1 provisions exclusively (approximately 15 derogations). However, the 
complete rulebook for trading and CSD services comprises hundreds of provisions set out in 
level 1 and level 2 rules of the MIFID/CSDR rulebook. Therefore, businesses and regulators 
applying the rules are given only limited flexibility in complying with MIFID and CSDR via 
the DLTPR. Given the detailed nature of these rulebooks, it is not possible for regulators and 
businesses to apply a principles-based approach to complying with CSDR and MIFID general 
objectives, instead of ensuring that the totality of level 1 and level 2 provisions are complied 
with, even in cases where they are incompatible or maladapted to small firms relying on DLT. 
Current  DLTPR  rules,  by  derogation  from  MIFID  and  CSDR,  already  enabled  setting  up 
business models that under the current rulebooks wouldn’t be possible, or difficult and costly 
to implement.540 A principles-based rulebook comprised of more general trading and settlement 
rules may support the development of further new business models. Finally, a more principles-
based  approach  to  achieving  the  objectives  of  MIFID  and  CSDR  under  Pilot  may  also  be 
needed on proportionality grounds. Many of the businesses interested in participating in the 

540 For example, setting up a trading and settlement infrastructure under one licence is not possible under the 
regular rulebooks, while it has been a sought-after business model under the DLTPR, which explicitly made it 
possible. 

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Pilot are small new entrants that seek to gradually scale up their projects.541 Ensuring that they 
can comply with a set of rules that appropriately captures the risk profile of their small-scale 
operations are key for them. Currently this is not the case. Therefore, to support the general 
objective in 4.1, the proposed measures should ensure that businesses can benefit from a pilot 
framework that lays down a proportionate compliance burden, creates sufficient flexibility for 
businesses looking to innovate with DLT, and avoids diverging national practices within a more 
principles-based Pilot segment. 

4.2.2.  Removing regulatory barriers to achieving scale and scope of projects and 

activities under the Pilot 

The DLTPR is currently geared towards new entrants wishing to use DLT to set up trading and 
settlement  infrastructures,  which  are  expected  to  scale  businesses  gradually.  However,  to 
increase  attractiveness  and  legal  certainty,  the  DLTPR  should  not  focus  solely  on  small 
operations. The lack of possibility to achieve scale has been repeatedly criticised by the market 
since it can affect the commercial viability of projects from inception. Importantly, limitations 
to scale and scope also disincentivise large established financial players to enter the Pilot to 
develop large scale projects. The DLTPR should therefore allow projects to achieve scale and 
scope.  Current  regulatory  standards  of  the  Pilot  are  equivalent  to  those  under  the  standard 
rulebooks (CSDR, MIFID) and yet they comprise strict limitations to activity (aggregate and 
product-specific  thresholds).  These  limitations  may  have  been  appropriate,  based  on  the 
principle  of  precaution,  in  the  early  days  of  DLT-based  financial  markets.  However,  the 
increased maturity and robustness of DLT market solutions and supervisory expertise, together 
with growing market interest in using the technology, necessitate a policy approach that allows 
for robustly managed projects under the Pilot to continue to increase activities in case of market 
demand, while considering the risk profile of a project. Supporting a wide scope of projects 
under the Pilot is equally important. The current limitations to the types of assets eligible to be 
intermediated  by  Pilot  participants  should  be  eased,  as  DLT  merely  represents  a  type  of 
technology  for  issuing,  registering  and  transferring  assets,  and  technological  risks  can  be 
mitigated as part of the company’s operational risk management. On the other hand, product-
related risks should and can be mitigated by a proper application of investor protection rules. 
Finally,  it  is  important  to  ensure  that  projects  developed  under  the  Pilot  do  not  face  legal 
uncertainty  flowing  from  doubts  about  the  mid-term  prospects  of  the  Pilot  framework  that 
specifically supports their business models. Where businesses do not have assurances as to the 
long-term legal feasibility of their projects, this has a chilling effect on entrepreneurship. The 
current perceived time-limitations of the Pilot therefore represent a barrier to the market and 
should be expressly addressed.   

541  DLT’s  open  source  (in  most  cases),  platform-based  ecosystem  appears  to  be  attracting  many  small  tech-
oriented  companies  that  would  benefit  from  a  gradual  compliance  approach  as  they  progressively  scale  their 
financial services. Furthermore, creating a size- and technology-adapted regulatory treatment is in line with the 
Commission’s simplification agenda. One of the drivers behind simplification initiatives is precisely to ensure 
that  small  businesses  benefit  from  a  proportionate  compliance  treatment.  By  supporting  innovation  and  a 
compliance  burden  adapted  to  the  size  of  firms,  the  EU  would  support  the  competitiveness  of  DLT-based 
infrastructures in the EU.  

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5.  POLICY OPTIONS AND ASSESSMENT 

5.1.  SPECIFIC  OBJECTIVE 1: ENSURE  THAT DLTPR LAYS  DOWN  PROPORTIONATE  AND 
FLEXIBLE  REGULATORY  REQUIREMENTS  FOR  BUSINESSES  PARTICIPATING  IN  THE 
PILOT 

5.1.1.  Option 1: Baseline – no policy action 

No policy action in this area would mean that the Pilot, which is meant to be a flexible DLT-
adapted experimental framework, remains largely modelled after CSDR and MIFID, providing 
only a certain limited number of derogations from the standard rulebooks. This means that the 
freedom  to  specialise  in  only  certain  (CSD)  services  remains  curtailed  and  the  compliance 
burden for small fintech elevated, since most of the rules of the standard rulebook remain in 
application. CSDR in particular remains a high compliance burden to clear for new entrants to 
the market that want to specialise in certain DLT-based CSD services only or scale up their 
businesses gradually. Consequently, Pilot participation would remain limited, favouring those 
potential  applicants  that  are  well-capitalised  while  maintaining  higher  barriers  to  entry  for 
smaller participants. This may result in lost innovation potential in the EU at a time when DLT 
and asset tokenisation are becoming an increasingly important trend affecting market structure 
and  processes.  Furthermore,  large  international  financial  groups  may  deploy  their  DLT 
solutions outside of Europe, in jurisdictions with frameworks more conducive to cutting edge 
innovation. This may further compound the lost innovation potential as know how is developed 
outside the EU and subsequently imported in the EU as a ready-made service when it reaches 
maturity.  

5.1.2.  Option 2: Enhance the proportionality and flexibility of Pilot 

This  option  would  establish  a  special  segment  within  the  DLTPR  aimed  at  small-scale 
businesses;  the  ‘tier  2’  segment.  Tier  2  Pilot  participants  would  benefit  from  additional 
regulatory flexibility and compliance proportionality with regards to CSDR. In practice, this 
would  mean  disapplying  and  modifying  a  significant  part  of  CSDR  level  2  provisions  and 
reverting  to  the  more  generally  phrased  level  1  obligations.  Furthermore,  certain  detailed 
requirements  in  CSDR  that  develop  more  general  obligations  thereunder  may  also  be 
disapplied or modified, both to increase proportionality and take into account DLT specificities. 
The result should be a bespoke simplified rulebook for CSD services applicable to small Pilot 
applicants. The activities of tier 2 would be capped to an amount close to the current cap in the 
DLTPR542, which has already been established as a size-limitation that ensures any operations 
under it cannot achieve scales that may affect financial stability. Tier 2 would be implemented 
in two steps. Firstly, DLTPR would lay down the essential features of the tier 2 framework, 
such as an activity threshold, eligible participants, rules on transitioning to tier 1.543 Secondly, 

542  This  option  is  assumed  to  be  implemented  in  conjunction  with  increasing  or  removing  the  thresholds  (see 
options  under  S02)  for  those  Pilot  participants  that  would  comply  with  the  current  DLTPR  rulebook,  which 
includes level 2 requirements. These participants operating under an increased thresholds would consequently 
become ‘tier 1’ participants.  
543 Tier 1 would imply the DLTPR regulatory treatment that is currently applicable to Pilot applicants, which 
means CSDR and MIFID and their level 2, with the possibility of derogations foreseen in the current DLTPR.  

344 

 
 
 
 
 
a subsequent delegated act would disapply parts of CSDR level 2 requirements and modify 
non-essential  provisions  of  level  1  to  achieve  proportionality  and  greater  generality  of 
obligations. Furthermore, a similar approach to tier 2 would be taken for MIFID, with regards 
to trading venues participating in the Pilot. While the greatest market interest and the need for 
regulatory flexibility relates to CSD services, it is important to future proof the Pilot in case 
market circumstances change and there is a demonstrable need for regulatory flexibility and 
proportionality also with regards to trading services. 

The general approach of establishing a more principle-based regulatory approach within the 
DLTPR  was  supported  by  the  majority  of  respondents  to  the  SIU  targeted  consultation,  as 
opposed  to  solely  relying  on  fixed  derogations  from  MIFID  and  CSDR.  Evidence  from 
supervisory sandboxes as shown by the OECD544 indicate that proportionate, principles-based 
approaches  and  lighter  rulebooks  for  small  firms  reduce  entry  barriers  while  preserving 
consumer and market safeguards when combined with active supervision. Such an approach 
was said to have greater flexibility and adaptability to technological innovation, according to 
respondents. In general terms, a tiered, risk-based approach that distinguishes between large 
and small Pilot participants was also supported by ESMA in their 2025 DLTPR Report.  

This option would directly deliver on the objective of ensuring proportionality and flexibility 
of the Pilot for small innovative businesses. Firstly, by disapplying parts of level 2 and some 
provisions of level 1, NCAs would rely on the principles-based obligations of CSDR to approve 
and supervise firms wanting to provide CSD services.  By doing so, they may be able to better 
take  into  account  the  specific  business  model  of  a  DLTPR  applicant  and  its  risk  profile. 
Secondly, by being less constrained by detailed level 1 and 2 rules, the Pilot applicants would 
have  more  freedom  in  organising  their  activities  in  new  ways. Well-designed  proportionate 
regimes  can  accelerate  learning  for  both  regulators  and  firms  while  preserving  financial 
stability as shown by OECD. 

Creating the tier 2 segment adapted for small businesses would have direct benefits for DLT 
innovation in finance. In the area of tech-driven financial innovation it is often small fintechs 
that create most innovative solutions and put competitive pressure on larger players to follow 
suit or acquire new entrants, internalising innovation. Therefore, a Pilot segment adapted to 
small firms that benefit from close NCA support is expected to boost innovation in DLT-based 
CSD services. This is important, as DLT solutions may upend how CSD services are provided 
in  the  future,  and  therefore  it  is  the  new  entrants  rather  than  incumbents  that  may  be  most 
incentivised to deploy the technology. Such flexibility aligns with recommendations from the 
Bank for International Settlements, which emphasised proportional innovation pathways as key 
enablers for distributed ledger adoption in regulated markets.545 

Because the legal framework of tier 2 would be more generally phrased, it may lead to divergent 
regulatory approaches in Member States. This may undermine the principle of a single EU-
wide rulebook and lead to regulatory arbitrage. To mitigate these downsides, ESMA should be 
closely involved, leveraging supervisory convergence tools to ensure a coherent application of 
the tier 2 framework across the Union.  

role  of  sandboxes 

544  OECD  The 
https://www.oecd.org/content/dam/oecd/en/publications/reports/2020/06/the-role-of-sandboxes-in-promoting-
flexibility-and-innovation-in-the-digital-age_ddcd3d40/cdf5ed45-en.pdf 
545  BIS  Wholesale 
https://www.bis.org/publ/othp99.htm 

in  promoting  flexibility  and 

bank  money 

technological 

innovation 

context 

central 

the 

of 

in 

in 

the  digital  age 

innovation, 

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5.1.3.  Option 3: Extensive overview to maximise flexibility and proportionality 

of the Pilot 

This option would establish tier 2 as in option 2, but would additionally include the possibility 
for regulated financial entities to obtain a specific licence under the DLTPR for a single 
DLT-based  CSD  service  under  the  Pilot  and  comply  with  the  requirements  related  to  that 
service only, which currently is not possible under CSDR nor DLTPR.546 This service-specific 
regulation would allow Pilot participants to set up distributed provision of CSD services across 
a network of specialised service providers. The  requirements applicable to each of the  core 
CSD services would mirror, to the extent possible, the obligations related to a particular service 
in CSDR. CSD service providers would need to, individually and collectively, ensure the same 
regulatory outcomes required by CSDR, such as integrity of the issuance, robust safeguarding 
of assets and orderly settlement. Under such service-specific regulation, an eligible entity could 
within the Pilot obtain a licence to provide the notary function and register securities on DLT. 
It could provide that service across Europe. Tokenisation platforms that specialise in creating 
smart-contract-based (tokenised) securities catering to issuer needs may be interested in this 
service.  

Per-service authorisation for CSD services was supported by the majority of respondents to the 
public  consultation,  noting  that  such  an  approach  could  enhance  technological  neutrality  of 
DLTPR,  support  competition  in  the  area  of  DLT-based  CSD  services  and  provide  more 
flexibility for new business models. 

Service-specific regulation supports the first specific objective. Firstly, businesses benefit from 
a more proportional compliance burden where they can be subject to only those requirements 
that are relevant for the CSD service provided. This is important because CSD services differ 
in  risk  profile.  For  example,  albeit  crucial  for  ensuring  orderly  management  of  a  particular 
securities  issuance,  the  risk  profile  of  a  notary  service  is  normally  much  lower  than  that 
associated to the settlement service. The latter service may involve liquidity and credit risks 
that are not inherent in the notary service. This measure may particularly benefit smaller Pilot 
applicants that may find it easier to initially focus on a single CSD service and expand their 
offering as they scale up. Secondly, service-specific regulation may enable participants in the 
issuance and post-trading value chain to organise the provision of CSD services as a network 
of interconnected entities, on a DLT platform, and not as single CSD entity providing all CSD 
services  on  its  systems.  Such  a  regulatory  approach  may  unlock  new  business  models, 
specialisation  among  intermediaries  and  more  competition  in  CSD  services.  Therefore,  it 
directly supports the objective of increasing the regulatory flexibility of the Pilot. Distribution 
of CSD roles may lead to increased system resilience, eliminating the single point of failure 
problem of the current centralised CSD model. However, it may also make supervision more 
difficult,  with  CSD  services  provided  by  a  group  of  entities. To  safeguard  orderly  markets, 
comingling certain key post-trading services, such as operating a settlement system, with other 
financial services may need to be prevented. Recognising the specificities of platform-based 
service  provision  on  DLT  but  ensuring  that  risks  are  appropriately  mitigated,  this  measure 
would  be  in  line  with  the  general  principle  of  same  activity,  same  risks,  same  regulatory 
outcomes.  

546 Currently, under CSDs under the CSDR are presumed to perform at least two core CSD services: operating a 
settlement system and one other core CSD service (notary and central maintenance service), while often providing 
all three services.  

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Finally, this option would also establish a mechanism to approve derogations from CSDR 
or  MIFID,  on  requests  initiated  by  the  applicants  to  the  DLT  Pilot.  Currently,  all  the 
derogations from the standard rulebooks made possible under the Pilot are specified in advance, 
in the DLTPR, without the possibility for Pilot applicants to apply for derogations outside those 
enumerated in the regulation. However, provisions that are incompatible with the use of DLT, 
and therefore act as a barrier to innovation, can in practice be best identified in the process of 
establishing a concrete innovative business model and applying for its authorisation. It is rather 
difficult for the law to identify in advance which specific provision may not be adapted to an 
emerging technology and manifold business models that would like to use it. An application-
driven derogation mechanism would address  this  problem.  Upon a reasoned request  from  a 
DLTPR applicant, non-essential elements of CSDR or MiFID could be derogated from based 
on  their  incompatibility  with  DLT-based  provision  of  services,  provided  that  the  objectives 
pursued  by  the  rulebook  derogated  from,  and  its  essential  elements  and  principles,  are 
preserved. 

5.2.  SPECIFIC  OBJECTIVE  2:  REMOVE  REGULATORY  BARRIERS  TO  ACHIEVING  SCALE 

AND SCOPE OF PROJECTS AND ACTIVITIES UNDER THE PILOT 

5.2.1.  Option 1: Baseline – no policy action 

No policy action means that the Pilot maintains the  limitations of its current form. Keeping 
aggregate thresholds applicable to DLT MIs at EUR 6 bn means that projects under the Pilot 
wouldn’t be able to scale. This amount is the rough equivalent of a few large corporate debt 
issuances or a single sovereign debt issuance.547 Therefore DLT MIs operating under such caps 
wouldn’t  be  able  to  meaningfully  service  large  issuers,  reducing  the  attractiveness  of  their 
offering. The threat of breaching thresholds while trying to grow the business may prove to be 
challenging  if  not  impossible  to  manage  for  existing  participants,  especially  if  changes  to 
CSDR or MIFID do not mirror the DLT-adapted provisions of the Pilot framework, making 
transition into the standard framework difficult. Maintaining limits on the scope of products 
means  DLT  MIs  wouldn’t  be  able  to  use  DLT  for  issuance,  recording  and  transfer  of  more 
complex and less liquid products, hampering innovation in the market segment that may prove 
to be most conducive to DLT disruption. Finally, failing to address the time-limitation of the 
Pilot  would  further  deepen  market  uncertainty  about  the  commercial  viability  of  projects 
deployed under the framework. This may disincentivise prospective participants to complete 
their licencing process, further depressing Pilot uptake. 

5.2.2.  Option 2: Comprehensive increase of scope and scale 

This option would firstly remove the product-specific thresholds, while significantly increasing 
the  aggregate  threshold  (currently  EUR  6  bn),  to  e.g.  EUR  100  billion,  but  remain  limited 
unlike  option 3. This  threshold is  proposed based on the market  data of  European CSDs as 

547https://www.bundesbank.de/resource/blob/959424/68c7d4874923350405af4841f2e45cbb/472B63F073F0713
07366337C94F8C870/2025-06-06-ausschreibung-download.pdf  

347 

 
 
 
 
 
reported by the ECB548, and approximately represents the median size CSD in Europe.549 The 
increased thresholds would allow Pilot participants to develop economies of scale, increasing 
business attractiveness of the Pilot, while still maintaining a limit to the size of Pilot activity 
and therefore mitigating risks, in particular those related to financial stability. To ensure the 
Pilot provides a pathway to further scaling, a delegated act empowerment would foresee further 
increasing  of the threshold  depending  on specified market  conditions  (demonstrated market 
demand and evidence of limited financial stability or other risks). The delegated act could also 
be used to revise the threshold downwards, should there be an unforeseen risk build-up in the 
activity conducted under the Pilot.  

The majority of respondents to the public consultation, proposed adapting or removing the limit 
on the value of financial instruments traded, while some respondents favoured a flexible limit 
that can be adapted based on industry development and assessment of risks. 

Secondly, the scope of eligible assets, currently limited to certain shares, bonds and UCITS, 
would  be  extended  to  all  financial  instruments.  This  change  would  make  the  Pilot  more 
attractive to a broader range of market participants, including those that specialise in complex 
assets and less liquid assets (AIFs, complex debt instruments, structured products), and would 
allow DLT market infrastructures to bring efficiencies to the issuance, trading and settlement 
of those assets. Industry reports550 note that DLT adoption is more likely in markets that are 
today supported by less robust digital infrastructure, such as illiquid funds, OTC derivatives, 
rather than in liquid, well-functioning markets, such as blue-chip equities and securities funds. 
Therefore,  the  value  of  assets  issued  and  settled  on  DLT  infrastructure  may  significantly 
increase as a result of extending the scope of DLTPR. At the same time, the valuation and risk 
assessment of structured products and bespoke AIFs on DLT platforms may negatively affect 
current frameworks, as their complexity, limited transparency, and low liquidity make them 
harder  to  price,  risk-manage,  and  integrate  into  existing  market  infrastructures  creating 
potential  contagion  risks.  To  ensure  same  regulatory  outcomes  as  with  traditional  markets, 
MIFID  investor  protection  and  market  integrity  standards  and  obligations  would  be  fully 
maintained. 

Participants in the public consultation overwhelmingly supported the broadening of the scope 
of eligible assets, suggesting including categories that range from tokenised physical assets to 
all  types  of  stocks  and  all  financial  instruments  under  MiFID.  In  particular,  respondents 
emphasised the inclusion of AIFs, Euro Medium Term Notes and derivatives to increase the 
attractiveness  for  institutional  and  professional  investors,  as  long  as  investor  protection 
measures from MiFID are maintained. 

548https://data.ecb.europa.eu/data/data-categories/payment-statistics/securities-trading-clearing-and-
settlements/securities-settlements/securities-held-csd-accounts 
549 The European CSD market is highly concentrated, with a few major international players such as Euroclear 
and Clearstream holding assets valued in the trillions of euros, while the majority of national CSDs manage much 
smaller portfolios, typically ranging from a few  billion to several hundred billion euros. This creates a  highly 
skewed distribution, where the smallest CSDs hold around EUR 3 billion in assets, the median CSD manages 
around EUR 80 billion, and the average around 2 trillion caused by the outsized holdings of the largest CSDs, 
which hold assets over EUR 20 trillion each. The average and median can vary how the missing data is considered 
for some of the national CSDs and whether the two largest CSDs’ national entities (Euroclear and Clearstream) 
are handled separately or together. The proposed EUR 100 billion threshold corresponds to the median increased 
by EUR 20 billion to consider expected increase in market volumes. 
550 Impact of Distributed Ledger Technology in Global Capital Markets, BCG, GFMA et al, 2023.  

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Thirdly, neither the DLTPR nor the authorisations granted under it would have an expiration 
date,  with  the  specific  objective  of  providing  the  market  with  legal  certainty  for  long-term 
investments  in  projects  under  the  Pilot.  It  would  be  clarified  that  DLTPR  would  continue 
indefinitely  but  remain  in  pilot  or  sandbox  form  with  certain  limitations. As  such  it  would 
remain a regime that would evolve in light of market developments and needs towards a stable 
state framework. Once sufficient learnings from participating projects are gathered, it would 
be supplanted by a stable state framework for the use of DLT in financial services. The future 
stable state rulebook would make sure that successful pilot projects would be able to continue 
functioning under it, minimising disruption for existing projects. This combination of elements 
-  the  lack  of  any  time-limitation  on  one  hand  and  the  continuation  of  DLTPR  as  a  pilot 
framework  on  the  other  –  would  precisely  reflect  the  need  to  support  legal  certainty  and 
commercial viability of Pilot projects, while recognising that it is too early to transition the 
pilot into the standard rulebooks. Once the market reaches maturity (less subject to change) 
and more information and experience are gathered from concrete projects, a transition would 
occur into a stable state rulebook without any limitations.  

Respondents to the public consultation believed that removing the limited duration of DLTPR 
licenses would be critical for long-term business planning and investment, as it would reduce 
regulatory uncertainty and align the EU with international practices. 

Finally, the set of eligible participants would be expanded to include CASPs holding a licence 
to operate a trading venue and credit institutions. However, other financial service providers 
would not be eligible to use the DLTPR unlike under option 3. The impacts of allowing credit 
institutions  into  the  Pilot  are  discussed  under  option  3.  Crypto-asset  trading  venues  are 
operationally  and  functionally  similar  to  investment  firms  operating  an  MTF,  which  are 
currently eligible for the DLTPR. By bringing CASPs licenced to operate trading venues under 
the  scope  of  the  DLT  Pilot  Regime,  the  EU  would  foster  innovation  in  tokenised  financial 
instruments,  thereby  broadening  the  DLT  ecosystem.  As  businesses  that  already  heavily 
leverage DLT, CASPs could use their existing tech stack and operational solutions for issuance, 
trading  and  settlement  of  DLT  financial  instruments,  leading  to  economies  of  scope.  Their 
inclusion would enable both retail and institutional investors to access tokenised securities and 
other financial instruments through familiar crypto platforms, increasing market participation 
and liquidity. Moreover, the presence of CASPs in the Pilot can drive competition, potentially 
lowering costs, improving service quality, and accelerating product development in the digital 
asset space.  

At the same time, including CASPs introduces certain risks. The prudential, governance and 
organisational  requirements  applicable  to  CASPs  may  not  be  adapted  to  the  more  complex 
business  model  that  could  emerge  under  the  Pilot,  covering  trading  and  CSD  services  in 
financial instruments. MiCA regulation is a relatively new framework, and CASPs authorised 
under it are relatively new entrants to the EU’s financial markets. Furthermore, partly due to 
insufficient regulation prior to MiCA, crypto-asset markets have been prone to high volatility 
and operational and governance failures of businesses operating in them. Allowing CASPs to 
expand their services  to  financial instruments  through the Pilot would likely  lead to  greater 
interconnectedness  between  crypto-asset  markets  and  traditional  markets.  However,  by 
comprehensively  regulating  CASPs  and  stablecoins,  MiCA  made  sure  that  connections 
between CASPs and traditional financial intermediaries are safe and follow a clear rulebook. 
Furthermore,  national  authorities  may  face  challenges  in  ensuring  consistent  and  effective 
oversight,  increasing  the  risk  of  regulatory  arbitrage.  Large  CASPs  with  significant  market 
presence may pose increased risks to financial stability where they, under the Pilot, achieve 

349 

 
 
 
scale  in  services  related  to  DLT  financial  instruments,  requiring  enhanced  scrutiny  and 
coordination among EU supervisors.  

The regime’s limited scope would continue to enable controlled experimentation with DLT in 
financial  markets,  minimising  systemic  risk.  Restricting  participation  to  banks  and  CASPs, 
alongside  the  currently  eligible  entities,  would  keep  the  regime  focused  and  manageable, 
allowing  supervisors  to  effectively  assess  risks  and  benefits  before  considering  broader 
expansion. Broadening access to a wider range of financial service providers could introduce 
operational, financial, and cyber risks that are more difficult to monitor and control—especially 
in a framework that grants exemptions from core EU financial regulations. Limiting eligibility 
to  these  well-regulated  institutions  ensures  that  systemic  and  operational  risks—such  as 
settlement  failures,  cyberattacks,  or  operational  disruptions—are  managed  by  entities  with 
proven risk management capabilities. Other financial service providers, such as asset managers, 
payment institutions, crowdfunding platforms, or fintechs, may have a core activity that would 
be less relevant for testing DLT infrastructure, and they may lack the necessary infrastructure, 
experience, or regulatory oversight to safely operate critical market infrastructure at this stage. 
However, while the cumulation of their core activity and that of operating a DLT MI may have 
downsides, there may be advantages to allowing a wider set of financial entities, beyond certain 
CASPs  and  banks,  to  provide  specific  CSD  services  as  discussed  in  option  2  related  to  the 
specific objective 1. 

5.2.3.  Option 3: Removing limitations and maximising scope of eligible 

participants 

Like in option 2, the scope of assets would be extended to all financial instruments. Like in 
option 2, option 3 would eliminate the current limited duration of DLTPR authorisations and 
clarify that there is no expiration date to the Pilot.  

Furthermore, this option would entail removing entirely the product-specific551 and aggregate 
thresholds552 applicable to Pilot applicants. This means that DLT market infrastructures could 
admit  to  trading  or  record  financial  instruments  without  any  limitations  on  the  total  value, 
which is currently limited to EUR 6 billion. By doing so, it would allow for a more flexible 
and adaptable approach to the development of DLT-based market infrastructures, attracting in 
particular  large  financial  entities,  such  as  banks  and  CSDs  and  enable  larger  issuances  that 
could better respond to increasing market demand for tokenisation. This would avoid DLT MIs 
needing to refuse applications for recording or admitting to trading, stunting growth, and also 
avoid  current  cliff-effect  obligations to  pause  or wind  down  operations  once  their  activities 
reach the legal cap. The elimination of the ceiling would support the commercial viability of 
large projects, facilitate business development and develop economies of scale that improve 
efficiency.  However,  to  mitigate  payment-related  risks  limits  would  be  introduced,  such  as 
transaction-based limits, on the amount of settlement that can take place in commercial bank 
money through a regular (non- Title IV553) bank and in electronic money tokens. This would 
help to mitigate potential credit and market risks associated with the use of private money for 
settlement  (especially  in  stress  situations),  while  still  allowing  for  the  benefits  of  increased 
settlement efficiency stemming from the use of on-chain money.  

551 Article 3(1) DLTPR. 
552 Article 3(2) DLTPR. 
553 Special-purpose credit institutions authorised in accordance with Title IV of CSDR to provide banking services 
to CSDs. 

350 

 
 
 
 
 
Finally, to ensure diversity of participation, scope of eligible participants would be expanded 
beyond the eligible investment firms and CSDs to include a very wide set of financial service 
providers,  which  would  undergo  a  risk-based  licencing  procedure  to  expand  their  service 
offering into DLT-based  trading  and CSD services governed by the Pilot. These institutions 
could for example include CASPs operating a trading venue, credit institutions, asset managers, 
payments  institutions,  central  counterparties  (CCPs)  and  authorised  crowdfunding  service 
providers. These entities would not be required to get any additional financial entity licence to 
participate in the Pilot, but rather be allowed to expand their service offering into DLT-based 
trading and CSD services under the condition of complying with the relevant requirements of 
MIFID and CSDR. This change would increase the diversity of participation in the Pilot and 
would enable a broader range of entities to combine DLT-based trading and CSD services with 
their current service offering, unlocking new business models.  

Specifically,  CASPs  that  operate  a  trading  venue  could  leverage  their  DLT  expertise  and 
existing  technological  solutions  applied  to  (MiCA)  crypto-assets  to  establish  DLT-based 
trading and settlement systems for financial instruments. Adding credit institutions would come 
with  the  benefit  of  bringing  significant  expertise,  capital,  and  client  networks,  supporting 
liquidity and trust in DLT-based market infrastructures. Credit institutions can also integrate 
traditional  banking  and  payment  services,  promoting 
DLT-based  settlement  with 
interoperability and smoother transitions for clients. Direct access to DLT infrastructures would 
allow asset managers to innovate in fund tokenisation and distribution, potentially increasing 
efficiency and transparency for end investors. DLT would enable payment institutions to move 
money and assets on the same rails, the DLT platform, and therefore intermediaries on both 
sides  of  the  rails  would  be  able  to  provide  services  of  operating  a  trading  venue  and  CSD 
services. CCP’s participation would allow a more seamless testing of the interoperability of the 
clearing and the DLT-based settlement infrastructure. It would also comprehensively support 
clearing and settlement of derivatives. Crowdfunding platforms, currently limited to primary 
markets, would be able to create secondary markets, further supporting SME access to capital 
markets and diversifying investor base while leveraging DLT for more transparent, efficient, 
and cross-border fundraising.  

At the same time, large-scale involvement of banks could amplify systemic risks if DLT-based 
infrastructures  experience  failures,  given  banks’  central  role  in  the  financial  system. 
Crowdfunding  platforms  and  CASPs,  subject  to substantially  simpler  and  lighter  prudential 
requirements  than  banks,  may  struggle  with  risk  management  and  resilience,  especially  in 
volatile markets.  Involving asset managers could blur the distinction  between infrastructure 
providers and users, complicating governance, risk management, and regulatory oversight as 
their core function is investment management not running infrastructures. Including payment 
institutions  could  introduce  interoperability  and  coordination  challenges  when  different 
infrastructures  are  used  for  moving  money  around.  CCPs  are  systemically  important  and 
experimenting with their core functions could introduce systemic vulnerabilities if not carefully 
controlled. 

Accordingly, while the broader scope of participants would expand the scope of innovation on 
DLT, it could also widen systemic risks if DLT infrastructure experience operational failures, 
cyberattacks,  or  other  disruptions.  However,  the  latter  risks  would  be  mitigated  though  the 
application of DORA.554 The interconnectedness of larger entities may exacerbate contagion 
effects  in  the  financial  system.  Ensuring  effective  oversight  of  larger,  more  complex 

554 Regulation (EU) 2022/2554 on digital operational resilience for the financial sector. 

351 

 
 
 
 
 
infrastructures may require additional resources and expertise. Expanding the Pilot as set out 
under this option would broaden the set of financial service combinations participants could 
engage in, increasing the risk of regulatory arbitrage, conflicts of interests and contagion risks. 
This would necessitate adequate regulatory mitigants.  

Larger DLT infrastructures would face increased compliance and operational costs, including 
the need to prepare more comprehensive documentation for regulatory approval and ongoing 
reporting  requirements.  Investments  in  technology,  cybersecurity,  and  risk  management 
frameworks  would  be  necessary  to  handle  higher  transaction  volumes  and  more  complex 
operation. 

5.3.  COMPARISON OF POLICY OPTIONS 

5.3.1.  Specific Objective 1:  Proportionate and flexible regulatory requirements 

As regards specific objective 1, both option 2 and option 3 would establish a tier 2 segment of 
the  Pilot  which  would  allow  small  participants  to  benefit  from  a  proportionate  compliance 
burden and regulatory flexibility under the changed DLTPR, in line with specific objective 1.  

Nevertheless,  option  3  is  notably  more  effective  than  option  2  in  achieving  the  specific 
objective since its service-specific approach to regulating CSD services and application-driven 
derogations from standard rulebooks would grant additional flexibility for experimenting with 
new business models and intermediary roles on DLT – not just for small entities but also large 
ones. It is also more effective than option 2 in supporting compliance proportionality by, in 
addition to size-based tiering, allowing entities that wish to specialise in a specific CSD service 
to be subject to requirements tailored to those individual services, rather than being subject to 
the full set of CSDR requirements.  

In terms of efficiency, option 3 would rank somewhat lower than option 2 as it would entail 
slightly  more  costs  and  risks.  Indeed,  service-specific  licencing  of  CSD  services  would  be 
novel, with the outcome that these services could be performed by a group of non-CSD entities. 
This may require NCAs to invest more resources to ensure robust supervision of new business 
models  set  up  as  networks  of  intermediaries  that  span  multiple  jurisdictions.  However, 
incremental  supervisory  costs  would  likely  be  minor  and  manageable  within  existing  resource 
frameworks, since most oversight relies on pre-existing supervisory structures and thus the cost benefit 
ratio  of  a  broader  market  participation  would  be  favourable.  Digitalisation  tends  to  reduce 
per‑transaction oversight costs over time therefore, potential increases in short‑term supervisory effort 
should  not  be  regarded  as  a  barrier  to  innovation  or  as  a  justification  to  delay  the  deployment  of 
DLT‑based infrastructures in regulated markets. 

There may be a need for closer involvement of ESMA in supervising networks of CSD service 
providers, where post-trading value chains may end up being more distributed and complex, 
albeit  potentially  more  efficient.555  However,  easier  auditability  of  blockchains  –  as  the 
technology provides transparent, immutable, and cryptographically verifiable records - compared to 
non-cryptographically  secured  ledgers  may  facilitate  supervision.  Service-specific  licencing 

555 Supervision may also shift to ESMA according to the criteria set out in the Annex on supervision for certain 
CSD services, such as the settlement service. 

352 

 
 
 
 
 
may  increase  operational  risks  of  CSD  services  where  networks  of  providers  rather  than  a 
centralised provider (traditional CSD) need to coordinate on DLT to ensure issuance, account 
and  transfer  services.  The  increased  operational  risks  could  be  somewhat  offset  by  the 
heightened resilience of a distributed post-trading ecosystem. Conversely, option 2 would entail 
somewhat less costs and risks as business models (centralised CSD) and associated risks and 
supervisory  procedures  remain  unchanged,  but  with  more  limited  benefits  for  DLT-based 
innovation.  

Option 3 ranks notably higher in terms of coherence than option 2. Both option 2 and 3 are in 
line  with  the  Commission’s  Digital  Finance  Strategy556  and  its  explicit  support  for  the 
deployment  of  new  technologies  in  financial  services.  However,  option  3  represents  a 
significantly  more  ambitious  adaptation  of  the  existing  rulebook  to  accommodate  new 
technologies, i.e. DLT, as it allows service specialisation in line with the specificities of the 
technology as well as derogations from the established rulebook upon duly motivated requests 
by  applicants.  Furthermore,  both  option  2  and  option  3  support  the  Commission’s 
simplification  agenda  by  establishing  a  compliance-proportionate  framework  for  small 
innovative  businesses.  By  additionally  introducing  a  service-specific  licencing  for  CSD 
services,  option  3  is  even  more  aligned  with  the  simplification  agenda  as  it  would  enable 
specialised entities to benefit from risk-based licencing, leading to a more proportionate and 
ultimately simplified regulatory framework. On the negative side, service-specific licencing of 
option  3  would  be  available  only  to  DLTPR  applicants,  and  not  under  the  general  CSDR 
framework,  which  may  lead  to  regulatory  arbitrage,  making  option  3  rank  lower  from  the 
perspective  of  coherence  with  the  general  CSDR  rulebook. This  is  somewhat  offset  by  the 
precise objective of the DLTPR to provide a dedicated pilot framework separate from CSDR 
to accommodate and enable uptake of DLT, while still ensuring the same regulatory outcome 
as CSDR. 

Based on these considerations the preferred option for the specific objective 1 is option 3. 

5.3.2.  Specific Objective 2: Remove regulatory barriers to achieving scale and 

scope of projects and activities under the Pilot 

With respect to specific objective 2, both option 2 and 3 are effective as they broaden the asset 
scope to all financial instruments and remove the expiration of the Pilot, thereby establishing a 
broader and more stable and forward-looking framework. 

Option  3  is  slightly  more  effective  than  option  2  in  meeting  the  specific  objective. This  is 
because it removes aggregate and product-specific limits applicable to assets intermediated by 
Pilot  participants,  making  it  more  effective  in  allowing  DLT  market  infrastructures  to  scale 
without  constraints  and  with  a  high  degree  of  legal  certainty.  All  this  would  support  the 
commercial viability of large and diverse projects, encourage participation from major players 
such  as  banks  and  CSDs,  and  foster  innovation  and  long-term  investment. A  larger  set  of 
eligible participants to the Pilot in option 3 could attract wider variety of projects from broader 
parts of the financial industry under the Pilot. Nonetheless, option 2 comprises a sufficiently 
large (around EUR 100 bn) limit that is upwardly revisable via a delegated act, based on market 

556 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52020DC0591  

353 

 
 
 
 
 
circumstances. This approach may be sufficiently flexible to cater for the observed incremental 
growth of tokenised markets, making the net effectiveness of option 2 in achieving the specific 
objective 1 only slightly lower compared to the unbounded version of the Pilot proposed in 
option 3.  

Option 3 is less efficient than option 2, as the removal of thresholds and limits to the scope of 
eligible  participants  introduces  higher  financial  and  operational  risks,  increases  supervisory 
complexity, and raises compliance costs for both firms and regulators. Conversely, option 2 
with its aggregate thresholds that can be revised in view of market developments and based on 
concrete Pilot experience, entails less systemic risks, as the amount of activity is limited, and 
can  only  be  increased  after  assurances  that  risks  within  DLT  MIs  are  well-managed.  By 
allowing  a  smaller  set  of  eligible  entities  to  participate  in  the  Pilot,  option  2  keeps  the 
supervisory costs more limited as the breadth of services and licences that can be cumulated 
by Pilot participants remains narrower compared to option 3. Stricter Pilot participation rules 
also  limit  the  risks  stemming  from  comingling  certain  financial  services  (e.g.  asset 
management, payments, brokerage) with services in scope of the Pilot. All this makes option 2 
significantly more efficient than option 3. 

Option 3 of converting the Pilot into a framework with an unlimited thresholds and wide market 
accessibility would align less well than option 2 with one of the priorities of the Commission 
Digital  Finance  Strategy  –  ensuring  that  the  EU  regulatory  framework  facilitates  digital 
innovation  in  the  interest  if  consumers  and  market  efficiency.557 As  noted  in  the  Strategy, 
‘faster,  more  open  and  collaborative  innovation  cycles  call  for  regular  examination  of  and 
adjustments to EU financial services legislation and supervisory practices, to ensure that they 
support  digital  innovation  and  remain  appropriate  and  relevant  in  evolving  market 
environments’. Business models and practices related to the use of DLT in financial services 
are fast-evolving and iterative. For example, parts of the market are keen on using permissioned 
distributed  ledgers  (platforms  open  solely  to  authorised  members)  while  others  build  on 
permissionless  distributed  ledgers  (platforms  open  to  all).  Therefore,  policymakers  need  to 
learn more about the risks and benefits of DLT implemented into financial markets at scale to 
comprehensively gauge impacts for consumers and markets. In other words, DLT-specific rules 
should evolve with the maturity and scale of DLT-based financial market infrastructures, which 
is better reflected in option 2. Relatedly, this option would not be coherent with the objectives 
of the SIU to support the deployment of new technologies that can enhance market efficiency, 
as it would turn the Pilot into an unlimited framework at a time when learnings from concrete 
DLT-based  projects  are  still  scarce.  Conversely,  option  2,  with  its  revisable  caps  for  Pilot 
activity, would be more coherent with one of the core aims of the DLT Pilot - to gather policy 
learnings, within a controlled framework, for the purpose of developing a more comprehensive 
and stable rulebook. Finally, option 2 is more coherent with the preferred option under specific 
objective 1, to increase the proportionality and flexibility of regulatory requirements. These 
objectives  are more easily attainable within a Pilot  that is  subject  to  certain  overall activity 
limits as opposed to within an unbounded regime. 

557 See section 4, at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52020DC0591  

354 

 
 
 
 
 
Efficiency 
(cost-
effectiveness) 
0 

Based on these considerations the preferred option for the specific objective 2 is option 2, as it 
is significantly more efficient than option 3, while being only slightly less effective and much 
more coherent with other policies pursued by the Commission. 

5.3.3.  Comparative table 

Table 1. Comparison of options  

Option 

Effectiveness 

Coherence  Overall score 

0 

0 

0 

++ 
+ 

+ 
+++ 

+ 
+++ 

Option 1: Do nothing  
Specific objective 1 
Option 2 – Tier 2  
Option 3 – Tier 2 + 
enhanced flexibility 
Specific objective 2 
Option 1: Do nothing  
Option 2 – Expanded 
scope & scale 
Option 3 – Unbounded 
parallel regime 
Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): 
+++ very positive, ++ positive; + slightly positive; – – – very negative; – – negative; slightly 
negative 0 no effect +/- mixed effect; 

0 
+++ 

0 
++ 

0 
++ 

0 
++ 

+ 
++ 

+++ 

+ 

+ 

0 

355 

 
 
 
ANNEX 11: SECTORAL ANNEX ON SUPERVISION 

1.  INTRODUCTION  

This Annex explores a set of targeted policy measures aimed at strengthening the functioning 
and effectiveness of the European supervisory framework for capital markets, in particular by 
enhancing the role of the European Securities and Markets Authority (‘ESMA’). The document 
focuses on four key areas that are critical to ensuring a more integrated, resilient, and efficient 
EU capital markets.  

First,  it  examines  options  for  expanding  ESMA’s  direct  supervisory  responsibilities  in  the 
trading, post-trading and crypto assets space. This includes a more active role in the supervision 
of critical market infrastructures such as Central Counterparties (‘CCPs’), Central Securities 
Depositories  (‘CSDs’)  and  certain  trading  venues,  as  well  as  establishing  a  framework  for 
enhanced  supervisory  coordination  of  cross-border  asset  management  groups  and  of  cross-
border  distribution  of  investment  funds  and  increasing  ESMA’s  role  in  the  supervision  of 
crypto  asset  service  providers  (‘CASPs’).  These  changes  aim  to  address  supervisory 
fragmentation, enhance financial stability, and ensure consistent implementation of EU rules. 
These sectors,  although  critical  for  the integration of  capital  markets,  are not  subject  to the 
same degree of harmonisation, legally, but also in terms of single rule book and supervisory 
convergence. They also differ with regard to relevance, concentration and risks, in particular 
cross-border. Therefore, the options envisaged for the respective sectors are not uniform but 
take into account these differences.558 

Second, the assessment addresses necessary adjustments in governance, linked to the expansion 
of ESMA’s supervisory powers. It considers changes that would ensure efficiency of decision-
making,  transparency,  and  operational  independence  to  align  the  governance  with  ESMA’s 
strengthened role.  

Third,  the  assessment  considers  necessary  changes  to  strengthen  supervisory  convergence, 
improving  the  incentives  for  the  use  of  supervisory  convergence  tools,  addressing  current 
limitations  in  the  available  tools  and  proposing  new  mechanisms  to  better  coordinate  and 
support national supervisors.  

Finally, the document looks at funding options to support these extended responsibilities. The 
goal is to secure a financing model that is both adequate and sustainable, ensuring that ESMA 
has the resources needed to fulfil its new mandates without creating undue burdens on national 
authorities.  

The analysis presented here explains why strengthening the European supervisory framework 
for capital markets is needed to achieve the objectives of the Savings and Investments Union, 
and then evaluates the potential benefits, risks and costs of the proposed measures. It is backed 
by broad stakeholder outreach including a dedicated public consultation559. It is also supported 

558 This is also in line with Demarigny F. Thomadakis A., A supervisory efficiency test for EU financial markets: 
Taking  an  operational  approach  to  integration  and  oversight,  ECMI  Policy  Brief  no  44  |  June  2025, 
eu_supervisory_efficiency_policy_brief_n_44.pdf. 
559 Targeted consultation on integration of EU capital markets 2025 - European Commission. 

356 

 
 
 
 
 
by research from the landmark reports by Enrico Letta560 and Mario Draghi561 on the future of 
EU capital markets and European competitiveness, respectively, as well as broad agreement in 
policy papers and academic literature562, including by Bruegel’s Nicolas Veron563, and CEPS’ 
Fabrice  Demarigny  and  Apostolos  Thomadakis564.  Similar  conclusions  regarding  a  more 
centralised system  of capital  market  supervision  in  Europe have also  been drawn by global 
economic governance bodies, including the OECD565 and the IMF.566  

2.  DESCRIPTION OF MARKET / ENVIRONMENT  

Harmonised supervision ensures that all financial market participants are treated equally and 
that  supervisory  decisions  are  consistent,  no  matter  where  they  are  taken.  This  approach 
eliminates  inefficiencies  in  supervision,  reducing  costs  for  investors  and  boosting  their 
confidence  in  capital  markets.  Ultimately,  harmonised  supervision  facilitates  market 
integration which is essential to foster a robust Single Market and ensure the competitiveness 
of EU capital markets. In his report on the future of European competitiveness, Mario Draghi 
directly references the lack of a single securities supervisor and the high degree of variation 
between supervisory practices as the first of three main fault lines to build a unified market for 
capital in Europe.567 Similarly, Enrico Letta specifically highlights the need for a robust and 
standardised supervisory framework to facilitate capital market integration.568   
With a few exceptions569, EU capital markets are currently supervised at national level. At EU 
level, ESMA and others (e.g. ECB, EBA, ESRB) are involved to varying degrees, depending 
on the specific sector in question. In the current framework, supervisory practices often differ 
from one Member State to another for a variety of reasons, including local market specificities, 
level of resources and expertise of national competent authorities (‘NCAs’), as well as differing 
supervisory approaches (e.g. legalistic vs. data-driven or risk-based). While in some instances 
flexibility  and  adaptation  to  local  specificities  can  be  beneficial,  most  of  these  divergent 
national  supervisory  practices  result  in  market  fragmentation,  an  unlevel  playing  field, 
operational  uncertainty,  and  increased  costs  for  cross-border  activities.  Demarigny  and 

560 https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf.  
561 https://commission.europa.eu/topics/eu-competitiveness/draghi-report_en  
562 See for example Beck, T., B. Bruno and E. Carletti, 2024. Can the Banking Union foster market integration, 
and  what  lessons  does  this  hold  for  Capital  Markets  Union?  Briefing  paper  for  the  ECON  Committee  at  the 
European Parliament; Langenbucher, K. (2024). Rückgang börsennotierter Unternehmen: Gründe und rechtliche 
Gegenmaßnahmen,  Zeitschrift  für  Unternehmens-  und  Gesellschaftsrecht  forthcoming,  Friedrich,  J.  and  M. 
Thiemann  (2017).  “Capital  Markets  Union:  the  need  for  common  laws  and  common  supervision.” 
Vierteljahrshefte zur Wirtschaftsforschung 86(2): 61-75, https://doi.org/10.3790/vjh.86.2.61. Bebchuk, L. (1992). 
Federalism  and  the  Corporation:  The  Desirable  Limits  on  State  Competition  in  Corporate  Law.  Harvard  Law 
Review 105(7): 1443-1510, https://doi.org/10.2307/1341744. 
563 https://www.bruegel.org/sites/default/files/2025-06/Bruegel%20Blueprint%2035.pdf. 
564 https://cdn.ceps.eu/wp-content/uploads/2025/06/EU-supervisory-efficiency-Policy-Brief-n-44.pdf. 
565  https://www.oecd.org/content/dam/oecd/en/publications/reports/2025/07/oecd-economic-surveys-european-
union-and-euro-area-2025_af6b738a/5ec8dcc2-en.pdf. 
566 Euro Area Policies: 2025 Annual Consultation-Press Release; Staff Report; and Statement by the Executive 
Director for Member Countries. 
567 https://commission.europa.eu/topics/eu-competitiveness/draghi-report_en. 
568 https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf. 
569  Trade  repositories,  securitisation  repositories,  credit  rating  agencies,  data  reporting  service  providers, 
consolidated tape providers, third country benchmarks administrators, and in the future benchmark administrators 
that endorse non-EU benchmarks are under ESMA’s supervision. 

357 

 
 
 
 
 
Thomadakis’ report570 references these operational issues as hurdles to achieving the necessary 
continuous  innovation  of  capital  markets,  noting  that  the  continued  reliance  on  NCAs  “has 
created  a  fragmented  supervisory  landscape  that  undermines  the  ambitions  of  the  Capital 
Markets Union and the SIU.” At the same time, supervision of cross-border entities by several 
NCAs could benefit from a greater coordination, transparency and more effective information 
and data sharing or more centralised supervision, depending  on the sector. This  would also 
ensure a more holistic approach to the monitoring of systemic risks. 

The input received from stakeholders in the public consultation consistently highlights that the 
current EU financial market environment is characterised by persistent fragmentation due to 
divergent national laws and varying supervisory interpretations of EU rules. This fragmentation 
is  reinforced  by  gold-plating,  inconsistent  authorisation  and  enforcement  practices571,  and 
divergent  supervisory  priorities  among  NCAs.  Several  stakeholders  point  to  differing 
supervisory approaches as barriers to integrated capital markets, which hampers innovation and 
competition.  In  addition,  they  underline  that  fragmented  rule  implementation  generates 
operational  complexities  and  increased  costs  for  firms  operating  cross-border,  creating  an 
uneven  playing  field.  Similarly,  they  stress  that  national  authorities  developing  their  own 
supervisory  practices  lead  to  inconsistent  application  of  the  single  rulebook,  thereby 
perpetuating market inefficiencies and legal uncertainty for cross-border businesses. Christian 
Noyer, in his report on “Developing European Capital Markets to Finance the Future”572 on 
behalf of the French DG Trésor, specifically references these inefficiencies as maintaining the 
single market for capital as a theoretical concept, and highlights that “the situation severely 
limits the benefits that European groups in the financial services sector can reap from the single 
market”.  Similarly,  the  German  Council  of  Economic  Experts  states  in  its  annual  report 
2023/24 that fragmentation due to differences in implementation of rules, leads to companies 
facing  increased  bureaucratic  burdens  if  they  operate  in  different  countries,  require  legal 
expertise for each jurisdiction, and may have to adapt their products and services.573 

Existing coordination mechanisms at EU level have achieved a certain degree of convergence 
of supervisory practices. They remain however deficient for reasons of design and of missing 
incentives  inherent  to  the governance set-up of  ESMA.574  Reinforcing  the  incentives  to  use 
supervisory  convergence  tools  and  ESMA’s  powers,  like  breach  of  Union  law  procedure, 
binding  mediation  etc,  are  key  measures  to  achieve  more  harmonised  supervision,  while 
maintaining  NCAs’  strong  involvement  and  proximity  to  the  supervised  markets.  In  some 
cases,  these  tools  are  difficult  to  use,  or  their  application  may  be  hindered  by  procedural 
constraints. To address these shortcomings, a list of potential enhancements has been identified, 
with a focus on those that are likely to have the maximum impact.  
The  SIU  Communication575  identifies  more  harmonised  supervision  as  one  of  the  main 
objectives of the SIU. Together with a reinforced single rulebook, more harmonised and more 

570 https://cdn.ceps.eu/wp-content/uploads/2025/06/EU-supervisory-efficiency-Policy-Brief-n-44.pdf. 
571  ESMA’s  consolidated  sanction  report  showing  striking  discrepancies  in  national  enforcement  activities. 
(ESMA43-1527801302-1333 Report on Sanctions and measures imposed under AIFMD, BMR, CSDR, ECSPR, 
EMIR, MAR, MiCA, MiFID II - MiFIR, PR, SFTR and UCITS in 2023). 
572 Developing European capital markets to finance the future | Direction générale du Trésor. 
573 German Council of Economic Experts, Annual Report 2023/24, Wachstumsschwäche überwinden – In die 
Zukunft investieren. https://www.sachverstaendigenrat-
wirtschaft.de/fileadmin/dateiablage/gutachten/jg202324/JG202324_Gesamtausgabe.pdf" \l "page=246. 
574 ESMA's consensus-driven model led by NCAs creates conflicts of interest and discourages assertive action 
due to the need to find majorities among NCAs for converging supervisory practices of those same authorities. 
575 13085856-09c8-4040-918e-890a1ed7dbf2_en. 

358 

 
 
 
 
 
efficient  supervision  can  contribute  to  market  integration  by  eliminating  barriers  to  cross-
border activity linked to divergent application of the rules and duplication of requirements, by 
creating a level playing field for market participants and thereby fostering investor confidence.  

3.  ASSESSMENT OF PROBLEMS AND NEED TO ACT 

3.1.  DESCRIPTION OF CURRENT STATE OF PLAY 

3.1.1.  CSDs 

There are 25 CSDs authorised in the EU under the CSD Regulation (‘CSDR’)576, each offering 
services with respect to varying scopes of instruments and currencies with little competition 
between  them  up  to  now,  reinforcing  the  level  of  fragmentation  of  EU  markets.  As  a 
comparison,  the  US  has  one  CSD,  DTCC,  for  the  entire  US  stock  market,  serving  a  single 
currency. In addition, there are 6 CSDs operated by central banks which offer services related 
to the national debt issuance of the Member States those CSDs are authorised in. Those CSDs 
are currently out of the scope of a significant number of the CSDR requirements, including 
those  related  to  supervision.  Additionally,  a  large  number  of  transactions  are  settled  via 
settlement internalisers (mainly banks) (‘SI’). According to recent data, settlement internalisers 
have  been  processing  higher  volumes  and  values  of  transactions  in  equity  instruments 
compared to CSDs. For this type of securities, internalised settlement volumes were over five 
times higher than those of CSDs in 2024.  At the same time, the picture is considerably different 
for fixed income instruments, with  settlement  internalisers processing approx. 60% of CSD 
volumes and values.  EU stakeholders (mainly CSDs) have raised the issue that this creates an 
unlevel playing field when they provide the same services under less strict rules.577  
Several  integrated  post-trade  services  groups578  operate  in  the  EU.  Three  of  those  groups 
(Euroclear, Deutsche Börse and Euronext) hold 93% of the EU assets under custody and are 
responsible for 96% of the EU settlement turnover in CSDs. 
The supervision of CSDs is currently carried out by NCAs.579 CSDR Refit580, which is still in 
the process of being implemented, introduced a college of supervisors for CSDs of substantial 

576 Regulation (EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving 
securities  settlement  in  the  European  Union  and  on  central  securities  depositories  and  amending  Directives 
98/26/EC  and  2014/65/EU  and  Regulation  (EU)  No  236/2012  (OJ  L  257,  28.8.2014,  p.  1.  ELI: 
http://data.europa.eu/eli/reg/2014/909/oj). 
577  Under  the  CSDR,  settlement  internalisers  are  only  required  to  report  to  their  competent  authorities,  on  a 
quarterly basis, the aggregate volume and value of all securities transactions that they settle outside of a CSD.  
578 Euroclear (operating an international CSD (ICSD), Euroclear Bank, and national CSDs in Belgium, Finland, 
France,  Ireland  (Euroclear  Bank  is  the  issuer  CSD  for  Irish  securities),  Netherlands,  Sweden  and  the  UK). 
Euronext (operating national CSDs in Portugal, Denmark, Norway and Italy), Deutsche Börse (operating an ICSD, 
Clearstream Luxembourg, the national CSDs in Germany and Luxemburg) and Nasdaq (operating the CSDs for 
Lithuania, Latvia, Estonia and Iceland). 
579 There can be up to three national authorities for some CSDs. 
580 Regulation (EU) 2023/2845 of the European Parliament and of the Council of 13 December 2023 amending 
Regulation (EU) No 909/2014 as regards settlement discipline, cross-border provision of services, supervisory 
cooperation,  provision  of  banking-type  ancillary  services  and  requirements  for  third-country  central  securities 
depositories and amending Regulation (EU) No 236/2012. 

359 

 
 
 
 
 
 
importance in at least two host Member States581, which is comprised of NCAs, ESMA and of 
relevant authorities, including the European System of Central Banks (‘ESCB’).  

Lastly, it should be mentioned that T2S, a pan-European central settlement platform operated 
by the ECB, provides an important service in the settlement layer. It does not constitute a CSD 
and  it  is  thus  not  subject  to  CSDR  requirements.  It  is  however  subject  to  oversight  by  the 
European Central Bank (‘ECB’). 

3.1.2.  CCPs 

There  are  14  CCPs  that  have  been  authorised  in  the  EU  under  the  European  Market 
Infrastructure  Regulation  (‘EMIR’).582  Their  supervision  is  currently  carried  out  by  their 
NCAs583, which are responsible for day-to-day oversight, including authorisation and extension 
of  services;  risk  management  requirements  (e.g.  margin  models,  default  funds);  operational 
risk  management  standards;  review  of  interoperability  arrangements.  For  key  decisions 
(authorisation,  risk  model  changes,  annual  reviews,  stress  tests,  etc.),  NCAs  must  consult  a 
college of supervisors (CCP college), which includes ESMA, ECB, the relevant central banks 
of issue, supervisory authorities of major clearing members and linked trading venues/CCPs. 
The  NCAs  submit  their  draft  decisions/reports  to  the  CCP  college  and  to  ESMA’s  CCP 
Supervisory Committee584 for non-binding opinions585 before adopting such acts. Regarding 
the granting of authorisation or extension of the CCPs authorisation, where NCAs opt not to 
follow those opinions, the NCA must (i) include a fully reasoned explanation of any significant 
deviation from the college’s opinion and (ii) explain to the ESMA Board of Supervisors why 
they chose to deviate from ESMA’s opinion. The NCA also needs to take into account ESMA’s 
opinion  before  adopting  its  decision  on  the  approval  of  the  CCP’s  interoperability 
arrangements. The only exception to this supervision by the NCAs is the validation of changes 
to a CCP’s risk models or parameters which must be validated by both the CCP’s NCA(s) and 
ESMA.  

581 Under the RTS submitted to the Commission by ESMA 7 CSDs in 5 Member States would be required to 
establish colleges. According to ESMA’s simulations on 2024 data set out in the draft RTS, the CSDs that would 
have  to  establish  colleges  are:  Euroclear  Bank  (Belgium), Clearstream  Banking  AG  (Germany),  Monte  Titoli 
(Italy); Nasdaq CSD SE (Latvia); Clearstream Banking S.A. (Luxembourg) and Euroclear Sweden. However, this 
data will have to be collected and calculated again once the obligation to set up colleges under CSDR Refit kicks 
in. The table which includes the simulation and the data on which MS each CSDs is of substantial importance in 
can be found at page 84 of the ESMA Final Report ESMA74-2119945925-1951 Final Report on Draft RTS on 
the Substantial Importance of CSDs.  
582  Regulation  (EU)  No  648/2012  of  the  European  Parliament  and  of  the  Council  of  4  July  2012  on  OTC 
derivatives,  central  counterparties  and 
(OJ  L  201,  27.7.2012,  p.  1.  ELI: 
http://data.europa.eu/eli/reg/2012/648/oj).  
583 There can be up to three national authorities for some CCPs. 
584 ESMA’s CCP Supervisory Committee is composed of three independent members (including the Chair), of 
the NCAs of all EU CCPs and the Central banks of issue of the currencies of the financial instruments cleared by 
the EU CCPs (the latter ones are non-voting).  
585 With the exception of the granting/extension of authorisations where a “joint opinion by mutual agreement” of 
the CCP College would not allow the NCAs to grant/extend the authorisation of the CCP. 

repositories 

trade 

360 

 
 
 
 
 
 
 
 
 
3.1.3.  Trading Venues 

The landscape of trading venues in the EU reflects the implementation of MiFID I586 in 2007 
and  MiFID  II587  and  MiFIR588  in  2018,  which  significantly  reshaped  it  by  introducing, 
alongside  Regulated  Markets  (RMs),  Multilateral  Trading  Facilities  (MTFs)  and  Organised 
Trading  Facilities  (OTFs).  As  result,  as  shown  in  Figure  1,  around  314  trading  venues589 
(including 119 regulated markets) currently operate in the EU. Smaller exchanges serve niche 
markets590 or regions and some exhibit shallow liquidity, whereas several large trading venues 
or groups of trading venues are active in various asset classes and/or operate across borders.  

Figure 1: Trading venues landscape in the EU 

Source: ESMA’s data  

The EU supervisory framework applicable to trading venues is also based on the MiFID II and 
MiFIR  frameworks.  MiFID  II  is  transposed  in  national  law,  sometimes  with  important 
differences. In practice, the rulebook is enforced by national, sometimes regional, supervisors, 
with the result that each market is being regulated and supervised locally, despite being part of 
a single market. Schematically, the supervision of trading venues can be broadly distinguished 
between  (i)  the  supervision  of  the  market  operator  operating  a  regulated  market,  or  of  the 
market operator or investment firm operating an MTF or an OTF, and (ii) the supervision of 
the  market  itself  and  the  trading  activity  that  takes  place  therein.  The  earlier  relates  to 

586 Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial 
instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European 
Parliament  and  of  the  Council  and  repealing  Council  Directive  93/22/EEC  (OJ  L  145,  30.4.2004,  p.  1.  ELI: 
http://data.europa.eu/eli/dir/2004/39/oj). 
587 Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial 
instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (recast) (OJ L 173, 12.6.2014, p. 349. 
ELI: http://data.europa.eu/eli/dir/2014/65/oj). 
588 Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in 
financial  instruments  and  amending  Regulation  (EU)  No  648/2012  (OJ  L  173,  12.6.2014,  p.  84.  ELI: 
http://data.europa.eu/eli/reg/2014/600/oj). 
589 Based on MiFID dashboard. Trading venues are identified at segment MIC level, which typically distinguish 
different trading systems and/or different financial instruments. This means that the same market operator may 
operate several trading venues using different trading systems and/or specialised in different financial instruments. 
590 Examples comprise venues that specialise on SME financing, commodities derivatives trading or crypto. 

361 

 
 
 
 
 
 
 
supervisory  powers  such  as  the  initial  authorisation  of  the  trading  venue  and  ongoing 
supervision to ensure compliance with requirements as regards, for example, the organisation, 
management and governance of the market operator or investment firm, trading processes, risk 
management, control and resilience systems (for example, on outsourcing), as well as rules and 
procedures to ensure fair and orderly trading. The latter links with supervisory powers such as 
trading halts or the power to limit traders’ exposures in certain events (e.g.  risks to financial 
stability and market confidence), as well as powers to detect, investigate and possibly intervene 
(e.g. via sanctions) in case of threats to market integrity rules as defined in the Market Abuse 
Regulation (‘MAR’)591 (e.g. insider dealings).  

The  supervision  of  trading  venues  in  the  EU  is  performed  at  national  level,  with  NCAs 
responsible for the supervision of trading venues authorised in their jurisdiction. In general, 
each  Member  State  designates  one  NCA.  However,  in  some  Member  States  multiple 
supervisors co-exist.592 As a result, the system of supervision in the EU comprises a complex 
network of about 35 national or regional supervisors, which may interpret and implement the 
single rulebook differently.  

As a result, trading venues located in jurisdictions with less stringent supervisory approaches 
might  have  advantages  over  those  located  in  more  strictly  regulated  and  supervised 
environments,  potentially  leading  to  regulatory  arbitrage.  Christian  Noyer  specifically 
references  this  in  his  report  on  behalf  of  DG  Trésor593,  suggesting  that  without  integrated 
supervision, financial actors could seek out Member States with more lax supervisory practices, 
leading  to  a  regulatory  race  to  the  bottom  by  Member  States  who  would  want  to  remain 
attractive. Furthermore, inefficiencies and in some cases limited resources within some NCAs’ 
internal  organisations  may  also  impede  effective  supervision.  Other  challenges  relate  to 
differences in supervisory methodologies and approaches, as well as the obligation for some 
trading  venues  to  deal  with  different  contact  persons.  All  these  factors  can  significantly 
increase operational costs and compliance burdens for trading venues, in particular for cross-
border groups facing different supervisors and hence requirements, which hinders economies 
of scale and associated cost savings.  

To address the inconsistent application of trading rules, which is in particular problematic for 
groups having trading venues in several Member States, supervisory colleges have emerged 
for the two largest pan-European groups, Euronext and Nasdaq. These colleges, which are not 
mandated  by  law  but  have  been  established  on  a  voluntary  basis,  are  composed  of 
representatives of the NCAs of the different Member States in which a trading venue of the 
group is established. However, their mandate is limited to the coordination of policy stances 
(not supervisory decisions), and those colleges do not involve ESMA. 

591 Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse 
(market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and 
Commission  Directives  2003/124/EC,  2003/125/EC  and  2004/72/EC  (OJ  L  173,  12.6.2014,  p.  1.  ELI: 
http://data.europa.eu/eli/reg/2014/596/oj). 
592 This is the case for example in Germany, where, due to the federal decentralised system, regional ministries 
oversee local exchanges, whereas the supervisor at national level is in charge of market surveillance. This is also 
the case in Italy, where the central bank amongst others is responsible for supervising trading venues that host 
wholesale trading in sovereign bonds, whereas other exchanges are supervised solely by the NCA. 
593 Developing European capital markets to finance the future | Direction Générale du Trésor. 

362 

 
 
 
 
 
The Association Europe Finances Régulations’ recent paper594 on European supervision makes 
the  case  for  more  integrated  supervision  for  trading  venues,  noting  notably  that  the  current 
system  of  coordination  between  various  supervisors  for  Euronext  and  Nasdaq  “effectively 
aligns with the most demanding process of the concerned regulators”. The paper suggests that 
despite  recent  market  consolidation  in  European  trading  venues,  the  lack  of  integrated 
supervision limits the benefits they can gain. As a result, trading venues operating in different 
Member States face an uneven playing field in terms of the supervisory requirements they face.  

Currently, while ESMA plays no role in  direct  supervision  of trading  venues, it contributes 
indirectly through its level 2 and 3 policy work. 

3.1.4.  Asset managers 

EU asset managers active in the EU manage more than EUR 19.8 trillion in aggregate assets 
under  management  (AuM).595  The  UCITS  segment,  about  63%  of  which  are  held  by  retail 
investors, is the largest, representing approx. EUR 12.6 trillion AuM, 30 000 funds and 1 683 
asset managers. The EU Alternative Investment Funds (‘AIF’) segment (mainly institutional) 
represents approx. EUR 7.2 trillion in AuM, 35 000 funds and approx. 4 459 managers.  This 
compares with fund assets of USD 37 trillion at the end of 2024 in the US. 

investor 

There is a complex system of supervision and division of responsibilities between NCAs. Each 
UCITS  must  be  authorised  and  supervised  by  an  NCA  of  the  Member  State  where  it  is 
domiciled (‘home NCA’). The NCA is  responsible for reviewing fund documentation (e.g., 
information),  ensuring  compliance  with  UCITS  Directive 
prospectus,  key 
requirements (e.g., eligible assets, risk-spreading, investor protection) and monitoring ongoing 
operations, risk management, and compliance. The home NCA of the UCITS is responsible for 
supervising the management company in relation to the UCITS (e.g. constitution, functioning, 
valuation).  The home NCA of the management company is responsible for establishing rules 
of conduct, prudential requirements, and organisational requirements in line with the principles 
set out in the UCITS framework. It is also responsible for overseeing compliance with these 
rules within its jurisdiction. In the case of groups operating through branches, supervision is 
split: the home NCA of the asset manager supervises organisational requirements, while the 
host NCA, where the branch is established, is responsible for conduct of business supervision.  
ESMA has a mandate to ensure supervisory convergence and promote the effective functioning 
of the EU’s asset management market. It is important to stress that, with regard to marketing 
rules, the host Member States where UCITS are marketed can impose requirements in areas 
not harmonised at EU level, namely under the UCITS Directive596 and the CBDF Regulation.597 
Since  EU  rules  on  marketing  are  limited  and  mostly  principle-based  (e.g.  requiring  that 
marketing  communications  be  fair,  clear,  and  not  misleading),  many  Member  States  have 

594 Towards an SEC in the European Union: unified supervision or single supervisor? - Issue 7 – December 2024 
| Association Europe Finances Régulations | AEFR. 
595 EFAMA 2025 calculations and internal calculations conducted by Commission services based on commercial 
databases that contain UCITS data.  
596 Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of 
laws, regulations and administrative provisions relating to undertakings for collective investment in transferable 
securities (UCITS) (recast) (OJ L 302, 17.11.2009, p. 32. ELI: http://data.europa.eu/eli/dir/2009/65/oj). 
597 Regulation (EU) 2019/1156 of the European Parliament and of the Council of 20 June 2019 on facilitating 
cross-border distribution of collective investment undertakings and amending Regulations (EU) No 345/2013, 
55.  ELI: 
(EU)  No 
http://data.europa.eu/eli/reg/2019/1156/oj).  

(EU)  No 

1286/2014 

12.7.2019, 

346/2013 

(OJ  L 

188, 

and 

p. 

363 

 
 
 
 
 
introduced  extensive  national  rules  on  marketing,  including  detailed  requirements  on 
marketing documentation. 
Under the AIFMD598, the regulatory focus is on the AIFM rather than on the fund itself. EU-
authorised AIFMs are supervised by their home NCA, which is responsible for prudential and 
organisational  oversight—covering  areas  such  as  capital  adequacy,  risk  and  liquidity 
management, valuation policies, reporting, delegation arrangements, and remuneration. These 
EU-authorised  AIFMs  may,  on  a  cross-border  basis,  manage  AIFs  established  in  other 
jurisdictions (the “management passport”). Such AIFs are regulated at national level, with the 
exception of EU AIFs governed by specific regulations, such as ELTIF599, EuVECA600, and 
EuSEF601 (under their respective regulations). For these EU AIFs, the split of responsibilities 
mirrors the UCITS framework, with the home authority of the AIF responsible for oversight of 
the fund rules in accordance with the relevant EU regulation. 

ESMA  supports  supervisory  convergence  across  the  EU  by  issuing  guidelines  facilitating 
information exchange among NCAs and promoting consistent interpretation and application of 
the  UCITS  framework.  However,  ESMA  does  not  have  a  day-to-day  operational  role  in 
intervening in specific cases, nor does it have direct supervisory powers over UCITS funds or 
management companies. Day-to-day supervision remains the sole responsibility of NCAs in 
the home and host Member States. ESMA’s role is therefore indirect and supportive: it sets the 
framework  for  supervisory  convergence  and  consistency,  while  concrete  enforcement  and 
oversight are carried out by NCAs at national level. 

In addition, ESMA’s binding mediation powers are limited to some cases under UCITS and 
AIFMD, and do not cover CBDF Regulation. ESMA also lacks the power to open mediation 
cases on its own initiative and is under no obligation to act even where barriers to cross-border 
activities are clear.   

3.1.5.  CASPs 

As  the  Markets  in  Crypto  Assets  Regulation  (MiCA)602  entered  into  application  only  in 
December  2024,  CASPs  are  currently  in  the  process  of  applying  for  a  crypto-asset  service 
provider authorisation. There are currently 69 CASPs authorised by 12 different NCAs in the 
Member States.603 There are also around 167 pending applications currently being assessed by 
the  competent  authorities  of  the  Member  States.  It  is  still  unknown  how  many,  out  of  the 

598 Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment 
Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and 
(EU) No 1095/2010 (OJ L 174, 1.7.2011, p. 1. ELI: http://data.europa.eu/eli/dir/2011/61/oj).  
599  Regulation  (EU)  2023/606  of  the  European  Parliament  and  of  the  Council  of  15  March  2023  amending 
Regulation  (EU)  2015/760  as  regards  the  requirements  pertaining  to  the  investment  policies  and  operating 
conditions  of  European  long-term  investment  funds  and  the  scope  of  eligible  investment  assets,  the  portfolio 
composition and diversification requirements and the borrowing of cash and other fund rules (OJ L 80, 20.3.2023, 
p. 1. ELI: http://data.europa.eu/eli/reg/2023/606/oj). 
600 Regulation (EU) No 345/2013 of the European Parliament and of the Council of 17 April 2013 on European 
venture capital funds (OJ L 115, 25.4.2013, p. 1 ELI: http://data.europa.eu/eli/reg/2013/345/oj). 
601 Regulation (EU) No 346/2013 of the European Parliament and of the Council of 17 April 2013 on European 
social entrepreneurship funds (OJ L 115, 25.4.2013, p. 18. ELI: http://data.europa.eu/eli/reg/2013/346/oj). 
602 Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in 
crypto-assets, and amending Regulations (EU) No 1093/2010 and (EU) No 1095/2010 and Directives 2013/36/EU 
and (EU) 2019/1937 (OJ L 150, 9.6.2023, p. 40. ELI: http://data.europa.eu/eli/reg/2023/1114/oj). 
603  Interim  ESMA  register  on  authorised  CASPs  as  of  15.10.2025.  Authorisations  have  been  granted  by  the 
competent  authorities  in  Germany,  Malta,  the  Netherlands,  Austria,  France,  Ireland,  Cyprus,  Lithuania, 
Luxembourg, Slovenia, Spain and Finland. 

364 

 
 
 
 
 
approximately  11  000  virtual  assets  service  providers,  previously  registered  under  national 
anti-money  laundering  (AML)  frameworks,  will  apply  for  a  CASP  licence.  This  figure  is, 
however, inflated by a few jurisdictions that applied very light registration requirements; when 
looking only at those that underwent substantive AML vetting, the number is closer to 2 500. 
Many of these entities are unlikely to fulfil the requirements for a CASP license. Nevertheless, 
ESMA  and  NCAs  currently  expect  that  about  410  to  615  CASPs  will  receive  authorisation 
during and shortly after the transitional period of maximum 18 months following the entry into 
application of the MiCA.604  

The majority of CASPs do not limit their activities to crypto asset services only, but they are 
active in other areas such as the provision of investment services and some CASPs hold an 
investment  firm  or  a  credit  institution  license.  Their  business  organisational  model  may  be 
structured  around  one  entity  holding  several  authorisations  from  the  same  jurisdiction,  or 
several  authorisations  from  different  jurisdictions, or may be a group of companies holding 
several authorisations. There are even examples of a CASP-group splitting itself in different 
entities  for  the  provision  of  different  crypto-asset  services  under  MiCA. Such  complex  and 
fragmented structures heighten the risk of forum shopping if supervision remains fragmented, 
and they underline the need for effective coordination across supervisors at EU level to achieve 
uniform treatment. 

NCAs are primarily responsible for the day-to-day supervision of CASPs and issuers of asset 
referenced tokens and e-money tokens (also referred to as stablecoins). Their responsibilities 
include  authorisation  of  CASPs  and  stablecoins  issuers  established  in  their  Member  State, 
ongoing supervision of compliance with MiCA requirements related to supervised entities (e.g. 
governance,  capital  requirements,  conduct  of  business).  NCAs  are  also  in  charge  of 
surveillance  of  market  integrity,  investigating,  identifying  and  bringing  proceedings  against 
market abuse. No supervisory measures have been reported to date, as only a few CASPs have 
been authorised and there has not been enough time for any supervisory activity to take place. 
Furthermore, NCAs receive notifications of white papers (disclosure documents) for certain 
crypto-assets  issued  under  MiCA  and  can  request  their  modification  to  bring  them  into 
compliance with MiCA. Beyond its regular coordination role, ESMA has a limited role in the 
supervision of CASPs designated as “significant” (i.e. having at least 15 million active users 
in the EU). The NCA of a significant CASP is required to annually report to ESMA certain 
supervisory  developments  relating  to  that  CASP  (authorisation  withdrawal,  enforcement 
actions etc). To date, there are no CASPs classified as significant. When it comes to stablecoin 
issuers, EBA can designate a stablecoin as ‘significant’ once it reaches a certain size605, with 
the consequence that direct supervision shifts from the NCA to EBA.  

What makes CASPs unique in the area of supervision, is the fact that it is a new area of activity 
where firms are in the process of becoming authorised following the entry into application of 
MiCA. This presents a rare opportunity to formulate a new supervisory approach before legacy 
issues  and  divergent  supervisory  approaches  create  barriers  to  the  operation  of  the  crypto-
market in the EU. In the case of CAPSs, the aim would be to avoid fragmentation from the 
start, rather than removing existing barriers. 

604 This number is based on estimates that ESMA has asked Member States to provide in a survey. It is a range 
rather than an exact number and it may overlap with actual authorisations and pending authorisations. 
605 Based on EBA decision in view of the criteria set out in Article 43 of MiCA, such as number of holders > EUR 
10 million, market cap of tokens > EUR 5 million, >2.5 million transaction per day amounting to more than > 
EUR 500 million daily value, etc. 

365 

 
 
 
 
 
3.2.  PROBLEM  DEFINITION  –  FRAGMENTED,  LESS  EFFICIENT  AND  INEFFECTIVE 

SUPERVISION   

Despite the legal frameworks in place, several structural and operational shortcomings hinder 
effective and coherent supervision across the EU financial sector. Supervisory fragmentation, 
divergent  national  practices  and  limited  EU-level  oversight  mechanisms  have  created  a 
supervisory landscape that is misaligned with the needs of an integrated capital market. These 
inefficiencies  affect  all  key  sectors  -  CSDs,  CCPs,  trading  venues,  asset  management  and 
CASPs  -  via  regulatory  fragmentation,  lack  of  seamlessly  functioning  of  cross-border 
operations, and weakened oversight quality. The result is a supervisory regime that is lacking 
a  holistic  view  of  cross-border  activities  and  is  insufficiently  equipped  to  ensure  consistent 
outcomes, support cross-border activity, or respond effectively to systemic risks. 

Moreover, supervision of financial entities at national level cannot always ensure effectiveness 
and  efficiency,  particularly  when  the  activities  of  supervised  entities  have  cross-border 
implications.  While  NCAs  are  well  placed  to  oversee  entities  operating  primarily  in  their 
domestic markets, their mandates and tools are limited when risks, market impacts, or spill-
overs  extend  beyond  national  borders.  Divergent  supervisory  practices,  differences  in 
enforcement intensity, and a lack of coordinated oversight  may  result in  regulatory gaps or 
overlaps,  creating  inefficiencies  and  undermining  the  level  playing  field  within  the  internal 
market.  This  is  especially  relevant  for  entities  whose  business  models  or  services  affect 
multiple Member States, where national supervision alone may be insufficient to address the 
broader systemic or cross-border consequences. 

This is also confirmed by some stakeholders in their replies to the consultation. They highlight 
that market fragmentation in the EU arising from divergent supervisory practices leads to legal 
uncertainty, higher compliance costs, regulatory arbitrage, and barriers to cross-border activity. 

These shortcomings diminish the competitiveness of EU capital markets. Without centralised 
and  effective  supervisory  powers,  which  would  address  supervisory  aspects  from  a  single 
market perspective, the EU cannot match the integrated and responsive frameworks seen in 
global financial centres like the US or UK. The result is higher operational costs, inconsistent 
or insufficient supervisory action and a less attractive environment for international capital  - 
undermining the goals of the Single Market and the SIU. 
The OECD, in its 2025 Economic Survey of the European Union and Euro Area606, outlines 
these  supervisory  differences  and  specifically  highlights  the  benefits  of  a  more  unified 
European framework for supervision and includes a suggestion of moving certain supervisory 
powers to the EU level.  The report also  raises the example of the tangible benefits that EU 
banking groups gained in terms of simplified supervision and rules as a result of the move to a 
unified system of supervision in the post Great Financial Crisis reforms and suggests that the 
same benefits could be achieved by those active in capital markets. 

Stakeholder  feedback  from  the  public  consultation  provides  concrete,  sector-by-sector 
examples of these issues in practice, as set out below for CCPs, CSDs, trading venues, asset 
managers, and CASPs. 

606  https://www.oecd.org/content/dam/oecd/en/publications/reports/2025/07/oecd-economic-surveys-european-
union-and-euro-area-2025_af6b738a/5ec8dcc2-en.pdf. 

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3.2.1.  CCPs 

A major CCP operator reported significant direct and indirect costs related to engagement with 
supervisors.  Directly,  supervisory  fees  vary  widely  between  jurisdictions,  placing  some  EU 
CCPs  at  a  competitive  disadvantage.  Indirectly,  costs  arise  from  national  gold-plating, 
duplicative reporting requirements, and lengthy, multi-layered EMIR approval procedures. An 
indefinite,  resource-intensive  pre-filing  phase  for  new  product  authorisations  or  risk  model 
change validations can delay launches by months, reducing responsiveness compared to non-
EU  peers.  Another  large  CCP  group  argued  that  under  the  pre-EMIR  3  framework,  multi-
layered approval processes could take up to 2.5 years, undermining the EU’s position in the 
global clearing market.  

3.2.2.  CSDs 

Some CSDs have indicated facing difficulties getting NCAs greenlight when wanting to share 
resources at group level for certain functions, with the objective of a more integrated approach. 
They indicated that as each group entity may be looked into somewhat in isolation, and with 
varying supervisory expectations, from the rest of the group, other group entity resources are 
seen as no different from any third-party provider, undermining integrated cross-border group 
strategies, and the opportunity for economies of scale those strategies entail.  

One CSD group reported annual supervisory fees totalling around EUR 3.4 million across four 
jurisdictions, with variations from EUR 572 000 to over EUR 1.1 million per CSD. Another 
CSD  group  noted  significant  discrepancies  between  the  supervisory  fees  incurred  for  the 
different  CSDs  in  the  group,  and  that  these  differences  often  bear  no  clear  link  to  size  or 
complexity  of  the  CSD,  and  in  some  countries  multiple  supervisory  fees  are  charged  when 
oversight  is  shared  between  authorities.  Such  discrepancies  risk  distorting  competition, 
particularly for smaller CSDs. 

A  major  CSD  operator  argued  that  greater  centralisation  is  needed  to  ensure  regulatory 
consistency,  reduce  opportunities  for  arbitrage,  enable  better  monitoring  of  interconnected 
risks, and harmonise fee structures, thereby creating a more level playing field across the post-
trade sector. 

3.2.3.  Trading Venues 

Operators reported that, even when obligations are harmonised by MiFID II, NCAs apply them 
differently. Locally tailored requests and, in some cases, duplicative or conflicting instructions 
from  NCAs  result  in  inconsistent  and  sometimes  duplicative  supervisory  requirements, 
operational  complexity,  and  higher  compliance  costs  for  cross-border  operators.  As  an 
example, incident  reporting may have to  be shared with  up to  eight authorities via separate 
channels, which multiplies the costs. 

One  NCA  involved  in  the  oversight  of  a  trading  venue  noted  that  divergent  supervisory 
procedures,  including  the  actors  involved,  impose  around  EUR  60  000  in  annual  costs  for 
certain processes.  

One  operator  active  across  several  Member  States  noted  that  fragmented  pre-approval 
requirements delay product launches for the entire group - because of its harmonised rulebook. 
And because approval processes can take several months in some Member States, this leads to 
opportunity costs of low single digit millions of Euros for every new product launched. This 
does  not  support  innovation  and  also  erodes  first-mover  advantages.  Besides  faster  product 
launches,  additional  benefits  from  a  centralised  supervision  would  include  reduced 
duplications  of  human  resources  and  improved  procedural  efficiency.  The  same  group 

367 

 
 
 
estimated that centralised supervision could yield it savings in the order of tens of millions of 
euros annually, mainly through reduced compliance and governance costs.  

Feedback received also underlined that annual licence fees vary widely: some Member States 
charge  flat  amounts,  others  levy  per-instrument  fees,  and  others  charge  by  the  hour  for 
supervisory work.  

3.2.4.  Asset Managers 

Unnecessary  administrative  barriers  continue  to  impose  significant  costs  on  EU  asset 
managers. These costs are higher particularly when funds are being marketed on a cross-border 
basis.  The  burden  arises  from  persistent  regulatory  fragmentation,  duplicative  procedures, 
divergent local interpretations of EU rules, and the lack of fully harmonised digital processes 
among  NCAs.  Launching  a  UCITS  fund  still  typically  requires  between  EUR  300  000  and 
EUR  500  000  in  upfront  costs,  which  among  other  costs  comprises  legal  structuring, 
documentation,  registration,  and  compliance  with  local  marketing  rules.  The  administrative 
costs of registering a UCITS in one additional EU Member State can range from EUR 20 000 
to EUR 60 000, depending on translation, legal, and agent fees. For an EU AIF, these costs can 
exceed EUR 500 000. 

3.2.5.  CASPs 

Convergent  supervision  was a prominent  topic for CASPs during the consultation.  Industry 
feedback  revealed  that  despite  the  short  period  of  time  the  framework  applies,  supervisory 
practices and approaches vary between Member States and several stakeholders highlighted 
the  challenges  this  presents.  For  example,  one  stakeholder  noted  that  NCAs  have  slightly 
different understandings of the crypto sector and technical nuances. Another market participant 
believes  that  a  harmonized  application  is  essential  to  enable  legal  clarity  for  CASPs  in  the 
sector,  while  another  one  adds  that  strong  leadership  at  EU-level  is  needed  for  supervisory 
consistency  and  cross-border  scalability,  both  crucial  for  a  well-functioning  digital  finance 
market. One industry respondent argued that differences in supervisory practices sometimes 
stem from Member States that have not yet prioritized the development of necessary resources 
and capacities. 

Several  industry participants  supported that  a more  coordinated EU supervision could  offer 
long-term  benefits,  especially  in  improving  consistency  and  reducing  regulatory  divergence 
across Member States. While they do not expect immediate cost savings, a single supervisory 
framework  could,  over  time,  streamline  licensing  and  monitoring  for  CASPs.  Most 
importantly, it could ensure a level playing field and clearer expectations on issues like custody, 
IT risk, or service expansion. 

One  NCA  stressed  that  the  phenomenon  of  forum  shopping  is  particularly  prevalent  in  the 
crypto asset sector and in view of that, the current framework for supervising CASPs needs to 
be strengthened. 

3.3.  PROBLEM DRIVERS (WHAT CAUSES THESE PROBLEMS)  

3.3.1.  Non-aligned supervisory practices and interpretations across Member 

States  

In many cases, supervision is carried out almost exclusively at the national level, which leads 
to a patchwork of divergent interpretations, standards, and enforcement approaches across the 
EU.  

368 

 
 
 
Inputs received from stakeholders collectively underscore that despite a single rulebook, varied 
national supervisory interpretations and enforcement undermine the effectiveness of the EU’s 
regulatory  framework,  posing  a  significant  obstacle  to  achieving  a  fully  integrated  and 
competitive capital market. 
Bruegel’s  Nicolas  Veron607  showcases  the  political  and  competitive  aspect  of  having  a 
multitude of national supervisors, noting that local supervisors “may be more reluctant than a 
European supervisor to grant authorisations to innovative newcomers in order to protect local 
incumbents”. On the other hand, there may also be incentives for NCAs to be more lenient to 
attract  business.  He  suggests  that  such  attitudes  to  supervision  reduce  the  possibility  of 
achieving  a  truly  competitive  European  capital  market,  which  could  be  advanced  by  well-
designed supervisory integration.    

In the area of CSDs, certain requirements of the CSDR are not read consistently by the NCAs. 
For  instance,  respondents  to  the  public  consultation  highlighted  that  there  are  significant 
differences  in  how  authorities  identify  outsourcing  arrangements,  in  particular  staff  sharing 
arrangements,  how  authorities  assess  important  changes  within  the  CSD,  as  well  as  in  how 
authorities handle passporting requests and cross-border provision of services.  

In particular, one respondent to the consultation has identified issues with the CSD home/host 
process, which indicates limitations in its ability to facilitate cross-border cooperation. There 
have  been  instances  where  host  Member  State  authorities  have  disapproved  the  measures 
proposed by a CSD to comply with local laws. Additionally, the interpretation of specific legal 
terms and deadlines provided by European regulation has been diverse between home and host 
authorities,  for  example  with  reference  to  the  starting  of  the  effective  dates  or  the  relevant 
calendar  to  be  applied.  This  creates  friction  in  the  regulatory  procedures  (e.g.  passporting 
process) and can delay or block cross-border service provision. Despite efforts by ESMA to 
harmonize  supervision  through  questions  and  answers  tool  (‘Q&As’)  and  guidance,  NCAs 
sometimes interpret and enforce CSDR provisions differently, which undermines the goal of a 
unified EU market and complicates compliance for CSDs operating in multiple countries. 

Respondents also highlighted that there are significant variations in the scope, frequency and 
formatting of regulatory reporting across jurisdictions. Another example that was evidenced in 
the  context  of  the  move  to  T+1  in  the  EU  is  the  inconsistency  in  how  some  authorities 
considered securities financing transactions conducted on trading venues under the mandatory 
settlement requirement set out in the CSDR. 

These  inconsistencies  become  even  more  pronounced  for  corporate  groups  that  operate 
multiple  CSDs  -  such  as  Euroclear,  Deutsche  Börse  or  Euronext  -  or  operate  in  different 
markets  such  as  Nasdaq  and  thus  must  navigate  differing  supervisory  approaches  and 
interpretations from various competent and relevant authorities. Notably several respondents 
have  highlighted  that  the  CSDR supervisory  framework  does  not  sufficiently  accommodate 
group  structures.  Ignoring  the  presence  of  groups  with  multiple  CSDs  in  supervisory 
frameworks creates obstacles to efficient and effective consolidation of market infrastructures.  

In the area of CCPs, despite ESMA’s tools to enhance supervisory convergences and the CCP 
Supervisory  Committee’s  tasks,  there  are  still  significant  divergences  in  supervisory  depth, 
interpretation and practices amongst NCAs. For example, one respondent to the consultation 
pointed out that the CCP requirements are implemented in very different ways, with cases of 
requirements  imposed  being  “1000-fold  higher  in  a  Member  State  compared  to  existing 

607 Bruegel Blueprint 35.pdf. 

369 

 
 
 
 
 
practices” elsewhere. Other respondents pointed out that, when it comes to the approval of new 
services provided by CCPs and the validation of changes brought to CCP risk models, some 
NCAs are satisfied with a “desk-based review of documents”, while some other favour the use 
of  “inspection  methods”.  Some  respondents  to  the  public  consultation  even  mentioned  the 
current practice of a “pre-filing phase”, where the CCPs are interacting informally with their 
regulators, before the official application, which contributes to create costs for some EU CCPs 
and leads to an unlevel playing field. In parallel, respondents to the public consultation were 
of the view that recent amendments to EMIR brought by Regulation (EU) 2024/2987 (‘EMIR 
3’)608, which provide an enhanced role for ESMA in CCP colleges, with more ESMA opinions 
and  better  information  sharing,  should  ensure  greater  supervisory  convergence  and 
coordination between NCAs and ESMA.  

Indeed, since the EMIR 3 implementation, ESMA became the co-chair of the CCP college of 
each EU CCP. However, in practice the CCP colleges’ main purpose  is information sharing 
and preparing non-binding opinions. In addition, the new procedures involving ESMA’s CCP 
Supervisory Committee and the College’s opinions, have been extended and now cover all the 
decisions regarding the EU CCP (for instance the CCP’s annual review and any change of the 
CCP’s  participation  requirements),  which  leads  to  more  comparability  and  consistency  of 
decisions taken regarding EU CCP’s activity. Nevertheless, the changes introduced by EMIR 
3 will most likely not resolve the issue of the fragmented supervisory structure. In this respect, 
one respondent to the public consultation argued that the current supervisory structure is not fit 
for purpose and gave the example of one of the largest CCPs in Europe whose college includes 
22 different authorities.  

The impact assessment accompanying the Commission’s proposal on EMIR 3 showed that EU 
CCPs are highly interconnected. This can lead to cross-border risks, i.e. problems in one CCP 
can propagate to other CCPs. That impact assessment also argued that a supervisory framework 
relying on cooperation amongst NCAs is inefficient and inadequate to address those risks. A 
complex  and  limited  framework  for  the  cooperation  of  national  supervisors  and  relevant 
authorities leads to supervisory divergence, creates duplicative and burdensome processes and 
reporting for EU CCPs and ultimately results in an unlevel playing field for those CCPs, as 
well as potential risks for financial stability. Indeed, the new procedures in EMIR 3 introduced 
an  ambitious  timeframe  and  strict  deadlines  in  order  to  facilitate  EU  CCPs  bringing  new 
products to the market. Nevertheless, they: i) do not allow for ESMA in its current set-up (with 
a strong role for NCAs at ESMA’s CCP Supervisory Committee’s level) to study in detail the 
CCP’s  NCA  risk  assessment  and  also  ii)  increase  the  likelihood  that  an  unsatisfactory 
application would be rejected and force the CCP to start the full process again. In addition, the 
CCP’s  college  discussions,  now  co-lead  by  ESMA,  in  practice  do  not  add  much  and  seem 
duplicative to the discussion that also occur in parallel at ESMA’s committee level.  

Furthermore, although significant progress has been made in harmonising the EU legislative 
framework  governing  trading  venues  in  the  last  decade,  the  fact  that  supervision  remains 
entirely in the hands of NCAs hinders the creation of a single market in that area. First, several 
rules governing the organisation, governance and operations of trading venues in the EU are 
set out in a directive (MiFID II), meaning that they are subject to transposition in national laws 
and/or implementation, which often differ. Secondly, even where rules are harmonised at EU 

608 Regulation (EU) 2024/2987 of the European Parliament and of the Council of 27 November 2024 amending 
Regulations (EU) No 648/2012, (EU) No 575/2013 and (EU) 2017/1131 as regards measures to mitigate excessive 
exposures to third-country central counterparties and improve the efficiency of Union clearing markets (OJ L, 
2024/2987, 4.12.2024, ELI: http://data.europa.eu/eli/reg/2024/2987/oj). 

370 

 
 
 
 
 
level  through  a  regulation,  their  application  often  varies  in  practice  due  to  differing 
interpretations and supervisory practices609 among NCAs.  

For  example,  procedures  as  regards  supervisory  approval  of  amendments  to  exchange 
rulebooks  -  which  define  the  rules  that  govern  the  operations  of  an  exchange,  notably  its 
interaction with participants in the exchange – often differ from one Member State to another.  
As  a  result,  pre-approval  of  exchange  rule  books  by  the  national  supervisor  in  certain 
jurisdictions  can  create  challenges  for  trading  venues  to  launch  new  financial  products  that 
require rulebook changes, when in other jurisdictions a notification of the rulebook change is 
sufficient. This results in delays in listing new products, which represent sizable opportunity 
costs and a clear competitive disadvantage vis-à-vis trading venues located in Member States 
that  have  a  more  flexible  approach.  This  is  exacerbated  by  additional,  local  regulatory 
requirements for listing financial instruments. In practice, approaches of NCAs also differ, such 
as  with  respect  to  requirements  on  risk  management,  compliance  and  market  surveillance 
functions. Pan-European groups of trading venues are particularly affected by the challenges 
of interacting with various NCAs, each with its own set of rules, practices, contact personnel 
and level of expertise. The division of supervisory responsibilities across EU Member States 
may further complicate matters, as these groups might handle interactions with NCAs in one 
jurisdiction, regional supervisory authorities in another, and possibly central banks elsewhere. 
This fragmented supervisory landscape adds an extra layer of complexity - and hence delays 
and costs - for groups operating across borders.  

One large European exchange gave several examples as regards differing national requirements 
in  terms  of  maintaining  some  functions  at  local  level  –  e.g.  risk,  compliance,  market 
monitoring, market abuse - with the result that the group was prevented by several NCAs from 
outsourcing them to another entity of the group – a notion that is not defined in the current 
financial framework. One respondent shared an example involving the introduction of already 
existing and pre-approved IT system and trading engine from one Member State into a newly 
acquired group subsidiary in another Member State. The “host” NCA required the group to go 
through an extensive approval process of this intra group outsourcing, even though the system 
had already been approved and was operational in another Member State. Such duplications 
and divergences in supervisory approaches prevent pan-European groups from benefitting fully 
from the economies of scale and cost savings which an EU single market is expected to deliver. 
The  notion  of  centralised  supervision  and  EU-level  authorisation  could  accommodate 
integration, however, the concept of “group” does not exist for market operators in the current 
MiFID II framework.  Both, moving to a system of authorization and EU supervision at the 
level of the consolidated group that would facilitate branchification or EU level supervision of 
each  (nationally)  licensed  entity  would  improve  the  status  quo  by  removing  regulatory 
interactions  and  limiting  supervisory  fragmentation.  The  two  policies  are  not  mutually 
exclusive and can be pursued complementary to each other.  

In parallel to groups with presence in multiple Member States, several platforms (in particular 
MTFs) operating with a single national license reached significant EU wide market shares in 
terms of trading volume by hosting trading in non-domestic instruments whose most relevant 
market in terms of liquidity remains outside the MTF’s place of establishment (typically, in the 

609  For instance, some NCAs adopt a principle-based approach, while others use a risk-based approach. Broadly 
speaking, a  risk-based approach often results in faster authorization processes or a  more streamlined approval 
process for trading venues' rulebooks and related changes. Conversely, a principle-based approach may be more 
effective in preventing some risks while being less efficient in terms of timelines. 

371 

 
 
 
 
 
 
jurisdiction where the issuer of the security is established). Such MTFs operate under a single 
national  license with  no involvement of the NCAs supervising  the securities’ most  relevant 
trading venue in terms of liquidity (and typically the issuer issuing such securities). This means 
that  the  current  situation  where  supervisory  powers  remain  in  the  hands  of  NCAs  is  also 
suboptimal to monitor risks appropriately. 

Furthermore,  resilient  markets  are  crucially  important  if  the  broader  policy  objective  is  to 
increasingly finance growth through capital markets. Centralised supervision could contribute 
to ensuring a high level of operational resilience for trading venues and high standards of risk 
controls such that the orderly trading conditions  are maintained throughout the EU, even in 
times  of  market  turmoil  that  involve  large  volumes  or  increased  volatility.  This  might,  for 
example, prevent single markets from having to halt trading in the face of unexpected global 
events while other European markets manage to remain open or that risk controls to deal with 
stark price movements are applied differently. 

In the asset management sector, supervision by NCAs is generally viewed as effective within 
individual jurisdictions. However, differences in supervisory approaches, rules, and systems 
across Member States can create challenges for asset managers with cross-border operations. 
Differing national rules, supervisory approaches and IT systems undermine the effective use 
of  the  management  and  marketing  passports  enshrined  in  UCITSD  and  AIFMD.  Asset 
managers must often undergo multiple regulatory interactions, including divergent notification 
procedures  and  requirements  for  marketing.  These  divergences  increase  complexity  and 
generate significant compliance costs, particularly for asset managers operating cross-border. 
The lack of alignment across the supervisory framework makes it more difficult for firms to 
navigate regulatory requirements efficiently. In addition, the absence of a consolidated view of 
asset  management  groups  operating  through  multiple  subsidiaries  can  limit  supervisory 
effectiveness and make it harder to identify broader risks or ensure consistent oversight across 
the group. The larger the asset management group, the more critical a consolidated supervisory 
perspective becomes, requiring enhanced coordination and cooperation among authorities to 
ensure a comprehensive understanding and consistent supervisory outcomes.  

Currently, cross-border asset management groups work through different mixes of subsidiaries 
and branches. Each subsidiary is authorised and supervised by the NCA of its home Member 
State  as  a  free-standing  asset  manager  with  no  EU-wide  structured  process  of  supervisory 
coordination for cross-border asset management groups, leading to a duplication of functions, 
such as IT, compliance, or risk management functions, and potentially different supervisory 
outcomes. This  issue is  particularly  evident in  cases where asset managers within the same 
group share resources (e.g. intra-group delegation). In the public consultation, asset managers 
provided  examples  of  inconsistent  supervisory  interpretations,  expectations,  and  processes 
across  Member  States.  Key  supervisory  frictions  include  diverging  views  on  substance  and 
local presence requirements, varying approaches to intra-group delegation, differences in how 
NCAs assess internal policies, risk frameworks, or compliance arrangements across entities in 
the same group and limited reliance on group-level assessments. 

Another key example is the cross-border marketing of investment funds. Host NCAs, where 
the  fund  is  marketed,  review  the  relevant  documentation  independently,  which  can  lead  to 
repeated  reviews  or  the  imposition  of  differing  standards.  For  instance,  many  stakeholders 
mentioned  that  NCAs  do  not  coordinate  on  their  requests  regarding  marketing  documents. 
Therefore, for the same fund, they have to adapt the documents based on NCA requests, which 
may  diverge.  For  example,  certain  jurisdictions  require  a  country  supplement  to  the  fund 
prospectus or country-specific disclosures within the prospectus. Moreover, some host NCAs 
may  impose  specific  formats  for  investor  notices,  different  from  the  home  NCA  format. 

372 

 
 
 
Likewise, when a risk is identified in one Member State, this information is not systematically 
shared with others, preventing timely corrective actions across the EU. 

In addition, host NCAs in the Member States where funds are marketed often impose additional 
marketing rules. As a result, many Member States apply prescriptive marketing requirements—
for example, regarding the length or content of marketing materials. Given their limited insight 
into the broader group structure, these NCAs often request supplementary information in order 
to  supervise  fund  marketing  within  their  jurisdiction  in  accordance  with  their  national 
frameworks.  This  leads  to  a  situation  where  information  is  asymmetric,  supervisory 
interactions are duplicated, interactions between NCAs are  mainly bilateral and ad hoc, and 
trust is low. From the asset manager's standpoint, larger structures and operations mean dealing 
with more NCAs.  

In the case of CASPs, the phenomenon of bringing into a regulated framework a previously 
unregulated industry, has caused intense competition between NCAs in attracting applications 
from  prospective  crypto-asset  service  providers  in  their  jurisdiction.  Some  NCAs  began 
accepting applications for a CASP license before the entry into application of the Regulation 
and  assessed  unofficially  the  applications.  This  practice  encouraged  forum  shopping  and 
provided market participants in these Member States a “first mover” advantage compared to 
market participants in other Member States where NCAs adopted a more literal interpretation 
of the rules and waited for the Regulation to start applying before accepting any applications. 
This  practise  also  partly  explains  why  some  Member  States  have  already  attracted  a  large 
number of applicants and granted a considerable number of CASP authorisations in comparison 
to other jurisdictions.   

Some competent authorities have reported that it is already challenging to comply with the set 
deadlines when multiple applications are being processed simultaneously and the quality of 
many of the initial applications received in general was found to be lacking. CASPs located in 
jurisdictions with supervisory authorities with a more market driven approach, might have an 
unfair advantage over those with a strict reading of the rules, potentially leading to regulatory 
arbitrage. This is already evident in the few months of application of the MiCA Regulation, as 
the approach of different regulatory authorities to different business models that have presented 
themselves has not  been the same in  all situations. Some NCAs are more willing  to  accept 
riskier business models (provided there are adequate safeguards) and this may cause friction in 
cross-border situations with host jurisdictions with a different risk appetite.  

There is also growing concern that the crypto-asset services industry, which is dominated by 
groups of companies established in third countries, will use the fragmented interpretation of 
EU rules by NCAs to their benefit.  

In addition to the ongoing authorisation process, under the MiCA Regulation, Member States 
have  the  option  of  implementing  ‘transitional  measures’  (Article  143  of  MiCA)  that  would 
allow entities or undertakings already providing crypto-asset services under applicable law in 
their jurisdictions to continue doing so during the transitional phase of MiCA (i.e., the period 
of 18-months after full application in December 2024, or a shorter period, depending on the 
Member  State  decision).  This  provision  resulted  in  a  multitude  of  transitional  periods610 
applicable across the EU, ranging from 6 to 18 months -the maximum allowed. This uneven 
phasing-in  has  already  caused  practical  problems:  in  some  Member  States,  undertakings 

610 10 Member States opted for an 18-month transitional period (the maximum default), 8 Member States adopted 
12 months, 1 Member State opted for 9 months and 6 Member States for 6 months. 2 Member States did not 
communicate transitional periods. 

373 

 
 
 
 
 
already providing crypto-asset services under applicable law are allowed to operate until mid-
2026,  while  in  others  transitional  rights  ended  in  mid-2025.  This  complicates  cross-border 
operations and creates confusion for groups trying to passport services consistently across the 
Union.611 This period is still running for some Member States and is meant to allow  for the 
smooth transition of previously registered entities under the anti-money laundering framework 
into  the  comprehensive  framework  for  crypto-assets.  This  is  a  temporary  situation  that  will 
phase out with the gradual ending of the different transitional periods.  

The regulatory framework for this industry is relatively new and market concentration is still 
too early to determine, however it is already evident that this is a market that will be dominated 
by  cross-border  entities.  For  some  crypto-asset  services  like  the  operation  of  a  crypto-asset 
trading  platform,  there  is  increased  interest  to  obtain  a  CASP  authorisation  by  groups  with 
parent companies in third countries, operating various forms of integrated business models and 
there  is  a  risk  of  supervisory  fragmentation.  For  example,  where  a  CASP  group  operates  a 
shared order book across several EU jurisdictions, NCAs have diverged in their interpretation 
of  whether  this  constitutes  a  cross-border  service.  This  has  led  to  conflicting  supervisory 
expectations and duplicative oversight. In addition, some NCAs consider staking and lending 
services as falling clearly within MiCA’s authorisation perimeter, while others treat them as 
ancillary activities subject only to AML registration. Similarly, divergent approaches have been 
observed  in  the  assessment  of  custody  arrangements:  certain  authorities  impose  strict 
segregation  of  client  assets,  while  others  accept  commingling  practices  provided  there  are 
disclosure  safeguards.  These  inconsistencies  result  in  uneven  supervisory  intensity  and 
confusion for cross-border groups.  

Currently, apart from building authorisation capacity, the NCAs have not had the time to build 
capacity for ongoing supervision, i.e. to build-up expertise and dedicate extensive resources to 
the  supervision  of  these  market  players.  This  is  particularly  evident  in  ESMA  supervisory 
convergence groups where competent authorities demonstrate a different understanding of the 
crypto asset sector, the risks it poses and its technical nuances and reality. Given the relatively 
large number of authorisations already granted, and the applications currently in the pipeline, 
competent  authorities  will  need  resources  and  skills  to  supervise  a  completely  new  type  of 
industry  that  does  not  operate  the  way  financial  intermediaries  usually  do.  The  capacity  to 
conduct  effective  supervision  of  these  new  market  players  is  therefore  paramount  and  is 
currently lacking. In addition, the current set-up implies that 27 separate national market abuse 
teams are monitoring the same crypto-assets traded cross-border, which is inefficient and risks 
inconsistent enforcement across the Single Market. There are therefore, fewer legacy issues in 
terms of supervision and crypto-asset service providers are an ideal candidate for centralised 
supervision  under  ESMA  to  ensure  uniform  rule  application,  to  avoid  enforcement 
asymmetries and to preserve market integrity. 

In conclusion, supervisory fragmentation results in an uneven playing field as financial entities 
operating  in  different  Member  States  face  diverging  supervisory  requirements.  The 
involvement of multiple supervisors also raises the cost of achieving compliance, both at the 

611 For instance, while the Netherlands adopted a six-month transitional window ending on 30 June 2025, France 
and  Malta  opted  for  the  full  18‑month  period  ending  on  1 July 2026.  This  disparity  can  create  brief  gaps  in 
compliance: for example, a CASP authorised in France under the previous national law, may continue operating 
under transitional rights until mid‑2026, but if it seeks to make use of its registration for the provision of virtual-
asset services under the previous regime in the Netherlands after June 2025, it could be operating without proper 
authorisation there—unless it had already obtained a MiCA licence in France (which also grants a passport right). 

374 

 
 
 
 
 
level  of  the  industry  and  for  regulators.  Finally,  the  decentralised  system  of  supervision 
currently in place limits the ability to detect and manage EU-wide risks.  

3.3.2.  Limited tools and powers at EU level to enforce convergence and ensure 

effective oversight 

While EU authorities like ESMA provide guidance and non-binding opinions, they currently 
lack the necessary tools and binding powers to ensure uniform application of rules across the 
Member  States.  This  limitation  severely  restricts  supervisory  convergence,  as  national 
authorities  remain  the  final  decision-makers,  also  in  areas  with  systemic  cross-border 
implications.  Examples  presented  below  illustrate  shortcomings  in  ESMA’s  use  of  current 
supervisory convergence tools and limitations inherent to some of these tools.  
CEPS’s Demarigny and Thomadakis outline in their report on EU supervisory integration612 
that political resistance from Member States has stalled reform, and the current hybrid system 
of  supervision  with  limited  supranational  authority  has  “hampered  consistency,  weakened 
enforcement and exposed the EU to regulatory arbitrage and inefficiencies”. Moreover, they 
have  highlighted  that  this  approach  is  particularly  detrimental  in  areas  where  an  agile,  data 
driven, and forward-looking approach is needed, including in fintech, ESG, and crypto assets. 

In  the  case  of  CCPs,  ESMA  can  only  provide  non-binding  opinions  where  necessary  to 
promote a  consistent  and coherent  application of a relevant  article. As such, ESMA has no 
binding instrument at its disposal that would ensure similar outcomes of supervisory decisions 
(except for the validation of the changes to CCPs’ risk models) and therefore cannot ensure a 
consistent  and  coherent  application  of  EMIR.  There  is  no  ESMA  assessment  of  CCPs’ 
compliance with EMIR or ESMA role in the supervision of EU CCPs, as the input by ESMA 
is non-binding (except for the validation of the changes to CCPs’ risk models). EU supervision 
of EU CCPs is vital to ensure the stability, not only of the EU CCPs but also of the EU financial 
system. Indeed, EU CCPs usually have the same clearing members, and such concentration 
leads to higher systemic risk in case of default of one of them. This was the approach in EMIR 
2.2  and  EMIR  3,  as  well  as  the  CCP  Recovery  and  Resolution  Regulation613,  which  all 
the 
underlined 
interconnectedness  of  the  EU  financial  system,  and  multiple  participations  of  EU  clearing 
members. An example of this was the energy crisis where market participants were active in 
the  same  products  in  multiple  CCPs  located  in  different  Member  States  with  different  risk 
management  rules.  Despite  limited  time  since  the  implementation  of  EMIR  3,  some 
stakeholders have reported that supervisory practices still diverge from one NCA to another – 
for instance gold plating additional requirements or application of a pre-filing phase – which 
would not occur under a single supervision.  

that  all  EU  CCPs  were  potentially  systemically 

important  given 

While  the  CSDR  Refit  introduced  supervisory  colleges,  these  act  primarily  as  information-
sharing platforms with limited impact on actual supervisory outcomes. Their role is limited to 
the  issuance  of  non-binding  opinions  regarding  review  and  evaluation,  outsourcing  or 
extension of activities or potential breaches to the CSDR, pertaining to services offered by a 
CSD  in  a  host  Member  States.  As  a  consequence,  the  limited  involvement  of  numerous 
authorities  in  many  specific  areas  of  the  supervision  leads  to  challenges  in  supervisory 

612 https://cdn.ceps.eu/wp-content/uploads/2025/06/EU-supervisory-efficiency-Policy-Brief-n-44.pdf. 
613 Regulation (EU) 2021/23 of the European Parliament and of the Council of 16 December 2020 on a framework 
for the recovery and resolution of central counterparties and amending Regulations (EU) No 1095/2010, (EU) No 
648/2012, (EU) No 600/2014, (EU) No 806/2014 and (EU) 2015/2365 and Directives 2002/47/EC, 2004/25/EC, 
2007/36/EC, 2014/59/EU and (EU) 2017/1132 

375 

 
 
 
 
 
cooperation,  particularly  regarding  consistency  and  efficiency,  which  in  turn  places 
unnecessary  administrative  burdens  on  the  entities  being  supervised.  In  addition,  the 
introduction  of  colleges  is  only  foreseen  for  CSDs  that  are  considered  to  be  of  substantive 
importance in at least two Member States. This means that CSDs, for which colleges have not 
been  set  up,  continue  to  be  subject  to  the  idiosyncratic  interpretation  and  approach  of  their 
NCA(s).  The  above  issues  have  been  highlighted  by  several  respondents  to  the  public 
consultation,  as  well  as  in  the  previous  CSDR  Impact  Assessment614,  and  have  not  been 
resolved yet.  

The scattered division of supervisory tasks among competent and relevant authorities, as well 
as colleges of supervisors, leads to an insufficient consideration of cross-border aspects and 
divergent supervisory outcomes for CSDs that operate cross-border. This was highlighted by 
several  respondents  to  the  public  consultation,  who  noted  that  the  current  fragmented 
supervisory  framework  is  not  able  to  respond  promptly  to  market  developments  and  cited 
numerous  examples  of  divergences  between  NCAs  in  several  areas,  such  as  reporting 
obligations, the assessment of passport notifications, the supervisory assessment of important 
changes within the CSD, diverging views on governance matters. 

The  involvement  of  ESMA  in  the  supervision  of  CSDs  is  currently  limited  to  resolving 
disagreements  between  authorities.  ESMA  is  also  neither  involved  in  the  authorisation  and 
supervision of links, nor in the passporting of central maintenance and notary services in host 
Member  States.  Given  the  potential  increase  in  cross-border  CSD-level  activity,  a  more 
substantial role for ESMA is required. 

For  trading  venues,  under  the  MiFID  II  framework,  supervision  is  enforced  by  NCAs  and 
ESMA has no supervisory power. Under MiFIR, ESMA was conferred supervisory powers on 
Approved Reporting Mechanisms (ARMs), Approved Publication Arrangements (APAs) and 
Consolidated Tape Providers (CTPs). Furthermore, ESMA is empowered to monitor the market 
for  financial  instruments  which  are  marketed,  distributed  or  sold  in  the  Union,  and  can 
temporarily  prohibit  or  restrict  the  marketing,  distribution,  or  sale  of  certain  financial 
instruments or types of financial activities if they pose a threat to investor protection, orderly 
functioning  and  integrity  of  financial  markets,  or  the  stability  of  the  whole  or  part  of  the 
financial system in the EU. However, key areas of MiFIR, such as transparency requirements 
for equity and non-equity instruments, transmission of data, obligation to maintain recordings 
and  report  transactions,  remain  subject  to  national  supervision.  Furthermore,  the  different 
implementation  by  Member  States  has  created  a  highly  diverse  supervisory  landscape  with 
varying regulatory legal requirements as well as regulatory practices. 
For example, the recent amendments brought by Regulation (EU) 2024/2809615, as part of the 
Listing Act, to MAR introduced the possibility for ESMA to set up a collaboration platform, 
in order to protect market integrity and prevent the risk of cross border market abuse. However, 
Regulation (EU) 2024/2809 only allows ESMA to set up a collaboration platform at the request 
of one or more NCAs and limited to the case of serious concerns about market integrity or the 
orderly  functioning  of  markets.  Allowing  ESMA  to  act  on  its  own  initiative  to  set  up  and 
coordinate  a  collaboration  platform,  with  a  possibility  to  coordinate  investigations  or 

614https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12649-Central-securities-
depositories-review-of-EU-rules_en  
615 Regulation (EU) 2024/2809 of the European Parliament and of the Council of 23 October 2024 amending 
Regulations (EU) 2017/1129, (EU) No 596/2014 and (EU) No 600/2014 to make public capital markets in the 
Union more attractive for companies and to facilitate access to capital for small and medium-sized enterprises (OJ 
L, 2024/2809, 14.11.2024, ELI: http://data.europa.eu/eli/reg/2024/2809/oj). 

376 

 
 
 
 
 
inspections  with  a  cross-border  effect  would  have  been  more  effective  to  protect  market 
integrity  and  foster  cooperation  among  NCAs.  Similarly,  a  new  mechanism  to  permit  the 
ongoing and timely exchange of order data on shares, bonds or futures is to be set up by NCAs, 
albeit  they  can decide to delegate the set  up to  ESMA. Under the Short  Selling  Regulation 
framework, ESMA was conferred intervention powers in exceptional circumstances, notably 
(i) the power to require the notification to NCAs or public disclosure of net short positions and 
(ii) the power to prohibit or impose conditions on short sales. However, ESMA can act only if 
the measures target a threat to the orderly functioning or integrity of financial markets or to 
financial stability and involve cross-border implications, and if NCAs have not taken adequate 
action to address the threat. As result, those powers are almost never used (an exception was 
the COVID-19 crisis, where ESMA used its intervention powers to lower the threshold for the 
reporting of significant net short positions in shares). In conclusion, ESMA’s role is limited to 
using soft tools such as common supervisory actions, peer reviews, guidelines or Q&As, or by 
promoting  exchange  of  information,  discussions  of  supervisory  cases,  and  sharing  of  best 
practices  in  the  relevant  ESMA  standing  committees  or  working  groups,  to  which  NCAs 
participate. 

A fundamental obstacle to achieving supervisory convergence in the asset management sector 
lies  in  the  limits  of  ESMA’s  mandate.  ESMA  does  not  have  direct  access  to  case-specific 
supervisory information held by NCAs, nor any role in coordinating the day-to-day supervision 
of asset managers or the marketing of investment funds. As a result, it lacks visibility into how 
rules are applied in practice across the EU and where the barriers to cross-border activities lie. 
In  addition,  when  ESMA  detects  -  or  is  informed  through  the  complaint  mechanism  -  that 
persistent  barriers  to  cross-border  activities  exist,  it  cannot  trigger  a  structured  escalation 
process  to  resolve  the  issue.  In  practice,  ESMA  cannot  take  proportionate  actions,  from 
advising  NCAs,  to  initiate  a  mandatory  collaborative  platform  to  foster  coordinated  case 
resolution,  or,  as  a  last  resort,  resort  to  binding mediation.  Its  mediation  powers  are  in  fact 
limited to specific cases under UCITS and AIFMD, and do not extend to CBDR, and can be 
used only at NCAs requests.  

Existing convergence tools, such as peer reviews or supervisory briefings, have limited impact, 
as ESMA must rely on ex-post surveys rather than having insight into real supervisory cases. 
This prevents it from effectively detecting divergences or addressing inconsistent treatment, 
for example in cross-border fund marketing or intra-group delegation. Moreover, there is no 
systematic  EU-level  process  for  sharing  risk-related  information  between  NCAs,  further 
constraining supervisory convergence. 

To  address  these  shortcomings,  ESMA  could  be  granted  new  coordination  powers  that  are 
operational in nature and directly linked to the day-to-day supervision of asset managers and 
the  marketing  of  investment  funds.  A  prerequisite  for  such  operational  cooperation  is  that 
NCAs apply the same rules in a consistent manner, which requires reducing national discretion 
in  many  areas.  Only  with  a  common  rulebook  and  harmonised  supervisory  approaches  can 
ESMA  ensure  effective  coordination,  avoid  duplicative  processes,  and  promote  close 
cooperation  between  NCAs  when  overseeing  cross-border  groups  and  marketing  activities. 
Such an operational coordination role would strengthen the functioning of the single market 
while respecting the role of NCAs as front-line supervisors.  

However, stakeholders in the consultation opposed the idea of a single centralised supervisor, 
arguing that this would represent a major institutional shift and could add complexity rather 
than simplifying supervision. They expressed priority to be able to interact with NCAs with 
knowledge and experience within their jurisdiction and stressed the importance of maintaining 
close  contact  with  them.  According  to  them,  the  real  issue  is  not  the  existence  of  multiple 

377 

 
 
 
supervisors but the lack of consistency: NCAs should apply the same supervisory approach and 
follow the same rules, with ESMA’s role in coordinating NCAs’ supervisory practices ensuring 
that this is the case in practice.  

In  this  context,  ESMA  should  be  granted  the  power  to  take  proportionate  action  vis-à-vis 
NCAs, included extended binding mediation powers at ESMA’s initiative. 

In  the  case  of  CASPs,  ESMA  is  empowered  to  maintain  a  number  of  registers  containing 
information on the number of authorisations granted by NCAs or on non-compliant entities 
providing crypto-asset services. It can also monitor the market for crypto-assets other than asset 
referenced tokens and e-money tokens, which are marketed, distributed or sold in the Union. 
These registers are mainly providing transparency and information but they are not a tool for 
convergence.  ESMA can also  temporarily  prohibit or restrict the marketing, distribution, or 
sale of certain types of crypto-assets, if they pose a threat to investor protection, the orderly 
functioning  and  integrity  of  financial  markets,  or  the  stability  of  the  whole  or  part  of  the 
financial system in the EU. Product intervention powers are a temporary measure and can be 
used only in very specific circumstances. 

In terms of significant CASPs, i.e. according to MiCA those with more than 15 million active 
users across the EU, the competent authorities of their home Member States provide an annual 
update to ESMA on limited supervisory issues, followed by an exchange of views at ESMA’s 
Board of Supervisors. Where appropriate, ESMA may make use of its, limited, powers to fulfil 
its coordination role and promote a common supervisory culture but is neither involved in the 
authorisation  and  supervision  of  CASPs,  nor  the  passporting  of  crypto-asset  services  to 
Member  States  other  than  the  home  Member  State.  ESMA  has  published  supervisory 
convergence  measures  to  ensure  the  NCAs  adopted  similar  practices  but  its  supervisory 
briefing  on  the  procedure  for  authorisations,  which  aimed  to  assist  NCAs  in  the  practical 
application  of  requirements,  so  far  did  not  lead  to  a  harmonised  approach.  Supervisory 
convergence measures also include forum discussions amongst NCAs on selected applications 
and  best  practices  but  rather  than  improving  the  level  of  harmonisation,  they  highlight  the 
different  approaches  of  the  NCAs  and  lead  to  mistrust  and  home-host  tension.  Achieving 
convergent supervisory approaches in a new and versatile area of financial markets like crypto-
assets, is proving to be particularly challenging. All these measures, although discussed and 
decided with the NCAs, are not binding and rarely express the NCAs views in a unanimous 
way. There is an urgent need for convergence, but current convergence tools fall short.  

In the area of enforcement, based on information gathered by ESMA in 2020, between 2015 
and  2019  out  of  the  total  of  1  474  cross-border  financial  penalties  imposed  by  NCAs  for 
breaches of EU securities legislation and to be enforced outside their jurisdiction, 335 have not 
been recovered, to the overall value of approximately EUR 35 million.616 The cause of this 
failure appears to be the lack of a mechanism for mutual recognition of administrative sanctions 
decisions  allowing the rapid  and efficient  cross-border enforcement  of a fine. This  problem 
illustrates  further  the  inconsistent  and  weak  enforcement  framework  used  by  national 
authorities, especially in cross-border contexts that are most relevant for the single market.   

In  short,  the  challenge  lies  in  ESMA’s  limited  role  and  absence  of  direct  supervisory 
responsibilities  -  preventing  a  coherent,  EU-wide  supervisory  approach  and  perpetuating 
fragmentation  in  oversight.  Several  respondents  to  the  consultation  highlight  that  the  EU 

616 Further examples shared by a few ESMA members confirms that the problem persisted beyond the surveyed 
period: as a way of example, one NCA reported that between 2020 and 2022 the unrecovered financial penalties 
imposed upon both physical persons and companies amounted to EUR 1 785 000.  

378 

 
 
 
 
 
currently  lacks  sufficient  tools  and  powers  at  the  central  level  to  enforce  supervisory 
convergence and ensure effective oversight. Replies suggest that more robust decision-making 
processes, binding convergence tools and expanded EU-level powers for ESMA are necessary 
to ensure consistent and effective supervision across the Single Market. 

3.4.  OBJECTIVE (WHAT DO WE WANT TO ACHIEVE)  

3.4.1.  Improve supervision by reducing divergences and ensuring adequate 

cross-border supervision   

The overall goal of the European supervisory framework is to promote effective and efficient 
supervision of the EU financial system, in particular with regard to cross-border activities and 
entities, which ensures financial stability, appropriate protection of consumers and investors, 
and  the  proper  functioning  of  financial  markets  in  the  EU.  Fragmented  supervision  and 
divergent national practices can lead to regulatory inconsistencies, compliance complexity, and 
barriers  to  the  free  movement  of  financial  services  within  the  Single  Market.  By  fostering 
greater supervisory convergence and cooperation, and by improving oversight of cross-border 
entities,  as  well  as  entities  with  cross-border  interdependencies,  including  by  transferring 
supervisory powers to ESMA, the EU can reduce duplication of efforts, lower compliance costs 
for firms, and enhance investor confidence. As a result, this objective not only strengthens the 
resilience of the financial system but also contributes to deeper market integration, enabling a 
more competitive, innovative, and inclusive European financial sector. Improving supervision 
by  reducing  divergences  means  strengthening  the  supervisory  capacity  by  increasing  its 
efficiency  and  effectiveness  to  detect,  assess,  and  address  emerging  risks  in  a  timely  and 
proportionate manner, while reducing unnecessary administrative burdens and overlap. This, 
in  turn,  enhances  the  quality  and  responsiveness  of  oversight,  particularly  in  increasingly 
complex  and  interconnected  financial  markets.  A  more  efficient  and  effective  supervisory 
framework directly supports the broader objective of promoting market integration, by creating 
trust  in  the  well-functioning  of  capital  markets  and  by  reducing  costs  for  cross-border 
operations. Removing existing divergences and improving supervision supports simplification 
by streamlining regulatory processes and reducing administrative burdens and cost for financial 
institutions. This streamlined approach not only makes compliance easier but also ensures that 
supervision  remains  focused  on  key  risks  and  priorities,  thereby  enhancing  clarity  and 
consistency across the financial sector.  

Replies  to  the  consultation  highlight  that  achieving  a  more  efficient  and  integrated  internal 
market requires addressing persistent supervisory divergences that increase compliance costs, 
create legal uncertainty, and hinder cross-border financial activities. Stakeholders emphasise 
that fragmented supervision, varying interpretations of EU rules, and inconsistent enforcement 
by NCAs undermine market efficiency and prevent firms and consumers from fully benefiting 
from the Single Market. Several advocate for expanding ESMA’s direct supervisory powers 
over  systemic  and/or  cross-border  entities  to  ensure  uniform  application  of  rules,  reduce 
regulatory  arbitrage,  and  enhance  investor  protection.  Replies  underline  that  reducing 
supervisory divergences is key to lowering barriers, reducing costs for cross-border operations, 
and delivering a more competitive, resilient, and consumer-friendly EU financial market.  

To address these challenges, the EU aims to move towards a more harmonised and coordinated 
supervisory  framework,  with  ESMA  playing  a  greater  and  more  direct  role  in  supervisory 
activities, where appropriate, differentiating where necessary to take into account different risk 
profile  and  risk  propagation.  Increased  involvement  of  ESMA  will  help  ensure  uniform 
application of rules, improve the quality and consistency of supervision, and facilitate early 

379 

 
 
 
identification and mitigation of risks. A more coherent supervisory approach will also enable 
better  resource  allocation,  reduce  inefficiencies,  and  ensure  that  oversight  remains 
proportionate to the risks involved.  

4.   POLICY OPTIONS AND ASSESSMENT  

1. 
option 

Policy 

2. 
Status quo 

Option 1 - 

Option 2 – Improved 

3. 
supervisory convergence and an 
enhanced role for ESMA in 
supervision 

1.  Trading 

sector  

5. 
The baseline 
scenario – no changes 
in the current powers 
of ESMA 

6. 

•  ESMA would directly 

supervise the most significant 
trading venues in terms of size 
and cross-border dimension 
that are currently under 
national supervision 

2.  Post trade 
sector 

9. 
The baseline 
scenario – no changes 
in the current powers 
of ESMA 

10. 

3.  Asset 

management 
sector 

13. 
The baseline 
scenario – no changes 
in the current powers 
of ESMA 

4.  CASP sector  17. 

The baseline 
scenario – no changes 
in the current powers 
of ESMA 

•  Making greater use of ESMA’s 
supervisory convergence tools 
across all trading venues 
(regardless of their profile) 

•  ESMA would directly 

supervise the most significant 
cross-border CSDs and most 
significant cross-border FMI  
groups and the largest CCPs 
that are currently under 
national supervision 

•  Making greater use of 

supervisory convergence tools 
across all the CSDs and CCPs 
(regardless of their profile) 

•  ESMA would have enhanced 
powers to ensure supervisory 
convergence and a coordinated 
approach to the oversight of 
asset managers within large 
asset management groups 

•  ESMA would coordinate 

cross-border fund provision by 
receiving notifications, 
resolving NCA divergences, 
notably in collaboration 
platforms.  

•  Making greater use of 

supervisory convergence tools 
across all the asset managers 
(regardless of their profile) 

•  Centralised supervision at 

Union level of all EU CASPs 

380 

Option 3 - 

4. 
ESMA single 
supervisor for all EU 
trading venues, post 
trading, asset 
managers, and CASPs 

7. 
Centralised 
supervision at Union 
level of all EU trading 
venues 

8. 

11. 
Centralised 
supervision at Union 
level of all EU CSDs and 
CCPs 

12. 

14. 
Centralised 
supervision at Union 
level of all the EU asset 
managers 

15. 

ESMA would 

16. 
ensure the effective 
functioning of the cross-
border marketing of 
investment funds   

18. 
Centralised 
supervision at Union 
level of all the EU 
CASPs 

 
 
 
 
 
 
 
 
4.1. 

 OPTION 1 – NO POLICY ACTION  

Current powers in relation to regulatory and supervisory convergence tasks remain unchanged, 
as well as ESMA's direct supervisory responsibilities (baseline scenario).  

Under the baseline scenario of no policy action, the current fragmented and nationally driven 
supervisory framework across all key financial sectors - CCPs, CSDs, trading venues, asset 
managers, and CASPs - would persist. Supervision would continue to be conducted primarily 
by NCAs, with limited and non-binding coordination roles for ESMA. As a result, regulatory 
and  supervisory  convergence  across  the  EU  would  remain  slow  and  uneven,  with  Member 
States  applying  EU  rules  differently,  due  to  divergent  supervisory  practices,  resources,  and 
interpretations. This fragmentation would perpetuate an uneven playing field, inefficiencies, 
and increased compliance burdens - especially for cross-border groups - which face duplicative 
supervision, inconsistent oversight, and greater operational complexity. This situation would 
also  continue to  act  as  a barrier for reaping  the  benefits  of the Single Market  and fostering 
opportunities for entities willing to expand their business in other Member States. 

If  cross-border  supervision  does  not  keep  up  with  the  increase  in  cross-border  activities,  it 
might not be effective enough to protect consumers and investors, as well as market integrity 
and  financial  stability.  While,  in  some  cases,  colleges  of  supervisors  help  the  exchange  of 
information  and  should  further  convergence,  their  scope  and  efficiency  remain  limited,  for 
example  in  the  field  of  CCP,  the  colleges  are  entity  specific  and  thus  the  emphasis  is  on 
information sharing rather than convergence. In the extreme, undetected risks might endanger 
market integrity or financial stability.  

Replies to the consultation caution that if no action is taken to address supervisory divergences 
and  fragmented  enforcement,  the  EU  risks  perpetuating  market  inefficiencies,  regulatory 
arbitrage, and an uneven playing field. Some stakeholders warn that continued inconsistencies 
across national supervisory practices will sustain higher compliance costs for firms, limit cross-
border growth, and weaken the EU’s global competitiveness. Several responses also highlight 
that  without  intervention,  investor  protection  and  financial  stability  oversight  may  remain 
inadequate for systemic and/or cross-border entities, leaving the EU exposed to emerging risks. 
Furthermore, they stress that failure to act would reinforce operational complexities and legal 
uncertainties,  deterring  investment  and  integration  within  the  Single  Market.  Ultimately, 
stakeholders  argue  that  inaction  would  undermine  the  objectives  of  the  Savings  and 
Investments Union, stalling efforts to mobilise private capital for EU strategic priorities. 

Without action, the baseline scenario would evolve towards an unsustainable situation and a 
worsening of the general problem described in Section 3, i.e., fragmentation due to divergent 
supervision.  

4.1.1.  Baseline for CSD 

Under  the  baseline  scenario,  the  supervision  of  EU  CSDs  would  remain  fragmented  and 
primarily  conducted by  NCAs. While there  would  likely  be some improvement in  terms  of 
supervisory convergence for CSDs, for which colleges were introduced under the CSDR Refit, 
the  large  majority  of  the  issues  identified  above  would  persist,  ultimately  maintaining  the 
current  unlevel  playing  field  for  CSDs,  as  well  as  leaving  the  potential  risks  to  the  EU’s 
financial stability unaddressed. 

381 

 
 
 
 
 
4.1.2.  Baseline for CCPs 

Under  the  baseline  scenario,  the  supervision  of  EU  CCPs  would  remain  fragmented  and 
primarily conducted by NCAs. While the recent enhancements under EMIR 3 are expected to 
bring  certain  improvements  in  terms  of  supervisory  convergence,  in  some  instances 
significantly,  most  of  the  issues  identified  above  would  persist,  ultimately  maintaining  the 
current unlevel playing field for CCPs and risks to financial stability.  

4.1.3.  Baseline for trading venues  

Under the baseline scenario, the current fragmented supervisory framework for trading venues 
would persist. Trading venues would continue to operate under divergent interpretations of EU 
law  and  different  supervisory  approaches,  leading  to  an  uneven  playing  field.  Cross-border 
trading groups would remain subject to duplicative and inconsistent supervisory requirements 
and face multiple NCAs, resulting in operational inefficiencies and high compliance costs. The 
fragmented supervisory framework would continue to prevent these groups from streamlining 
operations across the EU and hence prevent economies of scale, synergies and cost savings.  
Additionally,  NCAs  would  continue  to  have  no  or  limited  visibility  over  the  operations  of 
trading venues that are established in another Member State but may still be relevant in terms 
of  supervision  as,  for  example,  they  have  a  high  market  share  in  the  secondary  trading  of 
securities from issuers established in their jurisdiction. Overall, the baseline scenario would 
perpetuate an unlevel playing field, inefficiencies, unnecessary compliance burdens and costs, 
hence limiting the opportunities which a fully integrated single market should offer, as well as 
limit the consistency and possibly effectiveness of supervision of trading venues across the EU. 

4.1.4.  Baseline for asset managers 

Supervision of EU asset managers would remain fragmented and nationally based, with each 
asset manager continuing to be authorised and supervised by its home NCA. The current lack 
of structured and consistent cross-border supervisory coordination would persist, particularly 
for large cross-border asset management groups operating through a mix of subsidiaries and 
branches. NCAs would continue to have limited visibility over the operations of these groups, 
leading to duplicated requests, inconsistent supervisory outcomes, and low levels of trust and 
coordination, at the asset managers and investment fund level. They would continue to apply 
divergent  marketing  rules,  creating  barriers  and  added  complexity  for  the  cross-border 
distribution  of  investment  funds.  There  would  be  no  expansion  of  voluntary  colleges  or 
introduction of structured EU-level mechanisms to coordinate supervision across jurisdictions. 
Numerous unstructured  and often duplicative bilateral  NCA interactions  would persist. The 
heterogeneity of market structures and activities across the sector would continue to hinder the 
development  of  a  coherent  and  efficient  single  market  for  asset  management.  Without  any 
regulatory  or  supervisory  change,  the  potential  for  supervisory  inefficiencies,  market 
fragmentation,  and  unequal  treatment  of  market  participants  would  remain  unaddressed, 
hampering progress towards deeper financial integration in the EU asset management sector. 

4.1.5.  Baseline for CASPs 

Under the baseline scenario, the current situation, where NCAs are responsible for supervising 
CASPs,  will  continue.  ESMA  will  maintain  its  role  in  promoting  supervisory  convergence 
through  guidance,  Q&As,  statements,  supervisory  guidance  documents  and  best  practices. 
However, this approach has not led to harmonisation in other sectors and although the crypto-
market  is  still  relatively  new,  it  is  expected  the  same  scenario  will  play  out  in  the  case  of 
CASPs. The risks of regulatory arbitrage and fragmentation in supervisory practises will persist 
and likely amplify over time. This may lead to a competitive disadvantage for CASPs operating 

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in jurisdictions with a stricter interpretation of the rules, while those operating in jurisdictions 
with laxer interpretations in order to attract market participants may enjoy an unfair advantage. 
There is therefore a danger of a potential race to the bottom in terms of supervisory intensity, 
resulting in a disproportionate number of CASPs being authorised in a few jurisdictions while 
serving clients in the entire Union. Divergent supervisory approaches also mean that CASPs 
may  need  to  adapt  to  different  regulatory  requirements  and  supervisory  practices  in  each 
jurisdiction, which can be costly and time-consuming. The home-host tensions will continue 
to persist to the detriment of the single market. 

4.2. 

 OPTION  2  -  IMPROVED  SUPERVISORY  CONVERGENCE  AND  ENHANCED  ROLE  FOR 
ESMA IN SUPERVISION 

This option is composed of 3 interlinked blocks. Each of them is described below: 

-  Enhanced supervision  

-  Supervisory convergence 

-  Governance of ESMA 

4.2.1.  Enhanced supervision 

This option comprises sector-specific measures by empowering ESMA with direct supervision 
over specific financial entities, which are already regulated at Union level but are supervised 
at national level. Enrico Letta, in his landmark report on the EU’s Single Market617, showcases 
the  potential  benefits  of  moving  to  a  framework  with  a  strengthened  ESMA  working  in 
collaboration with  NCAs, whereby ESMA takes responsibility for major entities in  specific 
sectors  such  as  “trading  venues,  issuers,  asset  managers,  and  other  financial  market 
participants”.  Similarly,  the  IMF,  in  its  2025  Annual  Consultation618  on  the  euro  area,  has 
specifically recommended strengthening ESMA’s institutional and governance arrangements 
for  supervision,  including  by  “giving  ESMA  a  wider  range  of  supervisory  powers  and  a 
sustainable funding framework, before expanding its direct, risk based supervisory mandate”.  

As discussed in the problem description, supervision of these entities at national level cannot 
(always)  ensure  effectiveness  and  efficiency,  in  particular  with  respect  to  the  impacts  the 
respective activities might have in other Member States than the one of the NCA. The following 
tasks could be transferred to ESMA: 

1.  Supervision of significant CCPs 

2.  Supervision of significant CSDs 

3.  Supervision of significant trading venues 

4.  Supervision of CASPs 
5.  Enhanced coordination of supervision of the most significant asset managers groups 

and of cross-border marketing of investment funds 

617 Enrico Letta - Much more than a market (April 2024). 
618 Euro Area Policies: 2025 Annual Consultation-Press Release; Staff Report; and Statement by the Executive 
Director for Member Countries. 

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As a horizontal measure, to strengthen the effectiveness of supervision in the areas that are not 
centralised,  a  legal  basis  for  the  enforcement  of  administrative  sanctions  in  cross-border 
contexts would be introduced in the ESMA Regulation.619  

The following general impacts are expected: 

Centralisation of certain tasks and powers, in particular those related to areas of significance to 
the EU (CCPs, CSDs, trading venues) and with a high degree of cross-border activities (asset 
managers’ groups, CASPs) within the EU would lead to considerable gains in efficiency and 
effectiveness  of  supervision  across  the  EU  compared  to  the  baseline  scenario.  This  option 
would ensure a more coherent and risk-sensitive supervisory response across Member States. 
Direct  supervision  of  certain  financial  entities  would  enable  a  proportionate  and  targeted 
approach for  addressing  issues related to  institutional  fragmentation and single jurisdiction-
focused supervision. Enhanced supervisory convergence tools would support more consistent 
rule interpretation, improve enforcement across jurisdictions, and address diverging national 
practices that currently hinder market integration and investor protection. This option would 
address the fundamental issues of the baseline scenario while ensuring integrated Union-level 
supervision for cases where it brings the largest added value. Furthermore, this option would 
simplify  the  supervisory  framework  for  those  entities  in  scope,  contributing  to  the  overall 
objective  of  reducing  burden  on  entities.  It  would  also  facilitate  their  relationship  with 
supervisors.  

Central supervision may not always be the most appropriate tool for small or locally focused 
entities,  where  national  supervision  offers  greater  flexibility  and  responsiveness.  Therefore, 
NCAs would remain responsible for supervising locally active entities, where proximity and 
knowledge of local market conditions are important and potential spill-over effects to other 
Member States limited. Divergent interpretation and application of rules at national level may 
still occur, therefore strengthening supervisory convergence tools is critical to ensure consistent 
outcomes.  

Supervision  conducted  at  EU  level  allows  for  significant  economies  of  scale  and  reduces 
inefficiencies linked to fragmented national supervision by pooling resources, expertise, and 
infrastructure.  Instead  of  duplicating  efforts  across  different  national  authorities—e.g.  each 
assigning a fraction of an FTE to supervise a CSD—central supervision enables the creation of 
specialised teams with deeper knowledge and broader oversight. It would also allow for shared 
development  of  SupTech  tools,  reducing  costs  and  avoiding  fragmented  IT  investment. 
Centralising  supervision  of  entities  with  a  predominantly  cross-border  footprint  would 
eliminate  unnecessary  compliance  duplication  and  inconsistencies,  helping  to  lower 
compliance and administrative costs for firms  and enhancing  the EU's competitiveness  as a 
financial centre. These benefits would also indirectly support deeper capital market integration 
and reinforce investor confidence in the integrity and stability of the EU financial system. 

The  option  is  in  line  with  the  principles  of  proportionality  (involving  sufficient  but  not 
excessive  powers  and  resources  allocated  to  EU  level)  and  subsidiarity  (considering  that 
national supervisory authorities  would remain part of the integrated supervisory system, even 
in  cases where direct  supervision  is  transferred to EU level  and such direct  EU supervision 
would only cover entities for which central supervision is more efficient). 

619  Regulation  (EU)  No  1095/2010  of  the  European  Parliament  and  of  the  Council  of  24  November  2010 
establishing a European Supervisory Authority (European Securities and Markets Authority), amending Decision 
No  716/2009/EC  and  repealing  Commission  Decision  2009/77/EC  (OJ  L  331,  15.12.2010,  p.  84.  ELI: 
http://data.europa.eu/eli/reg/2010/1095/oj). 

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There  is  clear  momentum  among  stakeholders  in  favour  of  enhancing  ESMA’s  central 
supervisory role in targeted areas, notably for systemically important, cross-border entities and 
emerging digital sectors. In their replies to our consultation, several stakeholders highlighted 
that centralising supervision under ESMA would enhance consistency, reduce fragmentation, 
increase efficiency, enable better oversight of cross-border and emerging risks and improve 
investor protection across the EU. Central supervision in the areas selected above is also seen 
as a way to simplify the European rulebook, reduce operational complexities, and enhance the 
EU's global competitiveness in financial services. Respondents emphasise the need to ensure 
that  ESMA  focuses  on  areas  where  EU-level  oversight  adds  the  most  value,  while  national 
authorities continue to supervise smaller, locally-focused entities. This dual approach aligns 
with the EU’s strategic ambition to build a stronger, more cohesive Savings and Investment 
Union.  

The specific impacts of the proposed changes can be described as follows. 

4.2.1.1.  Supervision of significant CCPs 

Under this option, ESMA would become the supervisor of the largest, most important CCPs in 
terms of risks. ESMA would also supervise EU CCPs that are part of a market infrastructure 
group within which other entities are also subject to ESMA supervision. In practice that would 
mean between [5 and 8 CCPs out of the 14 CCPs] authorised under EMIR.  
This option is consistent with the Savings and Investments Union strategy communication14, 
which highlights the need to develop a more integrated EU post-trading landscape and states 
that ”harmonised supervision can contribute to integrating markets by eliminating barriers to 
cross-border  activity,  creating  a  level  playing  field  for  market  participants  and  fostering 
investors’ confidence”. It also states that there are some cases where market participants have 
a  significant  cross-border  presence,  such  as  “large  trading  and  post-trading  infrastructures” 
where  a  “supervisory  perspective  that  extends  beyond  the  national  level  can  bring  useful 
synergies”.  
This  option  is  also  supported  in  the  Draghi  Report15,  according  to  which  ESMA  should  be 
entrusted with supervision of CCPs. Finally, it is also consistent with the Letta Report16, which 
suggested that ESMA could assume more supervisory responsibilities for the “major entities”, 
identified  based  on  their  size,  cross-border  activities  and  systemic  importance.  In  addition, 
amongst the respondents to the public consultation, a couple of them suggested that EU CCPs 
could be classified by their systemic importance and the most systemic ones would be subject 
to centralised EU supervision, while the others would remain under the supervision of NCAs. 

Under  this  option,  in  addition  to  the  direct  access  to  all  necessary  supervisory  information, 
ESMA would be competent to take all supervisory decisions on the CCPs it supervises. This 
would  allow  it  to  monitor  and  effectively  address  cross-border  risks,  ensuring  financial 
stability. Indeed, due to the concentration of clearing members across CCPs (i.e. CCPs have 
largely the same clearing members), a default of a clearing member would have an impact on 
many CCPs. ESMA’s power over the most significant CCPs, would help to manage such cases 
effectively and efficiently as it would avoid the coordination time between the NCAs of the 
various CCPs and allow for a single, global view of the default management process. 

For  the  CCPs  under  ESMA’s  direct  supervision,  this  option  would  eliminate  the  problems 
arising from inefficient supervisory cooperation and ensure full supervisory convergence.  

This option would imply significant costs for ESMA: one-off (e.g. setting up procedures and 
tools to assume the role of the single supervisor and for cooperating, to the extent necessary, 
with other authorities) and recurrent (significant extension of supervisory capacity in ESMA, 

385 

 
 
 
operation of the single supervisor), even though some economies of scale could occur since 
ESMA already has supervisory teams, tools and procedures for the direct supervision of Tier 2 
third country CCPs. These costs would be ongoing and could be covered via fees levied on EU 
CCPs, whereas currently some EU CCPs are subject to substantial supervisory fees by their 
NCAs, whereas others are not. A few respondents to the public consultation raised a concern 
regarding these supervisory fees. But those concerns were mainly raised regarding small CCPs, 
which would not be captured under this option, and for whom the current framework of EMIR 
3 will continue to apply. To note that since these ‘non-significant’ EU CCPs would still be 
supervised by their local NCAs, additional costs will also occur for supervisory convergence 
regimes.    

4.2.1.2.  Supervision of significant CSDs 

Under this option, ESMA would become the supervisor of the largest, most significant CSDs 
and  the  most  significant  cross-border  groups  of  CSDs.  In  principle,  ESMA  would  also 
supervise CSDs that are part of a market infrastructure group within which other entities are 
also  subject  to  ESMA  supervision.  National  CSDs  which  are  not  of  substantial  importance 
would  remain  under  national  supervision.  In  practice  that  would  mean  between  [10  and  13 
CSDs out of the 25] authorised under the CSDR. 

ESMA would also have a convergence role with respect to the smaller CSDs that are not subject 
to direct supervision and an increased cooperation with the relevant central banks of issue.  

As in the case of CCP supervision, this option is consistent with the SIU Communication, the 
Draghi Report and the Letta Report. 

For CSDs under ESMA’s direct supervision, this option would eliminate the problems arising 
from authorities’ inefficient supervisory cooperation and ensure full supervisory convergence 
throughout  the  EU.  Furthermore,  under  this  option,  ESMA  would  have  direct  access  to  all 
necessary supervisory information and would be competent to take all supervisory decisions 
on these CSDs it supervises. 

Many  stakeholders  consulted  so  far  did  not  at  this  stage  advocate  for  centralised  ESMA 
supervision and expressed concerns about it, particularly highlighting the risk of loss of NCA 
proximity  and  agility,  and  the  risk  of  an  increase  in  supervisory  costs.  However,  many 
stakeholders (including some of those not advocating for integrated supervision) pointed out 
that  a  lack  of  convergence  persists  in  CSD  supervisory  practices,  particularly  in  relation  to 
cross-border  provision  of  services  and  outsourcing,  as  well  as  on  regulatory  reporting  and 
supervisory assessments of important changes with the CSDs.  

Several  relevant  stakeholders  (and  notably  CSDs  with  cross-border  and  group  activities) 
advocated  for  stronger  convergence  and  predictability  of  supervisory  practices,  including 
through integrated EU supervision, in order to eliminate inconsistencies, reduce compliance 
burdens and strengthen the integration of EU capital markets. According to some respondents, 
single  supervision  would  help  in  removing  several  existing  barriers  to  market  integration, 
notably it could facilitate the provision of cross-border services and simplify and accelerate the 
procedure for outsourcing of CSD services. Other respondents however disagreed with this, 
noting that single supervision would not be the solution to barriers to market integration.  

This option would imply significant costs for ESMA: one-off (e.g. setting up procedures and 
tools to assume the role of the single supervisor and for cooperating, to the extent necessary, 
with other authorities) and recurrent (significant extension of supervisory capacity in ESMA, 
operation of the single supervisor). These costs would be ongoing and could be covered via 

386 

 
 
 
fees levied on EU CSDs, whereas currently not all EU CSDs are subject to supervisory fees 
from their NCAs. 

This  option  is  considered  the  most  balanced  and  effective  solution  to  achieve  supervisory 
consistency  and  efficiency.  It  would  allow  for  a  consistent  supervisory  approach  on  cross-
border CSD activity and as such facilitate the development of cross-border settlement, while 
ensuring that risks are appropriately mitigated. It would also provide a harmonised supervisory 
framework for CSD groups, removing barriers to the full development of cross-border group 
synergies  and  to  the  effective  consolidation  of  market  infrastructures.  It  would  ultimately 
reduce burdens for CSDs and other relevant stakeholders by ensuring alignment, consistency 
and predictability of supervision. This approach would also ensure proportionality as NCAs 
would remain the lead supervisors for national CSDs with no significant cross-border activity.  

ESMA is considered the most appropriate authority to lead EU supervision of significant CSDs, 
in light of its experience as a regulator and coordinator of working groups and task forces in 
the settlement domain and in light of the expertise it acquired through continuous interactions 
with NCAs, CSDs and market players. This was confirmed by several respondents to the public 
consultation.  

The  role  of  relevant  authorities  (the  authority  responsible  for  the  oversight  of  the  security 
settlement system(s) operated by a CSD, the relevant central banks of issue) under the CSDR 
would remain, as well as that of the banking supervisors for CSDs with a banking license.  

4.2.1.3.  Supervision of significant Trading Venues 

Under this option, ESMA would become the supervisor of the largest trading venues in the EU 
that also have a significant cross-border dimension. In addition, if a trading venue is subject to 
ESMA supervision, all trading venues that are operated within that group would also be subject 
to ESMA supervision. Trading venues that are less significant in terms of size and cross-border 
dimension and are not part of such a group would remain under national supervision.  

As  in  the  case  of  CCP  and  CSD  supervision,  this  option  is  consistent  with  the  SIU 
Communication, the Draghi Report and the Letta Report. 

Scope of trading venues that would fall under EU-level supervision 

Under  this  option,  trading  venues  that  would  meet  two  criteria  would  fall  under  EU-level 
supervision: (i) they are significant (large in size) in terms of market share of total EU trading 
volume in at least one asset class (taking into consideration the trading volume at group level, 
where relevant), and (ii) they have a significant cross-border dimension. The latter could be 
assessed for example by looking at the cross-border dimension of the trading venue itself (for 
example when the trading venue hosts a significant volume of trading in financial instruments 
that are issued in other Member States), or the structure of the group to which the trading venue 
belongs. 

Supervisory powers 

In  terms  of  supervisory  responsibilities  to  be  transferred  to  EU  level,  one  must  distinguish 
between (i) the supervision of the market operator managing the regulated market or of the 
market operator/investment firm managing the MTF or OTF, and (ii) the supervision of the 
market  itself  (market  surveillance).  The  former  notably  covers  the  powers  to  grant  (or 
withdraw) the authorisation to operate  a trading venue, and the powers to check if the market 
operator/investment firm complies with EU legislative requirements in terms, for example, of 
organisational requirements, governance, resilience (e.g. requirements as regards the risk, audit 
and,  compliance  functions,  outsourcing),  rules  and  procedures  to  provide  fair  and  orderly 
trading  and  efficient  execution  of  orders  (exchange  rulebooks),  IT  systems  and  trading 

387 

 
 
 
processes. The latter relates to the obligation to ensure that market operators/investment firms 
fulfil their obligations to survey the trading activity on the regulated markets, MTFs and OTFs 
which they are operating, notably to identify possible disorderly trading conditions (e.g. high 
volatility events, unaccounted price developments in illiquid securities) and conduct that may 
be prohibited under the market abuse framework (e.g. insider dealing, market manipulation). 
Associated to these are powers to suspend trading or remove specific instruments from trading, 
and powers to investigate and possibly prosecute potential market abuse cases. 

transferring 

the  supervision  of 

the  market 
The  preferred  policy  option  foresees 
operator/investment  firm  operating  trading  venues  to  EU  level,  while  keeping  market 
surveillance  at  national  level.  At  this  stage,  this  option  is  seen  as  more  proportionate  and 
effective  than  a  transfer  to  EU  level  of  all  supervisory  powers  because  national  market 
surveillance teams typically also serve other NCAs’ departments such as those responsible for 
the supervision  of issuers or investment  firms  and the one in  charge of the investigation of 
possible cases of market abuse, as well as possibly the separate entity in charge of the possible 
prosecution  of  such  cases  (possibly  leading  to  criminal  sanctions,  which  is  a  national 
competence). In addition, effective market surveillance, which involves analysing extensive 
streams  of  data,  requires  large  teams  of  expert  staff  who  have  developed  an  in-dept 
understanding of and proximity with local markets and sizable ICT infrastructures, which so 
far have been progressively built at national level in some Member States. Therefore, even if 
the  transfer of market surveillance tasks at EU level would be expected to result in a more 
efficient detection of market abuse cases (in particular when such cases take place in several 
Member States) and to generate significant synergies and cost savings for NCAs (notably as 
regards IT systems/software) as well as groups of trading venues operating across borders and 
now facing different approaches and requirements from national supervisors as regards market 
surveillance), such a transfer of powers would require a step by step approach, which should 
start with improved sharing/collection of the relevant data – in particular order book data - at 
EU level. 

Impact 

The  transfer  of  supervisory  powers  to  EU  level  is  expected  to  lead  to  a  more  uniform 
application of MiFID/R requirements for trading venues associated with the 8-11 groups that 
would be expected to fall in scope of EU-level supervision, i.e. approximately  30-40 market 
operators , which would represent at  least two-thirds of the on-venue trading activity in the 
main asset classes (shares, bonds, exchange traded funds (ETFs), derivatives) in the EU. The 
benefits  of  a  uniform  supervisory  approach  across  the  EU  would  leverage  on  the  enhanced 
single rule book for exchanges that is also put forward as part of this SIU legislative package. 
In fact, combining a transfer of some rules governing regulated markets, MTFs and OTFs from 
MiFID  II  to  MiFIR  (hence  avoiding  transposition  in  different  national  laws)  and  a  unique 
supervisor will greatly enhance the level  playing field  for trading  venues falling  under EU-
level supervision. It will also make it easier and less costly to operate cross-border.  For groups 
operating trading venues in several Member States (or regions within some Member States), 
and thus dealing with different supervisors, this approach would effectively eliminate divergent 
interpretations of EU law as well as different supervisory practices and requirements.  

Even though it was not possible to collect comprehensive estimates of potential cost savings, 
anecdotal evidence shows that they can be significant – and maximised if associated with the 
measures  envisaged  to  enhance  market  integration.  One  stakeholder  operating  in  several 
Member States estimated that centralising supervision would yield it savings in tens of millions 
of  euros  annually  by  rationalising  its  operations,  corporate  structure  and  local  governance 
presence in the different Member States in which it operates. These savings would come from 

388 

 
 
 
eliminating  duplications  and  exploiting  synergies  notably  as  regards  compliance,  market 
surveillance, risk management as well as support functions for example in the legal, finance 
and human resources departments. An additional significant benefit would be faster approval 
of  new  products  launches  –  compared  to  the  current  situation  where  different  pre-approval 
requirements apply and where approval processes can take several months in some Member 
States,  which  delay  the  launch  of  new  products  across  the  whole  group  and  represent 
opportunity costs of low single digit millions of euros for every new product launched.  Such 
groups  would  fully  benefit  from  the  costs  savings  and  economies  of  scale  of  a  truly  single 
market. This would significantly enhance their competitiveness vis-a-vis other EU and non-EU 
trading venues. It could also facilitate the consolidation of EU trading venues across borders.  

For trading venues that would remain outside the scope of EU-level supervision and continue 
to be supervised at national/local level, it is expected that EU level supervision of significant 
trading  venues  will  establish  a  benchmark  for  supervisory  practices  across  the  EU. 
Consequently, it is expected, to some extent, to also create a more level the playing field for 
these venues. 

This option would imply significant costs for ESMA: one-off (e.g. setting up procedures and 
tools to assume the role of the single supervisor and for cooperating, to the extent necessary, 
with other authorities) and recurrent (significant extension of supervisory capacity in ESMA, 
operation of the single supervisor). These costs would be ongoing and could be covered via 
fees levied on EU trading venues. 

4.2.1.4.  Supervision of CASPs 

Under  this  option,  ESMA  would  be  responsible  for  supervising  all  CASPs.  By  centralising 
supervision  at  the  EU  level,  ESMA  can  ensure  that  the  risks,  associated  with  CASPs  are 
adequately addressed. The expected impact of this option is enhanced supervision of CASPs, 
reduced risks of regulatory arbitrage, and improved consistency in supervision.  

Under this option, ESMA would be able to determine the best way to allocate resources and 
intensity of supervision. In this way, ESMA will have the overview of the provision of crypto-
asset services in the Union. For example, CASPs with a significant number of active clients, 
value  of  assets  under  custody,  providing  multiple  crypto-asset  services  and  having  a 
considerable cross border activity are likely to be more risky and hence subject to more intense 
supervision.  They  could  for  that  purpose  be  categorised  as  significant.  20  out  of  the  36 
respondents to the consultation responded that significant CASPs may be subject to different 
risks than smaller CASPs. The majority of respondents went on to clarify that risks posed by 
significant CASPs can be addressed at EU level. By rendering ESMA the supervisory authority, 
the level and intensity of supervision can be targeted to those CASPs that pose the most risks.   

Significant CASPs pose financial risks, as well as risks to market integrity and require more 
consistent and specialised supervision. Significant CASPs usually operate on a (large) cross-
border  basis,  serve  large  and  often  retail-dominated  client  bases,  and  offer  a  wide  range  of 
services within a single group structure. This multiplies their operational, compliance, and legal 
risks  across  jurisdictions.  Some  may  also  reach  a  level  of  market  relevance  such  that  their 
failure  could  trigger  broader  market  disruptions  through  loss  of  client  funds,  breakdown  of 
liquidity provision, or adverse effects on confidence in crypto markets more generally. Their 
centrality in certain token ecosystems can further exacerbate such risks. Due to their scale and 
visibility, and in particular because they tend to custody crypto-assets that are bearer digital 
assets existing on a permissionless blockchain infrastructure and therefore can be stolen, they 
are also more attractive targets for cyberattacks.  

389 

 
 
 
A  bankruptcy,  interruption  in  service,  misconduct,  other  kinds  of  incidents  at  significant 
CASPs  would  have  much  wider  ramifications  than  if  these  happened  at  a  smaller,  non-
significant CASP. This could lead to overall public mistrust of the market, a run on CASPs, 
mistrust among CASPs, leading to a freezing up of business among market participants, among 
other issues. 

ESMA would therefore tailor the intensity of supervision, which could include the organisation 
of supervisory tasks, in proportion to the degree of risk and significance. While MiCA currently 
contains  a  simple  approach  to  measuring  significance  (15  million  active  users),  further 
indicators for identifying CASPs that are significant and hence could become subject of more 
intense  supervision  could  also  include  assets  under  custody,  degree  of  cross-border  activity 
and/or type of crypto-asset services provided. 

This option would imply significant costs for ESMA: one-off (e.g. setting up procedures and 
tools to assume the role of the single supervisor and for cooperating, to the extent necessary, 
with other authorities) and recurrent (significant extension of supervisory capacity in ESMA, 
operation of the single supervisor). These costs would be ongoing and could be covered via 
fees levied on EU CASPs. 

4.2.1.5.  Enhanced coordination of the supervision of large asset management groups 

and of the cross-border marketing of investment funds 

Just as for trading venues, one must distinguish between the supervision of asset managers and 
funds themselves. The proposed review of asset manager groups’ supervision within the EU 
aims to enhance supervisory convergence and coordination among NCAs in supervising large 
UCITS management companies and AIF managers. It seeks to reduce unnecessary costs and 
frictions for asset managers, acknowledging the sector’s current regulatory and supervisory set 
up, complexity and increasing  cross-border operations. This  option aims to  strike a balance 
between strategic decision-making and a coordinated supervisory approach, helping to avoid 
duplicative requests and inconsistent requests from one NCA to another. 

As explained above, the complexity of today’s supervision system for asset managers is further 
reinforced  by  the  fact  that  Member  States  implement  differing  national  rules,  limiting  the 
potential for supervisory convergence, as NCAs remain bound by their national frameworks. 
Therefore, a key enabler of the proposed option is the adoption of measures aimed at removing 
gold plating and national discretion in the transposition of the UCITS and AIFM directives, to 
ensure that asset managers and UCITS are subject to harmonised rules across the Union. 

Under this option ESMA would be involved in the supervision of large asset manager groups. 
Large  asset  manager  groups  are  defined  as  the  top  10  –  15  asset managers  with  significant 
cross-border presence.620 According to available data, each of these asset managers has assets 
under management exceeding approximately EUR 250 billion. Targeting only the largest cross-
border  groups  ensures  that  the  measure  remains  proportionate,  focusing  supervisory 
coordination where the risks and complexity are greatest. This approach avoids overburdening 
smaller,  domestically  active  managers  while  enhancing  supervisory  consistency,  reducing 
duplication,  and  improving  oversight  of  entities  with  significant  systemic  relevance  and 
investor exposure across the Single Market. 

ESMA  would  ensure  a  coordinated  approach  to  the  oversight  of  large  cross-border  asset 
management groups through a mandate to carry out, together with NCAs, periodical group-

620 Based on assets under management criteria. 

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wide review of the supervisory approach for asset management companies, which should foster 
a converged NCA supervision of asset management groups’ activities. This could potentially 
include operations, management, risk monitoring or the corporate structure of the largest asset 
managers.  NCAs  would  present  the  information  on  the  entities  of  the  group  to  have  a 
consolidated view, including on the shared resources and functions (e.g. compliance function). 
Beyond  those  periodic  reviews  of  large  asset  managers  groups  coordination  under  ESMA 
would  include  monitoring  risks  on  an  ongoing  basis,  using  dashboards  derived  from 
supervisory  data  and  risk  indicators  to  identify  emerging  vulnerabilities,  and  initiate 
investigations by joint teams, if need be. In order to ensure that the costs incurred by ESMA in 
carrying out the reviews of large Union groups of management companies would be borne by 
those entities that benefit from an enhanced supervisory coordination, ESMA would charge 
those  groups  proportionate  fees.  Such  fees  would  cover  the  reasonable  costs  related  to  the 
preparation, conduct and follow-up of the reviews referred. 

This option would significantly enhance supervisory consistency and coordination across the 
EU.  For  larger  asset  managers  and  investment  funds  marketed  on  a  cross-border  basis,  this 
would mean fewer duplicative information requests, more predictable supervisory outcomes, 
and smoother cross-border fund distribution. Supervisory decisions would be coherent across 
jurisdictions, reducing compliance burdens and mitigating the risk of conflicting approaches 
from different NCAs. This would improve regulatory certainty for both  asset managers and 
investment products operating within the single market. 

By establishing a safe environment for sharing confidential information, fostering trust and a 
shared understanding of large asset manager groups among NCAs, this approach would make 
it possible to exclude delegations to EU-authorised entities from the scope of the delegation 
framework.  In practice, this  means that the NCA responsible for supervising  the delegating 
asset manager would receive all necessary information directly from the NCA supervising the 
delegate. Consequently, asset managers would no longer need to duplicate reporting efforts or 
provide the same information to multiple authorities. Furthermore, they would be exempt from 
the costs and administrative burden of overseeing intragroup delegations, as these would no 
longer be subject to separate supervisory requirements. 

At the investment fund level, ESMA’s pivotal role in collaboration platforms, would ensure 
convergence  in  the  supervision  of  funds  provided  on  a  cross-border  basis.  The  design  of 
collaboration  platforms  in  this  area  would  be  similar  to  existing  models  for  collaboration 
platforms in other areas of the EU financial services acquis but with a stronger role for ESMA 
in initiating procedures and doing binding mediation, facilitated by the proposed setting up of 
an ESMA cross border notification marketing data base.  

ESMA would be actively involved in the seamless passporting of UCITS funds and AIFs by 
centralising notifications (see Annex on asset management), operating collaboration platforms, 
thereby addressing NCAs disagreement or handling stakeholders’ complaints. ESMA would 
exercise binding mediation powers. ESMA would coordinate the single market supervision of 
UCITS and AIFs through the establishment of collaboration platforms. ESMA would: (i) set 
the agenda for such collaboration platforms; (ii) host regular collaboration platforms, manage 
workflows,  and  share  relevant  information  on  a  dedicated  IT  tool  (accessible  to  NCAs)  for 
UCITS  funds  and  AIFs  operating  in  the  single  market;  (iii)  initiate  ad  hoc  collaboration 
platforms  based  on  complaints  from  NCAs,  market  participants  or  consumers;  and  (iv) 
facilitate  role  between  NCAs  in  the  collaboration  platform.  ESMA’s  Executive  Board  and 
Board of Supervisors would have to play important roles in this regard.    

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4.2.2.  Supervisory convergence   

Changes in the ESMA Regulation could be introduced to ensure that ESMA can perform its 
tasks efficiently and effectively. Below is a detailed description how supervisory convergence 
can be strengthened.  

Currently, ESMA is not making full use of its supervisory convergence tools to identify and 
tackle significantly divergent national practices. Notable inconsistencies in several regulatory 
domains could be addressed using existing tools.  

The majority of respondents to the consultation think that the current supervisory convergence 
tools are not used to the extent that is possible and that the current governance and decision-
making processes within ESMA do not provide sufficient incentives for the use of supervisory 
convergence tools. Respondents further explain that ESMA's consensus-driven model led by 
NCAs  creates  conflicts  of  interest  and  discourages  assertive  action  and  that  ESMA  lacks 
independent  executive  power  and  incentives  to  drive  supervisory  convergence.  In  addition, 
respondents  perceived  significant  shortcomings  in  supervisory  convergence  tools  such  as 
breach of Union law, no action letters and binding mediation amongst others, which result in a 
lack of use or minimal use of these tools.  

This  policy  option  involves  improving  the  incentives  to  use  supervisory convergence  tools, 
which  will  be  achieved  by  increasing  the  accountability,  transparency  and  independence  of 
ESMA's supervisory convergence mandate. This will involve moving supervisory convergence 
decisions to an Executive Board with decision-making powers for supervisory work.   

Decisions in the area of supervisory convergence, i.e. opinions, recommendations, breach of 
Union law, peer reviews, binding mediation etc., would be transferred to the new Executive 
Board.  These  activities  would  be  prepared  in  the  same  way  as  currently  through  standing 
committees in which all NCAs are represented. Draft decisions in this area would be adopted 
by the Executive Board  to  ensure that the EU perspective is  taken into consideration. They 
would  then  go  to  the  Board  of  Supervisors,  via  non-objection  procedure  for  decisions  in 
individual  cases  (breach  of  Union  law,  peer  reviews,  investigations)  or  via  normal  voting 
procedure for general acts of relevance for supervision (e.g. guidelines, Q&As etc.).  

This option will also involve targeted enhancements to existing tools, such as the breach of 
Union  law  procedure,  binding  mediation,  no  action-letters,  increasing  transparency  and 
accountability  and making them easier to  use.  For example, improvements  in  the breach of 
Union law procedure would involve that any decision by ESMA not to open a breach of law 
case should be justified and made public, introducing more realistic deadlines for concluding 
an investigation and granting ESMA the power to issue decisions to NCAs, rather than mere 
recommendations.  Binding  mediation  would  be  improved  by  giving  financial  actors  and 
relevant stakeholders, and not just NCAs, the possibility to refer a matter to ESMA’s binding 
mediation in the event of a significant divergence of interpretations or supervisory practices 
between two NCAs.  

In  addition,  new  tools  that  have  proven  their  effectiveness  in  sector  legislation,  such  as 
collaboration platforms, would be included in the supervisory toolset. Collaboration platforms 
with a strong role for ESMA, would facilitate coordination and information exchange between 
home  and  host  supervisory  authorities  for  significant  cross-border  activities.  In  the 
consultation, respondents reported that certain ESMA tools appear to be "toothless" due to the 
limited powers to enforce them and proposed to empower ESMA to issue a second opinion or 
binding advice in cases where national supervision is deemed ineffective, preventing products 
or entities from accessing the EU market without adequate supervision.  

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The proposed measures to improve the supervisory convergence framework are expected to 
have a substantial positive impact on improving consistency and effectiveness of supervision 
across all sectors. By increasing the accountability and transparency of ESMA's supervisory 
convergence mandate, and transferring decision-making powers to an Executive Board, ESMA 
will be better equipped to identify and address significantly divergent national practices. The 
targeted enhancements to existing tools, such as the breach of Union law procedure and binding 
mediation,  will  provide  more  effective  mechanisms  for  resolving  disputes  and  ensuring 
compliance with EU rules. Additionally, the introduction of new tools, such as collaboration 
platforms, will facilitate information exchange and cooperation between national supervisory 
authorities,  leading  to  more  consistent  and  effective  supervision  of  cross-border  activities. 
Overall, these measures are expected to lead to a more harmonized and effective supervisory 
framework, reducing the risk of regulatory arbitrage and improving the overall stability and 
integrity of the EU's financial system. 

4.2.3.  Governance changes required to ensure greater supervisory convergence 

and an enhanced role for ESMA in supervision   

To ensure that ESMA can carry out the new tasks and competences in an efficient way, changes 
to its governance structure are needed under this option. The aim of these changes is to establish 
a  lean,  efficient  and  uniform  decision-making  process  around  a  small  executive  board  of 
independent members, while building on existing national supervisory capacities.  

The  new  governance  framework  for  supervisory  tasks  would  be  built  around  the  following 
bodies. 

•  A  new  Executive  Board  would  be  composed  of  ESMA’s  Chair  and  5  independent 
members, with diverse composition bringing different types of supervisory expertise 
(e.g. CCPs, CSD, trading venues, asset managers/funds, prudential, central banks, etc.). 
For  entity  specific  decisions,  the  home  NCA  or  relevant  authorities  (for  example 
SSM/ECB and other central banks of issue) would be observers. The Executive Board 
would  be  the  main  decision-making  body  for  direct  supervision  and  supervisory 
convergence measures that target individual entities. The Executive Board would also 
take over the tasks of the current Management Board.  

•  The Board of Supervisors would be composed of the Chair, the heads of the NCAs 
and  the  members  of  the  Executive  Board.  The  Commission  would  be  observer,  for 
decisions  relevant  for  CCPs  and  CSDs,  SSM/ECB  and  other  central  banks  of  issue 
could  attend  as  observers.  The  Board  of  Supervisors  would  approve  or  reject 
supervisory  decisions621  of  the  Executive  Board  within  10  days  (1-3  days  in  urgent 
cases) in the form of a non-objection procedure. In the area of supervisory convergence, 
decisions  in  individual cases (breach of Union law, peer reviews, investigations  and 
decisions addressed to NCAs) would go to the Board of Supervisors through the same 
procedure as for direct supervision via a non-objection procedure. On general acts of 
relevance  for  supervisory  convergence  (e.g.  supervisory  briefings,  supervisory 
handbook, principles etc.) the Board of Supervisors would decide in a normal voting 
procedure.  

The Board of Supervisors would continue to adopt regulatory decisions. 

621 The non-objection procedure should be limited to key decisions, e.g. refusal or withdrawal of authorisation, 
enforcement measures etc. 

393 

 
 
 
 
 
• 

In building up supervisory capacity ESMA will rely on cooperation with NCAs and 
for day-to-day supervision may set up joint supervisory teams.  

To avoid overburdening the Executive Board with a significant number of decisions, it would 
be important to provide it with the possibility to delegate decisions that are not key - such as 
refusal  or  withdrawal  of  authorisation,  enforcement  measures  -  to  the  Chair,  one  member, 
ESMA staff or the joint supervisory teams (for operational decisions). It should also be possible 
for the Executive Board to delegate some tasks/decisions to NCAs, so that only those with the 
greatest relevance for the Single Market would be taken directly by the Executive Board. 

The advantage of the governance changes set out under this option is that they would align the 
governance arrangements with the new tasks, striking the right balance between efficiency and 
representation.  The proposed changes would: 

1.  Ensure effective and swift decision-making processes compared to the current decision-
making in the Board of Supervisors with 27 NCAs voting. The Executive Board with 
full-time members would meet more frequently than the current Board of Supervisors 
and the leaner structure would make it easier to achieve meaningful compromises. The 
approval  or  rejection  of  the  Executive  Board’s  decisions  by  an  enlarged  Board  of 
Supervisors would be strictly framed to avoid blockages.  

2.  Ensure independent decision-making and reduce the propensity of inaction as regards 
supervisory  decisions  resulting  from  conflicts  of  interest  faced  by  voting  members. 
Such  conflicts  would  be  corrected  by  establishing  the  Executive  Board  with  its 
independent  members  as  the  main  decision-making  body,  subject  only  to  a  non-
objection procedure by the Board of Supervisors under strict conditions.  

3.  Improve the incentives to use supervisory convergence powers by clearly allocating 

this responsibility to the new Executive Board.  

4.  The proposed set-up would rebalance the EU perspective and national perspectives, 
including in the Board of Supervisors where the Executive Board members would 
become voting members while keeping NCAs involved to maintain proximity and 
market knowledge.  

The design of ESMA’s governance would thus be improved, providing the decision-making 
bodies with better incentives to use their powers in the supervisory area and better enable them 
to address upcoming challenges. 

This  approach  would  be  in  line  with  feedback  received  in  the  consultation  where  ESMA’s 
governance  is  seen  as  too  dominated  by  NCAs  and  national  influences,  impeding  EU-wide 
interests.  Stakeholders  call  for  governance  reforms  include  establishing  an  independent 
executive board to ensure more independent, expert-driven and agile decision-making. They 
also  warn  that  ESMA  supervision  is  perceived  as  more  expensive  compared  to  NCAs 
supervision.   

4.2.3.1.  Changes to the funding system and architecture  

To ensure that the changes proposed under this option deliver their intended outcomes, ESMA 
must  be  equipped  with  a  sustainable,  fair,  and  adaptable  funding  framework.  As  ESMA’s 
mandate  expands—particularly 
the  assumption  of  new  direct  supervisory 
responsibilities—it becomes imperative to align its financial model  with the increased scale 
and complexity of its tasks. A well-designed funding structure is not only essential to guarantee 
the agency’s operational  independence and effectiveness,  but  also to  uphold  the credibility, 
continuity, and resilience of EU-level supervision. 

through 

394 

 
 
 
A  reformed  funding  system  should  be  guided  by  clear  principles:  those  who  benefit  from 
ESMA’s  supervisory  services  should  contribute  proportionately  to  their  cost;  legal  and 
procedural frameworks should be simplified to reduce administrative burdens; and the system 
must  provide  sufficient  flexibility  for  ESMA  to  react  to  changing  market  conditions  and 
emerging priorities, including the supervision of innovative or high-risk areas. 

The following targeted funding changes are proposed: 

-  Direct supervisory mandates should be fully fee-funded. This ensures that the 
costs of supervision are borne by the supervised entities themselves, reinforcing the 
user-pays principle and safeguarding ESMA’s financial autonomy. This would be 
in  line  with  the  current  direct  supervision  mandates.  At  the  same  time  ESMA’s 
accountability will be strengthened with appropriate transparency and monitoring 
mechanisms.  The  cost  of  ESMA’s  convergence-related  tasks  linked  to  these 
mandates should also be included in the supervisory fee. 

-  Fee for a specific service – in the asset management area ESMA would carry out 
annual reviews of the largest Union groups of management companies. In order to 
ensure that the costs incurred by ESMA in carrying out these reviews are borne by 
those  entities  that  benefit  from  an  enhanced  supervisory  coordination,  ESMA 
should  charge  those  groups  proportionate  fees.  Such  fees  should  cover  the 
reasonable costs related to the preparation, conduct and follow-up of the reviews 
referred.  

-  Cost-recovery rules should be consolidated under the ESMA Regulation. The 
principle  of  full  cost  recovery  for  direct  supervision  should  be  enshrined  in  the 
ESMA  Regulation,  replacing  the  current  patchwork  of  sector-specific  fee 
arrangements.  Centralising  this  principle  would  empower  ESMA  with  greater 
budgetary flexibility—allowing risk-based supervision. This would also support a 
more efficient, risk-based allocation of supervisory resources, ensuring ESMA can 
respond  proportionately  to  supervisory  demands.  These  measures  would  be 
accompanied with stronger monitoring and accountability mechanisms. 

-  Clarify and streamline the legal architecture for fees. Currently, sector-specific 
rules limit ESMA’s ability to manage its budget efficiently. The ESMA Regulation 
should  define  the  main  principles  of  fee  collection,  including  cost  coverage, 
proportionality,  transparency,  and  flexibility.  Sector-specific  details—such  as 
calculation methods or payment modalities—could be set out in delegated acts on 
fees,  allowing  greater  agility  to  adapt  to  sectoral  dynamics  without  requiring 
legislative changes. 

-  Reconsider the current NCA/EU contribution model. Given ESMA’s increasing 
role as a central pillar of the SIU, particularly in areas with strong cross-border and 
systemic implications, the existing 40:60 funding ratio between NCAs and the EU 
budget should be reassessed. A greater share of EU-level funding would be justified 
to reflect the pan-European value of ESMA’s activities and the public good nature 
of integrated supervision. This would also support national authorities in managing 
the  transition,  as  supervisory  responsibilities  shift  to  the  EU  level.  This  change 
depends on the outcome of the current negotiations of the next MFF. 

Taken together, these changes would ensure that ESMA has the financial stability, flexibility, 
and responsiveness required to carry out its growing responsibilities efficiently and equitably, 
while maintaining public trust and accountability in its role. 

395 

 
 
 
4.3. 

 OPTION  3  –  ESMA  SINGLE  SUPERVISOR  FOR  ALL  EU  TRADING  VENUES,  POST 
TRADING, ASSET MANAGERS AND CRYPTO ASSET SERVICE PROVIDERS 

Under this option, ESMA would be responsible for supervising all EU CCPs, CSDs, trading 
venues, asset managers and crypto asset service providers, regardless of size, significance or 
cross-border nature. NCAs will no longer be involved in authorisation and supervision of these 
entities. The rationale behind this option is to create a single, EU-wide supervisor, ensuring 
EU-wide  consistency  and  eliminating  the  risks  of  regulatory  arbitrage,  forum  shopping  and 
divergent approaches to supervision. Especially for entities belonging to a group of companies, 
this option would offer a single point of contact, which can reduce regulatory complexity and 
costs.  

The single supervisor could be organised as strictly central units or partially decentralised with 
offices or branches in all Member States either serving as contact points for (retail) investors 
and  potential  complainants  as  well  as  the  supervised  entities,  or  (partially)  performing  the 
supervision on the spot.  

This option would reduce costs of supervision at Member State level considerably because it 
would no longer be required that competencies for all supervisory tasks in all areas are ensured 
separately  in  all Member States  and because of  a reduction of  costs of coordination among 
competent authorities and with ESMA. It would exploit economies of scale to the full and avoid 
the duplication of tasks. In terms of effectiveness, this option would fully address the identified 
problem  of  limited  tools  and  powers  at  EU  level  to  enforce  convergence  and  divergent 
supervisory practices.  

4.3.1.  Governance changes 

In terms of governance, under this option ESMA would assume supervisory responsibilities 
following the model already in place for areas currently under ESMA’s direct supervision. As 
for  option  2  this  would  entail  a  significant  restructuring  of  ESMA's  institutional  setup  to 
accommodate  its  expanded  mandate  as  the  sole  supervisor  of  trading,  post-trading,  asset 
management, and crypto-asset services across the EU. Unlike option 2, day-to-day supervision 
would be carried out by ESMA staff, leveraging sector-specific expertise and operating under 
a  unified  supervisory  framework.  NCAs  would  no  longer  be  involved  in  the  day-to-day 
supervisory activities. A key institutional change would be the creation of a new Executive 
Board composed of a limited number of full-time members selected for their technical expertise 
and  mandated  to  act  in  the  interest  of  the  EU  as  a  whole,  rather  than  representing  national 
perspectives.  The  Executive  Board  would  become  the  sole  decision-making  body  for  all 
supervisory decisions - including authorisations, sanctions, and enforcement actions – ensuring 
strategic consistency and operational independence from national influence. The current Board 
of Supervisors, which comprises representatives from NCAs, would no longer be involved in 
supervisory  or  regulatory  decisions.  However,  a  centralised  body  of  this  nature  may  face 
challenges in replicating the breadth of practical, on the ground supervisory expertise currently 
embedded within NCAs. In particular there is a significant risk that the loss of local knowledge 
and real-time insight - especially for entities operating in a purely domestic context - could 
impair the effectiveness of supervision.  

4.3.2.  Funding  

In  terms  of  funding,  the  model  would  rely  entirely  on  fees  levied  on  supervised  entities, 
replacing the current national funding mechanisms. These fees would need to cover the full 
operational costs of supervision, including the significant expansion of ESMA's staffing and 
infrastructure.  

396 

 
 
 
Replies  from  the  consultation  reveal  that  while  there  is  support  from  some  respondents  for 
ESMA’s  expanded  role  in  specific,  systemic  or  cross-border  areas,  stakeholders  generally 
reject  a  blanket  centralisation  of  all  trading,  post-trading,  asset  management,  and  crypto 
services under ESMA. Stakeholders caution against full centralisation due to risks of losing 
local  market  knowledge,  increasing  costs,  and  reducing  supervisory  responsiveness.  They 
emphasise  the  importance  of  national  expertise  and  proximity  to  markets  and  argue  that 
national supervisors understand local legal frameworks, business models, and market nuances 
better  than  a  central  body  could.  They  highlight  that  full  centralisation  might  weaken  the 
proportionality of supervision and lead to a "one-size-fits-all" approach, unsuitable for local 
players. 

4.4. 

 ASSESSMENT OF THE IMPACT OF OPTION 2 

4.4.1.  Effectiveness 

Transferring supervisory responsibilities of entities that are large and have a significant cross-
border dimension will result in greater integration of the European financial market, because it 
will streamline the application of EU law and will harmonise supervisory requirements. It will 
also  enhance  the  competitiveness  of  the  European  capital  market.  Greater  supervisory 
convergence  is  also  likely  to  make  cross-border  consolidation  of  financial  market 
infrastructures more economically attractive, making such entities also more competitive on a 
global stage. Currently, infrastructure operators might hesitate cross-border activities due to 
the legal risks evoked by having to engage with a different supervisory authority.   

The  most  significant  EU  CCPs  concerned  would  benefit  from  harmonised  supervisory 
processes, for example regarding the authorisation of new services or changes to risk models, 
which  would  allow  for  a  level  playing  field  for  those  CCPs  and  hence  foster  greater 
competition.  The  increased  competition  amongst  CCPs  could  trigger  a  virtuous  circle  with 
increasing opportunities for clearing members.   

A centralised supervisor would have a comprehensive view of the interconnectedness of these 
CCPs and their participants, enabling it to better identify and manage systemic risks that might 
otherwise go undetected under fragmented supervision. It would also  simplify the processes 
and  allow  for  more  flexibility,  without  duplication  when  assessing  the  CCP’s  requests. 
Similarly, for the most significant EU CSDs, a centralised supervisor would be able to monitor 
the cross-border risks stemming  from  the increased  volumes of cross-border transactions at 
CSD level  in  order to  better identify and mitigate the financial stability,  and systemic risks 
stemming from the provision of CSD services.    

For the most significant EU CSDs, supervision by ESMA would entail harmonised supervisory 
processes,  for  example  in  relation  to  the  intra-group  outsourcing  of  services  or  to  the 
authorisations of the extension of services offered. This would ensure a level playing field for 
those CSDs and foster a competitive landscape for securities services.  

Furthermore, for the entities in scope, EU-level supervision would ensure that prudential and 
conduct  risks  are  assessed  with  a  uniform,  EU-wide  perspective,  enabling  a  more 
comprehensive and timely supervisory approach. This is particularly true for CCPs, CSDs and 
trading  venues  that belong  to  a group and fall under EU level  supervision. This  means that 
ESMA  would  have  full  visibility  over  both  the  trading  and  post-trade  operations  of  these 
entities across Member States, which would enable it to better detect systemic risks, monitor 
market  developments,  and  ensure  consistent  application  of  the  Single  Rulebook.  This  is 
particularly  relevant  for  financial  sectors  where  activities  and  risks  do  not  stop  at  national 

397 

 
 
 
borders, such as post-trade  infrastructure providers and trading  venues serving cross-border 
markets, pan-European asset managers and crypto-asset service providers. 

Within this preferred policy option, ESMA would have the capacity to develop strong expertise 
on  fast  changing  technologies  and  impose  the  same  requirements  in  that  regard  on  all  the 
entities it is supervising. Through a more agile and data driven supervisory approach, it will 
also facilitate innovation in fast moving sectors.  

In the trading sector, the centralisation of supervisory powers as envisaged in Option 2 will 
eliminate the fragmentation of supervisory approaches along national lines and hence level the 
playing field for those trading venues that are in scope of EU-level supervision. It will foster 
fair  competition  among  them  and  facilitate  cross-border  operations  by  reducing  costs  and 
enabling the synergies which a friction-less single market for capital should offer. Because of 
the significant part of the sector falling in scope [more than two thirds of the trading venues 
and trading volume in all major asset classes] as well as the enhanced supervisory convergence 
tools for ESMA foreseen under Option 2, it is also expected to support an improvement in the 
alignment  of  supervisory  approaches  towards  those  trading  venues  which,  because  of  their 
smaller size and national dimension, will remain under national supervision.  

In  the  asset  management  sector,  enhanced  cooperation  between  ESMA  and  NCAs  on  the 
supervision of large asset managers has the potential to improve supervisory consistency and 
predictability. It can lead to a lower compliance burden and cost savings for individual asset 
managers, for example, if they no longer have to comply with diverging requests for documents 
or disclosures from different NCAs for the same product. A consistent sharing of information 
between  ESMA  and  NCAs  would  help  eliminate  the  duplicative  information  requests  that 
today  often  force  large  asset  managers  to  submit  the  same  data  multiple  times  to  different 
authorities  in  varying  formats.  Furthermore,  a  regular  exchange  of  views  among  NCAs  on 
innovative  products  and  strategies,  for  instance,  would  promote  a  consistent  interpretation 
between home and host NCAs, making it easier for fund managers to market their products 
across borders. Asset managers would also benefit from a common supervisory approach to 
eligible assets which could be fostered in the new setup. NCAs would have to make a bigger 
effort  to  coordinate  and  converge  under  this  approach  than  they  currently  do.  This  can, 
however, at least partially be offset by the additional insights they gain through the enhanced 
cooperation and the pooling of expertise. Detecting and managing risks would also become 
easier for them.  

For  CASPs,  centralised  supervision  by  ESMA  would  provide  a  level  playing  field  and 
supervisory consistency from the beginning, in a new area of financial activity not previously 
regulated. Risks would be monitored and addressed in a comprehensive and consistent manner. 
Centralised oversight would ensure the consistent application of regulatory standards. It would 
mitigate  supervisory  gaps  across  jurisdictions  and  address  the  disproportionate  impact  their 
potential failure could have on the EU’s crypto-asset ecosystem. Supervision would also be 
more effective with ESMA being the single supervisory authority for CASPs, instead of many 
authorities  spread  across  different  jurisdictions  and  relying  on  complicated  cooperation 
arrangements  that  are  time-consuming.  Centralised  supervision  from  the  beginning  would 
mean the danger of fragmentation would not materialise and there would be no national barriers 
to remove as with other sectors. The supervision of CASPs provides a unique opportunity to 
establish a centralised supervisory model for a new area. 

4.4.2.  Coherence  

This  option  ensures  coherence  with  the  SIU  communication  and  the  specific  objective  of 
improved supervision by reducing divergences. It does so by balancing national and EU-level 

398 

 
 
 
roles. It enhances ESMA’s oversight where EU-wide supervision adds value, particularly for 
large or cross-border entities, while NCAs retain control over smaller and/or purely national 
actors. It reflects some stakeholders’ support for targeted, not full, centralisation—preserving 
national input, while addressing cross-border risks effectively. Governance changes, like the 
new Executive Board, strengthen ESMA’s independence and align decision-making with its 
expanded role. Stronger convergence tools would promote consistent supervision, supporting 
the Single Market and the SIU.  

Regarding EU CCPs, a single supervisor for significant CCPs would eliminate discrepancies 
that arise from differences in how national authorities interpret and apply EMIR (such as the 
current application of additional costs from some NCAs, the current existence of a pre-filing 
phase  from  some  NCAs  or  divergent  interpretations  about  which  CCP  changes  should  be 
subject  to  authorisation/validation).  This  would  create  a  consistent  regulatory  landscape, 
preventing an unlevel playing field between the most significant EU CCPs.  

Regarding  EU  CSDs,  a  single  supervisor  for  significant  CSDs  would  ensure  consistent 
interpretation  of  CSDR  provisions,  notably  with  respect  to  the  provision  of  cross-border 
services by CSDs and outsourcing within CSD groups. This would create a level playing field 
and ensure regulatory consistency for the most significant EU CSDs.  

As regards trading venues, EU-level supervision of the most important trading venues in the 
EU will support market integration and competitiveness in this sector, hence contributing to 
the SIU’s objectives of facilitating access to funding for EU companies – therefore supporting 
their competitiveness - and offering attractive investment opportunities on capital markets to 
investors, including retail investors. 

Large asset managers and the cross-border marketing of funds would benefit from a stronger 
coordination of supervision. Greater supervisory convergence and a shared approach by NCAs 
would help  drive market  integration, a key objective of the SIU, and enable firms to  create 
bigger funds and attain economies of scale. By making it easier for asset managers to market 
funds  across  Member  States,  closer  supervisory  coordination  will  enhance  the  range  of 
products available to investors, notably retail investors. This will help to channel household 
savings  into  investments  offering  higher  returns  than  deposits,  funding  the  real  economy, 
strengthening  competitiveness  and  supporting  the  EU  in  reaching  its  strategic  goals,  for 
example in financing defence capabilities and the green transition.  

The centralised supervision of CASPs under ESMA will ensure the consistent interpretation 
and  application  of  the  regulatory  framework  for  crypto  players  and  will  reduce  drastically 
forum  shopping,  especially  in  situations  where  there  are  divergent  views  whether  different 
business  models  are compliant with  the regulatory framework.  In addition, it will eliminate 
gold-plating in the form of additional obligations being imposed on market players by national 
authorities. 

For cross-border financial services and firms operating EU-wide, as testified by some of the 
replies to the consultation, this approach is considered a strategic move to enhance regulatory 
consistency, reduce cross-border barriers, and foster market integration and competitiveness 
across the EU. The expectation is that this approach would lead to more efficient, predictable, 
unified financial markets and long-term cost savings. 

Overall, this is a coherent, proportionate, and politically viable path to stronger EU supervision. 

4.4.3.  Efficiency  

In terms of efficiency, Option 2 would remove duplication, streamline interactions, and deliver 
measurable economies of scale for cross-border firms. 

399 

 
 
 
The  transfer  of  responsibilities  is  expected  to  generate  significant  cost  savings  for  entities 
already operating across borders in the EU and to facilitate the expansion for those currently 
operating in only one Member State, resulting in competitiveness gains across the board. From 
a cost perspective, Option 2 is expected to remove a substantial share of the recurring costs 
identified in the problem definition, reflecting the market share and systemic footprint of the 
significant cross-border entities brought under EU-level supervision, while avoiding the full 
supervisory resource requirements and transition costs of complete centralisation. 

Regarding  post-trade  infrastructures,  this  option  would  target  between  5  and  8  CCPs  and 
between 10 and 13 CSDs amongst the 14 EU CCPs authorised under EMIR and the 25 EU 
CSDs authorised under the CSDR. In terms of efficiency, this would require less coordination 
efforts between the NCAs and ESMA in relation to supervisory convergence and would allow 
for the development of common horizontal supervisory poles within ESMA (e.g. for model 
approval or product authorisation), allowing for a more efficient use of supervisory resources. 
Targeting these systemic infrastructures could remove large, recurring costs from multiple-fee 
regimes, duplicative reporting, and lengthy product approvals, while keeping implementation 
costs proportionate to the reduced scope compared with Option 3. 

As regards trading  venues, by transferring  the supervision  of approximately 8-11 groups of 
trading venues to EU-level, Option 2 is expected to cover at least two-thirds of the on-venue 
trading activity in the main asset classes in the EU. In terms of costs, Option 2 is expected, in 
particular for the groups that are operating in different Member States and hence are currently 
engaging  with  multiple  NCAs  and  facing  different  supervisory  approaches,  to  remove  the 
majority of the duplication, conflicting instructions from multiple interlocutors, and procedural 
delays described in the problem definition. For example, one trading group indicated that the 
fact  that  approval  processes  in  some  Member  States  can  take  several  months  results  in 
opportunity  costs  of  low  single  digit  millions  of  Euros  for  every  new  product  launched.  In 
addition, migrating a newly acquired trading venue to a group’s trading system can result in 
costs running into the millions of euros because of the requirements for changes to the trading 
system  imposed  by  the  national  authority  supervising  the  newly  acquired  venue,  while  in 
another jurisdiction the same migration could be completed without having to do any change 
to the trading system. The analysis also points to inconsistencies in national rulebook approval 
procedures and in timelines for pre-trade transparency waiver applications that oblige firms to 
apply the strictest national standard across all markets. For example, in one Member State the 
filing timeframe is around one month longer than in others. 

Under Option 2, which would result in 8-11 trading groups being under EU-level supervision, 
a  considerable  proportion  of  these  potential  savings  and  synergies  could  be  realised,  while 
avoiding  the  full  supervisory  resource  requirements  and  transition  costs  of  a  complete 
centralisation as envisaged under Option 3. 

As  regards  operators  of  trading  venues  that  are  established  in  only  one  Member  State,  the 
benefits of EU-level supervision will not be as immediate, at least in terms of costs. In fact, 24 
out of 33 respondents to the consultation which expressed a view on costs indicated that they 
disagreed  with  the  statement  that  EU-level  supervision  could  reduce  EU  trading  venues’ 
regulatory costs. This is partly explained by the fact that some of these trading venues are also 
Data  Reporting  Service  Providers  (DRSPs)  under  MiFIR  and  saw  a  significant  increase  in 
supervisory fees after their oversight moved from national authorities to ESMA. However, this 
increase was partly due to initial setup costs spread across a small number of firms, while in 
the  case  of  option  2,  many  more  entities  would  fall  under  EU-level  supervision,  which  is 
expected  to  limit  per-entity  supervisory  fees.  This  reinforces  that  the  targeted  approach 
minimises unnecessary cost increases for purely domestic operators, while focusing resources 

400 

 
 
 
on  the  entities  where  the  largest  savings  and  synergies  from  removing  divergence  can  be 
achieved. 

Regarding the asset management sector, focusing on strengthening supervisory coordination 
for only the largest 10 to 15 groups is efficient as it leaves the current structures and practises 
in  place  for  smaller,  more  domestically  oriented  players.  Large  asset  managers  will  benefit 
from improved supervisory convergence and greater economies of scale, while still being able 
to  interact  with  the  respective  NCAs.  NCAs  in  turn  will  be  able  to  access  confidential 
information provided by their peers, reducing the need for duplicative work, for example in 
gathering data on individual firms or market developments and emerging risks. Building on 
this sharing of confidential information among NCAs, asset managers might for example be 
able to have only one risk management function for the group rather than multiple ones across 
different Member States as is the case today. These changes would remove a large share of the 
compliance  costs  identified  in  the  problem  definition,  such  as  duplicative  risk  management 
teams and multiple reporting obligations, for the cross-border groups affected, while leaving 
the cost base for purely domestic managers unchanged. The cost of ESMA’s enhanced role for 
the largest groups would be fee funded.  

In  the  case  of  CASPs,  the  NCAs  are  currently  building  capacity  in  the  examination  and 
assessment of CASP applications for authorisation. Given the recent entry into application of 
MiCA, there is very little supervisory activity yet, but the situation is expected to change as 
most CASPs receiving authorisation expect to grow in size rapidly, due to the passport of their 
authorisation. Transferring the supervisory powers to ESMA will cause minimum disruption, 
as the industry is still not well established and there are no legacy issues to overcome in terms 
of  supervision.  As  regards  national  administrations,  while  there  may  be  some  temporary 
overlap and redundancy during the transition to centralised EU-level supervision, in the long 
term, it is expected to be more efficient and cost-effective than Member State supervision. In 
addition, this centralisation would, by lightening their supervisory burden, allow them to focus 
on other national priorities and entities that are smaller or of purely domestic relevance. The 
consolidation  of  supervisory  capacity  at  EU  level  would  also  foster  specialisation  and 
knowledge-sharing, leading to higher-quality, more risk-based supervision.  

As regards the cost-benefit dimension, while ESMA would require increased resources to carry 
out its new tasks, the costs are expected to be offset by the broader system-wide gains in terms 
of  contribution  to  the  Single  Market  –  with  the  associated  benefits  in  terms  of  supporting 
funding to growth and competitiveness. This corresponds to the views of some stakeholders, 
who point to the upfront and transitional initial expenses, but the long-term perspective is that 
harmonisation and reduced fragmentation would bring efficiencies and indirect cost benefits. 
The targeted scope of Option 2 means that the costs for ESMA are materially lower than under 
full centralisation, while still covering most of the activity that generates the largest divergence-
related costs. 

The resources necessary for direct supervision could be financed mainly via levying of fees 
from  directly  supervised  entities.  This  would  follow  the  current  practice  of  supervision 
financing in ESMA, the Single Supervisory Mechanism, where ECB supervision is financed 
via fees from supervised entities, and the most recent example of AMLA supervision which is 
financed  by  supervised  obliged  entities.  National  supervisors  currently  supervising  entities 
which would pass to ESMA for direct supervision would experience some cost saving, but it 
is not anticipated that they will significantly reduce staff but rather reallocate freed staff for 
more effective supervision of the entities remaining under national supervision. 

This  option  will  entail  significant  resources  and  infrastructure  development  at  ESMA  but 
overall, to a lesser extent than option 3 (though for CASPs it is the same). The estimates for 

401 

 
 
 
the  number  of  full-time  equivalents  (‘FTEs’)  ESMA  requires  for  direct  supervision  of 
significant  cross-border  financial  entities  and  CASPs,  increased  role  in  coordination  of 
supervision of large cross-border asset management groups, as well as enhanced supervisory 
convergence, are based  on ESMA and Commission  estimates. The average cost  per FTE at 
ESMA  is  estimated  at  around  186  000  EUR622,  based  on  the  Commission’s  guidelines  for 
average personnel costs (adjusted for Paris).   

In the trading sector, the direct supervision of trading venues belonging to around 8-11 groups 
would require about 90 to 105 FTEs, corresponding to an estimated annual cost of EUR 17 – 
19.5  million.  In  the  post-trading  sector,  supervision  of  around  5  to  8  CCPs  is  estimated  to 
require 30–50 FTEs (about EUR 5.5 to 9.5 million), while supervision of approximately 10 to 
13 CSDs would require 30–40 FTEs (EUR 5.5 to 7.5 million).  

In the asset management sector, ESMA’s increased role in the coordination of supervision of 
around 10 –15 large cross-border asset management groups would require 10-20 FTEs (about 
EUR 2 to 4 million), with an additional around 10 - 15 FTEs (EUR 2 to 3 million) required for 
the oversight of cross-border fund distribution.  

Should ESMA take on the direct supervision of around 410 – 615 CASPs, an additional 65–
160 FTEs would be needed, corresponding to an estimated cost of EUR 12 to 30 million per 
year.  

The ongoing cost for direct supervision would be covered by supervisory fees levied on the 
entities directly supervised by ESMA. In addition to these recurring costs, ESMA would incur 
temporary setup costs in preparation for its new responsibilities. These are estimated at around 
5 - 10 FTEs per sector, amounting to approximately EUR 1–to 2 million per sector, and would 
be funded through the EU budget. Once the fees are applicable, the costs for these FTEs would 
be included in the fees. 

Further staffing would be required to strengthen supervisory convergence across the relevant 
sectors—this would require an additional 5 - 10 FTEs, corresponding to an estimated cost of 
around EUR 1 - 2 million. 

In addition to the necessary staffing enhancements, the strategic integration of IT systems is 
essential  to  enable  ESMA’s  expanded  supervisory  responsibilities  and  support  consistent 
implementation across the Union. 

A supervisory data platform covering CCPs, CSDs and trading venues would support ESMA’s 
direct supervisory tasks by consolidating data collection, document exchange and supervisory 
workflows  in  a  single  integrated  architecture.  Building  on  ESMA’s  existing  supervisory 
databases and tools, it would ensure secure and timely access to supervisory information for 
competent  authorities  and  supervised  entities.  The  estimated  cost  is  EUR  8  million  for 
development and EUR 3.7 million annually for maintenance. 

A central register for CASPs market surveillance under MiCA would function as a pan-EU hub 
for the collection, aggregation and analysis of transaction and order data reported by CASPs. 
Building  on  ESMA’s  work  on  MIDAS,  it  would  enhance  market  integrity  by  detecting 

622 The rate of 186k per FTE is based on the 2025 standard rates of the Commission for staff expenses adjusted 
for inflation of 2% as at 2028, and builds on the current mix at ESMA between temporary agents, contractual 
agents,  and  seconded  national  experts.  The  rates  cover  salaries,  employer  social  contribution,  office 
accommodation, IT basic support, etc.   

402 

 
 
 
 
 
 
potential market abuse and enable timely cooperation between ESMA and national competent 
authorities, supporting both direct and indirect supervision of crypto markets. The estimated 
cost is EUR 4.2 million for development and EUR 2.5 million per year for maintenance. 

A data platform for cross-border notifications of funds would facilitate home–host supervisory 
cooperation under the AIFMD and UCITS frameworks. The system would serve as a one-stop-
shop  for  submitting,  accessing  and  exchanging  reliable  and  up-to-date  documentation, 
supported by automated translation services. Ensuring interconnectedness between ESMA and 
all 27 NCAs, it would provide secure and timely data exchange, user-friendly interfaces and a 
public portal for transparency. The estimated cost is EUR 1 million for development and EUR 
0.2 million annually for maintenance. 

A  centralised  data  and  analytics  capability  would  contribute  to  the  Union’s  financial  data 
strategy by enhancing ESMA’s central systems and supporting consistent supervisory practices 
across the EU. It would provide common tools for market analysis and supervision, enable the 
timely  sharing  of  supervisory  insights  with  competent  authorities  and  facilitate  secure, 
standardised data access and exchange across the EU supervisory framework. The estimated 
cost is EUR 15 million for development and EUR 4 million annually for maintenance. 

Taken together, these IT developments would promote more coordinated supervision across 
the  Union  and  reduce  the  need  for  separate  systems.  They  would  also  make  interactions 
between  authorities  and  supervised  entities  more  efficient,  improving  the  clarity  and 
consistency of supervisory information. The shared data and analytics capability would further 
increase efficiency and help ensure consistent supervisory practices across the Union. 
To inform this analysis, the Commission collected data623 from NCAs and from ESMA and ran 
its own estimates on the cost of supervision in the trading, post-trading, asset management, and 
crypto-asset sectors, as well as on the average cost per supervisory FTE. These figures vary 
due to factors such as national labour costs, the size and risk profile of the supervised entities, 
and the overall size of the financial market. For NCAs in Member States where supervisory 
tasks could potentially be transferred to the EU level, the average FTE cost ranges from EUR 
149 000 to EUR 217 000. Per sector, the average FTE cost ranges are as follows: CCPs EUR 
136 000 – EUR 218 000, CSDs: EUR 141 000 to EUR 178 000, Asset Managers EUR 181 000 
– EUR 227 000, Trading Venues: EUR 122 000 to EUR 199 000, CASPs: EUR 129 000 to 
EUR 262 000. 

Overall,  Option  2  captures  most  of  the  savings  from  removing  divergence  for  the  targeted 
entities,  at  a  fraction  of  the  cost  of  full  centralisation,  with  lower  disruption  for  NCAs  and 
domestic operators.     

4.5. 

 ASSESSMENT OF THE IMPACT OF OPTION 3 

4.5.1.  Effectiveness 

By centralising supervision in ESMA, this option would ensure EU-wide consistency, remove 
the  risks  of  divergent  supervisory  practices,  and  close  loopholes  for  regulatory  arbitrage  or 
forum  shopping.  For  large,  cross-border,  or  systemic  entities,  a  single  supervisor  would 
improve oversight  and provide a single point of  contact,  reducing  regulatory complexity.  It 

623 The data have been provided on a strictly confidential basis.  

403 

 
 
 
 
 
would  exploit  economies  of  scale  and  reduce  duplication  of  tasks  across  Member  States, 
potentially increasing efficiency in the long term.  

However, this option would require a long multi-annual transitional period for accommodating 
the transfer and achieving a greater level of effectiveness and efficiency in supervision than 
currently available at national level. Considering that the supervision of the majority of entities 
is performed adequately at national level, and most of the risks most entities pose are related 
to  the  specific  national  context  unless  they  are  systemic,  the  option  may  raise  both 
proportionality and subsidiarity concerns.  

4.5.2.  Coherence 

The model is coherent with the rationale behind the SSM in banking supervision, following the 
logic  of  deepening  EU  integration  in  financial  markets.  It  aligns  with  EU  objectives  of 
completing the Capital Markets Union and strengthening financial stability through consistent, 
centralised oversight. 

Coherence  may  be  limited  by  incomplete  harmonisation  of  regulatory  frameworks  across 
sectors  (unlike  banking  under  the  SSM)  where  Member  States  have  transposed  EU  law 
different, made use of national options and discretions. This means that ESMA could still face 
legal and operational fragmentation. 

4.5.3.  Efficiency  

The extent and complexity of the full-scale transfer of responsibilities and powers related to 
direct supervision from  national level to the EU  level would be unprecedented. To take the 
example of asset management area, there are around 1 700 UCITS management companies and 
4  500  authorised  AIFMs.  The  number  of  trading  venues  to  be  supervised  would  also  be 
considerably higher with approximately 314 trading venues plus a further 167 SIs. The number 
of CCPs and CSDs in scope however would be almost the same as under option 2 (14 CCPs 
and 25 CSDs). Based on these figures it is estimated that ESMA would require the following 
resources:  

Sector  

FTEs624  

Budget implication 

Trading Venues 

340- 580 

EUR 63 – 108 mil.  

CCPs  

CSDs 

50– 55 

40- 50 

EUR 9 – 10 mil. 

EUR 7 – 9 mil. 

Asset Managers 

200- 360 

EUR 37 – 67 mil. 

Additionally, transition costs would be significant as ESMA would have to build up human 
capacities.  While,  due  to  synergies,  the  resources  located  at  EU  level  would  not  need  to 
approach  the  sum  of  resources  currently  deployed  at  national  level,  the  increase  would  go 
beyond  current  EU  agencies’  staffing.  ESMA  would  need  to  develop  a  comprehensive  fee 
framework that is sufficiently flexible to account for the wide diversity of entities across sectors 

624 Given that the entities captured in addition to the ones covered in option 2 would be considerably smaller and 
less complex, it is no appropriate to convert them on an entity-proportional basis. Instead, it is assumed that the 
number of FTEs needed for these smaller entities is only 5-10% (trading venues, asset manager) and 20-40% 
(CCPs, CSDs) compared to option 2.     

404 

 
 
 
 
    
 
 
and  Member  States  in  terms  of  size,  complexity,  and  risk  profile.  A  uniform  or  overly 
centralised fee structure could place an undue financial burden on smaller, local actors, which 
may  already  be  effectively  supervised  at  the  national  level  and  might  not  benefit 
proportionately from EU-level oversight. Without a nuanced approach, there is a risk that a 
“one-size-fits-all” fee model would lack fairness and discourage market participation. 

4.5.4.  Conclusion 

Taking into account the assessment and explanations provided above, the preferred option is 
Option 2 – a combination of enhancing supervisory convergence via an improved set of tools 
and direct supervision and oversight of certain financial entities by ESMA. Option 3 is not the 
preferred approach at this stage. Although it could be considered a long-term goal, immediate 
efforts should focus on removing national barriers, levelling the playing field, fostering trust 
and cooperation among Member States, and enhancing ESMA’s expertise—objectives more 
efficiently pursued through Option 2. In this sense, Option 2 can be seen as an intermediary 
step that would lay the groundwork for potentially moving toward EU-level supervision under 
Option 3 in a future review, once the necessary legal, operational, and institutional conditions 
are in place. 

Effectiveness  Efficiency  

Coherence 

Overall score 

0 

+ 

Option 1  

Baseline scenario 

Option 2 

Greater     supervisory 
convergence and 
enhanced role for 
ESMA in supervision 

Option 3 

++ 

ESMA supervision for 
all entities 

0 

+ 

- 

0 

+ 

0 

+ 

+/- 

+/- 

Legend: +++ = very positive ++ = positive + = slightly positive +/- = mixed effect 0 = no effect 
 - = slightly negative -- = negative --- = very negative 

5.  MONITORING  

The ESMA Regulation provides for evaluation of ESMA every three years, starting from the 
effective start of its operation. In 2022, the Commission has issued a report on the functioning 
of the ESAs.625 Going forward, the Commission will continue to monitor the functioning of 
ESMA  and  to  report  accordingly.  The  Commission's  systematic  evaluation  of  ESMA  will 
include extensive consultation. 

The specific indicators identified in the impact assessment accompanying the Commission's 
proposal  for  setting  up  ESMA  match  with  the  specific  objectives  and  remain  valid  for  the 
current and future evaluations. These indicators serve to assess the performance of ESMA in 

625 Report from the Commission to the European Parliament and the Council - On the operation of the European 
Supervisory Authorities (ESAs). 

405 

 
 
 
 
 
 
fulfilling  its  tasks.  The  following  table  presents  the  main  areas  of  activity  of  ESMA  and 
matches them with some relevant indicators. 

Objective  

Proposed indicator 

Source of 
information 

Common supervisory 
culture, consistent 
application of EU 
rules 

Number of colleges with ESMA participation 

ESMA 

Number of peer reviews conducted 

Number of obstacles to convergence identified 
and removed 

Number of of breach of EU law successfully 
closed 

Number of warnings on manifest breach of the 
EU law 

Direct supervision of 
certain financial 
entities 

Number of on-site inspections and dedicated 
investigations 

ESMA 

ESMA should collect data on these indicators on an annual basis. In addition, at the beginning 
of each year ESMA should (where applicable) set targets vis-à-vis indicators. Targets can be 
of  either  numeric  (e.g.  %  increase/decrease)  or  of  qualitative  nature  (e.g.  positive/negative 
trend) compared to the previous year. 

The  evaluation  should  seek  to  collect  input  from  all  relevant  stakeholders,  but  in  particular 
national CAs, EU institutions and fee-paying sectors and entities under the remit of the ESAs. 
Input will also be required by ESMA. The evaluation will be repeated every 5 years after the 
application of these amendments. 

406 

 
 
 
 
 
 
ANNEX 12: MEMBER-STATE-SPECIFIC EVIDENCE ON MARKET 
CONTEXT 

407 

 
 
 
 
1.1  Savings-Investments Balance in 

the EU/EA 

investment liabilities to the rest of the world suggests 
that  the  EA  has  become  less  attractive  to  foreign 
capital. 

The EA invests in the private sector only a relatively 
small portion of its otherwise high net savings. In the 
last  decade,  the  private  savings  ratio,  net  of  fixed 
capital consumption, persistently fluctuated around its 
ten-year average of 8.4% of GDP, reaching a maximum 
of  11.3%  in  2021  (see  Graph  2.1.1).  The  net  private 
investment ratio, which measures the net contribution 
of  the  private  sector  to  capital  accumulation  in  the 
country,  was  significantly  more  volatile,  exhibited  a 
ten-year  average  of  2.7%  of  GDP  and  reached  a 
maximum  of  4.4%  in  2019.  In  the  last  decade,  the 
aggregate  government  budget  balance  in  the  EA 
showed a persistent deficit that averaged 3% of GDP. 
Hence,  less  than  a  third  of net  savings  in  the  EA  are 
invested  in  the  private  economy.  The  EA  aggregate 
hides  significant  national  discrepancies  (see  Table 
ten-year  average  net  private 
1.1.2),  with 
investment-to-GDP  ratios  ranging  between  9.8%  in 
Ireland  to  -1.9%  in  Greece  (4.4%  in  Spain,  3.7%  in 
France, 1.7% in Germany and -0.7% in Italy). 

the 

1.1.1 

Net savings-investment balance in the EA 

Source: AMECO. 

Consistent with its regular position of a net lender 
to the rest of the world, the EA has been improving 
its net international investment position. As of end-
2024, total foreign assets reached 237% of GDP, while 
liabilities  to  foreigners  stood  at  225%  of  GDP, 
resulting  in  a  net  international  investment  position 
(NIIP)  equivalent  to  12%  of  GDP  (see  Table  1.1.2). 
The accumulated net foreign direct investment, which 
reached 18% of GDP as of end-2024, has been the main 
driver  behind  the  dynamics  of  the  NIIP.  In  terms  of 
portfolio and other investments, as of end-2024 the EA 
was a net debtor to the rest of the world respectively for 
12.1%  and  3.6%  of  its  GDP.  The  stock  of  official 
foreign  reserves  held  by  the  EA  countries  has  been 
growing and reached the equivalent of 9.2% of GDP. 
The  contraction  in  the  stock  of  direct  and  portfolio 

1.1.2 

National savings-investments balances in the EU 

(1) S stands for savings, I for private investments, LtG for lending 
to the government, B for borrowing, and RoW for rest of the 
world. 10-year averages covering 2015-2024, except for France 
(2014-2023). Countries are ordered by height of net private 
investments. 
Source: AMECO. 

1.1.3 

International investment position of the EA 

Source: ECB. 

Structure and size of the financial sector in the EU 

Capital  markets  in  the  EA  are  driven  by  debt 
securities  and  finance  primarily  governments  and 

408 

-10-505101520253020172018201920202021202220232024% of GDPPrivate investment, netLending to the governmentPrivate savings, netPrivate savings, grossBorrowing from the rest of the world% of GDPS, netI, netLtGB from RoWS, grossIE8.49.80.11.532.0MT15.77.12.3-6.325.4EE9.76.81.5-1.422.7SE10.86.40.2-4.324.3LT9.56.11.0-2.419.6PL9.45.83.1-0.518.4HU10.85.24.3-1.324.2CY-0.35.2-0.15.49.6BG8.85.11.4-2.219.6BE8.65.03.50.025.3RO6.65.05.13.520.7ES11.64.44.6-2.624.7AT8.64.22.7-1.725.8DK10.64.2-2.2-8.625.1FI5.64.22.20.821.4NL12.84.00.4-8.425.8CZ6.44.01.7-0.723.8LU2.74.0-0.90.412.6SK4.33.93.12.719.6FR7.63.74.60.721.5HR6.82.91.7-2.319.9LV5.52.72.4-0.519.8DE9.21.71.0-6.525.7SI8.21.32.2-4.623.9PT2.6-0.31.7-1.217.8IT6.0-0.74.8-1.921.7GR-3.6-1.92.24.07.6-20-15-10-5051015-300-200-100010020030020172018201920202021202220232024% of GDP% of GDPOther investment, LiabilitiesPortfolio Investment, LiabilitiesForeign Direct Investment, LiabilitiesOfficial reserve assetsOther investment, AssetsPortfolio Investment, AssetsForeign Direct Investment, AssetsNIIP (rhs) 
 
 
          
 
   
 
 
          
mark.  On  the  other  hand,  Luxembourg  (1822%), 
France (416%) and Ireland (340.2%) stand out above 
the  EA  average.631  In  terms  of  the  combined  relative 
size  of  pension  funds  and  insurance  companies, 
Luxembourg (384% of GDP), the Netherlands (209%), 
Denmark  (160%),  Ireland  (124%),  Sweden  (123%) 
France (106%) and Malta (103%) stand out above the 
EA  average  of  82%.  When  it  comes  to  investment 
funds, Luxembourg (8538% of GDP), Ireland (872%) 
and  Malta  (133%)  stand  out  as  the  three  EA 
jurisdictions specialised in the domiciliation of funds. 
Denmark  (91%),  the  Netherlands  (82%),  Finland 
(77%), Germany (71%) and France (65%) are the only 
other  countries  where  the  investment  funds’  sector  is 
above 50% of GDP. 

banks.  As of end-2024, debt securities issued by EA 
entities represented 146% of GDP, while listed equity 
issued by EA companies626 accounted only for 67% of 
GDP  (see  Graph  1.2.1).  Government  securities 
represented  51%  of  the  bonds  market,  with  banks 
(24.2%) and other financial companies (16.2%) being 
the other two main issuers. Marketable debt issued by 
non-financial corporations represented only 11.4% of 
GDP.  Luxembourg  (27.8%),  France  (22.9%),  the 
Netherlands  (18.4%),  Portugal  (14.1%)  and  Finland 
(12.3%)  stand  out  as  the  five  EA  countries  where 
companies’ market funding exceeds the EA average.627 
Reflecting the size of their public debts, Italy (116.9% 
of GDP), France (95.1%), Spain (91.2%) and Belgium 
(87.7%) are the four jurisdictions where the volume of 
general government bonds exceeds the EA average.628 
As  regards  listed  equity  issued  by  non-financial 
corporations, Ireland (226.2% of GDP), France (84%), 
Finland (66%) and the Netherlands (59%) are the EA 
countries above the EA average.629 

1.1.4 

Capital markets and financial intermediaries in the EA 

Source: ECB, EIOPA, AMECO. 

The  financial  sector  in  the  EA  is  dominated  by 
banks.  As  of  end-2024,  the  total  assets  of  banks 
reached 268% of GDP, well ahead those of investment 
funds (130%), insurance companies (58%) and pension 
funds (24%).630 National discrepancies within the EA, 
and  more  broadly  in  the  EU,  are  significant.  The 
banking  sectors  in  the  new  member  states  are 
significantly  smaller,  with  only  Estonia  (116%  of 
GDP)  and  Hungary  (102%)  above  the  100  percent 

626  This figure is a proxy for the degree of development of the stock 
market in  the EA, given that i)  EA companies  could be listed 
abroad and ii) foreign companies could be EA listed. 

627  Sweden (23.8%) is a notable non-EA champion. 
628  Estonia  (13.3%),  Denmark  (19.7%),  Bulgaria  (20.7%)  and 
Sweden (21.1%) and the four countries with the lowest volumes 
of government debt securities. 

629  Denmark (138.4%) and Sweden (123% of GDP) are two notable 

non-EA champions. 

630  ECB official statistics presents banks’ aggregate assets on a non-
consolidated basis. After correcting for inter-bank loans (43.4% 
of GDP) and debt securities issued and held by banks (9.3% of 
GDP), banks’ total assets are estimated at 214.9% of GDP as of 
end-2024.    

631  Denmark  (322.4%)  and  Sweden  (271.2%)  are  two  non-EA 

examples worthy of mentioning. 

409 

Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIsPension fundsInsurance corporationsInvestment funds050100150200250300Listed equity                    Bonds                          Assets by sector% of GDP 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
24.4% of GDP (see Graph 2.1.2). The accumulated net 
foreign  direct  investment  (15.6%  of  GDP  as  of  Q4 
2024)  accounted  for  most  of  the  NIIP.  The  stock  of 
official foreign reserve assets, which amounted to 7.1% 
of  GDP,  also  contributed  positively  to  the  NIIP.  The 
net  portfolio  investments,  which  are  directly  affected 
by the price volatility of equity valuations, have been 
negative,  at  almost  -8%  of  GDP  as  of  Q4  2024. 
However, they were more than offset by the net stock 
of  other  investments,  which  amounted  to  just  below 
10% of GDP at the same time. Thus, while the Austrian 
economy seems well integrated in international capital 
flows as a recipient of foreign capital, it remains a net 
capital exporter, notably in terms of direct investments 
abroad. 

1.3.2 

International investment position 

1.2  Member state specific evidence 

on capital markets 

1.3  Austria 

Availability and use of domestic savings 

The Austrian economy invests the largest part of its 
net savings domestically.  From 2015 until 2024, the 
private savings ratio, net of fixed capital consumption, 
stood on average at 8.6% of GDP, reaching a maximum 
of  15.4%  in  2020  (see  Graph  2.1.1).  The  net  private 
investment ratio, which measures the net contribution 
of  the  private  sector  to  capital  accumulation  in  the 
country,  was  significantly  more  volatile,  exhibited  a 
ten-year  average  of  4.2%  of  GDP  and  reached  a 
maximum of 6.7% in 2018. At the same time, during 
the  same  period  the  government  has  been  running 
budgetary deficits and a few relatively small surpluses, 
which  during  2015-2024  on  average  amounted  to  a 
budgetary deficit of 2.7%. Regardless of the recurrent 
general  government  budgetary  deficits,  the  sustained 
and  high  positive  difference  between  net  domestic 
savings  and  net  investment,  resulted  in  structural  net 
lending by Austria to foreign economies that averaged 
1.7% of GDP, with a peak of 3.4% in 2020. Thus, most 
of  the  net  savings  in  Austria  have  been  invested 
domestically 
investment  or 
borrowing by the government), while a comparatively 
smaller share was used to finance projects abroad. 

finance  private 

(to 

1.3.1 

Net savings-investment balance 

Source: ECB. 

• 

Structure of the capital markets and size of the 
financial sector 

The  Austrian  economy  stands  out  with  one  of  the 
comparatively smaller domestic capital markets in 
Europe.  The  market  capitalisation  of  listed  equity 
stood  at  29%  of  GDP  at  the  end  of  2024 (see  Graph 
2.1.3), which is well below the EU average of 66.8% 
of GDP. At the same time, non-financial corporations 
accounted for around 63% of that capitalisation, which 
implies  that  the  stock  market  in  Austria  is  to  a  large 
extent  geared  towards  funding  the  non-financial 
segment of the real economy. The outstanding volume 
of debt securities reached 127.7% of GDP at end-2024, 
which is slightly below the EU average (at just below 
140% of GDP). Bonds issued by the government and 
monetary  financial  institutions  (MFIs)  accounted  for 
56% and 35% of the total, respectively.  Since 2008, 
the 
has 
underperformed as compared to the EU average, while 
the  index  of  Austrian  banks  has  developed  more 
favourably (see Graph 2.1.4).  

stock  market 

in  Austria 

general 

Source: AMECO. 

• 

the  world, 

As a result of its regular position of a net creditor to the 
the  Austrian  economy  has 
rest  of 
accumulated  significant  foreign  assets  and  has  been 
recording  a  positive  net  international  investment 
position.  As  of  Q4  2024,  total  assets  on  foreigners 
reached just above 242% of GDP, while liabilities to 
foreigners  stood  at  218%  of  GDP,  resulting  in  a  net 
international investment position (NIIP) equivalent to 

410 

051015202530-300-200-100010020030020172018201920202021202220232024% of GDP% of GDPOther investment, LiabilitiesPortfolio Investment, LiabilitiesForeign Direct Investment, LiabilitiesOfficial reserve assetsOther investment, AssetsPortfolio Investment, AssetsForeign Direct Investment, AssetsNIIP (rhs)-10-5051015202530354020172018201920202021202220232024% of GDPPrivate investment, netLending to the governmentPrivate savings, netPrivate savings, grossBorrowing from the rest of the world 
 
 
 
         
        
1.3.3 

Capital markets and financial intermediaries 

9  percentage  points  to  almost  49%  of  GDP  between 
2021 and 2024, remain significant. 

1.3.4 

Stock market performance 

• 

Source: ECB, EIOPA, AMECO. End-2024. 

by 

banks, 

non-bank 

While  the  financial  sector  in  Austria  remains 
dominated 
financial 
intermediaries also play an important role. Starting 
from  253%  of  GDP  in  2020,  the  size  of  the  banking 
sector gradually declined to just above 214% of GDP 
in  2024,  which  remains  somewhat  below  the  EU 
average.  Austria  has  several  large  credit  institutions, 
and the two largest banking groups (Erste Group Bank 
and  Raiffeisen  Bank  International)  have  extensive 
activities in central, eastern and south-eastern Europe. 
In  particular,  the  exposure  of  the  Austrian  banking 
sector  to  Russia  (manageable  from  a  bank-capital 
perspective and concentrated in one credit institution) 
warrants close oversight.632 In 2024, Austrian banking 
subsidiaries  in  Russia  amounted  to  less  than  10%  of 
their  total  assets  in  central,  eastern  and  south-eastern 
Europe.  Banking  concentration  appears  to  be  lower 
than  on  average  in  the  EU,  with  the  top  five  MFIs 
representing  less  than  38%  the  sector.  The  insurance 
and pension funds sectors, with total assets of around 
28% of GDP and 6% of GDP at end-2024, play a lesser 
role  in  the  non-bank  intermediation.  By  contrast, 
investment funds, though their total assets dropped by 

Source: London Stock Exchange Group633. 

• 

Financing of the economy 

Sources of corporate funding 

Overall, firms in Austria rely more on funding by 
banks and less on the capital markets, as compared 
with their European peers. More specifically, at the 
end  of  2024,  bank  finance  through  loans  constituted 
38.2% of all funding sources for Austrian non-financial 
corporations  (NFCs),  while  listed  shares  and  bonds 
accounted  for  only  13%  of  funding  sources.  This 
compares with 27% and 23.8% on average in the EU. 
Expressed as a percentage of GDP, the overall level of 
NFC funding was 167.5% in Austria and, on average, 
225.6% in the EU (see Graph 2.1.5).  

internal 
Austrian  companies  rely  mostly  on 
financing, as do their European peers. According to 
Investment  Survey634,  68%  of 
the  2024  EIB 
investments  needs  of  Austrian  firms  are  covered  by 
internal funding, just above the EU average of 66%. At 
the  same  time,  only  12%  of  Austrian  firms  believed 
that their investment activities over the last three years 
were less than needed, better than the EU average for 
perceived  underinvestment  (14%),  suggesting  that 

632  Raiffeisen  Bank  International  (RBI)  has  highlighted  efforts  to 
sell  the  subsidiary  in  Russia,  while  continuing  to  reduce  its 
business operations in Russia, ahead of the schedule agreed with 
the ECB. According to media reports, the ECB has required RBI 
to cut its balance sheet in Russia by 65% by 2026, compared to 
its level at the end of Q3 2024. RBI’s exit approach includes both 
loan  portfolio  and  deposit  reductions  in  Russia.  The  bank  has 
implemented  a  zero-interest  policy  on  customer  deposits  to 
encourage their withdrawal, while placing excess liquidity with 
the Russian Central Bank at 21% interest as required by the ECB 
during  the  exit  process.  RBI’s  exit  plans  have  been  further 
complicated  by  legal  challenges,  including  a  recent  case 
involving Russia’s Rasperia Trading Limited. A Russian appeals 
court  confirmed  a  first-instance  judgment  on  25  April  2025, 
resulting in approximately EUR 1.87 bn being transferred from 

Raiffeisenbank Russia to Rasperia. The bank has filed an appeal 
and is pursuing legal action against Rasperia in Austria. 

633  The  STOXX  Indices  are  the  intellectual  property  (including 
registered  trademarks)  of  STOXX  Limited,  Zug,  Switzerland 
(“STOXX”) and/or its licensors (“Licensors”). STOXX has not 
been involved in any way in the creation of financial instruments 
or  any  other  products  referencing  the  aforementioned  indices. 
Such products are neither sponsored nor promoted, distributed 
or  in  any  other  manner  supported  by  STOXX  and/or  its 
Licensors. STOXX does not give any warranty and excludes any 
liability  whatsoever  (whether  in  negligence  or  otherwise)  – 
including  without  limitation  for  the  accuracy,  adequateness, 
correctness,  completeness,  timeliness,  and  fitness  for  any 
purpose – in relation to any errors, omissions or interruptions in 
any of STOXX' indices or its data. 
634  See EIB Investment Survey 2024.  

411 

Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIsPension fundsInsurance corporationsInvestment funds050100150200250   Listed equity               Bonds                        Assets by sector% of GDP050100150200200820112014201720202023Jan-08=100AT Bank indexSTOXX EUROPE 600 BANKSAUSTRIAN TRADED INDEX - PRICE INDEXSTOXX EUROPE 600 
 
 
          
 
 
      
there  is  only  a  small  financing  gap  relative  to 
investment demand. However, this may not be the case 
for  firms  with  no  or  limited  capacity  for  internal 
funding,  such  as  small  and  medium-sized  enterprises 
(SMEs) or innovative start-ups. 

1.3.5 

Composition of NFCs’ funding 

2025, well above the 2024 total of EUR 1.6 bn. The net 
issuance  by  non-financial  corporations  turned  out 
negative, at – EUR 0.1 bn in Q1 2025, consistent with 
the negative totals in 2021-2023. The use of bonds by 
SMEs  is  also  relatively  moderate,  as  2%  of  SMEs 
indicated in the 2024 SAFE survey that debt securities 
issuance  was  relevant  for  them,  compared  to  an  EU 
average of 3%.635 Hence, debt market finance appears 
as a minor source of funding for Austrian non-financial 
corporations. 

1.3.6 

Net issuance of bonds 

• 

Source: Eurostat. End-2024. 

Market finance 

Austria’s  capital  markets  remain  comparatively 
small.  The  main  stock  exchange  in  Austria  is  the 
is 
Vienna  Stock  Exchange.  The  equity  market 
relatively small in terms of capitalisation and volumes 
traded. The low market capitalisation could be due to 
the characteristics of the Austrian corporate sector, in 
particular the small number of large globally operating 
multinational companies (with annual revenues above 
EUR 1 billion). So far capital markets have weathered 
well  the  global  geopolitical  turmoil  generated  by  the 
war  in  Ukraine,  Gaza  conflict,  the  energy  crisis  and 
trade  policy  tensions.  Between  August  2022  and 
August  2025,  the  Austrian  Traded  Index  (ATX) 
increased  by  49.6%.  Initial  public  offerings  (IPOs) 
remain rather limited and small, given the size  of the 
economy.  While  there  are  relatively  fewer  large 
companies in Austria compared to the EU average, the 
corporate sector tends to be rather capital intensive and 
would  benefit  from  a  deeper  and  well-functioning 
CMU. 

Source: ECB. 

• 

Retail participation in capital markets 

are 

savings 

Austrian  households’ 
invested 
conservatively, as financial instruments form only a 
small part of their wealth. Main residence ownership 
represents the most important asset in terms of volume 
for  homeowners.  On  average,  Austrian  households 
have  financial  portfolio  profiles  with  very  low  risk. 
Few households hold assets that are typically classified 
as  higher  yield.  According  to  the  latest  Eurosystem 
Household Finance and Consumption Survey636, only 
12.3%  of  households  in  Austria  hold  mutual  funds, 
only  6.1%  hold  stocks  and  only  2.5%  hold  bonds. 
Among  the  households  that  held  higher-yield  assets, 
these assets accounted for about 40% of the financial 
portfolio,  with  this  share  rather  stable  across  the  net 
wealth distribution. 

The  domestic  bond  market 
is  dominated  by 
Austrian government bonds and debt issuances by 
financial companies. In the first quarter of 2025, the 
Austrian  government  issued  EUR  17.7  bn  of  debt 
securities,  only  slightly  above  the  issuance  for  the 
entire 2024 (EUR 23.6 bn). Banks issued EUR 3.7 bn 
of debt securities, which compares favourably to only 
EUR 7.9 bn for the whole of 2024 (see Graph 2.1.6). 
The other financial companies issued EUR 3 bn in Q1 

The degree of direct retail investment in Austria’s 
capital markets is low. As of end-2024, households’ 
aggregate  financial  assets  equated  to  182%  of  GDP, 
which  is  below  the  EU  average  of  212%.  Austrian 
households’  investments  in  insurance  and  pension 
funds, relative to GDP, were only half as large as the 
EU  average  in  2024  (see  Graph  2.1.7).  In  addition, 
listed  and  unlisted  share  holdings  were  three  times 
lower than the EU average (10.8% of GDP in Austria 

(635) See  Data and  surveys  -  SAFE  -  European  Commission, 2024, 

(636) OeNB  Report  2023/2:  Eurosystem  Household  Finance  and 

Results by country. 

Consumption Survey 2021: first results for Austria 

412 

050100150200250ATEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity-10.00.010.020.030.040.050.020212022202320242025-Q1bn EURGovernmentMFIsNon-MFINon-financial corporations 
 
 
           
 
 
       
as  compared  with  32.6%  of  GDP  in  the  EU).  At  the 
same  time,  in  2024  Austrian  households’  cash  and 
deposits (72.7% of GDP), other equity (40.5% of GDP) 
and bonds (7.5% of GDP) were above the EU averages 
of, respectively, 67.3%, 23.7% and 5.9% of GDP. 

between net domestic savings and net investment was 
fully offset by government deficits, which resulted in 
borrowing by Belgium from the rest of the world that 
averaged 0.0% of GDP, with a peak of 1.5% in 2018 
and a trough of -2.1% in 2021. 

1.3.7 

Composition of HHs’ financial assets 

1.4.1 

Net savings-investment balance 

Source: AMECO. 

1.4.2 

International investment position 

Source: Eurostat. End-2024. 

• 

The  comparatively  strong  saving  rate  of  Austrian 
households  in  recent  years  and  the  high  share  of 
cash  and  deposits  in  households’  assets  suggest 
there is some room to increase the level of direct or 
indirect retail investments. Encouraging the build-up 
of  universal  funded  supplementary  pension  schemes 
would positively contribute to (i) the sustainability and 
adequacy of pension benefits; (ii) investment in equity; 
(iii) access to finance; (iv) growth; and (v) innovation. 
Moreover, an in-depth assessment of the incentives in 
place  to  promote  retail  participation  in  financial 
markets  may  also  be  considered,  as  well  as  possible 
steps  to  increase  the  availability  of  low-cost,  well-
diversified 
to  retail 
investment  products  suited 
investors. 

1.4  Belgium 

Availability and use of domestic savings 

Source: ECB. 

The Belgian economy borrows as much from as it 
lends to the rest of the world. In the last decade, the 
private savings ratio, net of fixed capital consumption, 
exhibited some volatility around its ten-year average of 
8.6% of GDP. It steeply increased to 13.4% of GDP in 
2020  before  progressively  receding  to  8.0%  in  2024 
(see  Graph  2.2.1).  The  net  private  investment  ratio, 
which  measures  the  net  contribution  of  the  private 
sector to capital accumulation in the country, evolved 
quite  differently.  It  fluctuated  around  its  ten-year 
average of 5.0% of GDP and reached in 2024 its lowest 
level (3.5%) since 2013. At the same time, during the 
same  period  the  government  budget  was  in  regular 
deficit that averaged 3.5% of GDP with a peak at 9.0% 
of  GDP  in  2020.  Thus,  the  high  positive  balance 

Consistent  with  its  past  regular  position  of  a  net 
creditor  to  the  rest  of  the  world,  the  Belgian 
economy has accumulated significant foreign assets 
and exhibits a positive net international investment 
position.  As  of  Q4-2024,  total  assets  on  foreigners 
reached  411%  of  GDP,  while  liabilities  to  foreigners 
stood at 351% of GDP, resulting in a net international 
investment position (NIIP) equivalent to 60% of GDP 
(see  Graph  2.2.2).  The  net  accumulated  portfolio 
investments,  which  reached  38%  of  GDP  as  of  Q4-
2024,  accounted  for  most  of  the  NIIP.  Net  foreign 
direct  investment  came  second  with  22%  of  GDP, 
investments  was 
while 
negligible. As a result, the Belgian economy appears to 

the  magnitude  of  other 

413 

-50510152025303520172018201920202021202220232024% of GDPPrivate investment, netLending to the governmentPrivate savings, netPrivate savings, grossBorrowing from the rest of the world01020304050607080-600-400-200020040060020172018201920202021202220232024% of GDP% of GDPOther investment, LiabilitiesPortfolio Investment, LiabilitiesForeign Direct Investment, LiabilitiesOfficial reserve assetsOther investment, AssetsPortfolio Investment, AssetsForeign Direct Investment, AssetsNIIP (rhs)050100150200250020406080100120ATEUATEUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Currency and depositsInsurance and pension fundsInvestment fundsBondsListed sharesUnlisted sharesOther equityHH Debt (liability) 
 
 
         
          
 
  
be a net capital exporter, notably by means of portfolio 
investments and direct investments abroad.  

EU). Investment funds represent a bigger share of 43% 
of GDP, above the EU median.  

Structure of financial sector 

1.4.4 

Stock market performance 

The Belgian financial sector is well developed. The 
market  capitalisation  of  listed  equity  reached 50%  of 
GDP at end-2024 (vs 67% in the EU) (see Graph 2.2.3). 
Characteristically, financial corporations accounted for 
32% of that capitalisation, which reflects the extent to 
which the stock market in Belgium is geared towards 
funding  the  financial  segment  of  the  real  economy. 
Like elsewhere in the EU, the index of Belgian banks 
has  significantly  underperformed  the  general  stock 
market  index  since  the  Great  Financial  Crisis.  It  has 
also  underperformed  vis-à-vis  the  EU  average  (see 
Graph  2.2.4).  The  outstanding  volume  of  debt 
securities  reached  140%  of  GDP  at  end-2023.  Bonds 
issued  by  the  government  accounted  for  67%  of  the 
total. This reflects the high weight of the gross public 
debt in the bond market.   

Source: London Stock Exchange Group637. 

Financing of the economy 

Sources of NFC funding 

1.4.3 

Capital markets and financial intermediaries 

1.4.5 

Composition of NFCs’ funding 

Source: ECB, EIOPA, AMECO. End-2024. 

Even  though  the  financial  sector  in  Belgium 
remains  dominated  by  banks, 
insurers  and 
investment 
funds  are  sizable.  Banks’  assets 
represented 228% of GDP in Q4-2024 (vs. 251% in the 
EU). The insurance sector, with total assets of 55% of 
GDP  at  Q4-2024  (see  Graph  2.2.3),  dominates  non-
bank intermediation and is in line with the EU average 
(55%  of  GDP).  The  pension  funds’  assets  are  much 
smaller: they only represent 8% of GDP (vs 23% in the 

Source: Eurostat. End-2024. 

Firms in Belgium rely more than the EU average on 
funding from banks and less than the EU  average 
on funding from capital markets. More specifically, 
at  the  end  of  2024  bank  finance  through  loans 
constituted  35%  (vs  27%  in  the  EU)  of  all  funding 
sources for Belgian non-financial corporations (NFCs), 
while listed shares and bonds represented only 17% (vs 
24% in the EU) of all funding sources. When expressed 
in terms of GDP, the overall level of NFC funding was 
higher  in  Belgium  (241%  of  GDP)  than  in  the  EU 
(226%), see Graph 2.2.5. 

637  The  STOXX  Indices  are  the  intellectual  property  (including 
registered  trademarks)  of  STOXX  Limited,  Zug,  Switzerland 
(“STOXX”) and/or its licensors (“Licensors”). STOXX has not 
been involved in any way in the creation of financial instruments 
or  any  other  products  referencing  the  aforementioned  indices. 
Such products are neither sponsored nor promoted, distributed 
or  in  any  other  manner  supported  by  STOXX  and/or  its 

Licensors. STOXX does not give any warranty and excludes any 
liability  whatsoever  (whether  in  negligence  or  otherwise)  – 
including  without  limitation  for  the  accuracy,  adequateness, 
correctness,  completeness,  timeliness,  and  fitness  for  any 
purpose – in relation to any errors, omissions or interruptions in 
any of STOXX' indices or its data. 

414 

Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIsPension fundsInsurance corporationsInvestment funds050100150200250   Listed equity               Bonds                        Assets by sector% of GDP020406080100120140160180200820112014201720202023Jan-08=100BE Bank indexSTOXX EUROPE 600 BANKSBEL 20 - PRICE INDEXSTOXX EUROPE 600050100150200250300BEEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity 
 
 
           
 
 
      
           
Belgian  businesses  depend  as  much  on  internal 
financing as their European peers. According to the 
2024  EIB  Investment  Survey,  65%  of  Belgian  firms’ 
investment  needs  are  covered  by  internal  funding, 
compared  with  an  EU  average  of  66%.  At  the  same 
time,  88%  of  Belgian  firms  believe 
their 
investment  activities  over  the  last  three  years  were 
about  the  right  amount,  better  than  the  EU  average 
(80%),  suggesting  that  there  is  no  material  financing 
gap  relative  to  investment  demand  in  the  country. 
However, this is probably not the case for firms with 
no  or  limited  capacity  for  internal  funding,  such  as 
innovative start-up firms (see further below). 
Market finance 

that 

The  Belgian  capital  markets  are  relatively  small. 
The  main  stock  exchange  in  Belgium  is  Euronext 
Brussels.  The  equity  market  is  relatively  modest  in 
terms of capitalisation (equivalent to 51% of GDP vs 
an  EU  average of 67%  as  of end-2024)  and  volumes 
traded, even more so when compared with the US (US 
equity market capitalisation was equivalent to 213% of 
US  GDP  in  2024).  The  market  breadth638  of  Belgian 
bond markets has steadily decreased since 2018 and is 
now  below  the EU  average  (1.2  vs  1.5). The  bid-ask 
spread639 on Belgian equity markets is lower than the 
EU  average  (1.3%  vs  1.6%).  The  use  of  equity  by 
SMEs in the country is relatively  average, as 14% of 
SMEs indicated in the 2024 SAFE survey that equity 
was a relevant source of financing for them, compared 
with an EU average of 12%.640 There has been no initial 
public  offering  (IPO)  in  Belgium  since  2021,  while 
IPOs reached on average 0.08% of GDP in the EU in 
2024. The next IPO (by Energyvision) is scheduled on 
9 July 2025. 

Debt finance continues to be a significant source of 
market funding for financial companies in Belgium. 
In  2024,  banks  issued  EUR 23 bn  of  debt  securities, 
down from EUR 38 bn in 2023 (see Graph 2.2.6), and 
the issuance observed in Q1-2025 (EUR 4 bn) seems to 
confirm  this  declining  trend.  The  other  financial 
companies issued EUR 5 bn in 2024, up from EU 3 bn 
in  2023,  and  the  strong  issuance  (EUR 9 bn)  in  Q1-
2025  confirms  this  rising  trend.  The  net  issuance  by 
non-financial  corporations  steeply  increased  from 
EUR 1 bn  in  2023  to  EUR 5 bn  in  2024,  with  an 
equally solid issuance of EUR 2 bn in Q1-2025. Hence, 
debt market finance appears as a minor but increasing 
source  of 
for  Belgian  non-financial 
corporations. 

funding 

1.4.6 

Net issuance of bonds 

Source: ECB. 

Retail participation in capital markets 

Like in most Member States, households in Belgium 
invest relatively little in financial assets and equity. 
Belgian households’ financial assets were equivalent to 
only 263% of GDP in 2024, more than the EU average 
(212%),  but  much  less  than  the  US  (446%).  Assets 
invested  in  equity,  directly  or  indirectly  through 
intermediaries  like  insurers  and  pension  funds,  were 
estimated to be equivalent to only 148% of GDP, above 
the EU average (91%) but much below the US (291%). 
Belgian households’ asset allocation is broadly similar 
to  that  of  the  average  EU  household,  except  that 
Belgian  households  invest  less  in  insurance  and 
pension funds, and more in investment funds. 

1.4.7 

Composition of HHs’ financial assets 

Source: Eurostat. End-2024. 

towards  equity 

The  design  of  the  overall  pension  system  is  not 
geared 
the 
development of capital markets. The pay-as-you-go 
nature of the public pension system means that only the 
supplementary  private  schemes  invest  in  high-return 

investment  and 

638  The ratio of bonds outstanding to GDP. 
639  Median of bid-ask spread as a % of the mid-price. 

640  Data and surveys - SAFE - European Commission, 2024, Results 

by country, T27. 

415 

-10.00.010.020.030.040.050.060.070.080.020212022202320242025-Q1bn EURGovernmentMFIsNon-MFINon-financial corporations050100150200250300020406080100120140160BEEUBEEUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Currency and depositsInsurance and pension fundsInvestment fundsBondsListed sharesUnlisted sharesOther equityHH Debt (liability) 
 
 
 
 
 
       
         
assets like equity. However, the supplementary private 
schemes are not universal and accumulated rights often 
remain limited for those covered. As a result, they only 
contribute  to  a  moderate  extent  to  the  total  pension 
income  and  do  not  fully  foster  the  development  of 
capital markets. Encouraging the build-up of universal 
funded 
schemes  would 
positively  contribute  to  (i)  the  sustainability  and 
adequacy  of  pensions  benefits;  (ii)  investment  in 
equity;  (iii)  access  to  finance;  (iv)  growth;  and  (v) 
innovation. 

supplementary  pension 

1.5  Bulgaria 

Availability and use of domestic savings 

1.5.1 

Net savings-investment balance 

1.5.2 

International investment position 

Source: ECB. 

Bulgaria's  net  international  investment  position 
(NIIP)  has  steadily  improved  over  the  past  few 
years.  In  the  past,  Bulgaria  accumulated  significant 
foreign  debt  and  thus  exhibited  a  material  negative 
NIIP  that  stood  at  -43.5%  of  GDP  in  2017.  A  rather 
gradual divestment of foreign direct investments (FDI) 
and  other  investments  in  Bulgaria  combined  with 
relatively  stable  Bulgarian  assets  abroad  has  led  to  a 
more  balanced  NIIP  position,  which  by  December 
2024 stood at 3.6% of GDP (see Graph 2.3.2). Overall, 
in 
the  Bulgarian  economy 
international capital flows. Despite being a net lender 
in  recent  years,  for  the  moment,  Bulgaria's  NIIP 
remains  negative,  reflecting  past  reliance  on  foreign 
capital,  mostly  via  non-market  channels  like  FDIs. 
Going  forward,  the  introduction  of  the  euro  should 
facilitate  cross  border  investments  and  may  ceteris 
paribus lead to an increase of both the asset and liability 
side of the capital account. 

integrated 

is  well 

Structure of the capital markets and size of the 
financial sector 

Bulgaria’s  capital  markets  are  underdeveloped, 
characterised  by  low  equity  market  capitalization 
and  a  limited  domestic  bond  market  relative  to 
GDP. This structural feature has a significant impact 
on  how  banks  and  other  financial  intermediaries  in 
Bulgaria  function.  The  financial  system  is  heavily 
reliant  on  a  well-established  banking  sector,  which 
serves  as  the  primary  conduit  between  savers  and 
borrowers.  With  few  alternatives  for  raising  capital, 
both  firms  and  households  depend  predominantly  on 
bank financing. The absence of deep and liquid capital 
markets  constrains  financial  diversification,  and 
businesses  are  largely  restricted  to  traditional  credit 
channels. Non-bank financial institutions (NBFIs) are 
also negatively affected, with limited scope to invest in 
a  narrow  range  of  domestic  securities.  This  restricts 

Source: AMECO. 

in 
On  average,  domestic  net  private  savings 
Bulgaria have been exceeding the sum of net private 
investment and the amount lent to the government 
over the past ten years, making Bulgaria a lender of 
capital to the international community. Over the last 
decade, the gross savings rate of the private sector in 
Bulgaria has hovered around 20% of its gross domestic 
product  (GDP),  which  stands  below  the  euro  area 
average of 23.8%. Approximately half of that amount 
was used in order to finance fixed capital consumption, 
hence  the  country’s  net  private  savings  ratio,  on 
average, was around 10%. The net private investment 
position  has  averaged  around  6%  over  the  past  five 
years as shown in Graph 2.3.1. This level allows part 
of  the  savings  either  be  lent  to  the  government  in 
Bulgaria  or  the  rest  of  the  world.  Lending  to  the 
government has shown variability, fluctuating between 
negative and positive values. Domestic capital markets 
are  underdeveloped  and not  very  appealing  to  locals. 
As  a  result,  Bulgaria  has  been  a  net  lender  to  the 
international  community  over  this  10-year  period, 
lending every year, on average, around 3% of its GDP 
to the rest of the world. Only in 2022 and 2024 Bulgaria 
has been a net borrower from foreign sources. 

416 

-10-5051015202520172018201920202021202220232024% of GDPPrivate investment, netLending to the governmentPrivate savings, netPrivate savings, grossBorrowing from the rest of the world-50-40-30-20-100-150-100-5005010015020172018201920202021202220232024% of GDP% of GDPOther investment, LiabilitiesPortfolio Investment, LiabilitiesForeign Direct Investment, LiabilitiesOfficial reserve assetsOther investment, AssetsPortfolio Investment, AssetsForeign Direct Investment, AssetsNIIP (rhs) 
 
 
 
        
        
their  contribution  to  economic  development  and 
reinforces the dominant role of banks. As a result, the 
high  concentration  of  financial  intermediation  within 
the banking sector amplifies systemic risk. Any shock 
to  banks’  balance  sheets  or  lending  activity  could 
quickly reduce credit availability and threaten overall 
financial stability. 

1.5.3 

Capital markets and financial intermediaries 

Nevertheless,  strict  legal  restrictions  on  investment 
strategies  continue  to  limit  their  broader  impact  in 
capital markets.643 

in 
The  domestic  equities  and  bonds  market 
Bulgaria  are  relatively  small  and  shallow.  In 
December 2024, the Bulgarian Stock Exchange (BSE) 
total  equity  market  capitalization  was  approximately 
8.6% of GDP644, an increase by 12% compared to the 
end of 2023. The bond market’s total capitalisation was 
24.5%, made up of 20.7% government debt, and 3.8% 
by  other 
the 
Bulgarian government primarily conducts issuances on 
international markets, with approximately 77% of the 
outstanding amount issued internationally.645 This has 
a ripple effect on corporate bond issuance, as investors 
struggle  to  establish  reliable  benchmarks  to  price 
corporate  bonds,  hence  the  market  remains  -overall- 
untapped. 

issuances.  However, 

institutions’ 

Source: ECB, EIOPA, AMECO. End-2024. 

1.5.4 

Composition of NFCs’ funding 

Financing of the economy 

Sources of NFC finance 

in 

the  pension  and 
Despite  modest  growth 
investment  funds  sectors,  Bulgaria's  financial 
intermediation  remains  heavily  skewed  toward 
banking.  Bulgaria’s  banking  sector  remains  the 
dominant force in the financial system, holding assets 
equivalent to 92.1% of GDP in December 2024. This 
level  is  far  surpassing  the  combined  asset  base of  all 
non‑bank financial institutions (NBFIs) i.e. insurance, 
pension  and  investment  funds.  While  NBFIs  are 
actively working to increase their economic influence, 
they  are  tied  to  the  underdeveloped  domestic  capital 
market. In end-2024, total insurer assets stood at just 
6.2% of GDP, a level below the 6.6% recorded in 2018. 
This  level  is  well below  the EU  average  of 54.8%,  a 
fact that highlights the sector stalled growth and limited 
role as an economic pillar. At the same time, the total 
assets  managed  by  all  (resident  and  non-resident) 
totalled 
investment  funds  operating 
EUR 6.54 bn, increased by 20.9%, or EUR 1 bn, year-
on-year.641 This amount is equal to 5.9% of Bulgaria’s 
GDP  at  the  end  of  December  2024.  Lastly,  pension 
funds’  total  assets  amounted  to  EUR 13.55 bn642  in 
December 2024 (6.7% of the GDP). A year earlier, the 
net  assets  under  management  by  the  pension  funds 
amounted to EUR 11.7 bn (and to EUR 9.8 bn in end-
2022),  clear  evidence  that  the  sector  is  growing. 

in  Bulgaria 

641  See Bulgarian National Bank’s Investment Funds Statistics  
642  See  Bulgaria’s 

Supervision  Commission’s 
Preliminary  results  of  the  supplementary  pension  insurance 
activity for 2024. 

Financial 

Source: Eurostat. End-2024. 

Bulgarian corporates continue to rely primarily on 
bank  lending  and  internal  resources  to  meet  their 
funding  needs,  while 
largely  avoiding  capital 
market instruments. The financial structure of NFCs 
in Bulgaria differs significantly from the EU average, 
both in terms of composition and overall size. In 2023, 
total  NFC  financing  in  Bulgaria  stood  at  165.5%  of 
GDP.  This  level  is  well  below  the  EU  average  of 
225.6%, reflecting the comparatively smaller size and 
depth  of  Bulgaria’s  financial  sector.  Bank  loans 
account  for  approximately  27%  of  Bulgarian  NFCs’ 
total  financing,  aligning  with  the  EU  average  in 
proportional terms. However, in absolute terms, bank 

643  See OECD’s 2024 Survey of Investment Regulation of Pension 

Providers.  

644  See the Bulgarian Stock Exchange’s annual report 2024 
645  See Central Government Debt and Guarantees Monthly Bulletin 

for December 2024. 

417 

Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIsInsurance corporations020406080100120   Listed equity               Bonds                        Assets by sector% of GDP050100150200250BGEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity 
 
 
          
 
 
            
financing, 

forms  of 

lending  remains  more  limited  (44.7%  of  GDP  in 
Bulgaria vs. 60.9% in the EU), indicating that relative 
to  GDP,  bank-based  financing  remains  modest  in 
Bulgaria.  Alternative 
in 
particularly  unlisted  shares,  retained  earnings,  and 
other  equity  instruments,  play  a  much  larger  role  in 
Bulgaria,  comprising  65.7%  of 
total  corporate 
financing, compared to 45.2% in the  EU.  This heavy 
reliance  on  internal  or  relationship-based  funding 
partly  compensates  for  the  underdevelopment  of 
capital markets. Consequently, market-based financing 
instruments  remain  marginal 
in  Bulgaria.  Bond 
issuance  accounts  for  just  1.0%  of  total  corporate 
finance (or 1.7% of GDP), compared to 4.7% (or 10.7% 
of  GDP)  at  the  EU  level. The  disparity  is  even  more 
pronounced for listed equity, which represent just 1.6% 
of NFC financing in Bulgaria (or 2.6% of GDP) when 
in  the  EU  they  constitute  19.1%  of  the  financing 
structure,  equal  to  43.1%  of  GDP.  These  figures 
highlight  the  limited  role  of  the  BSE  in  providing 
funding  for  domestic  companies.  Overall,  the  data 
corroborate  that  Bulgarian  NFCs  are  dependent  on 
non-market  financing  sources  for  covering  their 
financing  needs.  This  limited  use  of  capital  markets, 
constrains  their  ability  to  diversify  funding  sources, 
scale up investment, and improve resilience to financial 
shocks. 

Market finance 

The  Bulgarian  capital  markets  remain  small  and 
play a limited role in financing domestic firms. The 
market-funding ratio, which encompasses funds raised 
through equity markets (stocks), debt markets (bonds) 
and  other  market  instruments  has  been  steadily 
declining in recent years. In December 2024, this ratio 
stood  at  10.7%  of  GDP,  down  from  10.7%  in  2023, 
11.3% in 2022 and 12.3% in 2021 and so on. It is one 
of the three lowest in the EU, significantly behind the 
EU average of 49.5% (as shown in Table 6).  

inefficient  and 
Bulgaria's  equity  market 
is 
the  necessary 
underutilised,  despite  having 
infrastructure 
in  place.  The  Bulgarian  Stock 
Exchange  (BSE)  plays  a  critical  role  in  facilitating 
market  transactions  through  its  structured  main  and 
alternative  markets646  and  has  all  the  necessary 
infrastructure in place. Nevertheless, the BSE is rarely 
used  by  corporates  for  raising  equity  capital.  Since 

January  2020,  the  amount  of  the  capital  raised  via 
capital  increases  amounted  to  EUR  578  mn  (644), 
whereas  the  amount  of  the  capital  raised  via  initial 
public offerings (IPOs) was just EUR 38 mn, of which 
only EUR 2 mn in 2024 and EUR 6 mn in 2023.  

1.5.5 

Stock market performance 

Source: London Stock Exchange Group647. 

Bulgaria’s  equity  market  was  disproportionately 
affected by the global financial crisis compared to 
broader European  indices.  This sharp impact likely 
stemmed  from  Bulgaria’s  emerging  market  status, 
limited  resilience  of  its  financial  institutions,  and  a 
significant  investor  exit.  At  the  onset  of  the  global 
financial  crisis,  the  BG  Bank  Index  plummeted  from 
100% (base) in January 2008 to approximately 11% by 
early  2009.  Similarly,  the  SOFIX  (general  market 
index) dropped from 100% to around 15%, reflecting a 
severe  devaluation  of  equity  prices  across  sectors. 
Between  2010  and  2016,  a  prolonged  period  of 
stagnation followed, during which the BG Bank Index 
remained within a narrow band between 6% and 11%, 
while  the  SOFIX  fluctuated  between  20%  and  30%, 
due  to  persistently  low  valuations,  limited  market 
activity,  and  weak  investor  confidence.  In  contrast, 
STOXX  Europe  600  rebounded  and  had  fully 
recovered to pre-crisis levels by 2015. Between 2017 
and 2021, the SOFIX  rose modestly, but remained at 
just  35%  of  its  pre-crisis  value,  while  the  BG  Bank 
Index  hovered  at  historical  lows  around  6%.  From 
2022 onwards, the market gained stronger momentum 
and by mid-2025, the SOFIX had reached around 57%, 
and  the  BG  Bank  Index  nearly  doubled  to  12%, 
reflecting  improved  investor  sentiment  and  stronger 
performance in the banking sector. Nevertheless, these 
gains remained modest when compared to the STOXX 

646  See BSE Sofia market segmentation 
647  The  STOXX  Indices  are  the  intellectual  property  (including 
registered  trademarks)  of  STOXX  Limited,  Zug,  Switzerland 
(“STOXX”) and/or its licensors (“Licensors”). STOXX has not 
been involved in any way in the creation of financial instruments 
or  any  other  products  referencing  the  aforementioned  indices. 
Such products are neither sponsored nor promoted, distributed 

or  in  any  other  manner  supported  by  STOXX  and/or  its 
Licensors. STOXX does not give any warranty and excludes any 
liability  whatsoever  (whether  in  negligence  or  otherwise)  – 
including  without  limitation  for  the  accuracy,  adequateness, 
correctness,  completeness,  timeliness,  and  fitness  for  any 
purpose – in relation to any errors, omissions or interruptions in 
any of STOXX' indices or its data. 

418 

050100150200200820112014201720202023Jan-08=100BG Bank indexSTOXX EUROPE 600 BANKSBULGARIA SE SOFIX - PRICE INDEXSTOXX EUROPE 600 
 
 
 
 
         
Retail participation in capital markets 

1.5.7 

Composition of HHs’ financial assets 

benchmarks.  By  mid-2025,  the  STOXX  Europe  600 
Banks reached approximately 65% of its 2008 levels, 
while  STOXX  Europe  600  surpassed  its  2008  levels 
and  stood  at  150%.  In  contrast,  Bulgarian  indices 
remain well below their pre-crisis peaks, underscoring 
the  structural  weaknesses  of  the  Bulgarian  capital 
market,  including  low  liquidity,  a  limited  number  of 
listed companies, and an underdeveloped investor base. 

1.5.6 

Net issuance of bonds 

Source: ECB. 

Bulgarian  corporates  face  challenges  in  accessing 
financing through the domestic debt capital market. 
Government  debt  issuance  in  Bulgaria  is  primarily 
conducted on international markets, with only a quarter 
of the outstanding amount issued domestically.648 This 
has  a  ripple  effect  on  corporate  bond  issuance  in 
Bulgaria,  as  investors  struggle  to  establish  reliable 
benchmarks to price corporate bonds. Worldwide, the 
Bulgarian  government  and  corporates  (MFIs,  non-
MFIs  and  NFCs)  issued  EUR 11.7 bn  between  2021 
and 2024, but only EUR 0.6 bn was raised on the BSE 
(644).  Other 
the  Bulgarian  companies 
underutilise corporate bonds  include the ease of bank 
financing,  limited  knowledge  of  the  bond-issuance 
process,  and  relatively  high  associated  costs  of  bond 
issuance.  Nonetheless,  bond  issuances  have  nearly 
doubled 
suggesting  growing 
momentum for corporate bond financing, albeit from a 
very low base.  

recent  years, 

reasons 

in 

Source: Eurostat. End-2024. 

take  a  conservative  approach 

Bulgarians 
to 
managing  their  financial  assets,  with  a  strong 
preference for deposits.  Lower income levels in the 
country hamper the ability of poorer households to save 
and invest. The amount of financial assets per capita in 
Bulgaria is EUR 21 000, which is 25% of the average 
in the EU-27. As a result, households tend to prioritise 
liquidity  over  more  complex  financial  investments. 
Bulgarian  households  hold  around  a  third  of  their 
financial assets in currency and deposits, similar to the 
EU  average.  In  contrast,  Bulgarians  allocate  a 
significantly lower proportion of their financial assets 
to  insurance  and  pension  funds  than  the  EU  average 
(Bulgarians  allocate  10%  against  an  EU  average  of 
28%).  Furthermore,  they  have  minimal  exposure  to 
investment  funds,  bonds,  and  listed  shares,  with  a 
cumulative exposure of just over 3%, compared to 18% 
in  the  EU  (as  shown  in  Graph  2.3.7).  Other  factors, 
such  as  scarce  market  offerings,  limited  financial 
literacy and lack of trust in the capital markets due to 
legacy issue with the BSE may also contribute to this 
investing behaviour. 

1.6  Croatia 

Availability and use of domestic savings 

The Croatian economy invests a significant part of 
its net savings abroad. In the last decade, the private 
savings  ratio,  net  of  fixed  capital  consumption, 
fluctuated around its ten-year average of 6.8% of GDP, 
reaching a maximum of 8.9% in 2020. The net private 
investment ratio, which measures the net contribution 
of  the  private  sector  to  capital  accumulation  in  the 
country, exhibited a ten-year average of 2.9% of GDP 

648  See Central Government Debt and Guarantees Monthly Bulletin 

for November 2024. 

419 

-0.50.00.51.01.52.02.53.03.54.04.520212022202320242025-Q1bn EURGovernmentMFIsNon-MFINon-financial corporations050100150200250020406080100BGEUBGEUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Currency and depositsInsurance and pension fundsInvestment fundsBondsListed sharesUnlisted sharesOther equityHH Debt (liability) 
 
 
      
 
 
        
1.6.2 

International investment position 

together  with 

and reached a maximum of 5.7% in 2022. During the 
same  period  the  government  budget,  whose  balance 
was  somewhat  volatile,  showed  an  average  deficit 
equivalent  to  1.7%  of  GDP.  Thus,  the  moderate 
positive balance between net domestic savings and net 
investment, 
limited 
government deficit, resulted in structurally positive net 
lending by Croatia to foreigners that averaged 2.3% of 
GDP, with a peak of 3.9% in 2019. Hence, a significant 
portion of Croatian net savings, i.e. after accounting for 
the investments that are necessary to merely maintain 
the existing capital structure of the economy, is used to 
finance projects abroad (see Graph 2.4.1). 

rather 

the 

1.6.1 

Net savings-investment balance 

Source: ECB. 

Structure of the financial sector 

Source: AMECO. 

Consistent with its annual net lending to the rest of 
the world, the net international investment position 
(NIIP)  of  Croatia  has  been  increasing.  As  of  Q4 
2024, total assets on foreigners reached 95% of GDP, 
up from 68% at end-2017, while liabilities to foreigners 
stood  at  122%  of  GDP,  resulting  in  a  negative  net 
international investment position (NIIP) equivalent to -
27% of GDP (see Graph 2.4.2). The net stock of foreign 
direct investment, which has been broadly stable, stood 
at -53% of GDP as of Q4 2024. This stability confirms 
the status of Croatia as a destination country for long-
term  capital  investments.  Hence,  the  increase  in  the 
NIIP  has  been  driven  by  the  growing  net  stocks  of 
portfolio investment, which reached 20% of GDP as of 
Q4 2024, and of other investments, which stood at 2% 
of  GDP.  Part  of  the  latter’s  increase  is  due  to  the 
structural  change  in  the  stock  of  official  foreign 
exchanges  reserves,  which  declined  from  above  40% 
of GDP prior to euro adoption to 4% as of Q4 2024. 
Thus,  the  Croatian  economy  appears  to  be  well 
integrated  in  international  capital  flows,  notably  as  a 
stable recipient of foreign direct investments. 

the 

largest  segment  of 

Banks  dominate  the  financial  sector  in  Croatia 
while there is  scope for the  future development of 
all  non-bank  intermediaries.  The  banking  sector  is 
the 
financial  services, 
accounting for 101.5% of GDP in 2024, which remains 
significantly  below  the  EU  average  of  251.1%.  The 
pension  fund  assets  accounted  for  29.5%  of  GDP  in 
2024,  which  makes  pension  funds  the  second  largest 
segment  of  the  financial  system  after  the  banking 
sector. The insurance sector assets accounted for only 
7.2% of GDP in 2024 (EU average: 54.8%). The total 
assets of investment funds accounted for 4.7% of GDP 
in 2024. 

1.6.3 

Capital markets and financial intermediaries 

Source: ECB, EIOPA, AMECO. End-2024. 

Capital markets in Croatia are evolving but require 
further development to broaden access to finance. 
The market capitalisation of listed equity reached 34% 
of  GDP  in  2024  (EU  average:  66.8%)  (see  Graph 
2.4.3).  Non-financial  corporations  (NFCs)  accounted 

420 

-10-505101520253020172018201920202021202220232024% of GDPPrivate investment, netLending to the governmentPrivate savings, netPrivate savings, grossBorrowing from the rest of the world-80-60-40-200-150-100-5005010015020172018201920202021202220232024% of GDP% of GDPOther investment, LiabilitiesPortfolio Investment, LiabilitiesForeign Direct Investment, LiabilitiesOfficial reserve assetsOther investment, AssetsPortfolio Investment, AssetsForeign Direct Investment, AssetsNIIP (rhs)Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIsPension fundsInsurance corporationsInvestment funds020406080100120   Listed equity               Bonds                        Assets by sector% of GDP 
 
 
         
         
  
for  65%  of  that  capitalisation  at  end  of  2024.  The 
outstanding volume of debt securities reached 45% of 
GDP at end 2024. However, marketable debt securities 
issued by NFCs accounted for only 2.7% of the total. 
Indeed,  the  domestic  bond  market  in  Croatia  is 
dominated  by 
the  government  securities,  which 
accounted for 91.3% of the total bonds as of end-2024. 
Financial institutions, whether banks or not, accounted 
for the remaining 5.8% of the total debt securities.  

Financing of the economy 

Sources of NFC funding 

Croatian  companies  rely  more  on  funding  from 
banks  and  much  less  on  funding  from  capital 
markets.  As  a  source  of  finance  for  Croatian  NFCs, 
loans were equivalent to 40.3% of GDP as of end-2024, 
below the EU average of 60.9%. When expressed as a 
percentage of overall NFCs financing, loans accounted 
for a large share of all financing, which was above EU 
average (31.5% versus 27% in the EU at end-2024). On 
the other hand, Croatian NFCs’ use of listed shares and 
bonds was lower than the EU average, both expressed 
as  a  percentage  of  GDP  (21.6%  vs  53.8%)  and  as  a 
percentage of overall NFC financing (17% vs 23.8% in 
2024)  (see  Graph  2.4.4).    The  overall  level  of  NFC 
funding in Croatia was equivalent to 125.9% of  GDP 
in  2024,  which  is  substantially  lower  than  the  EU 
average of 225.6% of GDP at end-2024. 

1.6.4 

Composition of NFCs’ funding 

Source: Eurostat. End-2024. 

Croatian  businesses  depend  more  on  internal 
financing than their European peers.  According to 
the 2024 EIB Investment Survey, the investment needs 
of  70%  of  Croatian  firms  re-covered  by  internal 
funding, compared to an EU average of 66%.649 At the 
same  time,  78%  of  Croatian  firms  believe  that  their 

investment  activities  over  the  last  three  years  were 
about  the  right  amount  (close  to  the  EU  average  of 
80%), while 18% of Croatian firms believe  that their 
investment  activities  were  too  little  (above  the  EU 
average of 14%). This suggests that there is no material 
financing gap relative to investment demand.650 

Market finance 

Croatia’s  stock  market  is  small  but  evolving.    As 
mentioned  before,  the  market  capitalisation  of  listed 
equity  reached  34%  of  GDP  in  2024  (EU  average: 
66.8%).  Its 
total  market  capitalisation  stood  at 
EUR 52.5 billion  as  of  May  2025,  of  which  stocks 
accounted  for  56.5%,  bonds  43.4%,  and  exchange-
traded  funds  (ETFs)  0.2%.651  The  use  of  equity  by 
SMEs is quite high as 32% of SMEs indicated in the 
2024 SAFE survey that equity was relevant for them, 
compared to an EU average of 12%.652 

The Croatian stock exchange is trying to become a 
regional player.  The main stock exchange in Croatia 
is  the  Zagreb  Stock  Exchange  (ZSE)  which  was 
established in 1991. The official stock index for ZSE is 
CROBEX  (includes  stocks  from  15  companies)  that 
recorded  a  25.94%  growth  in  2024  compared  to 
2023.653  In  terms  of  stock  market  performance,  the 
index of the general stock market in Croatia has been 
way below the EU average since 2008, while the index 
of Croatian banks was well above the EU average (see 
Graph 2.4.5).  In 2019, the ZSE launched the Progress 
Market  multilateral  trading  platform,  which  aimed  to 
encourage SMEs to issue securities with less restrictive 
listing  and  reporting  requirements.  Although  this 
started  with  market 
Progress  Market  MTP 
capitalisation of EUR 145.3 million in 2019, this figure 
to  EUR 65.3 million  by  2024.654 
had  dropped 
Recognising  the  importance  of  cross-border  trading, 
the ZSE fully acquired the Ljubljana Stock Exchange 
in 2015, and partially acquired the North Macedonian 
Stock Exchange (in 2019 and in 2022).  In 2022, the 
SKDD  (the  Croatian  central  securities  depository) 
launched a central counterparty clearing service in the 
Croatian market (SKDD-CCP) making it the fourteenth 
clearing entity licenced to provide CCP services in the 
EU. 

649  EIB, 2024, 2024 EIB Investment Survey, p. 29. 
650  Ibid. p. 7. 
651  ZSE, 2025. Market Capitalisation. 

652  European Commission, 2024, Data and Surveys-SAFE, Results 

by country, T27. 

653  ZSE, 2024. ZSE Annual Report, 2024. p. 22. 
654  Progress Market, 2024, Market Capitalisation. 

421 

050100150200250HREU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity 
 
 
          
 
 
1.6.5 

Stock market performance 

Source: London Stock Exchange Group655. 

Debt finance continues to be a significant source of 
market funding for the government as well as MFIs 
in Croatia. In Q1 2025, the government issued EUR 
1.3  billion  of  debt  securities,  compared  to  EUR  0.7 
billion  for  the  whole  of  2024  (43.1%  of  total  issued 
bonds in 2024). In Q1 2025, MFIs issued EUR 0.3 bn 
of debt securities, compared to EUR 0.8 billion for the 
whole  of  2024  (53.5%  of  total  issued  in  2024)  (see 
Graph 2.4.6). Debt market finance does not appear to 
be a major source of funding for Croatian non-financial 
corporations  (NFCs)  (2.9%  of  total  issued  bonds  in 
2024). 

1.6.6 

Net issuance of bonds 

Source: ECB. 

The  Croatian  government  has  taken  measures  to 
further  foster  the  development  of  the  Croatian 
capital markets.   Already in 2023,  the  CFA Society 
Croatia,  in  partnership  with  the  Ministry  of  Finance, 

and  relevant  parties  implemented  a  project  aimed  at 
preparing  the  basis  for  the  Croatian  capital  market 
development  strategy  (published  in  January  2024).656 
Based on this report, the Croatian Ministry of Finance 
prepared the Strategic framework for the development 
of  capital  market  in  the  Republic  of  Croatia  (2025- 
2030),  and  the  first  action  plan  (2025-2026),  in  the 
cooperation  with  the  Croatian  Financial  Services 
Supervisory  Agency  and  other  relevant  stakeholders 
(including  pension  and  investment  funds,  investment 
firms,  banks,  ZSE,  the  SKDD-CCP,  CFA  Society 
Croatia and others) with the technical support from the 
European Bank for Reconstruction and Development. 
Additionally, the second Action plan is envisaged for 
2026 and will cover the period until the end of 2030.  
The framework sets out five key strategic directions: (i) 
regional  integration  and  positioning  Croatia  as  a 
financial hub; (ii) digitalisation of capital markets; (iii) 
strengthening  corporate  governance;  (iv)  boosting 
market  liquidity;  and  (v)  creating  new  investment 
products  and  financing  options.  In  addition  to  the 
aforementioned  five  key  strategic  directions,  a 
horizontal initiative has also been launched, aimed to 
reduce  excessive  regulation  (gold-plating)  and  to 
ensure  that  the  legal  framework  of  Croatia  remains 
competitive,  simple,  and  aligned  with  the  European 
Union acquis and relevant EU standards.  

Croatia  has  increasingly  supported  efforts  to 
develop  the  Capital  Markets  Union  (CMU)  in  the 
EU. At a meeting in May 2024, the finance ministers 
of  Austria,  Croatia  and  Slovenia  issued  a  joint 
statement calling for further progress on CMU.657 The 
statement  identified  a  number  of  common  CMU 
priorities,  including:  (i)  the  need  to  consider  the 
priorities of all Member States; (ii) debating centralised 
supervision at a later stage; (iii) a pragmatic approach 
to  the  securitisation  framework;  (iv)  harmonising  the 
requirements for companies to be listed on exchanges; 
(v)  eliminating  national  barriers  for  institutional 
investors; (vi) making tax systems more supportive of 
investments  in  capital  markets;  and  (vii)  expanding 
financial  literacy  and  market participation  among  the 
EU population. 

655  The  STOXX  Indices  are  the  intellectual  property  (including 
registered  trademarks)  of  STOXX  Limited,  Zug,  Switzerland 
(“STOXX”) and/or its licensors (“Licensors”). STOXX has not 
been involved in any way in the creation of financial instruments 
or  any  other  products  referencing  the  aforementioned  indices. 
Such products are neither sponsored nor promoted, distributed 
or  in  any  other  manner  supported  by  STOXX  and/or  its 
Licensors. STOXX does not give any warranty and excludes any 
liability  whatsoever  (whether  in  negligence  or  otherwise)  – 

including  without  limitation  for  the  accuracy,  adequateness, 
correctness,  completeness,  timeliness,  and  fitness  for  any 
purpose – in relation to any errors, omissions or interruptions in 
any of STOXX' indices or its data. 

656  CFA  Society  Croatia,  2024,  Basis  for  the  capital  markets 

development strategy in Croatia. 

657  Common Statement by the Finance Ministers, 28 May 2024. 

422 

050100150200200820112014201720202023janv-yy=100HR Bank indexSTOXX EUROPE 600 BANKSCROATIA CROBEX - PRICE INDEXSTOXX EUROPE 600-1.0-0.50.00.51.01.52.02.520212022202320242025-Q1bn EURGovernmentMFIsNon-MFINon-financial corporations 
 
 
       
      
 
 
strengthening  market  infrastructure  and  broadening 
access to finance. 

1.7  Cyprus 

Availability and use of domestic savings 

1.7.1 

Net savings-investment balance 

Retail participation in capital markets 

Croatian households have a high share of cash and 
deposits  in  households’  assets,  which  implies  that 
there is scope to further increase the level of direct 
or indirect retail investments. The Croatian savings 
rate was 11.2% at end-2023 (EU average: 13.3%). At 
end-2024,  Croatian  households  had  a  higher-than-
average holding of cash and deposits, which represent 
nearly half (45.4%) of household assets (EU average: 
31.7%).  Moreover,  at  end-2024,  39%  of  households’ 
financial  assets  were  held  in  pension  and  investment 
funds  or  held  directly 
investment 
instruments, but this still falls short of the EU average 
of 46.6%. More specifically, at end-2024, households’ 
direct  holdings  of  investment  insurance  and  pension 
funds  was  at  27%  (EU  average:  27.9%),  investment 
funds at 3.4% (EU average: 11.1%), bonds at 4.8% (EU 
average: 2.8%), and listed shares at 3.8% (EU average: 
4.9%)  (see  Graph  2.4.7).  In  Croatia,  direct  and 
intermediated  retail  investment  by  households  was 
44% in 2023 (EU average: 56.2%).  

in  financial 

1.6.7 

Composition of HHs’ financial assets 

Source: AMECO. 

The Cypriot economy relies on external funding to 
meet its investment needs, as domestic net private 
savings  are  insufficient  to  finance  all  investment 
requirements.  In  the  past  decade,  Cyprus's  private 
sector gross savings rate has averaged around 10% of 
GDP, significantly lower than the euro area average of 
23.8%.  The  net  private  savings  ratio  has  fluctuated 
significantly, shifting from a net borrowing position in 
2014 to a net savings position of 4.4% in 2021, before 
reverting to a net borrowing position of -4.2% in 2023. 
On average, the net private savings ratio stands at zero, 
indicating  that  private  savings  are  just  sufficient  to 
meet the depreciation of existing capital assets without 
external  borrowing.  However,  private  savings  are 
insufficient  to  finance  additional  investment  through 
capital markets, either domestically or internationally. 
The  net  private  investment  position  has  averaged 
around 7.5% over the past five years, in contrast to the 
financial  crisis  years  (2012-2014)  when  the  net 
investment  position  was  negative.  The  government's 
borrowing from the private sector has also varied over 
the past few years, reflecting the interplay between the 
government's  funding  needs  and  the  private  sector's 
savings behaviour. Domestic savings have often been 
insufficient  to  meet  investment  needs  and  sustain 
capital infrastructure. As a result of the government's 
irregular  net  savings  position  and  the  private  sector's 
insufficient  savings,  Cyprus  has  remained  a  net 
borrower  from  the  international  community,  with  an 

Source: Eurostat. End-2024. 

Recent policy initiatives are aimed at boosting the 
level  of  retail  participation.  In  2023,  the  Croatian 
government issued its first national bonds and treasury 
bills  aimed  primarily  at  retail  investors,  in  which 
Croatians  invested  a  total  of  EUR 2.3  billion.658  In 
2024,  the  Ministry  of  Finance  continued  to  turn  to 
households  for  government  financing  by  issuing 
national  treasury  bills.659  A  wider  review  of  the 
incentives  in  place  to  promote  retail  participation  in 
financial  markets  may  also  be  warranted.  In  March 
2025, Croatia adopted the Strategic framework for the 
development  of  capital  market  in  the  Republic  of 
Croatia 2025-2030, marking an important step towards 

658  HANFA, 2024, Annual Report 2023, p. 2 

659  HANFA, 2024, Macroprudential Risk Scanner, p. 10. 

423 

050100150200250020406080100HREUHREUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Currency and depositsInsurance and pension fundsInvestment fundsBondsListed sharesUnlisted sharesOther equityHH Debt (liability)-10-505101520172018201920202021202220232024% of GDPPrivate investment, netLending to the governmentPrivate savings, netPrivate savings, grossBorrowing from the rest of the world 
 
 
       
 
 
 
        
average  borrowing  of  around  4.9%  of  GDP  over  the 
past 15 years. 

it  remains  a  net  capital  importer  from  the  rest  of  the 
world. 

1.7.2 

International investment position 

Source: ECB. 

improvement. 

The  Cypriot  economy  has  a  significant  amount  of 
external  debt,  resulting 
in  a  negative  net 
international  investment  position  (NIIP)  that  is, 
In 
however,  showing  signs  of 
December  2024,  Cyprus’s  NIIP  stood  at  -80%  of 
GDP.660  Despite  the  disproportionate  high  level  of 
accumulated  foreign  direct  investment  (FDI)  in  the 
economy, both on the assets and the liabilities side661, 
the  net  FDI  is  a  negative  position  of  5%  of  GDP  in 
December  2024,  thus  making  only  a  small  negative 
contribution to the NIIP. Foreign reserve assets, which 
accounted for  less  than  6%  of  GDP,  made  a  positive 
contribution  to  the  NIIP.  The  difference  between 
portfolio assets and liabilities, which is affected by the 
price  volatility  of  equity  valuations  abroad  and  in 
Cyprus,  was  also  a  positive  contributor  in  2024, 
accounting  for  around  49%  of  GDP.  However,  these 
positive contributions were more than offset by the net 
stock  of  other  investments,  which  stood  at  -130%  of 
GDP at the same time.662 Cyprus's NIIP has improved 
over the years, from -139% in 2017 to -80% in 2024, 
but  remains  highly  negative.  Excluding  SPEs663,  the 
NIIP is less negative, at around -30% of GDP. Overall, 
while  the  Cypriot  economy  is  highly  connected  to 
global capital markets and is a source of foreign capital, 

Size of the financial sector and structure of the 
capital markets 

The  underdeveloped  capital  markets  in  Cyprus, 
characterized by small market capitalization and a 
limited bond market fundamentally shape the way 
banks  and  other  financial  intermediaries  operate. 
The  Cypriot  economy  has  a  well-developed  banking 
sector,  which  plays  a  significant  role  in  the  country's 
financial  system.  Banks  serve  as  the  main  channel 
between savers and borrowers, as firms and households 
have  few  alternatives  for  raising  or  investing  funds. 
The lack of well-developed capital markets constrains 
financial  diversification  and  stifles  innovation  by 
forcing businesses to rely almost exclusively on bank 
credit. Additionally, the shallow capital markets limit 
the ability of non-bank financial institutions (NBFIs) to 
invest in a diverse range of domestic securities, thereby 
constraining their role in supporting the economy. This 
concentration  of  financial  flows  within  the  banking 
sector  increases  the  risk  of  a  systemic  crisis,  as  any 
disruption in banks' balance sheets or lending capacity 
can  rapidly  translate  into  reduced  credit  availability 
and threaten economic stability. 

1.7.3 

Capital markets and financial intermediaries 

Source: ECB, EIOPA, AMECO. End-2024. 

The  importance  of  the  banking  sector  for  the 
country’s  economy  is  evident  by  its  relative  size 
compared to all other sectors. In December 2024, its 

660  For more detailed analysis, see also In-depth reviews - European 

Commission, May 2025. 

661  The  disproportionate  high  level  of  accumulated  FDIs,  which 
reached 1 459% of GDP in December 2024, and the equivalent 
liability of 1 464% of GDP, is attributed to the favourable tax 
system and the country’s role as financial hub, where Cyprus is 
often selected as an intermediary for routing investments to third 
countries.   

662  The  stock  of  liabilities  in  other  investments  includes  the 
portfolios  of  non-performing  loans  that  have  been  transferred 
from the banks to foreign CACs and amount to approximately 
33% of the GDP.  

663  Special purpose Entities (SPEs), mostly ship-owning, contribute 
significantly to the negative headline NIIP. Ship-owning SPEs 
are  mostly  funded  by  foreign  financial  institutions  or  other 
related  non-resident  entities  and  own  assets  located  outside 
Cyprus and thus NIIP appears inflated because of these SPEs. 

424 

-160-140-120-100-80-60-40-200-4000-3000-2000-10000100020003000400020172018201920202021202220232024% of GDP% of GDPOther investment, LiabilitiesPortfolio Investment, LiabilitiesForeign Direct Investment, LiabilitiesOfficial reserve assetsOther investment, AssetsPortfolio Investment, AssetsForeign Direct Investment, AssetsNIIP (rhs)Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIsPension fundsInsurance corporationsInvestment funds050100150200250   Listed equity               Bonds                        Assets by sector% of GDP 
 
 
        
 
 
 
          
total assets stood at 206.6% of GDP, four times bigger 
than  the  combined  size  of  all  insurance,  pension  and 
investments  funds  in  Cyprus,  whose  totals  assets 
amounted to 48.9% of GDP. The insurance sector, with 
total assets amounting to 16.3% of GDP in December 
2024, and the investment funds sector, with total assets 
under  management  at  21.9%  of  GDP  at  the  end  the 
year,  appear  to  gain  momentum  and  aim  to  become 
important  players  in  the  economy.  In  contrast,  the 
pension  funds  sector,  with  total  assets  of  10.6%  of 
GDP, 
faces 
administrative  challenges.  The  NBFIs  are  trying  to 
position  themselves  as  important  players  in  the 
economy, but their small size relatively to the country’s 
GDP,  limits  their  ability  to  play  a  major  role  in  the 
country's 
the 
underdeveloped  domestic  capital  market  makes  this 
even more challenging.  

capital  markets. 

fragmented 

considered 

addition, 

and 

In 

is 

The  domestic  capital  market  (equities  and  bonds 
markets) in Cyprus is small, with a lack of liquidity 
and a limited number of listed companies or traded 
bonds.  The  domestic  capital  market  is  primarily 
composed of the equities market and the bonds market. 
Although  the  Cypriot  capital  markets  are  open  to 
foreign investors, foreign participation is modest. The 
limited foreign participation and preference for foreign 
markets  have  contributed  to  the  small  size  of  the 
domestic  capital  market.  Meanwhile,  many  Cypriot 
companies  opt  to  list  and  raise  funds  on  foreign 
markets.    In  December  2024,  the  Cyprus  Stock 
Exchange's  (CSE)  total  equity  market  capitalization 
was approximately 16.5% of GDP664, compared to the 
outstanding  value  of  Cypriot  companies  listed  in 
Cyprus and abroad, which amounted to 44.2% of the 
country's  GDP  (as  shown  in  Table  6).  The  bonds 
market  is  the  primary  driver  of  the  domestic  stock 
exchange's  market  capitalization,  with  the  Cypriot 
government  being  the  main  issuer  of  sovereign  debt, 
primarily  targeting  institutional  investors,  while  the 
corporate bond market remains underdeveloped.  

Financing of the economy 

Sources of NFC funding 

1.7.4 

Composition of NFCs’ funding 

Source: Eurostat. End-2024. 

Bank loans are the primary source of financing for 
NFCs  in  Cyprus,  with  corporate  bonds  and  listed 
shares being underutilised.  Specifically, bank loans 
account for 45% of NFCs' total financing needs, a level 
significantly  higher  than  the  EU  average  of  27%.  In 
contrast,  other  forms  of  financing,  such  as  unlisted 
equity  and  participation  in  quasi-corporations  (e.g. 
partnerships),  account  for  52%  of  total  financing, 
exceeding the EU average of 45%. Consequently,  the 
level of financing through capital markets in Cyprus is 
substantially lower than the EU average. In particular, 
listed shares account for just over 1% of total financing 
needs,  while  NFC  bond  issuance  is  virtually  non-
existent  (0.07%),  compared  to  the  respective  EU 
averages of 19.1% and 4.7%. 

Market finance 

Cyprus’s  capital  markets  are  insufficiently  deep 
and play a limited role in financing domestic firms. 
Albeit the market-funding has more than doubled over 
the past decade, however, at 10.9% of GDP, Cyprus’s 
market-funding  ratio  is  one  of  the  lowest  in  the  EU, 
where the average is close to 50% (see Table 6). 

Cyprus’s  equity  market  remains  inefficient  and 
underutilised  as  Cypriot  firms  prefer  to  access 
deeper  capital  pools  abroad.  The  Cyprus  Stock 
Exchange  (CSE)  is  the  country’s  only  regulated 
exchange and facilitates equity and bond transactions 
through  its  main  and  alternative  equity  markets,  the 
emerging  companies’  market,  and  its  bonds  markets. 
The  CSE  operates  its  own  trading,  clearing,  and 
settlement  systems.665  Despite  having  the  necessary 

664  See Cyprus Stock Exchange Annual report and Fact book 2023. 

665  See  Cyprus  Stock  Exchange  #4  Annual  report  and  Fact  book 

2023. 

425 

050100150200250300350CYEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity 
 
 
 
 
          
in  place, 

the  equity  market 

is 
infrastructure 
underdeveloped. Nevertheless, in December 2024, the 
Cyprus  Stock  Exchange's  (CSE)  total  equity  market 
capitalization was approximately 16.5% of GDP. As at 
that date, the total outstanding value of all shares issued 
worldwide  by  Cypriot  resident  companies  stood  at 
44.2%.  This  difference  indicates  that  Cypriot  firms 
prefer to seek access to larger, more liquid international 
markets.  Specifically,  Cypriot  financial  entities  listed 
on the CSE were valued at 46% of the total outstanding 
value of Cypriot firms listed worldwide (EUR 4.5 bn 
as  compared  to  the  EUR  9.5  bn).  For  non-financial 
entities the ratio was even lower at 22% (EUR 1.2 bn 
over EUR 5.3 bn) These relatively low ratios suggest 
that  Cypriot  companies,  particularly  non-financial 
ones,  tend  to  list  abroad  rather  than  on  the  domestic 
exchange. This likely reflects structural limitations of 
the CSE, including shallow liquidity, a limited investor 
base,  and  potentially  regulatory  or  reputational 
constraints. In this context, the CSE appears to be a less 
attractive 
non-financial 
especially 
corporates seeking capital.  

venue, 

for 

index, also declined sharply during 2008-2009, but not 
to the same extent as in the CSE. The European banks' 
index  bottomed  out  at  around  20%  of  its  2008  base 
value before recovering to its current value of 65% in 
June 2025. Starting in 2021, both the CSE Bank index 
and  the  CSE  General  Index  began  to  show  signs  of 
recovery, though from extremely depressed levels. The 
equities  market  is  not  a  popular  means  of  raising 
finance and there have been no material Initial Public 
Offerings  (IPOs)  in  the  main  market  since  2018. 
Cypriot equity market inefficiency is also evidenced by 
high  bid-ask  spreads,  which  -albeit  –  have  decreased 
from  7.6%  in  2015  to  3.7%  in  2023,  still  remain 
significantly above the EU average of 1.6%. A lack of 
investable  assets,  shallow  market  depth,  and  higher 
perceived  risks  associated  with  traded  stocks  -partly 
rooted in legacy issues667- are key factors contributing 
to  the  inefficiency  and  underutilisation  of  the  CSE. 
With  its  announced  privatisation668,  the  CSE  aims  to 
reposition itself as a significant player in the country's 
financial landscape.  

1.7.6 

Net issuance of bonds 

1.7.5 

Stock market performance 

Source: London Stock Exchange Group666. 

Source: ECB. 

The  CSE’s  performance  has  experienced  a  dramatic 
decline since the 2008 crisis, particularly after the 2013 
bail-in of ex-Laiki Bank. The bank index went from its 
base value of 100% in January 2008 to virtually zero in 
2013,  reflecting  the  severity  of  the  Cypriot  banking 
crisis.  The  CSE  General  Price  Index  followed  a  very 
similar  pattern,  also  falling  to  bottom,  mirroring  the 
collapse of the broader market. In contrast, European 
banks, as measured by the STOXX Europe 600 Banks 

The  bond  market  remains  virtually  untapped  by 
local NFCs. Corporate bond issuance is rare, with most 
companies, including large corporates, relying heavily 
on  bank  lending.  Only  banks  accounted  positive  net 
bond  issuances  in  2022,  2023  and  2024,  mostly  to 
comply  with  their  MREL  requirement.  All  other 
the  government  have  net 
participants, 
the 
redemptions 
fiscal 
government, 

including 
the  past  3  years.  While  for 

behaviour 

reflects 

this 

666  The  STOXX  Indices  are  the  intellectual  property  (including 
registered  trademarks)  of  STOXX  Limited,  Zug,  Switzerland 
(“STOXX”) and/or its licensors (“Licensors”). STOXX has not 
been involved in any way in the creation of financial instruments 
or  any  other  products  referencing  the  aforementioned  indices. 
Such products are neither sponsored nor promoted, distributed 
or  in  any  other  manner  supported  by  STOXX  and/or  its 
Licensors. STOXX does not give any warranty and excludes any 
liability  whatsoever  (whether  in  negligence  or  otherwise)  – 
including  without  limitation  for  the  accuracy,  adequateness, 

correctness,  completeness,  timeliness,  and  fitness  for  any 
purpose – in relation to any errors, omissions or interruptions in 
any of STOXX' indices or its data. 

667  The CSE stock market bubble and crash of 1999–2000, just three 
years after trading began, severely undermined investors’ trust 
in the exchange, whereas 15 years later, the bail-in of ex-Laiki 
bank  and  the  near  collapse  of  Bank  of  Cyprus  wiped  out  all 
shareholders at the time. 

668  See  C3.3R5  of  the  Cypriot  recovery  and  resilience  plan;  the 
reform has already been approved by the Council of Ministers. 

426 

050100150200200820112014201720202023Jan-08=100CY Bank indexSTOXX EUROPE 600 BANKSCYPRUS GENERAL - PRICE INDEXSTOXX EUROPE 600-4.0-3.0-2.0-1.00.01.02.020212022202320242025-Q1bn EURGovernmentMFIsNon-MFINon-financial corporations 
 
 
      
 
 
      
1.8  Czech Republic 

Availability and use of domestic savings 

1.8.1 

Net savings-investment balance 

consolidation efforts, for the NFCs it is clear evidence 
that bond market as a means of raising finance is non-
existent.  This  is  partly  attributed  to  the  economy's 
structure.  Cyprus  is  a  service-oriented  economy  that 
requires  less  capital  investment.  In  addition,  large 
NFCs,  are  scarce  as  the  backbone  of  the  economy  is 
formed by small and medium enterprises (SMEs), and 
in particular very small family business that mostly rely 
on  readily  available  bank  loans.    Moreover,  investor 
appetite for Cypriot corporate bonds, other than those 
issued  by  credit  institutions,  is  uncertain  given  the 
absence of credit ratings.  

Retail participation in capital markets 

1.7.7 

Composition of HHs’ financial assets 

Source: Eurostat. End-2024. 

Cypriot  households  heavily  favour  holding  their 
financial  assets  in  deposits  over  other  types  of 
investments.  On  average,  they  allocate  59%  of  their 
financial  assets  to  deposits,  significantly  higher  than 
the EU average of 32%. Their second largest exposure, 
around  18%,  is  in  unlisted  shares,  which  indicates  a 
strong culture of private or family-owned businesses. 
Unlike most EU households, Cypriot households tend 
to  avoid  diversified  investment  products,  allocating 
only  13%  of  their  financial  assets  to  insurance  and 
pension funds, and 3% to investment funds, compared 
to the EU averages of 28% and 10%, respectively. A 
key factor contributing to this investment behaviour is 
the higher private indebtedness of Cypriot households, 
which  results  in  a  lower  saving  rate  and  restricts  the 
availability of funds for investment in capital markets. 

Source: AMECO. 

The  growing  net  private  savings  of  the  Czech 
economy  have  been  mostly  supporting  domestic 
private investment and public  finances.  As of end-
2023,  the  private  savings  ratio,  net  of  fixed  capital 
consumption, which has been on a  persistently rising 
trend,  had  reached  11.9%  of  GDP.  It  normalised  at 
7.4%  in  2024,  remaining  however  above  its  10-year 
average  of  6.4%  (see  Graph  2.6.1).  The  net  private 
investment ratio, which measures the net contribution 
of  the  private  sector  to  capital  accumulation  in  the 
country,  did  not  exhibit  such  a  growing  trend  and 
averaged  4%  of  GDP,  with  a  maximum  of  7.6%  in 
2022  and  reaching  only  2.3%  of  GDP  in  2024. 
Moreover,  since  2020  the  government  budget  is  no 
longer balanced, which resulted in an average ten-year 
deficit equivalent to 1.7% of GDP. Due to these trends, 
the  Czech  economy  was  a  creditor  to  the  rest  of  the 
world for about 0.7% of its annual GDP during 2015-
2024.  Thus,  while  net  private  savings  have  been 
absorbed  domestically  until  recently,  their  future 
growth  could  lead  the  Czech  economy  to  become  a 
more pronounced lender to foreigners. 

The  Czech  economy  has  managed  to  improve  its 
(negative)  net  international  investment  position  in 
recent years. As of Q4 2024, total assets on foreigners 
reached circa 119.6% of GDP, down from 126.2% in 
2017, while liabilities to foreigners stood at 126.5% of 
GDP,  down  from  151.6%  in  2017.  As  a  result,  the 
negative  net  international  investment  position  (NIIP) 
came down from -25.4% of GDP in 2017 to -6.9% of 
GDP as of Q4 2024, showing that the Czech economy 
remains nevertheless a net borrower from the rest of the 
world  in  terms  of  outstanding  net  foreign  assets  (see 
Graph  2.6.2).  The  improvement  in  the  NIIP  is 
structural and concerns all forms of investment. During 

427 

050100150200250020406080100CYEUCYEUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Currency and depositsInsurance and pension fundsInvestment fundsBondsListed sharesUnlisted sharesOther equityHH Debt (liability)-10-50510152025303520172018201920202021202220232024% of GDPPrivate investment, netLending to the governmentPrivate savings, netPrivate savings, grossBorrowing from the rest of the world 
 
 
        
         
1.8.3 

Capital markets and financial intermediaries 

2017-2024, the net stock of foreign direct investment 
grew by 9.6 percentage points of GDP, the net stock of 
portfolio  investment  increased  by  10.1  percentage 
points of GDP, and the net stock of other investments 
expanded by 17.4 percentage points of GDP. However, 
the overall impact in NIIP was more limited, with an 
increase  of  only  18.5  percentage  points  of  GDP, 
because the stock of official foreign reserves declined 
by 18.6 percentage points down to 44.1% of GDP as of 
Q4  2024.  Thus,  lately,  the  Czech  economy  has  been 
accumulating  more  private  assets  on  foreigners, 
improving its still negative NIIP position. 

1.8.2 

International investment position 

Source: ECB, EIOPA, AMECO, CNB. End-2024. 

Capital  markets  are  underdeveloped  in  Czechia. 
The  market  capitalisation  of  listed  equity  of  Czech 
firms reached 10.4% of GDP at end-2024670, which is 
much lower than the EU average of 66.8% (see Graph 
2.6.3).  Non-financial  corporations  accounted  for 
almost  three  quarters  of  that  capitalisation.  The 
outstanding  volume  of  debt  securities  reached  56.4% 
of GDP at end-2024, which is almost three times lower 
than  the  EU  average  (139.9%).  General  government 
bonds  accounted  for  two  thirds  of  the  outstanding 
amounts, compared to only 51.2% for the EU average. 
The remainder was distributed between banks (21.1%), 
non-financial  corporations  (9%)  and  other  financial 
intermediaries (2.3%). Thus, the contribution of capital 
markets  in  Czechia  to  the  domestic  economy’s 
financing appears limited. 

Financing of the economy 

Sources of NFC funding 

Firms in Czechia rely much less for their funding on 
capital  markets  than  the  EU  average  and  slightly 
less  on  banks.  More  specifically,  at  the  end  of 2024 
loans constituted only 24.8% of all funding sources for 
Czech non-financial corporations (NFCs), while listed 
shares  and  bonds  represented  only  7.1%  of  funding 
sources. The equivalent figures for the EU average are 
27%  and  23.8%.  EU  firms  also  have  overall  funding 
levels that are substantially higher as a share of GDP 
than Czech firms (172.3% of GDP for Czech NFCs vs 
225.6%  of  GDP  in  the  EU  on  average  (see  Graph 
2.6.4)). 

Source: ECB. 

Structure of the capital markets and size of the 
financial sector 

The  financial  sector  in  Czechia  is  dominated  by 
banks,  while  investment  funds  have  gained  in 
importance. After peaking at 141% of GDP in 2021, 
the  size  of  the  banking  sector  declined  to  132.6%  of 
GDP in 2024 but continues to lead the Czech financial 
sector,  representing  circa  80%  of  its  assets.  The 
insurance  sector,  with  total  assets  that  declined  from 
8% of GDP at end-2020 to less than 6% of GDP at end-
2024, stays much behind the EU average of 55%. Third 
pillar pension funds accounted for 7.8% of GDP669 at 
end-2024,  down  from  8.1%  of  GDP  in  2023,  albeit 
their  assets  were  1.2%  up  in  nominal  terms  over  the 
period.  From  all  non-bank  financial  intermediaries, 
only investment funds have shown significant growth, 
reaching the equivalent of 20.6% of GDP at end-2024, 
up from 11.7% at end-2020. 

669  See data from ČNB ARAD, in conjuction with Annual national 

670  This  figure  includes  all  listed  shares  of  Czech  companies, 

accounts | Czech Statistical Office 

irrespective of the stock exchange where they are listed. 

428 

-30-25-20-15-10-50-200-150-100-5005010015020172018201920202021202220232024% of GDP% of GDPOther investment, LiabilitiesPortfolio Investment, LiabilitiesForeign Direct Investment, LiabilitiesOfficial reserve assetsOther investment, AssetsPortfolio Investment, AssetsForeign Direct Investment, AssetsNIIP (rhs)Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIsPension fundsInsurance corporationsInvestment funds020406080100120140   Listed equity               Bonds                        Assets by sector% of GDP 
 
 
         
 
 
           
1.8.4 

Composition of NFCs’ funding 

volume  of  trades  of  these  segments.  In  terms  of 
performance (see Graph 2.6.5), the main index of the 
Prague Stock Exchange  (PX index) was up 22.6% in 
2024  greatly  outperforming  the  STOXX  600  (up 
10.2%), while it continued to exhibit strong growth in 
the first half of 2025 (up 26.9%). 

1.8.5 

Stock market performance 

Source: Eurostat. End-2024. 

As  a  result,  Czech  businesses  depend  more  on 
internal financing than their European peers. 75% 
of  Czech  firms’  investment  needs  are  covered  by 
internal  funding,  compared  with  an  EU  average  of 
66%.671  At  the  same  time,  88%  of  surveyed  Czech 
firms believed that their investment activities over the 
last  three  years,  i.e.  in  2021-2023,  were  at  about  the 
right amount, a level of confidence that was higher than 
the  EU  average  (80%),  suggesting  that  there  is  no 
material financing gap relative to investment demand. 
However,  this  high  level  of  overall  satisfaction  with 
their funding situation may not be the case for Czech 
firms with no or limited capacity for internal funding, 
such as innovative start-up firms (see below). 

Market finance 

The main stock exchange in Czechia is the Prague 
Stock Exchange (PSE). Its total capitalisation in 2024 
was CZK 21.0 tn but more than 90% of that figure was 
the  capitalisation  of  the  Free  Market  segment,  which 
mainly contains dual-listed foreign equity titles and has 
low trading volumes. If we exclude this segment, the 
market  capitalisation  of  the  remaining  three  market 
segments was CZK 1.56 tn in 2024 (i.e. circa EUR 63.4 
bn and the equivalent of 19.4% of GDP).672 This figure 
includes a) the Prime Market, which is for Blue Chips 
stocks,  b)  the  Standard  Market  and  c)  the  START 
growth market for smaller, growing firms. Among the 
three,  the  Prime  Market  is  the  dominant  segment, 
which corresponds to 97 % of market capitalisation and 

Source: London Stock Exchange Group673. 

The Czech capital market is relatively small in size, 
with low volumes and little IPO activity, while over-
the-counter  transactions  dominate.  The  market 
breadth  of  listed  shares674  in  Czechia  is  substantially 
smaller than the EU average (0.3% vs 2.7%) while the 
bid-ask spread for listed shares, a sign of liquidity (or 
lack of) in the market, is also higher (2.9% of the mid-
price vs 1.6% for the EU average). The limited liquidity 
of the Czech stock market is also confirmed by a low 
and  deteriorating  trading  volume,  which  fell  for  the 
second year in a row, to the lowest value in more than 
20 years.  It  is  also  important  to  note  that  volume  of 
over-the-counter transactions has long been in excess 
of  the  one  in  the  Prague  Stock  Exchange,  both  for 
equities and bonds. Unlike 2023, there was no increase 
in 2024 to the number of the shares listed in the Prague 
stock exchange (61 shares, all segments)675, but there 
were  two  new  listings  in  H1  2025  (one  in  the  Prime 
Market and one in the Start Market). The use of equity 
by SMEs is also very limited, as only 1.7% of Czech 
SMEs indicated in the 2024 SAFE survey that equity is 

671  See p.29 of the 2024 EIB Investment Survey. 
672  See CNB’s 2024 Financial market supervision report. 
673  The  STOXX  Indices  are  the  intellectual  property  (including 
registered  trademarks)  of  STOXX  Limited,  Zug,  Switzerland 
(“STOXX”) and/or its licensors (“Licensors”). STOXX has not 
been involved in any way in the creation of financial instruments 
or  any  other  products  referencing  the  aforementioned  indices. 
Such products are neither sponsored nor promoted, distributed 
or  in  any  other  manner  supported  by  STOXX  and/or  its 
Licensors. STOXX does not give any warranty and excludes any 
liability  whatsoever  (whether  in  negligence  or  otherwise)  – 

including  without  limitation  for  the  accuracy,  adequateness, 
correctness,  completeness,  timeliness,  and  fitness  for  any 
purpose – in relation to any errors, omissions or interruptions in 
any of STOXX' indices or its data. 

674  I.e. the number of outstanding shares relative to the number of 
large firms (employment >249). See List of indicators to monitor 
progress towards the CMU objectives - European Commission 
675  See  Financial  Market  Development  Report  2024  |  Ministry  of 
Finance  of  the  Czech  Republic,  Table  6.4.  This  suggests  that 
listings were either non-existent or equal to de-listings. 

429 

050100150200250CZEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity050100150200200820112014201720202023janv-08=100CZ Bank indexSTOXX EUROPE 600 BANKSPRAGUE SE PX - PRICE INDEXSTOXX EUROPE 600 
 
 
           
 
 
        
relevant  for  them,  compared  with  an  EU  average  of 
11.7%.676 

Although corporate bonds represent a small share 
of net bond issuances, they have been growing the 
last two years. With regards to net bond issuance, it is 
usually  dominated  by  the  issuance  of  government 
bonds. However, although the total value of net bond 
issuances was down by 52% yoy in 2024 (see Graph 
2.6.6),  the  total  volume  of  bonds  issued  by  non-
financial  corporations  increased  for  the  2nd  year  in  a 
row, reaching CZK 396.3 bn (i.e. circa EUR 16.1 bn), 
the  highest value  since 2020 and  an  amount  equal  to 
27.7% of NFC loans provided by Czech banks.677 

1.8.6 

Net issuance of bonds 

Source: ECB. 

Czechia  had  a  national  strategy  in  place  for  the 
development  of  its  capital  markets  for  the  period 
2019–2023. Certain key measures in this strategy have 
now been adopted, such as the introduction of a long-
term investment product and a new type of alternative 
participation  pension  fund.  However,  these  measures 
have only been recently implemented and need time to 
reach their full potential. Since 2024, there has not been 
an  updated  dedicated  strategy  to  develop  Czechia’s 
capital markets. However, the goals of creating better 
access to financing for companies and individuals and 
the  field  of  financial 
in 
supporting 
technologies  were  integrated  in  the  new  Economic 
Strategy of the Czech Republic 2040.678 

innovation 

Retail participation in capital markets 

wealth 

households’ 

invested 
Czech 
conservatively,  despite  a  gradual  change 
in 
investment  behaviour  over  the  past  15  years.  The 
overall  wealth  of  Czech  households  is  substantially 
below  the  EU  average  both  in  per  capita  and  GDP 

is 

retail 

investment 

terms (see Graph 2.6.7). However, Czech households’ 
savings’ rate is one of the highest in the EU (see also 
section  before).  So  far  this  wealth  has  been  invested 
conservatively,  as  direct 
(i.e. 
investment by non-professional investors) in the Czech 
capital markets is low. Nevertheless, the assets of the 
investment-fund industry continue to grow, and this is 
reflected  in  the  increasing  share  of  household  wealth 
invested in such funds, which now accounts for 12.3% 
of  household assets, up from only 6% in 2015. More 
broadly,  household  financial  assets  held  in  pension, 
insurance and investment funds or directly in financial 
instruments as a % of total household financial assets 
rose from 17.8% in 2008 to 24.7% in 2024. However, 
it is still markedly below the EU average of 46.6%, as 
the share of wealth invested in insurance and pension 
funds (7.4%) or listed shares (2.3%) lags significantly 
behind the EU average (27.9% and 4.9% respectively).  

Part of the growth in investment funds may be due 
to investment flows redirected from other types of 
long-term savings’ products. While investment funds 
grow  as  a  share  of  household  wealth  in  Czechia,  the 
amount  of  wealth  invested  in  insurance  and  pension 
funds  has  actually  decreased  through  time  both  as  a 
share of GDP (3.6 percentage points lower than 2015) 
and  as  a  share  of  household  wealth  (4.5  percentage 
points lower than 2015). This suggests that part of the 
relative growth in the share of investment funds in the 
overall household wealth in Czechia may have come at 
the  expense  e.g.  of  investments  in  3rd  pillar  pension 
funds.  

1.8.7 

Composition of HHs’ financial assets 

Source: Eurostat. End-2024. 

There is still significant scope to increase the level 
of direct and indirect retail investment in Czechia. 
This  is  due  to:  (i)  the  stronger-than-average  savings 

676  Data and surveys - SAFE - European Commission, 2024, Results 

677  See  Financial  Market  Development  Report  2024  |  Ministry  of 

by country, T27. 

Finance of the Czech Republic. 

678  See Economic Strategy of the Czech Republic 2040 | MPO 

430 

-10.0-5.00.05.010.015.020.025.030.020212022202320242025-Q2bn EURGovernmentMFIsNon-MFINon-financial corporations0100200300050100CZEUCZEUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Other equityUnlisted sharesListed sharesBondsInvestment fundsInsurance and pension fundsCurrency and depositsHH Debt (liability) 
 
 
       
 
 
        
rate of Czech households in recent years, with positive 
median saving rates for all quintiles  of the household 
income  distribution;  and  (ii)  the  fact  that  cash  and 
deposits account for a higher share of household assets 
than the EU average (41.3% vs 31.7%).  

Recent policy initiatives in Czechia aim to promote 
retail participation in the country’s capital markets. 
To boost household investment via the capital markets, 
a long-term investment savings account has been made 
available  since  2024  (know  as 
the  “long-term 
investment product” or LTIP). It offers an alternative 
to  other  government-supported  long-term  savings 
insurance 
products,  e.g.  pension  funds  and 
products.  The  new  account, which  is  very  flexible  in 
terms  of  asset  allocation  and  investment  strategy, 
shares the same tax-relief features as these other long-
term  products,  subject  to  a  cumulative  cap  on  tax 
advantages that applies to all of them. Its take-up has 
shown  encouraging  early  signs  and  as  of  June  2025, 
170 thousand persons had made  use  of the  long-term 
investment  savings  account,  with  a  total  amount 
invested of CZK 4.5 bn.679 

life 

Further  policy  action  may  be  needed  to  promote 
retail  investment  in  Czech  capital  markets.  Apart 
from  the  continuous  effort  required  to  raise  public 
awareness of the new long-term investment product, its 
take-up also needs to be monitored closely to assess the 
its 
product’s  attractiveness  for  new  savers  and 
‘additionality’  compared  to  other  long-term  savings 
products.680  A  pre-requisite 
to  make  such  an 
assessment is the availability of data, which is currently 
lacking,  to  allow  for  an  appropriate,  data-driven 
evaluation  not  only  of  the  LTIP  but  of  the  entire 
framework of long-term savings products, with the aim 
to identify targeted improvements, where possible, to 
improve 
in 
investments.  Such  an 
mobilising  new 
evaluation could also involve other aspects of the LTIP 
product,  including  the  competitiveness  of  the  fee 
structures associated with it.681 It will also be crucial to 
further  strengthen  retail  investor  trust,  in  part  by:  (i) 
maintaining  an  effective  framework  of  corporate 
governance and protection of shareholder rights682; and 
(ii) reducing cases of fraud and malpractice.683 

the  effectiveness  of  such  products 

long-term 

1.9  Denmark 

Availability and use of domestic savings 

The Danish economy invests the largest part of its 
relatively high net savings abroad. In the last decade, 
the  private  savings  ratio,  net  of  fixed  capital 
consumption,  persistently  fluctuated  around  its  ten-
year average of 10.6% of GDP, reaching a maximum 
of  15.4%  in  2022  (see  Graph  2.7.1).  The  net  private 
investment  ratio,  was  significantly  more  volatile, 
exhibited  a  ten-year  average  of  4.2%  of  GDP  and 
reached a maximum of 7.1% in 2022. At the same time, 
during the same period the government budget was in 
regular surpluses that averaged 2.2% of GDP. Thus, the 
high  positive  balance  between  net  domestic  savings 
and  net  investment,  together  with  the  government 
lending  by 
surpluses,  resulted 
Denmark  to  foreigners  that  averaged  8.6%  of  GDP, 
with a peak of 12.7% in 2024. Thus, most of Danish 
net  savings,  i.e.  after  accounting  for  the  investments 
that  are  necessary  to  merely  maintain  the  existing 
capital  structure  of  the  economy,  are  used  to  finance 
projects abroad. 

in  structural  net 

1.9.1 

Net savings-investment balance 

Source: AMECO. 

Consistent with its regular position of a net creditor 
to  the  rest  of  the  world,  the  Danish  economy  has 
accumulated  significant  net  foreign  assets.  As  of 
end-2024, total foreign assets reached 357% of GDP, 
while liabilities to foreigners stood at 275% of GDP, 
resulting  in  a  net  international  investment  position 
(NIIP)  equivalent  to  82%  of  GDP  (see  Graph  2.7.2). 

679  See relevant Press release by AKAT. 
680  I.e. the extent to which it is attracting new investment from retail 
investors  rather  than  diverting  existing  investment  from  other 
government-supported long-term savings products. 

681  Another  element e.g.  that  could  be  assessed  is  the  inability to 
transfer the saving period between different LTIP provides in a 
transfer of an LTIP, which reduces the product’s attractiveness. 

682  The rights of minority shareholders have been in the spotlight in 
Czechia since mid-2023 because of the law passed to facilitate 
the split of the largest listed entity in the PSE, the electric utility 
CEZ. See Czech parliament gives initial nod to bill on company 
splits.  

683  For examples of past cases of malpractice, see p. 7 in a private 

survey (in Czech) for unlisted corporate bonds. 

431 

-15-10-50510152025303520172018201920202021202220232024% of GDPPrivate investment, netLending to the governmentPrivate savings, netPrivate savings, grossBorrowing from the rest of the world 
 
 
 
 
        
The accumulated net foreign direct investment, which 
reached  32%  of  GDP  as  of  end-2024,  accounted  for 
most  of  the  NIIP.  The  significant  stock  of  official 
foreign  reserve  assets,  which  amounted  to  23%  of 
GDP,  reflects  the  central  bank’s  commitment  to 
maintain the Danish krone within the narrow band of 
its  official  peg.  The  net  portfolio  investments,  which 
are  directly  affected  by  the  price  volatility  of  equity 
valuations abroad (assets) and in Denmark (liabilities), 
turned positive to the equivalent of 18.5% of GDP, up 
from  -16%  of  GDP  as  of  end-2023.  The  net 
international  stock  of  other  investments  amounted  to 
8% of GDP. Thus, while the Danish economy appears 
to  be  deeply  integrated  in  international  capital  flows, 
including  as  a  major  recipient  of  foreign  capital,  it 
remains nevertheless a net capital exporter, notably by 
means of direct investments abroad. 

1.9.2 

International investment position 

issued  by 

the  monetary 

the  specificity  of  mortgage 

volume of debt securities reached 177% of GDP at end-
2024, which is one of the highest national scores in the 
EU.  Bonds 
financial 
institutions (MFIs) accounted for 83% of the total. This 
in 
reflects 
Denmark,  where  most  mortgages  are  funded  through 
marketable  covered  bonds,  which  enjoy  very  high 
liquidity  and 
from 
strong  demand, 
foreigners.685  As  the  government  has  been  running 
budgetary 
the  volume  of  general 
government bonds declined from 40% of GDP at end-
2020 to less than 20% at end-2024. 

surpluses, 

including 

lending 

1.9.3 

Capital markets and financial intermediaries 

Source: ECB. 

Structure and size of the financial sector 

The  Danish  economy  stands  out  with  one  of  the 
deepest domestic capital markets in Europe. Based 
on ECB data, the market capitalisation of listed equity 
issued by Danish companies684 reached 155% of GDP 
at end-2024, which is the second highest in the EU after 
Ireland  (see  Graph  2.7.3).  Characteristically,  non-
financial  corporations  accounted  for  89%  of  that 
capitalisation, which reflects the extent to which equity 
markets are geared towards funding the non-financial 
segment  of  the  Danish  economy.  The  outstanding 

Source: ECB, EIOPA, AMECO, DNB. End-2023 data for investment 
funds. 

Even  though  the  financial  sector  in  Denmark 
remains  dominated  by  banks,  non-bank  financial 
intermediaries  are  very  much  developed  as  well. 
After peaking at 402% of GDP in 2020, the size of the 
banking  sector  declined  to  322%  of  GDP  in  2024, 
which  remains  however  significantly  above  the  EU 
average of 251% and places the Danish banking sector 
third in size686 in the EU, after Luxembourg (1,822%) 
and  France  (416%).  Foreign  presence  is  limited  and 
accounts  for  about  7%  in  terms  of  assets.  Banking 
concentration appears to be higher than on average in 
the  EU,  with 
top  five  monetary  financial 
institutions (MFIs) controlling 64% of the sector. The 
insurance  sector,  with  total  assets  of  almost  160%  of 
GDP at end-2024, dominates non-bank intermediation 
and is the second largest in the EU (after Luxembourg 
at  382%  of  GDP).  Its  very  large  size  is  due  to  the 
importance  of  the  asset-backed  pension  schemes, 

the 

684  This  figure  is  a  proxy  for  the  degree  of  development  of  the 
Danish stock exchange, given that i) Danish companies could be 
listed  abroad  and  ii)  foreign  companies  could  be  listed  in 
Denmark as well. 

685  In  the  Danish  model,  mortgage  banks  provide  exclusively 
market-funded mortgages for up to 80% of the property value. 
Commercial banks may step in for up to 15%, remaining after 

5%  of  self-financing.  As  a  result  of  that,  commercial  banks’ 
balance sheets do contain some mortgage loans, which does not 
change  the  main  fact  that  the  bulk  of  (mortgage)  lending  in 
Denmark has no monetary impact. 

686  However, if the market-funded mortgage credit institutions are 
excluded, the size of the remaining commercial banking sector 
is estimated at about 125% of GDP, after consolidation. 

432 

020406080100-400-200020040020172018201920202021202220232024% of GDP% of GDPOther investment, LiabilitiesPortfolio Investment, LiabilitiesForeign Direct Investment, LiabilitiesOfficial reserve assetsOther investment, AssetsPortfolio Investment, AssetsForeign Direct Investment, AssetsNIIP (rhs)Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIsPension fundsInsurance corporationsInvestment funds050100150200250300350   Listed equity               Bonds                        Assets by sector% of GDP 
 
 
        
 
 
          
which  are  set  up  as  insurance  companies  under  the 
Solvency II Directive, instead of pension funds under 
the IORP Directive. Accordingly, the sector of pension 
funds is reported to have total assets of only  1.4% of 
GDP at end-2024. Investment funds, though their total 
assets dropped by 32 percentage points to 91% of GDP 
between  2021  and  2023, 
remain  nevertheless 
significant. 

Financing of the economy 

Market finance 

The  Danish  stock  market,  which  offers  one  of  the 
highest investment protection environments in the 
EU687, experienced high volatility in 2024. As of end-
2024, 
the  Nasdaq  Copenhagen  had  a  market 
capitalisation of 156.1% of GDP, i.e. about DKK 4600 
bn (EUR 620 bn), down from 174% of GDP the year 
before.688 124 companies are listed on the main stock 
exchange and 39 on the First North Growth Market.689 
The  OMX20  Copenhagen  index  increased  by  almost 
30%  in  the  first  two  quarters  of  2024,  implying  an 
aggregate market capitalisation of more than 204% of 
GDP  as  of  Q2  2024,  before  declining  by  about  36% 
since then (see Graph 2.7.4). These developments have 
been  driven  by  the  stock  price  of  Novo  Nordisk,  the 
capitalisation  of  which  is  as  large  as  the  next  nine 
companies in the index.690 In comparison, the Danish 
bank  equity  index,  which  expanded by  47%  between 
end-2023  and  mid-2025,  appears  much  more  stable. 
The  trading  infrastructure  in  Denmark  is  an  integral 
part  of  the  Nasdaq  Nordic,  which  provides  an 
integrated trading platform for shares, debt securities, 
currencies, derivatives, and money-market instruments 
across  Denmark,  Finland,  Sweden,  and  Iceland. 
Overall,  today  the  Danish  capital  markets  still  retain 
some of their traditional characteristics, including the 
family  ownership  of  many  large  companies  and  the 
control  of publicly  traded  companies  by  foundations. 
Lately, insurance corporations and pension funds have 
been  the  main  issuers,  with  a  market  value  of  DKK 

1,700  bn  as  of  June  2024,  representing  100%  of 
domestic issuance.  

1.9.4 

Stock market performance 

Source: London Stock Exchange Group691. 

As  all  mortgages  in  Denmark  are  market-funded, 
the country has become the world’s largest private 
market for covered bonds. As of December 2024, the 
six Danish mortgage banks have issued the equivalent 
of  EUR  436 bn  of  covered mortgage  bonds  (CMBs), 
accounting for 14.3% of the global issuance of CMBs 
outside  the  USA.692  The  DKK  3.3  tn  of  CMBs 
represent the equivalent of 113% of GDP or more than 
5 times the outstanding amount of central government 
debt.  This  highlights  the  importance  of  CMBs  for 
investors  and  asset  managers  in  Denmark.  Nykredit 
Realkredit  (45.5%)  and  Realkredit  Danmark  (24.5%) 
are  the  two  largest  mortgage  banks  and  issuers  of 
CMBs.693  Historically,  there  has  been  no  default  on 
Danish  CMBs,  which  enjoy  very  high  liquidity,  also 
because  of  their  triple-A  rating.  Foreign  demand, 
which peaked at 24.5% of the outstanding volumes in 
2020,  declined  to  19.2%  as  of  March  2024  before 
rebounding slightly to 20.6% as of end-2024. Most of 
the  foreign  divestment  occurred  in  2022  against  the 
backdrop  of  central  banks’  interest  rate  hikes  that 
improved  the  attractiveness  of  other  investments 
elsewhere. At the same time, the outstanding aggregate 
value of CMBs contracted by 8% from DKK 3,310 bn 
at end-2021 to DKK 3,054 bn at end-2022, also due to 

687  According to the Overview of CMU Indicators, the investment 
protection index for Denmark stood at 81 in 2024, versus an EU 
average of 54. 

688  See the data and commentary published by CEIC. 
689  See the Nasdaq Copenhagen. 
690  As of mid-September 2025, Novo Nordisk represented 47% of 

the index market capitalisation. 

691  The  STOXX  Indices  are  the  intellectual  property  (including 
registered  trademarks)  of  STOXX  Limited,  Zug,  Switzerland 
(“STOXX”) and/or its licensors (“Licensors”). STOXX has not 
been involved in any way in the creation of financial instruments 
or  any  other  products  referencing  the  aforementioned  indices. 
Such products are neither sponsored nor promoted, distributed 
or  in  any  other  manner  supported  by  STOXX  and/or  its 
Licensors. STOXX does not give any warranty and excludes any 

liability  whatsoever  (whether  in  negligence  or  otherwise)  – 
including  without  limitation  for  the  accuracy,  adequateness, 
correctness,  completeness,  timeliness,  and  fitness  for  any 
purpose – in relation to any errors, omissions or interruptions in 
any of STOXX' indices or its data. 

692  See the latest  European Covered Bond Factbook published by 
the  European  Covered  Bond  Council  (ECBC).  In  the  USA, 
government-sponsored  enterprises,  i.e.  Freddie  Mac,  Fannie 
Mae,  and  Ginnie  Mae,  dominate  the  issuance  of  mortgage-
backed securities, for a total of about USD 10 tn. Unlike MBSs, 
investors in CMBs have some recourse to the bond issuers. 
693  With a share of 0.1%, Totalkredit has discontinued its business. 
Nordea  kredit  (12.4%),  Jyske  Realkredit  (11.5%)  and  DLR 
Kredit (6.5%) are the three remaining active issuers. 

433 

0100200300400500600700200820112014201720202023Jan-08=100DK Bank indexSTOXX EUROPE 600 BANKSOMX COPENHAGEN (OMXC20) - PRICE INDEXSTOXX EUROPE 600 
 
 
 
 
     
price adjustments. By end-2024, outstanding volumes 
have  recovered  and  reached  DKK  3,346  bn.  These 
developments highlight the inherent riskiness of long-
term marketable securities, which remain interest-rate 
sensitive  irrespective  of  their  high  liquidity.694  As  of 
end-2024, the domestic demand was divided between 
insurance companies and pension funds (28.9%), MFIs 
(26.6%), investment funds (9.6%), households (1.4%) 
and others (12.8%). 

liquid,  remains  vulnerable  to 

The  Danish  covered  bonds  market,  though  robust 
and 
large-scale 
divestments  due  to  the  very  high  concentration  of 
investors.  Demand  is  sustained  by  a  very  limited 
number of participants, that include 3 foreign investors, 
7 insurance companies and pension funds, 3 investment 
funds, and 4 banks.695 Only eight banks play the role of 
market-makers.  While  the  limited  number  of  market 
participants  increases  the  risk  of  disorderly  price 
movements  in  the  event  of  domestic  or  international 
stress,  the  rather  diverse  investment  profiles  and  the 
good historical record of Danish mortgage bonds have 
been mitigating the high concentration risk so far. 

Companies’ funding and households’ assets 

Even though Danish companies are more indebted 
than  their  EU  peers  on  aggregate,  they  rely 
comparatively  less  on  debt  finance  to  fund  their 
activities. Financial borrowing by NFCs  in Denmark 
reached 112.4% of GDP in 2024, which is significantly 
higher  than  the  EU  average  of  71.6  %  (see  Graph 
2.7.6). However, given the overall much larger size of 
the  aggregate  balance  sheet  of  Danish  NFCs,  which 
reached 390% of GDP at end-2024 (versus 226% in the 
EU), the relative share of financial borrowing in their 
funding  structure  (28.8%)  was  lower  than  the  EU 
average (31.7%). Danish NFCs’ funding through listed 
and  unlisted  shares  significantly  exceeds  the  EU 
average, with the proportion of financially constrained 
companies  among  the  lowest  in  the  EU.696  The 
prevalence of unlisted equity as a funding source is due 
to the persistence of some traditional features, i.e. the 
family ownership of many large companies. Families’ 
reluctance to cede control also gives rise to a marked 
preference for bank borrowing instead of raising new 
capital on the market. 

1.9.5 

Net issuance of bonds 

1.9.6 

Composition of NFCs’ funding 

Source: ECB. 

Source: Eurostat. End-2024. 

As regards net issuance of debt securities, the first 
quarter of 2025 shows a notable structural change. 
While  in  previous  years  market  debt  finance  has  not 
been  a  major  source  of  funding  for  non-financial 
corporations,  this  seems  to  have  changed  lately,  with 
NFCs having raised the equivalent of EUR 7 bn in Q1 
2025 only (see Graph 2.7.5). At the same time, the net 
issuance  by  MFIs,  which  have  been  the  most  active 
issuer of debt in the previous years, went negative in 
Q1 2025. As a result of persistent budgetary surpluses, 
the  net  issuance  by  the  Danish  government  has  been 
negative consistently over the years. 

Danish households hold the highest relative volume 
of  financial  assets  in  the  EU  (excluding  cash, 
deposits,  and  unlisted  equity),  at  approximately 
209%  of  GDP.697  Danes’  total  financial  wealth 
reached  366.3%  of  GDP  at  end-2024,  versus  an  EU 
average  of  212.2%.  In  per  capita  terms,  on  average 
each  Dane  holds  financial  assets  for  EUR  241,200, 
which is almost three times higher than the EU average 
of EUR 84,800. Nearly every second Dane owns shares 
directly,  which  is  also  one  of  the  highest  rates  in 
Europe,  while  most  Danes  hold  shares  indirectly 
through the mandatory asset-backed pension schemes 
or  their  private  holdings  in  investment  funds.  As  of 
end-2024, 87% of Danish HHs’ financial wealth was 

694  On  that  point,  see  also  the  relevant  DN  Financial  stability 

analyses. 

696  See the EIB Investment Survey 2023. 
697  See the AFME 2024 Capital Markets Union Key Performance 

695  On this point, see the relevant DN Analysis. 

Indicators. 

434 

-15.0-10.0-5.00.05.010.015.020.025.020212022202320242025-Q1bn EURGovernmentMFIsNon-MFINon-financial corporations050100150200250300350400450DKEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity 
 
 
   
 
 
       
invested  in  non-cash  items  (see  Graph  2.7.7),  as 
opposed to 68% on average in the EU.698 

1.10.1 

Net savings-investment balance 

1.9.7 

Composition of HHs’ financial assets 

Source: AMECO. 

in 

an 

improvement 

The  Estonian  economy  exhibits  a  negative  net 
international investment position. Between 2009 and 
2023  the  NIIP  has  strengthened  almost  every  year, 
reflecting 
international 
in  negative 
competitiveness,  however  remaining 
territory (see Graph 3.8.2). As of Q4-2024, total assets 
on foreigners reached 179.5% of GDP, while liabilities 
to  foreigners  stood  at  189.3%  of  GDP,  resulting  in  a 
negative NIIP of 9.8% of GDP. The accumulated net 
portfolio investment, which reached 41.3% of GDP as 
of  Q4-2024,  did  not  suffice  to  counterbalance  a 
negative  net  foreign  direct  investment  balance  of  -
55.2%, together with net other investments of -1%. The 
stock  of  official  foreign  reserve  assets  amounted  to 
5.1% of GDP. The Estonian economy thus appears to 
be a net capital importer, notably mainly by means of 
foreign direct investments in the country. 

Source: Eurostat. End-2024. 

1.10 Estonia 

Availability and use of domestic savings 

sector 

the  private 

The Estonian economy invests part of its net savings 
abroad. Over the last decade, the private savings ratio, 
net of fixed capital consumption, fluctuated around its 
ten-year  average  of  10.1%  of  GDP,  reaching  a 
maximum of 13.6% in 2020 (see Graph 2.8.2). The net 
private  investment  ratio,  which  measures  the  net 
contribution  of 
to  capital 
accumulation  in  the  country,  exhibited  a  ten-year 
average of 7.3% of GDP and reached a maximum of 
11.1%  in  2022.  At  the  same  time,  during  the  same 
period the government balance was in regular surplus, 
averaging  0.8%  of  GDP.  Thus,  except  for  the  last 
couple of years, the high positive balance between net 
domestic savings and net investment, together with the 
government  surpluses,  resulted  in  net  lending  abroad 
by  Estonia,  averaging  0.7%  of  GDP,  with  a  peak  of 
5.4% in 2021. Hence, some of Estonia’s net savings, 
i.e.  after  accounting  for  the  investments  that  are 
necessary  to  merely  maintain  the  existing  capital 
structure of the economy, are used to finance projects 
abroad, except over the last couple of years. 

698  See also the Overview of CMU Indicators. 

435 

0100200300400050100150200250300DKEUDKEUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Currency and depositsInsurance and pension fundsInvestment fundsBondsListed sharesUnlisted sharesOther equityHH Debt (liability)-10-505101520253020172018201920202021202220232024% of GDPPrivate investment, netLending to the governmentPrivate savings, netPrivate savings, grossBorrowing from the rest of the world 
 
 
       
 
 
 
        
1.10.2 

International investment position 

Source: ECB. 

Structure of the financial sector 

Banks  represent  the  largest  share  of  the  Estonian 
financial  sector,  accounting  for  about  70%  of  the 
country’s financial assets. Nevertheless, the banking 
system  remains  relatively  small  in  comparison  with 
euro area peers. At the end of 2024, banks’ total assets 
were equivalent to 115.6% of GDP, significantly below 
the EU average of 251.1% (see Graph 2.8.4 and Table 
2).  

The  institutional  investor  base  remains  modest  in 
size  as  well.  Total  assets  under  the  management  of 
pension funds, insurance corporations and investment 
funds in 2019 stood at 29% of GDP in Estonia, one of 
the  lowest  levels  in  the  EU  (where  the  average  is 
equivalent  to  more  than  100%  of  GDP).  Domestic 
institutional  investors  place  only  a  small  portion  of 
their assets on the domestic market.   

1.10.3 

Capital markets and financial intermediaries 

Source: ECB, EIOPA, AMECO. End-2024. 

listed  stocks  reached  6.2% 

The market capitalisation of Estonia’s stock market 
expressed  as  a  percentage  of  GDP  is  among  the 
lowest in the EU. The equity market is small in terms 
of  capitalisation  and  volumes  traded.  Nevertheless, 
despite the similar economic structure and size, stock 
exchanges  of  Estonia  have  been  able  to  achieve  a 
somewhat  higher  level  of  development  than  its 
the  market 
neighbouring 
countries.  Whereas 
in 
capitalisation  of 
Lithuania  and  only  0.8%  in  Latvia,  it  amounted  to 
12.7%  of  GDP  in  Estonia  at  the  end  of  2024.  In 
comparison,  the  EU  average  is  66.8%  of  GDP.  State 
and  local  government-controlled  companies  account 
for slightly more than a third of market capitalisation 
in  Estonia.  The  capital  markets  in  Estonia  have 
contracted in recent years, partly due to the country's 
2021  pension  reforms,  which  enabled  savers  to 
withdraw  funds  from  pillar-2  pension  schemes.  In 
addition, the start of Russia's war of aggression against 
Ukraine  has  led  to  a  decline  in  investor  sentiment, 
resulting  in  reduced  trading  and  holding  by  Estonian 
investors of international securities. The small size and 
low liquidity of the equity markets has prompted major 
index  providers  to  continue  to  classify  Estonia,  and 
also Latvia and Lithuania, as ‘frontier’ markets despite 
institutional 
their 
frameworks and the pan-Baltic region benefitting from 
a single market classification.  

sound  macro-economic 

and 

Debt  markets  remain  undersized  as  well,  but  the 
development  of  the  sovereign  bond  market  could 
aid  the  extremely  small  corporate  segment.  While 
government  debt  has  risen  sharply,  it  remains  the 
lowest in the OECD, at 19.6% of GDP, resulting in a 
near  inexistent  float  of  sovereign  bonds.  This  could 
hinder  the  growth  of  the  corporate  segment,  as 
sovereign  bonds  typically  serve  as  benchmark  for 
pricing  debt  securities.  The  corporate  bond  market  is 
very thin and activity there was very weak even when 
low  interest  rates  prevailed  in  financial  markets  over 
the previous decade. 

Financing of the economy 

Sources of NFC funding 

At  the  end  of  2024,  bank  finance  through  loans 
accounted for 26.7% of the total corporate funding 
in Estonia. Listed shares and bonds accounted for only 
1.8%  of  funding.  The  equivalent  figures  for  the  EU 
average are 27% for bank funding and 19.1% for listed 
shares and bonds. The small share of listed shares and 
bonds in the capital structure of firms is compensated 
for  by  the  high  share  of  unlisted  shares  in  Estonia, 
which  is  58.4%  vs.  an  EU  average  of  24.2%.  At 
212.6%, NFC funding as a share of Estonian GDP more 
or  less  corresponds  to  the  EU  average  of  225.6%  of 
GDP.  

436 

-35-30-25-20-15-10-50-300-200-100010020030020172018201920202021202220232024% of GDP% of GDPOther investment, LiabilitiesPortfolio Investment, LiabilitiesForeign Direct Investment, LiabilitiesOfficial reserve assetsOther investment, AssetsPortfolio Investment, AssetsForeign Direct Investment, AssetsNIIP (rhs)Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIsInsurance corporationsInvestment funds020406080100120140   Listed equity               Bonds                        Assets by sector% of GDP 
 
 
         
         
1.10.4 

Composition of NFCs’ funding 

Source: Eurostat. End-2024. 

Estonia  has  a  large  share  of  investment  funded 
internally. The primary and most significant source of 
funds for companies is equity (unlisted shares and other 
equity), or the internal funds from within that company. 
These internal funds are primarily current cash flows 
and financial buffers that were built up by the country’s 
firms  in  previous  years.  This  favouring  of  internal 
funding  is  due  to  distribution-based  Estonian  income 
tax  system.  It 
is  also  partly  because  Estonian 
companies  are  generally  small  or  medium-sized,  and 
external  funding  is  more  expensive  for  smaller 
companies than it is for large companies. According to 
the 2024 EIB Investment Survey699, 74% of Estonian 
firms’  investment  needs  are  covered  by  internal 
funding,  compared  with  an  EU  average  of  66%. 
Moreover,  the  country  has  a  high  share  of  finance-
constrained  firms  (16%  vs  an  EU  average  of  6.9%). 
The  role  of  non-bank  financial  intermediation  in 
financing  the  Estonian  economy  is  still  not  large  in 
volume or in competition with the supply of loans from 
banks, but the activities of private and venture capital 
funds offer serious support for companies in the early 
stages of development. Estonia stands out among other 
countries  for  the  good  work  of  its  local  private  and 
venture  capital  funds,  and  also  because  a  lot  of 
investment  reaches  Estonian  startup  companies  from 
outside Estonia. 

Market finance 

The funding of NFCs via the capital markets is very 
low  in  comparison  with  other  EU  countries.  The 
market-funding ratio stood at 15.8% at the end of 2023, 

vs  49.6%  for  the  EU  on  average700.  Local  businesses 
tend  to  rely  on  bank  intermediation  and  own  funds 
rather  than  attracting  investments  through  stock  and 
bond issues or from alternative sources.  As there is a 
relatively  large  share  of  foreign-owned  companies  in 
Estonia, some companies can borrow from their parent 
companies.  The  small  size  of  the  local  market  also 
leads large companies to borrow abroad more often and 
to  issue  bonds  in  foreign  markets.  Furthermore,  the 
level of borrowing by the Estonian general government 
is low, and so few sovereign bonds are issued. This all 
results  in:  (i)  few  local  investment  opportunities;  (ii) 
low interest from institutional and retail investors; and 
thus (iii) few local opportunities to raise share capital. 
The  lack  of  market  activity  by  institutional  investors 
further  weakens  demand  for  corporate  stocks  and 
bonds.   

1.10.5 

Stock market performance 

Source: London Stock Exchange Group701. 

In addition, most companies (over 95%) in Estonia 
are SMEs, which find it difficult to gain access to the 
capital  markets  and  their  opportunities.  Although 
Nasdaq’s  Baltic  First  North  Market  offers  a  trading 
facility with reduced reporting requirements, targeting 
primarily  smaller  cap  issuances,  SMEs  and  start-ups 
seeking to list on Baltic First North face a significant 
challenge due to the mandatory audit of their financial 
statements every six months. Moreover, Estonia cannot 
take advantage of this SME market because there are 
no established SME growth markets in Estonia, nor in 
the other Baltic states.  

699  EIB Investment Survey 2024 - Estonia. 
700  CMU Dashboard indicators. 
701  The  STOXX  Indices  are  the  intellectual  property  (including 
registered  trademarks)  of  STOXX  Limited,  Zug,  Switzerland 
(“STOXX”) and/or its licensors (“Licensors”). STOXX has not 
been involved in any way in the creation of financial instruments 
or  any  other  products  referencing  the  aforementioned  indices. 
Such products are neither sponsored nor promoted, distributed 

or  in  any  other  manner  supported  by  STOXX  and/or  its 
Licensors. STOXX does not give any warranty and excludes any 
liability  whatsoever  (whether  in  negligence  or  otherwise)  – 
including  without  limitation  for  the  accuracy,  adequateness, 
correctness,  completeness,  timeliness,  and  fitness  for  any 
purpose – in relation to any errors, omissions or interruptions in 
any of STOXX' indices or its data. 

437 

050100150200250EEEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity01002003004005006007002016201920222025Jun-16=100EE Bank indexSTOXX EUROPE 600 BANKSOMX TALLINN (OMXT) - PRICE INDEXSTOXX EUROPE 600 
 
 
  
 
 
      
1.10.6 

Net issuance of bonds 

Retail participation in capital markets  

Estonian  households’  financial  assets  have  almost 
no exposure to bonds, listed shares, pension funds, 
or  insurance  funds.  The  saving  rate  of  Estonian 
households  is  relatively  low  and  they  hold  relatively 
few financial assets. In particular, they hold very little 
in 
the 
investment  and  pension  products.  Since 
country’s 2021 pension reforms, households’ financial 
assets held in pension and insurance funds has fallen 
from the equivalent of 21% of GDP in 2020 to 1.3% of 
GDP in 2024 (vs. 59.2% in the EU on average in 2024), 
according  to  Eurostat  data  (Graph  2.8.4).  Instead, 
households’ financial assets held in investment funds 
has increased over the last couple of years to 19.6% of 
GDP in 2024, (still below the EU average of 23.5% of 
GDP in 2024). All in all, the share of households’ total 
financial assets held in pension funds, insurance funds 
or  directly  in  financial  investment  instruments  was 
equivalent to barely 18.8% in 2024, substantially short 
of  the  EU  average  of  46.6%.  Instead,  the  investment 
instrument  most  preferred  by  Estonian  households  is 
private  equity  (unlisted  shares),  followed  by  bank 
deposits.  The  government  introduced  an  investment 
account  system  in  2011,  but  this  has  achieved  only 
moderate  success.  One  reason  for  this  is  that  certain 
equity 
popular 
crowdfunding, have until recently been excluded from 
the benefits of this system, including the ability to defer 
income tax. 

investment  vehicles, 

such 

as 

in  Estonian 

Recent policy initiatives aim to promote the degree 
of  retail  participation 
financial 
markets. In September 2024, the Estonian state issued, 
for the first time, government bonds to retail investors. 
These government bonds offer small investors a fixed 
interest rate and the opportunity to trade those bonds on 
the  Tallinn  Stock  Exchange.  The  offer  was 
oversubscribed by more than four times. Encouraging 
the  build-up  of  universal  funded  supplementary 
pension schemes would positively contribute to (i) the 
sustainability  and  adequacy  of  pension  benefits;  (ii) 
investment  in  equity;  (iii)  access  to  finance;  (iv) 
growth; and (v) innovation. 

Source: ECB. 

framework 

that  meets 

The  small  size  of  the  domestic  capital  market, 
coupled with low liquidity, deters the participation 
of both domestic and foreign investors. Estonia has 
established a  good market infrastructure, as well as a 
regulatory 
international 
standards, ensuring adequate market transparency and 
investor  protection.  The  Baltic  countries  have 
consolidated their stock markets and CSDs which has 
facilitated  cross-border  transactions  and  improved  all 
Baltics markets’ visibility. Yet the number of investors, 
transactions and issued securities remains low. The low 
number of listed enterprises results in low interest from 
institutional  and  retail  investors,  and  thus  few  local 
opportunities  to  raise  share  capital.  As  there  is  a 
relatively  large  share  of  foreign-owned  companies  in 
Estonia, some companies can borrow from their parent 
companies.  The  small  size  of  the  local  market  also 
leads large companies to borrow abroad to a significant 
extent and to issue bonds in foreign markets. Lacking 
market  activity  by  institutional  investors  results  in 
weak 
and 
bonds.  Furthermore,  the  level  of  borrowing  by  the 
Estonian  general  government  is  low,  and  so  few 
government  bonds  are 
the 
international market, projects developed in Estonia are 
relatively low value, which makes them less attractive 
to international investors. The relative lack of liquidity 
in the market, which is reflected in the sluggish trading 
activity and in the relatively large spreads between bid 
and  offer  prices,  even  for  the  most  liquid  shares, 
hampers  attractiveness  for  short-term  investors  and 
traders.  

issued.  In 

terms  of 

corporate 

demand 

stocks 

for 

Over the course of 2024, the Minister of Finance put 
together a strategy for the Estonian capital markets. 
In this respect,  in September 2024, for the first time, 
the  state  issued  bonds  aimed  at  Estonian  retail 
investors. The offer was oversubscribed more than four 
times.  The  bond  has  been  listed  on  Nasdaq  Tallinn 
where  it  can  be  traded  on  the  secondary  market. 
Moreover,  the  listing  of  state-owned  companies  was 
discussed. 

438 

-1.0-0.50.00.51.01.52.02.53.020212022202320242025-Q1bn EURGovernmentMFIsNon-MFINon-financial corporations 
 
 
      
1.10.7 

Composition of HHs’ financial assets 

1.11.1 

Net savings-investment balance 

Source: Eurostat. End-2024. 

Source: AMECO. 

1.11 Finland 

Availability and use of domestic savings 

Finland’s  economy  channels 
its  net  savings 
predominantly into domestic investments. Over the 
past  decade,  the  private  savings  ratio,  net  of  fixed 
capital  consumption,  has  hovered  around  its  ten-year 
average  of  5.6%  of  GDP,  peaking  at  10.3%  in  2020 
amid  pandemic-driven  precautionary  savings  (see 
Graph  2.9.1).  In  contrast,  the  net  private  investment 
ratio,  reflecting  the  private  sector’s  role  in  capital 
accumulation, has been more volatile, averaging 4.3% 
of  GDP  over  the  last  decade  and  reaching  a  high  of 
7.3% in 2022 as businesses ramped up spending in the 
post-Covid  recovery.  Lending  to  the  government  has 
fluctuated, averaging 2.1% of GDP but dipping to near 
zero back in 2023, reflecting tighter fiscal conditions. 
These  dynamics,  coupled  with  a  structural  current 
account  deficit,  have  led  to  consistent,  albeit  very 
limited,  net  borrowing  from  abroad,  averaging  some 
0.8% of GDP over the period 2014-2024. Finland’s net 
savings  are  therefore  largely  absorbed  by  domestic 
projects  while  foreign  funds  play  a  minor  role  in 
bridging the financing gap. 

Finland’s economy maintains a cautiously balanced 
stance  in  its  international  financial  engagements. 
Finland’s  net  international  investment  position  has 
remained  marginally  positive  in  recent  years.  As  of 
end-2024,  total  assets  held  by  foreigners  in  Finland 
stood at 297.2% of GDP, while Finnish assets abroad 
(including reserves) were slightly higher at 324.8% of 
GDP,  resulting  in  a  net  international  investment 
position  (NIIP)  of  27.5%  of  GDP  (see  Graph  2.9.2). 
Finnish foreign direct investment abroad, at 69.9% of 
GDP,  outweighed  foreign  direct  investments  into 
Finland  at  49.2%  of  GDP.  Portfolio  investments 
showed a very balanced position highlighting Finland’s 
attractiveness for portfolio investors while indicating, 
in parallel, that local investors show a strong preference 
for  portfolio  allocation  abroad.  Lastly,  other 
investments,  both  assets  and  liabilities,  remained 
relatively balanced over the past years in the brackets 
between 60-90% of the GDP. This structure highlights 
the economy’s deep integration into the global capital 
markets. Its net creditor status, albeit narrow, signals a 
preference of Finnish investors to invest abroad rather 
than  locally,  in  particular  when  it  comes  to  direct 
investments. 

439 

050100150200250020406080100EEEUEEEUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Currency and depositsInsurance and pension fundsInvestment fundsBondsListed sharesUnlisted sharesOther equityHH Debt (liability)-505101520253020172018201920202021202220232024% of GDPPrivate investment, netLending to the governmentPrivate savings, netPrivate savings, grossBorrowing from the rest of the world 
 
 
  
 
        
1.11.2 

International investment position 

1.11.3 

Capital markets and financial intermediaries 

Source: ECB, EIOPA, AMECO. End-2024. 

Finland’s  financial  sector  is  dominated  by  banks. 
By 2024, the banking sector’s assets stood at 240.6% 
of GDP, a few percentage points below the EU average 
of  251.1%.  Foreign  presence  remains  rather  limited, 
below  10%  of  total  assets,  but  all  lenders  do  have 
strong ties to other Nordic markets. Non-bank financial 
intermediaries,  particularly  investment  funds  and 
insurance corporations, are notable, with assets at 64% 
and 32.6% of GDP respectively in 2024, driven by a 
strong cultural emphasis on long-term savings amid an 
aging population. Local pension funds, which managed 
by  end-2024  assets  worth  EUR  277  bn  are  not  fully 
accounted for in the international statistics as they are 
embedded in the pillar 1 of the Finnish national pension 
system. 

1.11.4 

Stock market performance 

Source: ECB. 

Structure of the capital markets and size of the 
financial sector 

The  Finnish  economy  is  underpinned  by  a  well-
developed  domestic  capital  market.  Based  on  ECB 
data, the market capitalisation of listed equity issued by 
Finnish companies702 reached 89.8% of GDP in 2024 
(see  Graph  2.9.3),  reflecting  a  strong  equity  culture 
driven  by  investor  confidence  in  local  firms.  Non-
financial corporations account for roughly 74% of this 
capitalisation,  highlighting  the  market’s  focus  on 
financing technology, various industries and other non-
financial  services,  which  remain  central 
the 
country’s economic identity. The outstanding volume 
of  debt  securities  (excluding  government  securities) 
stood  at  88.5%  of  GDP  in  2024,  with  monetary 
financial institutions (MFIs) contributing around 78% 
of the total. This highlights the banking sector’s pivotal 
role in funding the local economy but also reflects the 
specificity of Nordic financial markets where covered 
bonds remain an important source of funding for local 
credit institutions. General government bonds issuance 
accounts for approximately 57.3% of the GDP and has 
increased  by  a  few  percentage  points  over  the  past 
decade,  in  line  with  the  growing  indebtedness  of 
Finland. 

to 

Source: London Stock Exchange Group703. 

702  This  figure  is  a  proxy  for  the  degree  of  development  of  the 
Finnish stock exchange, given that i) Finnish companies could 
be listed abroad and ii) a number of foreign companies are listed 
in Finland as well. 

703  The  STOXX  Indices  are  the  intellectual  property  (including 
registered  trademarks)  of  STOXX  Limited,  Zug,  Switzerland 
(“STOXX”) and/or its licensors (“Licensors”). STOXX has not 
been involved in any way in the creation of financial instruments 

or  any  other  products  referencing  the  aforementioned  indices. 
Such products are neither sponsored nor promoted, distributed 
or  in  any  other  manner  supported  by  STOXX  and/or  its 
Licensors. STOXX does not give any warranty and excludes any 

440 

-10-5051015202530-400-300-200-100010020030040020172018201920202021202220232024% of GDP% of GDPOther investment, LiabilitiesPortfolio Investment, LiabilitiesForeign Direct Investment, LiabilitiesOfficial reserve assetsOther investment, AssetsPortfolio Investment, AssetsForeign Direct Investment, AssetsNIIP (rhs)Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIsPension fundsInsurance corporationsInvestment funds050100150200250300   Listed equity               Bonds                        Assets by sector% of GDP050100150200250200920122015201820212024Oct-09=100FI Bank indexSTOXX EUROPE 600 BANKSOMX HELSINKI (OMXH) - PRICE INDEXSTOXX EUROPE 600 
 
 
        
 
 
         
      
 
 
Financing of the economy 

Market finance 

exchange,  with 

The  capital  markets  are  a  vital  component  of  the 
country’s  financial  system.  Despite  not  being  very 
large,  Finland’s  capital  markets  are  considered  to  be 
among  the  most  efficient  and  well-developed  in  the 
EU.  The  stock  market  remains  dominated  by  the 
a  market 
Nasdaq  Helsinki 
capitalisation  equivalent  to  97.1%  of  GDP  in  2024, 
about 25 percentage points higher than the EU average. 
The  local exchange lists some 188 stocks (end-2024) 
and  has  ambitious  plans  going  forward,  with  several 
dozen new public debuts to be expected in the coming 
years. Finnish large and medium firms also make use 
of  fixed-income  financing,  although  the  outstanding 
volume  of  Finnish  corporate  bonds  is  worth  about 
12.2%  of  GDP  (vs  an  EU  average  of  10.8%), 
substantially  lower  than  the  equity  financing  part  of 
corporate funding. 

Debt finance continues to be a significant source of 
market  funding  for  domestic  banks  but  of  minor 
importance  for  non-financial  corporations.  In  the 
first quarter of 2025, banks issued EUR 2.4 bn of debt 
securities, which aligns with the EUR 11.5 bn issued in 
2024 (see Graph 2.9.5). The other financial companies 
continued  to  repay  their  market  funding,  resulting  in 
negative  bond  issuance  flows  both  in  2024  (negative 
EUR 0.6 bn) and early 2025, with negative EUR 0.8 
bn. The net issuance by non-financial corporations was 
barely  positive  in  2024  (EUR  0.2 bn)  and  turned out 
negative, at EUR -0.2 bn in Q1 2025, highlighting the 
rather minor role of debt market finance as a source of 
funding for Finnish non-financial corporations. 

1.11.5 

Net issuance of bonds 

Long-term  interest  rates  in  Finland  have  followed 
narrowly  the  Eurosystem’s  policy  moves.  The  10-
year sovereign yields remained extremely low between 
2014  and  2022  following  ECB’s  loose  monetary 
policy. Yields dropped into slightly negative territory 
(negative 50 bp) between summer 2019 until end-2021 
(see Graph 2.9.6). October 2023 marked a post-Covid 
high 
for  Finnish  sovereign  yields. 
Subsequently,  the  cost  of  financing  sovereign  debt 
started declining and remained in the 2.5-3% bracket 
since the beginning of 2024. The spread to the German 
Bund hit a peak of over 60 basis points in early 2022 
(the  start  of  Russia’s  war  on  Ukraine)  and  started 
declining  since  then,  returning  to  historical  average 
bracket 25-40 basis points. 

(at  3.5%) 

1.11.6 

Long-term interest rates and credit default swaps 

Source: London Stock Exchange Group. 

Financing  is  not  perceived  as  a  major  obstacle  to 
investment  decisions.  Just  6%  of  domestic  firms 
reported having issues when seeking a bank loan and 
23%  claimed  that  that  financing  was  an  issue  when 
pursuing investment plans, compared to an EU average 
of  45%.  More  generally,  four  out  of  five  firms  in 
Finland believe that their investment actions over the 
past 
for  market 
requirements,  in  line  with  the  EU  average  (EIB 
Investment Survey 2024). This suggests that there is no 
material financing gap relative to investment demand 
and  perceived 
the 
proportion  of  finance-constrained  firms  in  Finland 
(around 12%) is somewhat higher than the EU average 
(6.8%). 

three  years  were  adequate 

investment  needs.  However, 

Source: ECB. 

Bank  and  equity  financing  are  on  par.  Finnish 
corporates  rely  on  a  sound  mix  of  internal  financing 
(covering  up  to  69%  of  all  investment  needs  (EIB 
Investment  Survey  2024)  against  an  EU  average  of 

liability  whatsoever  (whether  in  negligence  or  otherwise)  – 
including  without  limitation  for  the  accuracy,  adequateness, 
correctness,  completeness,  timeliness,  and  fitness  for  any 

purpose – in relation to any errors, omissions or interruptions in 
any of STOXX' indices or its data. 

441 

-5.00.05.010.015.020.025.030.035.020212022202320242025-Q1bn EURGovernmentMFIsNon-MFINon-financial corporations-100102030405060708090100-101234562008201320182023bps%10Y yield (lhs)Spread vs bund (rhs)5Y CDS (rhs) 
 
 
      
 
 
        
66%),  bank  loans  and  capital  market  instruments  for 
business funding needs. An average Finnish firm relies 
on bank loans and overdrafts to a slightly higher extent 
(30% of total funding) than its average EU peer (about 
27%).  In  total,  corporate  funding  in  Finland  is 
equivalent  to  214%  of  GDP,  about  16  percentage 
points  lower  than  the  EU  average  of  230%  of  GDP. 
Capital  market  instruments,  including  shares  and 
bonds, contribute around 68% to the total financing of 
Finnish firms, on a par with the  EU average of 69%. 
More  specifically,  listed  and  unlisted  shares  are 
equivalent to 125.5% of GDP in Finland, while the EU 
average  stands  at  100.5%  of  GDP.  This  reliance  on 
equity-based  instruments  and,  in  particular,  listed 
equities  highlights  the  level  of  development  of 
Finland’s  capital  markets  and  the  fact  that  Finnish 
investors  are  more  likely  to  invest  in  equity-based 
instruments than their EU peers. 

1.11.7 

Composition of NFCs’ funding 

Source: Eurostat. End-2024. 

Retail  participation  in  the  capital  markets  is 
significant  as  households  actively  look  to  diversify 
their  financial  holdings.  As  of  end-2024,  Finnish 
households’ financial assets surpassed the EUR 420 bn 
mark, equivalent to 153.9% of GDP (see Graph 2.9.7), 
with deposits representing 30.5% of the total (vs an EU 
average of 31.7%). Investments in domestic investment 
funds reached a record high of EUR 40.6 bn and were 
predominantly  allocated  to  equity  funds  (43%),  bond 
funds  (28%)  and  mixed  funds  (19%).  In  parallel, 
households’  direct  investments  in  listed  and  unlisted 
equity  amounted  to  EUR 102 bn.  Finns  display  a 
growing  appetite  for  direct  stock  investments,  driven 
by,  among  other  factors,  the  popularity  of  the  stock 
savings  accounts.  Furthermore,  Finnish  households 
have shown considerable interest in foreign investment 
funds, with holdings exceeding EUR 8 bn in end 2024. 
The  diverse  allocation  of  financial  assets  across 
deposits, investment funds and equities highlights the 
dynamic  and  engaged  nature  of  retail  investors  in 
Finland,  and  a  gradually  rising  level  of  financial 
confidence across the population. 

1.11.8 

Composition of HHs’ financial assets 

Source: Eurostat. End-2024. 

Venture  capital  and  private  equity  have  been 
gaining  importance.  The  country  has  long  been 
present on the global start-up stage. Finland is one of 
the  EU  leaders  in  terms  of  investments  into  venture 
capital and private equity relative to GDP (0.09% and 
0.68%  of  GDP  respectively  at  end-2024)  with  both 
domestic  and  international  investors  (65%  of  the 
invested  volume) 
local  start-ups  worth 
financing and supporting further. Despite this relative 
success,  the  participation  of  domestic  institutional 
investors, particularly pension funds, remains rather on 
the conservative side, limiting the availability of local 
venture and growth capital for start-ups, especially in 
the later stages of financing.  

finding 

The  authorities  have  implemented  a  series  of 
strategic  policy  measures  to  make  the  domestic 
start-up  scene  more  dynamic.  Finnish  innovation 
strategy is heavily focused on supporting start-ups. The 
strategy is encapsulated in the innovation and skills in 
Finland  2021-2027  programme,  which  aims  to  boost 
sustainable growth, regional development and societal 
well-being. This rather comprehensive programme has 
a budget of over EUR 3.1 bn (two thirds financed from 
the EU budget), across seven priority areas, including 
digitalisation, green transition and health technologies. 
The programme helps start-ups with funding, enables 
public-private  collaboration  and  assists  start-ups  to 
scale  up  internationally.  Recent  legislative  measures 
have  mostly  focused  on  creating  more  flexible 
investment  vehicles  and 
tax 
investments  by 
incentives 
institutional investors. 

to  encourage  equity 

introducing  some 

442 

050100150200250FIEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity0100200300050100FIEUFIEUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Other equityUnlisted sharesListed sharesBondsInvestment fundsInsurance and pension fundsCurrency and depositsHH Debt (liability) 
 
 
          
        
 
1.12 France 

1.12.2 

International investment position 

Availability and use of domestic savings 

Private savings and investment dropped sharply in 
2024. In the last decade, the private savings ratio, net 
of fixed capital consumption, exhibited some volatility 
around its ten-year average of 6.9% of GDP. It steeply 
increased to 10.7% of GDP in 2021 before dropping to 
0%  in  2024  (see  Graph  2.10.1).  The  net  private 
investment ratio, which measures the net contribution 
of  the  private  sector  to  capital  accumulation  in  the 
country, evolved quite differently. It fluctuated around 
its ten-year average of 2.9% of GDP, before dropping 
to  -5.2% in 2024. At the same time, during the  same 
period  the  government  budget  was  in  regular  deficit 
that averaged 4.7% of GDP with a peak at 8.9% of GDP 
in 2020. Thus, the high positive  balance between net 
domestic  savings  and  net  investment  did  not  fully 
offset government deficits, which resulted in structural 
net borrowing by France from foreigners that averaged 
0.7% of GDP, with a peak of 1.9% in 2020.  

1.12.1 

Net savings-investment balance 

Source: AMECO. 

Source: ECB. 

Consistent  with  its  regular  position  of  a  net 
borrower  from  the  rest  of  the  world,  the  French 
economy  exhibits  a  negative  net  international 
investment  position.  As  of  Q4  2024,  total  assets  on 
foreigners  reached  313%  of  GDP,  while  liabilities  to 
foreigners  stood  at  329%  of  GDP,  resulting  in  a  net 
international investment position (NIIP) equivalent to -
16% of GDP (see Graph 2.10.2). The net accumulated 
portfolio investments, which reached -38% of GDP as 
of Q4 2024, accounted for most of the (negative) NIIP, 
while net foreign direct investments, which represented 
20%  of  GDP,  helped  reduce  the  NIIP  deficit.  Thus, 
while  the  French  economy  appears  to  be  deeply 
integrated in international capital flows, including as a 
major provider of foreign direct investment, it remains 
nevertheless a net capital importer, notably by means 
of portfolio investments at home. 

443 

-10-505101520253020172018201920202021202220232024% of GDPPrivate investment, netLending to the governmentPrivate savings, netPrivate savings, grossBorrowing from the rest of the world-35-30-25-20-15-10-50-400-300-200-100010020030040020172018201920202021202220232024% of GDP% of GDPOther investment, LiabilitiesPortfolio Investment, LiabilitiesForeign Direct Investment, LiabilitiesOfficial reserve assetsOther investment, AssetsPortfolio Investment, AssetsForeign Direct Investment, AssetsNIIP (rhs) 
 
 
          
 
         
Structure of the financial sector 

1.12.3 

Stock market performance 

for half of the total. This reflects the significant weight 
of the gross public debt in the bond market. 

Source: London Stock Exchange Group704. 

1.12.4 

Capital markets and financial intermediaries 

by 

banks, 

non-bank 

Even though the financial sector in France remains 
financial 
dominated 
intermediaries  are  very  much  developed  as  well. 
Banks’ assets represented 416% of GDP in December 
2024  (vs  251%  in  the  EU)  (see  Graph  2.10.4).  The 
insurance  sector,  with  total  assets  of  almost  99%  of 
GDP  at  end-2024  (vs  55%  of  GDP  in  the  EU), 
dominates non-bank intermediation. Its relatively large 
size is due to the popularity of life insurance in France. 
The pension funds’ assets are much smaller: they only 
represent 8% of GDP (vs 23% in the EU). Investment 
funds  represent  a  significant  share  of  65%  of  GDP, 
above the EU median. 

Financing of the economy 

Sources of NFC funding 

Firms  in  France  rely  less  than  the  EU  average  on 
funding from banks and more than the EU average 
on funding from capital markets. More specifically, 
at  the  end  of  2024  bank  finance  through  loans 
constituted  25%  (vs  27%  in  the  EU)  of  all  funding 
sources for French non-financial corporations (NFCs), 
while listed shares and bonds represented 30% (vs 24% 
in the EU) of all funding sources. When expressed in 
terms of GDP, the overall level of NFC funding was 
higher  in  France  (270%  of  GDP)  than  in  the  EU 
(226%), see Graph 2.10.5. 

Source: ECB, EIOPA, AMECO. End-2024. 

1.12.5 

Composition of NFCs’ funding 

The French financial sector is well developed.  The 
market  capitalisation  of  listed  equity  reached 92%  of 
GDP  at  end-2024  (vs  67%  in  the  EU)  (see  Graph 
2.10.3).  Characteristically,  non-financial  corporations 
accounted  for  more  than  90%  of  that  capitalisation, 
which reflects the extent to which the stock market in 
France  is  geared  towards  funding  the  non-financial 
segment  of  the  real  economy.  Like  elsewhere  in  the 
EU,  the  index  of  French  banks  has  significantly 
underperformed the general stock market index since 
the  Great  Financial  Crisis.  However, 
it  has 
outperformed  vis-à-vis  the  EU  average  (see  Graph 
2.10.5).  The  outstanding  volume  of  debt  securities 
reached 190% of GDP at end-2023, one of the highest 
in the EU. Bonds issued by the government accounted 

Source: Eurostat. End-2024. 

704  The  STOXX  Indices  are  the  intellectual  property  (including 
registered  trademarks)  of  STOXX  Limited,  Zug,  Switzerland 
(“STOXX”) and/or its licensors (“Licensors”). STOXX has not 
been involved in any way in the creation of financial instruments 
or  any  other  products  referencing  the  aforementioned  indices. 
Such products are neither sponsored nor promoted, distributed 
or  in  any  other  manner  supported  by  STOXX  and/or  its 

Licensors. STOXX does not give any warranty and excludes any 
liability  whatsoever  (whether  in  negligence  or  otherwise)  – 
including  without  limitation  for  the  accuracy,  adequateness, 
correctness,  completeness,  timeliness,  and  fitness  for  any 
purpose – in relation to any errors, omissions or interruptions in 
any of STOXX' indices or its data. 

444 

050100150200200820112014201720202023Jan-08=100FR Bank indexSTOXX EUROPE 600 BANKSFRANCE CAC 40 - PRICE INDEXSTOXX EUROPE 600Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIsPension fundsInsurance corporationsInvestment funds050100150200250300350400450   Listed equity               Bonds                        Assets by sector% of GDP050100150200250300FREU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity 
 
 
      
 
           
 
 
           
market finance appears as a minor, declining source of 
funding for French non-financial corporations. 

1.12.6 

Net issuance of bonds 

French businesses depend less on internal financing 
than  their  European  peers,  but  also  more  on 
intragroup  financing.  According  to  the  2024  EIB 
Investment Survey, 58% of investment needs of French 
firms are covered by internal funding, compared to an 
EU average of 66%. At the same time, 79% of French 
firms  believe  that  their  investment  activities  over  the 
last  three  years  were  about  the  right  amount,  in  line 
with the EU average (80%). This suggests that there is 
no  material  financing  gap  relative  to  investment 
demand. However, this may not be the case for firms 
with no or limited capacity for internal funding, such 
as innovative start-up firms (see further below). 

Market finance 

in 

large 

is  relatively 

French  capital  markets  are  well  developed.  The 
main stock exchange in France is Euronext Paris. The 
equity  market 
terms  of 
capitalisation (92% of GDP in 2024) when compared 
with the EU average (67% of GDP), but much lower 
than the US (213% of GDP). The market breadth705 of 
French bond markets exceeds the EU average (2.1 vs 
1.5)  and  the  bid-ask  spread706  on  equity  markets  is 
lower  than  the  EU  average  (1.3  vs  1.6).  The  use  of 
equity  by  SMEs  is  relatively  high,  as  19%  of  SMEs 
indicated  in  the  2024  SAFE  survey  that  equity  was 
relevant  for  them,  compared  to  an  EU  average  of 
12%.707 Initial public offerings (IPOs) were equivalent 
to 0.07% of GDP in 2024, broadly in line with the EU 
average (0.08% of GDP). 

France  has  adopted  or  plans  to  adopt  several 
measures  to  strengthen  the  attractiveness  of  its 
capital  markets.  These  measures  should  improve 
innovative  firms’  access  to  listing,  by  introducing 
multiple-vote share structures, and facilitate the use of 
capital  increase  operations.  Other  measures  will 
digitalise  trade  finance  operations  and  shareholder 
meetings.  

the 

issuance  observed 

After a peak in 2023, debt net issuance has receded 
in  2024.  In  2024,  banks  issued  EUR 141 bn  of  debt 
securities, down from EUR 274 bn in 2023 (see Graph 
2.10.6),  and 
in  Q1-2025 
(EUR 33 bn)  seems  to  confirm  this  declining  trend. 
The  other  financial  companies  issued  EUR 56 bn  in 
2024,  down  from  EU 65 bn  in  2023,  and  the  slightly 
negative issuance (EUR -0.6 bn) in Q1-2025 seems to 
confirm this declining trend. The net issuance by non-
financial 
from 
EUR 19 bn in 2023 to EUR -1 bn in 2024, with a slight 
better issuance of EUR 2 bn in Q1-2025. Hence, debt 

steeply  decreased 

corporations 

Source: ECB. 

Retail participation in capital markets 

Like in most Member States, French households do 
not  invest  enough  in  financial  assets  and,  more 
importantly,  equity.  French  households’  financial 
assets  were  equivalent  to  221%  of  GDP  in  2024, 
slightly more than the EU average (212%), but much 
less than the US (446%). Moreover, assets invested in 
equity were estimated to be equivalent to only 108% of 
GDP,  above  the  EU  average  (91%)  but  almost  three 
times  lower  than  the  US  (291%).  Compared  to  the 
average  EU  household,  French  households  invest 
relatively little in investment funds, while allocating a 
significant  portion  to  life  insurance.  However,  the 
assets  in  traditional  life  insurance  are  mostly  bonds, 
which  generate  lower  returns  compared  to  equity 
investments. 

1.12.7 

Composition of HHs’ financial assets 

Source: Eurostat. End-2024. 

705  The ratio of bonds outstanding to GDP. 
706  Median of bid-ask spread as a % of the mid-price. 

707  Data and surveys - SAFE - European Commission, 2023, Results 

by country, T27. 

445 

-100.00.0100.0200.0300.0400.0500.0600.020212022202320242025-Q1bn EURGovernmentMFIsNon-MFINon-financial corporations050100150200250020406080100FREUFREUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Currency and depositsInsurance and pension fundsInvestment fundsBondsListed sharesUnlisted sharesOther equityHH Debt (liability) 
 
 
 
 
       
          
1.13.1 

Net savings-investment balance 

Source: AMECO. 

As a net creditor to the rest of the world, Germany 
has  built  up  substantial 
foreign  assets  and 
maintains  a  positive  net  international  investment 
position.  As  at  Q4-2024,  Germany’s  total  external 
assets amounted to 280% of GDP, while its liabilities 
to foreign investors stood at 200% of GDP, resulting in 
a net international investment position (NIIP) of 80% 
of GDP (see Graph 2.11.2). While the stock of official 
foreign reserve assets (8% of GDP) plays only a minor 
role, the largest contribution to the positive NIIP comes 
from net portfolio investments, which reached 25% of 
GDP.  This  underlines  the  high  degree  of  Germany’s 
integration into global capital markets. While Germany 
is a significant recipient of foreign capital, it remains 
primarily a net capital exporter.  

1.13.2 

International investment position 

supplementary 

Fostering  investment  in  equity  could  be  attained 
through 
fully-funded  pension 
schemes.  The  pay-as-you-go  nature  of  the  public 
pension  system  means  that  only  the  supplementary 
private  schemes  invest,  among  others,  in  high-return 
assets like equity. However, the supplementary private 
schemes are not universal and accumulated rights often 
remain limited for those covered. As a result, they only 
contribute  to  a  moderate  extent  to  the  total  pension 
income  and  do  not  fully  foster  the  development  of 
capital markets. Encouraging the build-up of universal 
funded supplementary pension schemes, in addition to 
the prevailing pay-as-you go system, would positively 
contribute  to  fostering  investment  in  equity  while 
enhancing  growth  and  innovation.  The  reform  of  the 
French  retirement  savings  plan  (PER)  under  the 
PACTE law in 2019 represented a step in this direction, 
promoting broader access to funded pension schemes 
through  tax  incentives  and  product  simplification, 
although 
its  scope  and  uptake  could  still  be 
strengthened to fully realize its potential. 

1.13 Germany 

Availability and use of domestic savings  

A large part of Germany’s net savings are invested 
abroad.  In  the  past  two  decades  Germany  has  been 
saving  more  than  it  invests,  leading  to  a  structural 
capital account surplus, which averaged 6.8% of GDP 
in  the  years  2014  to  2024,  peaking  at  8.8%  in  2016. 
From 2014 to 2024, private savings, net of fixed capital 
consumption, fluctuated around its 11-year average of 
9.4  of  GDP,  reaching  a  high  of  12.2%  in  2021  (see 
Graph 2.11.2). Meanwhile, net private investments, i.e. 
investments 
less  depreciation,  were  significantly 
lower,  averaging  1.9%.  The  government  budget  has 
been  in  deficit  since  2020,  averaging  -3.0%  over  the 
last 5 years. The public deficit was thus  smaller than 
the  substantial  surplus  of  private  savings  and 
investment.  Therefore,  a  significant  portion  of 
Germany’s  savings  has been used  to  finance  projects 
abroad. 

Source: ECB. 

Structure of the capital markets and size of the 
financial sector  

The  German  economy  features  one  of  the  largest 
capital markets in Europe in absolute terms, though 

446 

-15-10-50510152025303520172018201920202021202220232024% of GDPPrivate investment, netLending to the governmentPrivate savings, netPrivate savings, grossBorrowing from the rest of the world020406080100-300-200-100010020030040020172018201920202021202220232024% of GDP% of GDPOther investment, LiabilitiesPortfolio Investment, LiabilitiesForeign Direct Investment, LiabilitiesOfficial reserve assetsOther investment, AssetsPortfolio Investment, AssetsForeign Direct Investment, AssetsNIIP (rhs) 
 
 
 
         
        
amounting  to  55.5%  of  GDP.  Pension  funds  remain 
relatively small, with total assets equivalent to 5.9% of 
GDP at end-2024. Investment funds held assets of 71% 
of  GDP.  Overall, 
that  non-bank 
intermediation in Germany is underdeveloped relative 
to the size of the economy and its high savings rate. 

this  suggests 

1.13.4 

Stock market performance 

its  depth  relative  to  GDP  remains  below  the  EU 
average.  The  market  capitalisation  of  listed  equity 
issued by German corporations  reached 44% of GDP 
at  end-2024,  significantly  lower  than  in  some  of  the 
most developed capital markets in the EU. Despite the 
stock  market  strength  of  German  corporates,  the 
performance  of  listed  banks  has  been  persistently 
weak. The German bank index has declined by around 
60%  since  2008  and  has  not  recovered,  unlike  the 
broader DAX index, which has more than doubled in 
value. This underscores the structural weaknesses and 
profitability challenges in the German banking sector. 
In  the  1debt  market,  the  outstanding  volume  of  debt 
securities  reached  103%  of  GDP  at  end-2024. 
Government bonds account for the largest share (45%), 
followed  by  those  issued  by  banks  (32%)  and  NFCs 
(22%). The structure has been relatively stable in recent 
years,  with  only  a  modest  increase  in  the  share  of 
corporate bonds. 

1.13.3 

Capital markets and financial intermediaries 

Source: London Stock Exchange Group708. 

Financing of the economy 

Market finance  

The German stock market has shown steady growth 
recently  but  is  facing  challenges  to  expand  its 
number  of  listed  companies  and  market  share 
within  the  EU.  German  companies  had  outstanding 
shares  with  a  market  capitalisation  of  about  EUR 
2,449 billion as at May 2025, representing a 14% year-
on-year increase. However, this accounts for only 10% 
of  all  outstanding  shares  issued  in  the  EU,  which  is 
significantly below Germany’s roughly 25% share of 
the EU economy. The number of listed companies on 
German  stock  exchanges  has  steadily  declined  over 
recent years and despite a minor surge with four new 
listings  in  the  past  year,  it  remained  at  470  listed 
companies  in  May  2025,  well  below  the  555  listed 
companies  recorded  in  2015,  according  to  FESE 
figures. Small and medium-sized enterprises rarely use 
capital  markets  for  financing.  Moreover,  some  well-
known German companies, such as Birkenstock, have 
recently  chosen  to  list  abroad,  for  example  in  New 
York. In fact, in July 2025, the Munich-based medical 
technology  company  Brainlab  planned  what  would 
have been the largest IPO of the year in Frankfurt but 
cancelled  at  short  notice.  This  followed  a  similar 
cancellation  one  week  earlier  by  the  online  car  parts 

Source: ECB, EIOPA, AMECO. End-2024. 

While the German financial system remains largely 
bank-based,  non-bank  financial 
intermediation 
plays a relevant, if still limited, role. The size of the 
MFI sector stood at 251% of GDP in 2024, below both 
the  EU  average  (257%)  and  the  euro  area  average 
(268%). The system is structurally decentralised as the 
top five MFIs accounted for only 35% of total assets in 
2024,  which  is  the  second  lowest  level  of  banking 
concentration  in  the  EU  after  Luxembourg.  This 
reflects the strong position of savings and cooperative 
banks.  Among  non-bank  intermediaries,  insurance 
corporations  represent  the  largest  share,  with  assets 

708  The  STOXX  Indices  are  the  intellectual  property  (including 
registered  trademarks)  of  STOXX  Limited,  Zug,  Switzerland 
(“STOXX”) and/or its licensors (“Licensors”). STOXX has not 
been involved in any way in the creation of financial instruments 
or  any  other  products  referencing  the  aforementioned  indices. 
Such products are neither sponsored nor promoted, distributed 
or  in  any  other  manner  supported  by  STOXX  and/or  its 

Licensors. STOXX does not give any warranty and excludes any 
liability  whatsoever  (whether  in  negligence  or  otherwise)  – 
including  without  limitation  for  the  accuracy,  adequateness, 
correctness,  completeness,  timeliness,  and  fitness  for  any 
purpose – in relation to any errors, omissions or interruptions in 
any of STOXX' indices or its data. 

447 

Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIsPension fundsInsurance corporationsInvestment funds050100150200250300   Listed equity               Bonds                        Assets by sector% of GDP020406080100120140160180200820112014201720202023Jan-08=100DE Bank indexSTOXX EUROPE 600 BANKSDAX 'KURS' - PRICE INDEXSTOXX EUROPE 600 
 
 
         
 
 
        
financial  system.  Pfandbriefe  provide  secure,  long-
term funding primarily for real estate and public sector 
loans,  supported  by  a  strong  legal  framework  and 
consistently high credit quality. As one of the largest 
and most stable covered bond markets in Europe, the 
investors  a  safe  and  reliable 
Pfandbrief  offers 
investment  option.  The  market  demonstrated 
its 
resilience and stability throughout 2024 with the total 
volume  of  Pfandbriefe  eaching  EUR  399.5 billion  at 
year-end,  virtually  unchanged  from  the  robust  EUR 
400.3 billion 
steady 
performance  highlights  the  Pfandbriefe’s  continued 
vital role in Germany’s funding landscape. 

in  2023.  This 

recorded 

1.13.5 

Net issuance of bonds 

Source: ECB. 

Between  2008  and  2025,  Germany's  5-year  CDS 
spreads and 10-year government bond yields have 
shown  significant  fluctuations  reflecting  changing 
market  risk  perceptions  and  economic  conditions. 
In the first half of 2025, 10-year Bund yields averaged 
around 2.5%, broadly stable compared to late 2024 and 
significantly above the negative or near-zero rates that 
prevailed  until  early  2022.  The  CDS  spreads  spiked 
sharply during the 2008-2009 financial crisis, reaching 
peaks above 50 basis points, signalling increased credit 
risk concerns. Over the following years, CDS spreads 
steadily declined, with CDS spreads dropping below 10 
basis  points  by  2014  and  even  lower  in  subsequent 
years, indicating improved investor confidence. More 
recently,  from  2022  onward,  CDS  spreads  have 
marginally increased, rising above 15 basis points. 

retailer Autodoc24. Both companies cited the uncertain 
geopolitical situation and its impact on capital markets 
as reasons for withdrawing. 

Germany has seven traditional stock exchanges, the 
largest  of which is the Frankfurt Stock Exchange, 
owned  by  Deutsche  Börse  Group.  While  Frankfurt 
maintains  a  traditional  trading  floor,  approximately 
90%  of  share  trading  in  Germany  occurs  on  Xetra, 
Deutsche  Börse’s 
trading  platform. 
electronic 
Deutsche  Börse  is  the  second-largest  stock  exchange 
group  in  the  EU  by  market  capitalisation,  at  around 
EUR 2.4 trillion, trailing Euronext’s EUR 6.3 trillion, 
and  has  remained  independent  despite  consolidation 
trends  among  European  exchanges.  Deutsche  Börse 
also  owns  Eurex,  a  leading  derivatives  marketplace. 
Outside  Frankfurt,  six  regional  stock  exchanges 
support  smaller  and  local  companies.  The  largest 
regional  exchange  is  the  Stuttgart  Stock  Exchange, 
known  for  its  electronic  trading  platform  Euwax  and 
for  having  the  highest  trading  volume  in  bonds, 
especially  those  issued  by  small  and  medium-sized 
enterprises, in its Bond segment.  Börse Stuttgart also 
owns  the  Nordic  Growth  Market,  Norway’s  second-
largest  exchange,  BX  Swiss  in  Bern,  and  the  OTC 
platform  Cats,  making  it  the  sixth-largest  stock 
exchange  group  in  Europe.  Other  regional  exchanges 
include  those  in  Berlin,  Munich,  and  the  exchanges 
operated by BÖAG Börse AG in Düsseldorf, Hamburg, 
and Hannover. Historically, major German companies 
such  as  BMW,  Allianz,  Munich  Re,  Infineon,  and 
Siemens made their IPOs in Munich. 

Debt  securities  remain  an  important  source  of 
market-based  funding  for  banks  and  financial 
institutions  in  Germany.  In  Q1  2025,  MFIs  issued 
EUR  37.1 billion in debt,  already surpassing the full-
year 2024 figure of EUR 15.4 billion and well on track 
to exceed previous years. Other financial corporations 
(non-MFIs)  saw  muted  activity,  with  net  issuance 
turning  slightly  negative  at  –0.2 billion,  following 
EUR 13.9 billion in 2024. General government issued 
EUR 16.6 billion in Q1 2025 after a substantial drop in 
2024 (EUR 46.2 billion) compared to earlier years. By 
contrast,  NFCs  remain  marginal  players  in  debt 
markets. After modest issuance of  EUR 8.9 billion in 
2024, net issuance stood at just EUR 3.6 billion in Q1 
2025,  reflecting  their  continued  reliance  on  other 
funding 
and 
Schuldscheine,  a  particular  German  variant  of 
promissory notes. Overall, the data point to a recovery 
in debt issuance among banks and government, while 
issuance  by  corporates—especially  non-financial 
firms—remains subdued.  

sources,  mostly  banking 

loans 

One particularly important financing instrument in 
Germany is the Pfandbrief, a type of covered bond 
that  serves  as  a  cornerstone  of  the  country’s 

448 

-50.00.050.0100.0150.0200.0250.020212022202320242025-Q1bn EURGovernmentMFIsNon-MFINon-financial corporations 
 
 
       
1.13.6 

Long-term interest rates and credit default swaps 

Source: London Stock Exchange Group. 

Even though German companies rely more heavily 
on debt than some of their EU peers, their overall 
funding structure reflects a relatively balanced mix 
of  financial  instruments.  In 2023,  loans  to  NFCs  in 
Germany amounted to 54% of GDP, slightly below the 
EU average of 62.7%. Similarly, German firms made 
moderate use of trade credit (7.2% of GDP vs. 8.7% in 
the  EU)  and  bonds  (5.6%  vs.  10.8%).  German 
companies also rely significantly on equity to finance 
their activities, though to a somewhat lesser extent than 
the EU average. In 2023, total equity-based funding by 
German  NFCs,  combining  listed  shares,  unlisted 
shares, and other equity, amounted to 127% of GDP, 
compared to 147.7% in the EU. This reflects a robust 
capital structure supported by strong internal financing, 
even if German firms make slightly less use of equity 
overall. Within this, the use of listed shares in Germany 
(42% of GDP) was broadly in line with the EU average 
(43.9%). 

1.13.7 

Composition of NFCs’ funding 

Source: Eurostat. End-2024. 

While  German  households  hold 
substantial 
financial assets overall, their participation in capital 
markets  is  somewhat  low  compared  to  the  EU 
average. At the end of 2023, their aggregate financial 
wealth stood at around 210% of GDP, in line with the 
EU average. A large portion of this is held in cash and 

deposits (79% of GDP vs. 68% in the EU), indicating 
a  strong  preference  for  liquid  and  low-risk  savings. 
Holdings  in  insurance  and  pension  products  (58.1%) 
match the EU average, while investment fund holdings 
are slightly higher (25.5% vs. 21.0%). When it comes 
to listed shares, German households are more engaged 
than their EU peers, holding assets worth 13% of GDP, 
compared to 10% in the EU. However, their exposure 
to  unlisted  shares  is  considerably  lower  (6.0%  vs. 
22.6%),  suggesting  limited  participation  in  private 
companies.  Overall, 
the  data  reflect  a  cautious 
investment profile, with a high reliance on traditional 
savings  and  a  relatively  low  share  of  riskier  or  less 
liquid capital market instruments. 

1.13.8 

Composition of HHs’ financial assets 

Source: Eurostat. End-2024. 

Germany remains one of the largest private equity 
(PE) and venture capital (VC) markets in the EU, 
although activity has slowed in recent years due to 
persistent  macroeconomic  uncertainty.  In  2024, 
total  PE  and  VC  investments  declined  to  EUR 
11.3 billion 
(–13%  year-on-year),  with  buyouts 
representing  the  largest  segment  (EUR  5.5 billion) 
despite  a  sharp  drop  from  2023.  However,  VC  in 
isolation  rebounded  to  EUR  3.4 billion  (+31%), 
marking the first annual increase since 2021. As of the 
start  of  2025,  PE  exit  value  in  Germany  grew  nearly 
40% qoq to reach EUR 11 billion even as IPO activity 
in  the  country  stalled.  There  were  38  PE  exits,  the 
combined value  of  which marked  the  highest  quarter 
since  Q4  2023,  according  to  PitchBook.  Total  exit 
value as of Q1 is already 42% of 2024’s full-year total. 
The  main  sectors  attracting  VC  funding  included  AI, 
defence  and  climate  technology,  with  several  large-
scale  financing  rounds  in  high-growth  companies. 
Fundraising activity also showed signs of stabilisation: 
German  PE  and  VC  funds  raised  EUR  6.3 billion  in 
2024, up from  EUR  6.0 billion in 2023. The German 
market continues to benefit from a strong institutional 
investor  base  and  recent  policy  reforms,  such  as  the 
elimination of VAT on fund management fees, which 
are expected to strengthen its competitiveness further. 

449 

0102030405060708090100-10123452008201320182023bps%10Y yield (lhs)Spread vs bund (rhs)5Y CDS (rhs)050100150200250DEEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity050100150200250020406080100120DEEUDEEUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Currency and depositsInsurance and pension fundsInvestment fundsBondsListed sharesUnlisted sharesOther equityHH Debt (liability) 
 
 
       
          
        
account  deficit.  As  of  Q4  2024,  total  assets  on 
foreigners  reached  144%  of  GDP,  up  from  110%  in 
2017, while liabilities to foreigners stood at 277% of 
GDP, up from 250% in 2017 (see Graph 2.12.2). The 
Greek economy remains a major net borrower from the 
rest of the  world. While direct and other investments 
abroad  have  been  broadly  stable  relative  to  GDP, 
Greeks’  gross  portfolio  investments  abroad  increased 
significantly by 33 percentage points of GDP between 
2017 and Q3 2024 and reached the equivalent of 92% 
of  GDP.  During  the  same  period,  the  stock  of  gross 
foreign  direct  investments  (FDI)  in  Greece  increased 
by 10 percentage points up to 29% of GDP, while other 
dues  to  foreigners  (primarily  loans)  rose  by  11 
percentage points up to 217% of GDP. Thus, overall, 
despite a net increase in FDI in the country, and given 
its  negative  net  savings,  the  Greek  economy  remains 
involved  in  international  capital  flows  primarily  as  a 
significant financial borrower. 

2.12.2: 

International investment position 

The outlook for 2025 remains cautious, but interest rate 
cuts and improved economic sentiment could support a 
gradual recovery, especially in the VC segment. 

1.14 Greece 

Availability and use of domestic savings 

The  Greek  economy  relies  on  external  funding  to 
meet  its  investment  needs.  The  negative  net  private 
savings  and  investment  balance  over  the  last  decade 
(2015-2024),  and  government  deficits  between  2020 
and 2023 led to increasing borrowing from the rest of 
the  world.  In  2024,  the  private  savings  ratio,  net  of 
fixed capital consumption, remained negative at -5.1% 
of GDP, and its ten-year average of -3.6% of GDP (see 
Graph 2.12.1). The net private investment ratio, turned 
positive  in  2022.  Over  the  last  decade,  net  private 
investment,  which  was  negative  from  2011  to  2021, 
averaged  the  equivalent  of  -1.9%  of  GDP  per  year. 
Lending  to  the  government  increased  sizeably  in  the 
Covid crisis but deficit decreased markedly in 2023 and 
turned  into  surplus  in  2024.  Together,  the  negative 
balance  between  net  private  savings  and  net 
investment,  and  the  positive  average  lending  to  the 
government implied that for the last ten years the Greek 
economy  borrowed  each  year,  on  average, 
the 
equivalent of 4.0% of GDP from the rest of the world. 

2.12.1: 

Net savings-investment balance 

Source: ECB. 

Structure of the financial sector 

Capital  markets 
in  Greece  remain  relatively 
underdeveloped.  The  market  capitalisation  of  listed 
equity reached the equivalent of 33.3% of GDP at end-
2024, which is much below the EU average of 66.8% 
(see  Graph  2.12.3).  Non-financial  corporations 
that  capitalisation.  The 
accounted  for  64%  of 
outstanding  volume  of  debt  securities  reached  the 
equivalent of 63.5% of GDP at end-2024, which is also 
significantly below the EU average of 140% of GDP. 
General government bonds accounted for 71% of the 
outstanding amounts of debt securities. The remainder 
was  distributed  between  banks  (20%),  non-financial 

Source: AMECO. 

The  Greek  economy  improved  its  (negative)  net 
international 
investment  position,  despite  a 
structural net borrowing from abroad. In December 
2024, Greece’s NIIP stood at  -130.4% of GDP709, an 
improvement  from  -167.4%  in  2021,  driven  by 
nominal GDP growth and favourable valuation effects, 
more than offsetting the negative impact of the current 

709  For more detailed analysis, see also In-depth reviews - European 

Commission, May 2025. 

450 

-8-6-4-20246810121420172018201920202021202220232024% of GDPPrivate investment, netLending to the governmentPrivate savings, netPrivate savings, grossBorrowing from the rest of the world-200-150-100-500-400-300-200-100010020020172018201920202021202220232024% of GDP% of GDPOther investment, LiabilitiesPortfolio Investment, LiabilitiesForeign Direct Investment, LiabilitiesOfficial reserve assetsOther investment, AssetsPortfolio Investment, AssetsForeign Direct Investment, AssetsNIIP (rhs) 
 
 
         
 
 
        
corporations  (5%)  and  other  financial  intermediaries 
(4%).  Thus,  the  contribution  of  capital  markets  in 
Greece  to  the  financing  of  the  domestic  economy 
appears  to  be  rather  limited.  In  April  2025,  Greece 
passed a law incorporating a set of incentives in order 
to  enhance  its  capital  market,  including  facilitating 
SME’s listings on the stock exchange. 

2.12.3: 

Capital markets and financial intermediaries 

Source: ECB, EIOPA, AMECO. End-2024. 

The financial sector in Greece remains dominantly 
bank-based and non-bank financial intermediation 
is  not  developed.  The  assets  of  the  banking  sector 
reached 135.2% of GDP in 2024, overshadowing other 
segments.  Foreign  banks  control  only  about  1.2%  of 
the sector’s assets. Insurance corporations held assets 
equivalent  to  8.9%  of  GDP,  and  investment  funds 
accounted for 8.6%, pointing to a relatively modest role 
for  institutional  investors  and  suggesting  room  for 
growth. Pension funds are practically non-existent.  

Financing of the economy 

Sources of NFC funding 

Greek  companies  rely  more  on  bank  funding  and 
less  on  capital  markets  than  their  EU  peers  in 
relative  terms.  At  the  end  of  2024  bank  finance 
through loans constituted 37.2% of all funding sources 
for  Greek  NFCs,  while  listed  shares  and  bonds 
represented only 15.7% of funding sources (see Graph 
2.12.4). The equivalent figures for the EU average are 
27.0% and 23.8%. Expressed as a share of GDP, Greek 
NFCs  also  rely  less  on  bank  finance  than  the  EU 
average (bank finance through loans for Greek NFCs is 
equivalent to 52.5% of GDP against an EU average of 
60.9% of GDP) and less on listed shares and bonds than 

710  See “Benefits for the Greek economy from resolving bad loans 
and zombie firms” published on the Economic Bulletin of Bank 
2024 
of 

Greece, 

July 

the EU average (listed shares and bonds of Greek NFCs 
are equivalent to 22.2% of GDP against an EU average 
of  53.8%  of  GDP).  However,  this  is  because  overall 
levels of funding of NFCs are lower in Greece than the 
EU average (as the overall level of NFC funding was 
141.3%  in  Greece  and  225.6%  of  GDP  for  the  EU 
average). Further, a sizeable part of NFCs is effectively 
excluded from capital markets as their non-performing 
loans  were  transferred  from  banks  to  credit  servicers 
(EUR 27.9 billion or 35% or of total NPLs in servicers’ 
accounts  in  June  2025).  A  recent  study710  found  a 
strong  positive  correlation  between  NPLs  and  the 
prevalence  of  “zombie”  companies  in  the  Greek 
economy  and  revealed  that  a  high  concentration  of 
capital in zombie firms hinders investment by healthy 
firms and prevents the reallocation of capital to more 
productive uses. As regards Greek SMEs, their use of 
equity is low, despite 17% of SMEs indicating in the 
2024  SAFE  survey  that  equity  is  relevant  for  them, 
compared with an EU average of 11.7%.711 

2.12.4: 

Composition of NFCs’ funding 

Source: Eurostat. End-2023. 

Businesses  in  Greece  depend  more  on  internal 
financing than their European peers.  According to 
the 2024 EIB Investment Survey, 75% of Greek firms’ 
investment  needs  are  covered  by  internal  funding, 
compared with an EU average of 66%. In this survey, 
72% of  Greek firms declared that they believed their 
investment activities over the last three years were at 
about the right amount (EU average: 80%), while 14% 
believed  they  invested  too  much  (EU  average:  6%). 
This  suggests  that  there  is  no  material  financing  gap 
relative  to  investment  demand  in  Greece.  However, 
this may not be the case for firms with no or limited 
capacity for internal funding, such as innovative start-
up firms. 

(https://www.bankofgreece.gr/Publications/oikodelt202407.pdf
) 

711  Data and surveys - SAFE - European Commission, 2024, Results 

by country, T27. 

451 

Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIs​Insurance corporationsInvestment funds020406080100120140160   Listed equity               Bonds                        Assets by sector% of GDP050100150200250GREU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity 
 
 
         
 
 
          
this was explained by the lack of market demand for 
Greek  corporate  debt,  which  has  recently  started  to 
change. 

2.12.6: 

Net issuance of bonds 

Source: ECB. 

Retail participation in capital markets 

Greek  households  own  fewer  financial  assets  than 
households  in  other  EU  Member  States,  both  in 
absolute  and  relative  terms.  As  of  end-2024,  an 
average  Greek  household  held  less  than  half  of 
financial  assets  of  an  average  household  in  the  EU. 
Total financial assets held by households represented 
the equivalent of 143% of GDP, versus an EU average 
of 212% (see Graph 2.12.7). Greek households heavily 
favour  holding  their  financial  assets  in  cash  and 
deposits (72.2% of GDP, compared to 67.3% of GDP 
in  the  EU)  over  other  types  of  investments.  This 
outcome reflects a conservative approach to managing 
wealth,  with  a  strong  preference  for  more  liquid  and 
safer assets. 

Market finance 

The Greek capital market is underdeveloped and is 
recovering  since  the  Greek  sovereign  debt  crisis. 
Sources  of  alternative  non-bank  financing  remain 
limited. The market-funding ratio has improved since 
2017  but  remains  at  low  levels,  reaching  28.7%  in 
2024, significantly lower than the EU average (49.5%, 
see  Table  6).  Similarly,  stock  market  capitalization 
improved, from 22.9% in 2017 to 33.3% in 2024 but 
remain well below EU average of 66.8%. The market 
was  demoted  in 2012 from MSCI  Developed  Market 
Status  to  Emerging  Market  Status  and  is  still  in  this 
category  but  is  likely  to  return  to  developed  market 
status in 2026. On the positive side, trading volumes on 
the  Athens  Stock  Exchange  are  rapidly  rising (+25% 
growth in 2024). Trade is however concentrated, with 
the top five most traded stocks accounting for 57.8% of 
the  total  trading  volume  in  2024  (an  EU  average  of 
32.7%).  In  terms  of  performance,  the  general  stock 
market 
index  heavily 
underperformed the relevant Stoxx Europe 600 indices 
see  Graph  2.12.5).  This  is  a  direct  consequence  of 
Greek government-debt crisis when a lot of equity was 
wiped-out, particularly in the banking sector.   

index  and  bank 

stock 

2.12.5: 

Stock market performance 

Source: London Stock Exchange Group712. 

The bond market remains almost untapped by local 
firms  as  debt  market  finance  remains  a  minor 
source  of  funding.  Apart  from  modest  government 
issuances  (due 
long-term  fiscal  consolidation 
efforts), main issuances on the bond market are driven 
by  banks,  principally  to  comply  with  their  MREL 
requirements.  Issuances  by  NFCs  are  rare,  with  most 
companies relying heavily on bank lending. In the past, 

to 

712  The  STOXX  Indices  are  the  intellectual  property  (including 
registered  trademarks)  of  STOXX  Limited,  Zug,  Switzerland 
(“STOXX”) and/or its licensors (“Licensors”). STOXX has not 
been involved in any way in the creation of financial instruments 
or  any  other  products  referencing  the  aforementioned  indices. 
Such products are neither sponsored nor promoted, distributed 
or  in  any  other  manner  supported  by  STOXX  and/or  its 

Licensors. STOXX does not give any warranty and excludes any 
liability  whatsoever  (whether  in  negligence  or  otherwise)  – 
including  without  limitation  for  the  accuracy,  adequateness, 
correctness,  completeness,  timeliness,  and  fitness  for  any 
purpose – in relation to any errors, omissions or interruptions in 
any of STOXX' indices or its data. 

452 

050100150200200820112014201720202023Jan-08=100GR Bank indexSTOXX EUROPE 600 BANKSATHEX COMPOSITE - PRICE INDEXSTOXX EUROPE 6000.05.010.015.020.025.020212022202320242025-Q1bn EURGovernmentMFIsNon-MFINon-financial corporations 
 
 
      
 
 
      
2.12.7: 

Composition of HHs’ financial assets 

1.15.1 

Net savings-investment balance 

Source: Eurostat. End-2023. 

Source: AMECO. 

There is some scope to increase the level of direct or 
indirect retail investment in Greek capital markets. 
Greek  households  had  negative  saving  rates  over  the 
last  decade,  a  direct  consequence  of  the  Greek 
government-debt crisis and the subsequent reduction in 
household  disposable  income.  For  many  Greeks, 
household  income  over  the  past  decade  was  barely 
sufficient for basic needs and debt repayments. More 
advanced financial products are available on the Greek 
market for retail investors. However, only a small part 
of the population shows an interest, including because 
of  the  severe  impact  of  the  Greek  crisis  on  the  retail 
therefore 
investors.  Regaining  clients’ 
challenging,  and  general  interest  in  retail  investment 
remains low. 

trust 

is 

Net  external  liabilities  declined  to  circa  32%  of 
GDP, suggesting that Hungary remains a net capital 
importer.  As of Q3 2024, Hungary’s net international 
investment position (NIIP) was equivalent to -31.8% of 
GDP.  Net  foreign  direct  investment  stock,  which 
reached  -32%  of  GDP  as  of  Q3  2024,  accounted  for 
most  of  the  NIIP.  The  significant  stock  of  foreign 
reserves, which amounted to 22.4% of GDP, decreases 
net  external  liabilities.  The net  portfolio  investments, 
which  are  directly  affected  by  the  price  volatility  of 
equity  valuations  abroad  (assets)  and  in  Hungary 
(liabilities),  were  negative  to  the  tune  of  -20.7%  of 
GDP  as  of  Q3  2024.  They  were  in  line  with  the  net 
stock of other investments, which amounted to  -1.5% 
of GDP at the same time. 

1.15 Hungary 

1.15.2 

International investment position 

Availability and use of domestic savings 

The growing net private savings of the Hungarian 
economy  have  helped  to  mitigate  vulnerabilities 
related  to  external  financing.    Throughout  2014  to 
2023, the private savings ratio fluctuated around its ten-
year  average  of  10.7%  of  GDP,  rising  to  11.7%  in 
2023.    The  net  private  investment  ratio,  which 
measures the private sector's net contribution to capital 
accumulation  in  the  country,  averaged  5.1%  of  GDP 
over the decade but dropped to 3.1% in 2023. During 
this  period,  lending  to  the  government  showed  an 
average  deficit  equivalent  to  4.1%  of  GDP.    The 
substantial  positive  balance  between  net  domestic 
savings and net investment, coupled with a significant 
government deficit, led to net lending of, on average, 
1.5% of GDP to the rest of the world between 2014 and 
2023. 

Source: ECB. 

Structure of the financial sector 

Banks  dominate  the  financial  sector  in  Hungary 
and there is scope for the future development of all 
non-bank  intermediaries.  The  banking  sector  is  the 
largest segment of the financial services, total assets of 

453 

050100150200250020406080100GREUGREUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Currency and depositsInsurance and pension fundsInvestment fundsBondsListed sharesUnlisted sharesOther equityHH Debt (liability)-505101520253020172018201920202021202220232024% of GDPPrivate investment, netLending to the governmentPrivate savings, netPrivate savings, grossBorrowing from the rest of the world-60-50-40-30-20-100-600-400-200020040020172018201920202021202220232024% of GDP% of GDPOther investment, LiabilitiesPortfolio Investment, LiabilitiesForeign Direct Investment, LiabilitiesOfficial reserve assetsOther investment, AssetsPortfolio Investment, AssetsForeign Direct Investment, AssetsNIIP (rhs) 
 
 
        
 
         
         
banks  accounting  for  94.4%  of  GDP  in  2024,  which 
remains  however  significantly  below  the  EU  average 
of  251.1%.  The  total  assets  of  investment  funds 
accounted  for  28%  of  GDP  in  2024.  The  insurance 
sector assets accounted for only 4.8% of GDP in 2024 
(EU  average:  54.8%).  The  OECD  reported  the  total 
assets  of  Hungary’s  pension  funds  equate  to  around 
4.5% of GDP at end-2023.713 

Hungary 

Capital  markets 
remain 
in 
underdeveloped.  The  market  capitalisation  of  listed 
equity reached 19% of GDP at end-2024 (EU average: 
66.8%) (see Graph 2.13.3). Non-financial corporations 
(NFCs) accounted for 44% of that capitalisation, while 
financial  corporations  accounted  for  56%  of  that 
capitalisation.  The  outstanding  volume  of  debt 
securities  reached  83.9%  of  GDP  at  end-2024. 
However,  marketable  debt  securities  issued  by  NFCs 
accounted for only 5.2% of the total bonds. Indeed, the 
domestic  bond  market  in  Hungary  is  dominated  by 
government securities, which accounted for 69.5% of 
the total bonds as of end-2024.  Financial institutions, 
whether banks or not, accounted for 13.8% of the total 
debt securities.  

percentage of overall NFCs financing, loans accounted 
for 30.1% of share of all financing (EU average: 27%). 
On  the  other  hand,  Hungarian  NFCs’  use  of  listed 
shares and bonds was much lower than the EU average, 
both expressed as a percentage of GDP (12% vs 53.8%) 
and as a percentage of overall NFC financing (7% vs 
23.8%) at end-2024. The overall level of non-financial 
corporation (NFC) funding in Hungary was equivalent 
to  170.2% of GDP,  which is substantially lower than 
the  EU  average  of  225.6%  of  GDP  at  end-2024  (see 
Graph 2.13.4). 

Hungarian firms rely mostly on internal financing 
like their European peers. According to the 2024 EIB 
Investment  Survey,  the  investment  needs  of  67%  of 
Hungarian firms are covered by internal funding, close 
to the EU average of 66%.714 At the same time, 73% of 
Hungarian firms believe that their investment activities 
over the last three years were about the right amount 
(below  the  EU  average  of  80%),  while  18%  of 
Hungarian firms believe that their investment activities 
were too little (above the EU average of 14%). Overall, 
this suggests that most Hungarian firms do not perceive 
major investment gaps.715 

1.15.3 

Capital markets and financial intermediaries 

1.15.4 

Composition of NFCs’ funding 

Source: ECB, EIOPA, AMECO. End-2024. 

Financing of the economy 

Sources of NFC funding 

Hungarian  companies  rely  a  lot  more  on  funding 
from banks and much less on funding from capital 
markets. As a source of finance for Hungarian NFCs, 
loans were equivalent to 51.3% of GDP as of end-2024, 
below the EU average of 60.9%. When expressed as a 

Source: Eurostat. End-2024. 

Market finance 

capital  markets 

remain  under-
Hungarian 
developed. As mentioned earlier, market capitalisation 
of listed equity accounted for only 19% of GDP at end-
2024 (EU average: 66.8%). The use of equity by SMEs 
is very low, as only 3% of SMEs indicated in the 2024 
SAFE  survey  that  equity  was  relevant  to  them, 
compared to an EU average of 12%.716 

713  OECD,  2024,  Pension  Markets  in  Focus-2024,  p. 11.  This 
suggests  a  possible  financing  gap  for  early-stage  innovative 
firms in need of capital with high risk tolerance, throughout their 
life-cycle. 

714  EIB, 2024, 2024 EIB Investment Survey, p. 29. 

715  Ibid., p. 7. 
716  European Commission, 2024, Data and Surveys-SAFE, Results 

by country, T27. 

454 

Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIs​Insurance corporationsInvestment funds0102030405060708090100   Listed equity               Bonds                        Assets by sector% of GDP050100150200250HUEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity 
 
 
         
 
 
          
The  main  stock  exchange  in  Hungary  is  the 
Budapest Stock Exchange (BSE), which is home to 
around  155  listed  companies.717  The  MNB  has  the 
controlling  ownership  of  the  BSE.  The  BSE  total 
annual revenue for 2024 decreased by 14% compared 
to  2023718,  while  the  net  profit  remained  stable.  The 
official index for BSE is the Budapest Index (BUX). 
Both  the  index  of  the  general  stock  market  and  the 
index  of  Hungarian  banks  outperformed  the  EU 
average over last years (see Graph 2.13.5).  The equity 
market  is  the  most  important  segment  of  the  BSE, 
accounting for around 90% of trading revenue in 2024, 
while the  second largest trading revenue  is generated 
by derivatives.719 The BSE also operates a multilateral 
trading  facility  (MTF)  for  SMEs  called  BSE  Xtend; 
and a new market segment for secondary bond trading 
called  BSE  Xbond.  KELER,  the  central  depository, 
was founded in 1993 by the Hungarian National Bank 
(MNB), the Budapest Stock Exchange (BSE) and the 
Budapest  Stock  Exchange  and  is  currently  owned by 
the MNB (53.33%) and the BSE (46.67%).720 

1.15.5 

Stock market performance 

Source: London Stock Exchange Group721. 

Debt finance continues to be a significant source of 
market funding for the government in Hungary. In 
Q1  2025,  the  government  issued  EUR  5.7  billion  of 
debt  securities,  compared  to  EUR  7.3  billion  for  the 
whole  of  2024  (around  50%  of  total  issued  bonds  in 
2024). In Q1 2025, MFI net issuance was negative at 
EUR  -1  bn  of  debt  securities,  compared  to  EUR  6.4 
billion  for  the  whole  of  2024  (44.1%  of  total  issued 

bonds in 2024, see Graph 2.13.6). The net issuance by 
NFCs was at EUR 31 million in Q1 2025, compared to 
EUR 1.3 billion in 2024 (9.2% of total issued bonds in 
2024). Hence, debt market finance does not appear to 
be  a  source  of  funding  for  Hungarian  non-financial 
corporations (NFCs). 

1.15.6 

Net issuance of bonds 

Source: ECB. 

While  there  is  no  comprehensive  government 
strategy on promoting capital markets, some sector-
specific  strategies  were  introduced  by  important 
national players in the financial sector. Building on 
the former 2016-2020 strategy722, the BSE developed a 
new strategy for 2021-2025 to further increase the role 
of  capital  markets  (e.g. promoting  the  ESG  aspect  in 
both  equity  and  bond  asset  classes,  exploring 
cooperation  opportunities  in  the  CEE  region,  and 
improving IT innovation and security).723 In 2018, the 
MNB adopted a seven-point strategy report to promote 
the insurance sector in Hungary. The seven points and 
targets  are:  (i)  widespread  self-care  (e.g.  increasing 
coverage of life insurance and voluntary pension fund 
contracts,  the  number  of  contracts);  (ii)  converting 
(e.g.  penetration  of  gross  written 
market  size 
premium/GDP); 
the  competitive 
market;  (iv)  efficient  sales  (e.g.  use  of  innovative 
channels through online sales); (v) economies of scale; 
(vi)  fair  and  competitive  profitability;  and  (vii)  well-
capitalised  insurers.724  The  MNB  carefully  monitors 

increasing 

(iii) 

717  BSE, 2025, Annual Report 2024, p. 7. 
718  BSE, 2025, Annual Report 2024, p. 8. 
719  BSE, 2025, Annual Report 2024, p. 10 
720  BSE, 2025, Annual Report 2024, p. 32. 
721  The  STOXX  Indices  are  the  intellectual  property  (including 
registered  trademarks)  of  STOXX  Limited,  Zug,  Switzerland 
(“STOXX”) and/or its licensors (“Licensors”). STOXX has not 
been involved in any way in the creation of financial instruments 
or  any  other  products  referencing  the  aforementioned  indices. 
Such products are neither sponsored nor promoted, distributed 
or  in  any  other  manner  supported  by  STOXX  and/or  its 
Licensors. STOXX does not give any warranty and excludes any 

liability  whatsoever  (whether  in  negligence  or  otherwise)  – 
including  without  limitation  for  the  accuracy,  adequateness, 
correctness,  completeness,  timeliness,  and  fitness  for  any 
purpose – in relation to any errors, omissions or interruptions in 
any of STOXX' indices or its data. 
722  BSE, 2015, BSE Strategy 2016-2020. 
723  BSE, 2020. BSE Strategy 2021-2025. 
724  MNB,  2018,  The  10-year  vision  of  the  insurance  sector  in  7 
points;  also  MNB,  2024,  Report  on  Insurance,  funds,  capital 
market risks and consumer protection, p. 19. 

455 

050100150200250300350400200820112014201720202023Jan-08=100HU Bank indexSTOXX EUROPE 600 BANKSBUDAPEST (BUX) - PRICE INDEXSTOXX EUROPE 600-5.00.05.010.015.020.025.030.020212022202320242025-Q1bn EURGovernmentMFIsNon-MFINon-financial corporations 
 
 
      
 
 
      
the  development  of  these  seven  targets  on  an  annual 
basis. 

1.16.1 

Net savings-investment balance 

Retail participation in capital markets 

Hungarian  households  have  a  high  savings  rate, 
with  the  majority  of  their  financial  assets  held  in 
government bonds and investment funds, but more 
can be done. At end 2024, Hungarian households had 
a  lower-than-average  holding  of  cash  and  deposits, 
representing  nearly  a  quarter  (23.6%)  of  household 
assets (EU average: 31.7%).  Part of the deposits seem 
to be replaced by domestic government bonds. At end 
2024, 38% of households’ financial assets were held in 
pension  and  investment  funds  or  held  directly  in 
financial  investment  instruments  (EU  average  of 
46.6%). More specifically, households’ direct holdings 
of investment insurance and pension funds was at 6.3% 
of all household financial assets (EU average: 27.9%), 
investment funds at 13.2% (EU average: 11.1%), bonds 
at 15.2% (EU average: 2.8%), and listed shares at 3.1% 
(EU  average:  4.9%)  (see  Graph  2.13.7).  In  Hungary, 
direct  and 
investment  by 
households  was  52%  in  2022  (EU  average:  56.2%), 
which is rather high. 

intermediated 

retail 

Source: AMECO. 

thereafter  as 

exceptionally  strong  in  2019  thanks  to  a  temporary 
spike in investments of intellectual property, but it fell 
sharply 
the  pandemic  curtailed 
construction activity and severely impacted the aircraft 
leasing business, which is very important for Ireland. 
Private 
capital 
depreciation  in  2021,  2022  and  2023.  Government 
finances delivered a surplus over the most recent years 
contributing positively to total national savings.  

investment  has 

fallen  below 

1.15.7 

Composition of HHs’ financial assets 

international 

Despite recent improvements, Ireland maintains an 
overall  negative  net 
investment 
position (NIIP). Due to strong investment inflows in 
the past, Ireland accumulated a deeply negative NIIP, 
hitting 190.6% of GDP in 2019. Since then, the NIIP 
has improved significantly to 82.5% in 2024, thanks to 
the current account surpluses in the most recent years. 
Most  of  the  foreign  investment  in  Ireland  comes  as 
portfolio investment with an outstanding balance of 11 
times GDP. The country’s NIIP is heavily influenced 
by  the  activities  and  balance  sheets  of  multinational 

1.16.2 

International investment position 

Source: Eurostat. End-2024. 

1.16 Ireland 

Availability and use of domestic savings 

Ireland  has  been  a  net  exporter  of  capital    since 
2021. Ireland’s saving and investment balance, which 
is equal to the current account, stood at 13.6% of GDP 
in  2024,  showing  that  Ireland’s  aggregate  savings 
exceeded  domestic  investment  needs  and  the  surplus 
had to be invested overseas. While Ireland’s aggregate 
gross  private  savings  rate  averaged  32%  relative  to 
GDP  in  the  last  decade,  the  net  savings  rate  after 
deducting capital depreciation, stood at 8.4% of GDP 
in  the  same  time  period.  Private  investment  was 

Source: ECB. 

456 

050100150200250020406080100HUEUHUEUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Currency and depositsInsurance and pension fundsInvestment fundsBondsListed sharesUnlisted sharesOther equityHH Debt (liability)-20-100102030405020172018201920202021202220232024% of GDPPrivate investment, netLending to the governmentPrivate savings, netPrivate savings, grossBorrowing from the rest of the world-250-200-150-100-500-3000-2000-100001000200020172018201920202021202220232024% of GDP% of GDPOther investment, LiabilitiesPortfolio Investment, LiabilitiesForeign Direct Investment, LiabilitiesOfficial reserve assetsOther investment, AssetsPortfolio Investment, AssetsForeign Direct Investment, AssetsNIIP (rhs) 
 
 
       
 
         
        
companies  and  the  country’s  position  as  a  major 
financial  centre. Most of the constituent entities have 
limited links to Ireland’s domestic economy, which in 
turn  reduces  domestic  exposure  and  vulnerabilities. 
The  stock  of  official  foreign  exchange  reserves 
contributed  6  percentage  points  of  GDP  to  the 
aggregate positive NIIP.  

Structure of the capital markets and size of the 
financial sector 

funds  and  money  market 

Ireland  functions  as  a  significant  international 
financial  centre  especially  for  investment  banks, 
funds. 
investment 
Ireland’s  market-based  finance  sector  has  grown 
rapidly over the past years, reaching an asset volume of 
roughly EUR 6.8 trillion in assets in March 2025. Many 
of  the  Ireland-based  financial  institutions  have  only 
limited  exposures  to  the  Irish  economy.  Their  assets 
and liabilities are located outside Ireland, and they offer 
services outside Ireland. The sector is composed of a 
diverse  set  of  institutions:  the  most  important  are 
investment funds with total assets of EUR 4.7 trillion, 
money market funds with assets worth EUR 903 billion 
as  at  March  2025.  Another  large  group  are  special 
purpose  entities  with  assets  worth  EUR  1.8  trillion. 
These  can  be  divided  into  securitisation  and  non-
securitisation  vehicles.  There  are  also  other  financial 
institutions,  which  are  mainly  treasuries  of  non-
financial corporations.  

1.16.3 

Capital markets and financial intermediaries 

are  Medtronic,  Eaton  Corp, 

market capitalisation of financial corporations is at the 
lower end with 11.2%. The high figure of Irish listed 
shares is inflated by redomiciled plc, these are overseas 
companies, in particular from the US, that move their 
legal  headquarters  to  Ireland  for  regulatory  reasons. 
Examples 
Jazz 
Pharmaceuticals,  Alikerms,  STERIS,  Actavis,  Willis 
Towers Watson, Aoin, and Cimpress. These companies 
are  structured  as  holding  companies  with  US 
operations but count as Irish companies in the statistics 
even  though  their  footprint  in  the  country  is  quite 
limited,  and  they  list  their  shares  on  US  stock 
exchanges.  These  redomiciled  PLCs  significantly 
inflate figures for Irish foreign direct investment, listed 
equity, and even GDP-related metrics. The outstanding 
volume of debt securities reached 198% of GDP at end-
2023, which is also among the highest national scores 
in the EU. In this context it is important to note that a 
lot  of  Irish  companies  choose  to  list  overseas, 
specifically in London or in New York. The ISEQ All 
Share  Index  captures  the  performance  of  all  Irish 
companies  that  are  listed  in  Dublin.  Since  2016  the 
performance  has  been  in  line  with  the  Stoxx  Europe 
600. 

Amidst  the  oversized  financial sector, the banking 
sector  itself  is  small  relative  to  the  size  of  the 
economy. At the end of 2023, the ratio of total assets 
of monetary financial institutions (MFI) to GDP stood 
at 316.1%, above the EU average (256.9%) but this is 
chiefly  due  to  the  presence  of  money  market  funds. 
Looking  at  banks  only,  their  total  assets  are  actually 
below  EU  average  compared  to  the  size  of  the 
economy.  

1.16.4 

Stock market performance 

Source: ECB, EIOPA, AMECO. End-2024. 

Multinational  companies  choose  Ireland  as  legal 
headquarters  inflating  listed  stocks  statistics.  The 
market  capitalisation  of  listed  shares  issued  by  Irish 
NFCs stood at 226% of GDP at end-2024 (see Graph 
2.14.3),  which  is  the  highest  in  the  EU,  but  the  total 

Source: London Stock Exchange Group725. 

725  The  STOXX  Indices  are  the  intellectual  property  (including 
registered  trademarks)  of  STOXX  Limited,  Zug,  Switzerland 
(“STOXX”) and/or its licensors (“Licensors”). STOXX has not 
been involved in any way in the creation of financial instruments 
or  any  other  products  referencing  the  aforementioned  indices. 
Such products are neither sponsored nor promoted, distributed 

or  in  any  other  manner  supported  by  STOXX  and/or  its 
Licensors. STOXX does not give any warranty and excludes any 

457 

Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIs​Insurance corporationsInvestment funds01002003004005006007008009001000   Listed equity               Bonds                        Assets by sector% of GDP050100150200200820112014201720202023Jan-08=100IE Bank indexSTOXX EUROPE 600 BANKSISEQ ALL SHARE INDEX - PRICE INDEXSTOXX EUROPE 600 
 
 
         
 
 
      
 
 
Financing of the economy 

Sources of NFC Funding 

Many  multinational  non-financial  corporations 
(NFCs)  use  Ireland  as  their  European  base.  Many 
non-European companies have chosen Ireland as their 
European headquarters, benefiting from: (i) a business-
friendly environment and corporate tax code; (ii) use of 
the  English  language;  and  (iii)  a  skilled  work  force. 
This  explains  the  outsized  balance  sheet  of  the  NFC 
sector of 4.5 times GDP, and the large share of unlisted 
equity  (34%)  on  the  liability  side  of  the  aggregate 
balance sheet compared with an EU average of 24%, as 
multinational enterprises hold ownership rights of their 
subsidiaries in the form of unlisted equity. Loans also 
play a significant role in corporate funding, but less so 
than at EU level, with loans accounting for 19% of Irish 
firms’ balance sheets, vs an EU average of 27%. Listed 
shares accounted for 38% of funding sources in 2023, 
compared with an EU average of 19%. Ireland’s high 
market-funding  ratio  of  87.4%  masks  a  sharp 
distinction between multinational corporations, which 
can  easily  source  financing  in  capital  markets,  and 
indigenous companies, predominantly SMEs, that rely 
almost  exclusively  on  bank 
loans.  Large  Irish 
companies  have  easy  access  to  international  capital 
markets.  Irish  companies  had  EUR  79.8  bn  in  debt 
securities  outstanding.  Insurance  companies  are  an 
important source of investments for the Irish economy. 
EEA insurance companies have invested EUR 15.8 bn 
in  Ireland,  at  the  end  of  2024.  EEA  insurance 
companies have EUR 11.8 bn in Irish equity and 2.7 bn 
in  property,  but  also  EUR  2.9  bn  in  mortgages  and 
loans. 

Market finance 

Euronext Dublin, formerly known as the Irish Stock 
Exchange, has only a small number of stock listings, 
but is an important trading venue for debt securities 
and  investment  funds.  The  Dublin  Stock  exchange 
became part of the Euronext group in 2018. Euronext 
Dublin has established itself as the largest listing venue 
for bond and fund listings in the world. Its stock market 
itself  is  quite  small.  The  number  of  companies  listed 
has  been  declining  over  recent  years  and  only  29 
companies had their equity listed on Euronext Dublin 
in March 2025. Many Irish companies have chosen to 
list  abroad,  in  many  cases  in  third  countries  in  the 
expectation  that  this  would  facilitate  market  access. 
The outstanding listed equity – domestically or abroad 

liability  whatsoever  (whether  in  negligence  or  otherwise)  – 
including  without  limitation  for  the  accuracy,  adequateness, 
correctness,  completeness,  timeliness,  and  fitness  for  any 
purpose – in relation to any errors, omissions or interruptions in 
any of STOXX' indices or its data. 

- of Ireland’s non-financial corporations amounted to 
192.2% of GDP in 2023. 

1.16.5 

Net issuance of bonds 

Source: ECB. 

Debt finance continues to be a significant source of 
market funding for banks and financial companies 
in  Ireland.  In  the  first  quarter  of  2025,  monetary 
financial  institutions  issued  net  EUR  0.9  bn  of  debt 
securities, after negative net issuance of EUR  -1.4 bn 
in  2024  (see  Graph  2.14.5).  The  other  financial 
corporations  issued  EUR  27.1  bn  in  Q1  2025, 
compared to the 2024 total of EUR 51.2 bn.726 These 
debt securities were issued by securitisation vehicles, 
financial auxiliaries, captive financial institutions and 
money  lenders.  The  net  issuance  by  non-financial 
corporations amounted to only EUR 2.3 bn in Q1 2025, 
after a 2024 total of EUR 6.6 bn.  

the  presence  of 

large  multinational 
Given 
enterprises 
in  Ireland,  the  corporate  sector’s 
balance sheet is relatively big compared to the size 
to  the  economy.  Irish  multinational  companies  are 
often  funded  by  unlisted  shares  held  by  their  foreign 
parent.  Outstanding  debt  liabilities  of  non-financial 
corporations  (NFCs)  in  Ireland  reached  more  than 
123%  of  GDP  in  2024,  which  is  significantly  higher 
than the EU average of about 81% (see Graph 2.14.6). 
However,  given  the  overall  much  larger  size  of  the 
aggregate balance sheet of Irish NFCs, which reached 
437% of GDP at end-2024 (versus an EU average of 
226%),  the  relative  share  of  financial  loans  in  their 
funding structure (28.1%) is slightly lower than the EU 
average (35.6%). 

Surveys  suggest  that  Irish  companies  are  content 
with  their  access  to  external  finance.  According  to 

726  Other 

financial  corporations 

include  on-money  market 
investment funds (S.124), other financial intermediaries (S.125), 
financial  auxiliaries  (S.126),  captive  financial  institutions  and 
money  lenders  (S.127)  ,  insurance  companies  (S.128)  and 
pension funds (S.129). 

458 

-20.00.020.040.060.080.0100.0120.0140.020212022202320242025-Q1bn EURGovernmentMFIsNon-MFINon-financial corporations 
 
 
 
 
       
the 2024 EIB Investment Survey, 80% of investments 
by  companies  in  Ireland  was  financed  internally  or 
from  intra-group  sources,  compared  with  an  EU 
average  of  75%.  At  the  same  time,  80%  of  Ireland’s 
firms believed that their investment over the previous 
three  years  were  at  about  the  right  amount,  a  view 
shared by 80% of EU firms on average. Only 17% of 
Irish  firms  said  they  had  invested  too  little  over  this 
period, although this exceeded the EU average of 14%, 
suggesting that there could be a financing gap relative 
to  investment  demand  in  Ireland.  According  to  the 
same survey, the share of finance-constrained firms is 
around 10% and thus above the EU average of around 
7%. The most important reason cited by these firms for 
being  finance-constrained  is  receiving  smaller  loan 
amounts  than  they  had  applied  for.  For  SMEs 
specifically,  in  the  last  SAFE  Access  to  Finance 
Survey, the share of Irish SMEs reporting that access 
to finance was a constraint for them was 6%, which is 
in line with the EU average. 

1.16.6 

Composition of NFCs’ funding 

Source: Eurostat. End-2024. 

funds  and  pension 

Irish households’ participation in financial markets 
insurance  products.  Average 
is  dominated  by 
financial  household  wealth  in  Ireland  is  estimated  at 
EUR 98 000 and thus above the EU average of EUR 80 
300.  Households’ 
largest  holdings  are  deposits, 
funds.  Although 
insurance 
households have higher debt levels than in the EU on 
average, this is matched by their larger cash holdings. 
The share of their wealth that Irish households hold in 
financial instruments, namely investment funds, listed 
equities and bonds, is only 3.8%, falling far below the 
EU  average  of  23.2%.  Despite  Ireland’s  outstanding 
role  as  a  fund  centre,  Irish  households’  holdings  of 
investment funds are unusually low, accounting for less 
than  1%  of  the  aggregate  household  balance  sheet, 
compared with an EU average of 10.0%.   

The  availability  of  growth  capital  in  Ireland  falls 
slightly short of the EU average. In 2023, the value 
of  private-equity  investments  in  the  country  was 
equivalent to 0.2% of GDP, below the EU average of 

1.16.7 

Composition of HHs’ financial assets 

(1) For Ireland "other equity" is included in "unlisted shares" 
Source: Eurostat. End-2024. 

0.4%, and it has been below the EU average for most 
of  the  past  10  years.  Similarly  for  venture-capital 
investments, Ireland had VC investments equivalent to 
0.4%  of  GDP  in  2023,  just below  the  EU  average  of 
0.5%, but achieving higher values in previous years.  

is 

to  support 

To  support  young  innovative  businesses,  Ireland 
offers  attractive  start-up  support  programmes. 
Enterprise Ireland is a government agency responsible 
for helping Irish businesses to start, grow, and expand 
into international markets. It provides support through 
several  programmes,  such  as  the  Competitive  Start 
Fund (CSF) and the High Potential Start-Up Fund. The 
CSF provides up to EUR 50 000 in equity funding to 
early-stage  start-ups  and  is  designed  to  support  start-
ups that have the potential to scale internationally. The 
the 
typically  used 
CSF  funding 
development of a start-up's product or service, as well 
as its business plan and marketing strategy. The High 
Potential Start-Up Fund provides funding and support 
to start-ups that have the potential to scale quickly and 
become  major  players  in  their  markets.  The  fund 
typically  provides  funding  of  between  EUR  500  000 
and EUR 5 million and is designed to support start-ups 
that  are  developing  innovative  products  or  services, 
and  that  have  strong  potential  for  export  growth.  In 
addition, Enterprise Ireland’s Seed and Venture Capital 
Scheme aims to leverage private-sector investment by 
co-funding  venture-capital  projects,  thereby  easing 
financial  barriers  for  start-ups.  By  August  2024, 
Enterprise Ireland had invested over EUR 700 million 
in  the  scheme,  which  has  leveraged  funds  totalling 
EUR  3.3  billion.  Further, 
the  Ireland  Strategic 
Investment  Fund,  managed  and  controlled  by  the 
National Treasury Management Agency (NTMA), has 
a  mandate 
to  support  economic  activity  and 
employment in Ireland. Its main investment areas are 
climate, housing and regional investments, indigenous 
businesses, and food and agriculture. 

459 

050100150200250300350400450500IEEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity050100150200250020406080100120IEEUIEEUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Currency and depositsInsurance and pension fundsInvestment fundsBondsListed sharesUnlisted sharesOther equityHH Debt (liability) 
 
 
           
  
1.17.2 

International investment position 

1.17 Italy 

Availability and use of domestic savings 

1.17.1 

Net savings-investment balance 

Source: AMECO. 

Italy’s  private  sector  saves  comparatively  little  in 
net terms, despite a pick-up in pace since 2020, and 
does not invest enough in the domestic economy. In 
the last decade (2015-2024), the private savings ratio, 
net of fixed capital consumption, averaged 6% of GDP, 
albeit  with  a  marked 
increase  since  2020  and 
particularly  in  the  period  2020-2022  (see  Graph 
2.15.1).  The  net  private  investment  ratio,  which 
measures  the  net  direct  contribution  of  the  private 
sector to capital accumulation in the country, fluctuated 
around zero and averaged -0.7% of GDP, contributing 
to a shrinking capital structure of the economy. There 
was  an  improvement  in  2024,  with  net  private 
investment turning positive at 2.4% of GDP, similar to 
the  EU  average  and  expected  to  stay  close  to  these 
levels for 2025-2026. However, it still falls short of the 
net savings ratio, suggesting that domestic savings are 
not mainly invested in the domestic private sector. At 
the  same  time,  the  rather  sizeable  borrowing  by  the 
government,  which  averaged  4.8%  of  GDP  over  the 
last  decade,  absorbed  the  equivalent  of  81%  of  net 
private  savings.  The  remaining  average  net  positive 
balance of 1.9% of GDP resulted in regular net lending 
to foreigners, with the notable exception of 2022. Thus, 
overall,  in  the  last  decade  the  net  Italian  private 
savings,  i.e.  after  accounting for  the  investments  that 
are necessary to maintain the existing capital structure 
of the economy, were channelled towards government 
and  foreign  projects,  rather  than  domestic  private 
investments.  

Source: ECB. 

its  net 

Consistent  with  Italy’s  annual  positive  lending  to 
the  rest  of  the  world, 
international 
investment position (NIIP) has been increasing. As 
of end-2024, total assets on foreigners reached 172% 
of GDP, up from 148% at end-2017, while liabilities to 
foreigners  were  only  marginally  up,  from  155.3%  to 
157%  of  GDP  over  the  same  period,  resulting  in  a 
positive  net  international  investment  position  (NIIP) 
equivalent to 15% of GDP (see Graph 2.15.2). The net 
stock  of  foreign  direct  investment  has  been  broadly 
stable, declining from 6% of GDP at end-2017 to 5% 
as  of  end-2024.  Hence,  the  increase  of  the  NII  was 
driven  primarily  by 
the  net  stock  of  portfolio 
investments,  which  increased  by  20.5  percentage 
points  of  GDP,  and  by  the  stock  of  official  foreign 
exchange reserves, which expanded by 5.5 percentage 
points of GDP. Meanwhile, the net liability of Italy in 
terms of other investments increased by 3.1 percentage 
points of GDP. Thus, the Italian economy appears to be 
well  integrated  in  international  capital  flows  and  has 
managed  lately  to  accumulate  more  private  assets  on 
foreigners 

Structure of the capital markets and size of the 
financial sector 

Banks  dominate  the  financial  sector  in  Italy  and 
there is scope for the future development of all non-
bank intermediaries. After peaking at 230% of GDP 
in 2020, the size of the banking sector declined to 176% 
of GDP in 2024. Insurance companies, with total assets 
equivalent to 50% of GDP at end-2024, are the most 
developed  non-bank  financial  intermediaries  in  Italy, 
though  their  size  remains  below  the  EU  average  of 
circa  55%.  Total  assets  of  investment  funds  were 
equivalent  to  24.5%  of  GDP  at  end-2024,  while 
occupational pension funds equalled 8.9% of GDP. 

460 

-10-505101520253020172018201920202021202220232024% of GDPPrivate investment, netLending to the governmentPrivate savings, netPrivate savings, grossBorrowing from the rest of the world-10-505101520-200-100010020020172018201920202021202220232024% of GDP% of GDPOther investment, LiabilitiesPortfolio Investment, LiabilitiesForeign Direct Investment, LiabilitiesOfficial reserve assetsOther investment, AssetsPortfolio Investment, AssetsForeign Direct Investment, AssetsNIIP (rhs) 
 
 
 
 
         
         
1.17.3 

Capital markets and financial intermediaries 

listed  shares  in  the  funding  mix  (8.5%  of  funding 
sources vs 19.1% for the EU). This suggests that own 
profitability plays a somewhat larger role as a source of 
funding for Italian firms relative to their EU peers. 

1.17.4 

Composition of NFCs’ funding 

Source: ECB, EIOPA, AMECO. End-2024. 

Capital  markets  in  Italy  remain  underdeveloped 
and insufficiently deep. The market capitalisation of 
listed equity of Italian companies as a share of GDP727 
is small by EU standards, at 31.3% of GDP vs an EU 
average of 66.8% as of end-2024 (see Graph 2.15.3). 
Non-financial corporations accounted for about 60% of 
that  capitalisation.  The  outstanding  volume  of  debt 
securities reached 155.6% of GDP at end-2024, which 
is  one  of  the  highest  national  scores  in  the  EU. 
However,  marketable  debt  securities  issued  by  non-
financial corporations (NFCs) accounted for less than 
6% of the  total. Indeed, the domestic bond market in 
Italy  is  entirely  dominated  by  government  securities, 
which accounted for almost 74% of the total as of end-
2024.  Financial  institutions,  whether  banks  or  not, 
accounted for the remaining 20% of debt securities. 

Financing of the economy 

Sources of NFC funding 

Italian companies rely less on capital markets and 
more  on  own  profitability  as  a  source  of  funding 
than their EU peers, alongside bank lending. As a 
source  of  finance  for  Italian  NFCs,  loans  were 
equivalent to 47% of GDP as of end-2024, below the 
EU average of 60.9% (see Graph 2.15.4). Nevertheless, 
expressed as a percentage of overall NFCs financing, 
loans accounted for only a slightly smaller share of all 
financing sources (26.6% versus 27% in the EU). In the 
meantime, Italian NFCs’ use of listed shares and bonds 
was also lower than the EU average, both expressed as 
a  percentage  of  GDP  (23.9%  vs  53.8%)  and  as  a 
percentage  of  overall  NFC  financing  (13.5%  vs 
23.8%). This is largely due to the small proportion of 

Source: Eurostat. End-2024. 

However,  the  role  of  internal  funding  is  not 
excessive compared to EU average, and firms do not 
appear to suffer from a lack of funding. According 
to  the  2024  EIB  Investment  Survey,  62%  of  Italian 
firms  responded  that  their  investment  needs  are 
covered by internal funding, close to the EU average of 
66%. Moreover, 92% of Italian firms believe that their 
investment  activities  over  the  last  three  years  were 
about  the  right  amount,  higher  than  the  EU  average 
(80%),  suggesting  that  there  is  no  material  financing 
gap relative to investment demand. However, this may 
not be the case for firms with no or limited capacity for 
internal funding, such as innovative start-up firms (see 
further below). Overall, Italy’s business sector invests 
less as a share of GDP (11.4%)  than the EU average 
(13%). 

Market finance 

The Italian stock exchange is small relative to large 
EU peers. The Italian stock exchange (Borsa Italiana) 
forms  part  of  Euronext,  a  pan-European  market 
infrastructure.  Borsa  Italiana  is  substantially  smaller 
both as an absolute figure and as a share of GDP than 
the  stock  exchanges 
in  Paris,  Amsterdam  or 
Frankfurt.728 In terms of performance, the general stock 
market index in Italy and, even more so, the index of 
Italian  bank  stocks  heavily  underperformed 
the 
relevant Stoxx 600 indices the first years since the 2008 

727  This  figure  includes  all  listed  shares  of  Italian  companies, 

irrespective of the stock exchange where they are listed. 

728  E.g. according to Euronext's Investor toolbox, as of April 2025 
the market capitalisation of Borsa Italiana was EUR 906 bn vis-

à-vis EUR 3044 bn for Paris and EUR 1454 bn for Amsterdam 
stock exchanges. 

461 

Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIsPension fundsInsurance corporationsInvestment funds020406080100120140160180200   Listed equity               Bonds                        Assets by sector% of GDP050100150200250ITEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity 
 
 
          
 
 
  
global  financial  crisis  but  have  recovered  part  of  the 
lost ground since end-2015 (see Graph 2.15.5).  

a small fraction of the total outstanding stock of Italian 
debt securities (see previous section).  

1.17.6 

Net issuance of bonds 

New  listings  were  limited  in  the  main  market  in 
recent years, with more vibrant activity in the SME 
growth  market.  In  2024,  23  Italian  companies  were 
admitted  to  trading  on  Borsa  Italiana,  of  which  only 
two  on  the  main  market  (Euronext  Milan)  and  21  on 
the  growth  market  (Euronext  Growth  Milan).  In  the 
same period, 29 companies exited the market, 15 from 
the  main  market  and  14  from  the  growth  market. 
Overall, from 2018, there have been 50 listings and 84 
delistings from the main market, while in the  growth 
listings  and  91 
market 
delistings.729 

there  have  been  204 

1.17.5 

Stock market performance 

Source: ECB. 

There have been numerous national measures taken 
to foster non-bank finance in Italy. These included a) 
the  creation  of  a  mini-bond  market731  since  2012, 
which allows smaller firms to tap into the bond market, 
b)  the  introduction  of  Special  Purpose  Acquisition 
Companies (SPACs)732, c) changes in the threshold to 
be exempt from the obligation to publish a prospectus, 
d)  the  National  Fund for Innovation  to  boost  venture 
capital, e) the set-up of PIR (individual savings plans 
through  collective  investment  schemes),  which  offer 
tax  incentives  to  investors  who  direct  savings  into 
Italian  or  EEA  companies  with  a  permanent 
establishment  in  Italy,  f)  the  expansion  of  the 
crowdfunding  legal  framework  since  2019  to  include 
shares and bonds by SMEs, g) the introduction in 2019 
of  the  SIS  (Società  di  Investimento  Semplice),  a 
vehicle  company  that  can  invest  in  unlisted  SMEs  at 
early  stage,  h)  the  creation  in  2018  of  the  National 
Observatory on Sustainable Finance and the Financial 
Centre  for  Sustainability  and  i)  the  establishment  by 

Source: London Stock Exchange Group730. 

Net  bond  issuance  continues  to  be  dominated  by 
government  debt.  Government  debt 
steadily 
represents 80% or more of net bond issuance every year 
in the Italian market (see Graph 2.15.6). With regards 
to  non-financial  corporations,  their  debt  issuance 
activity  can  vary  significantly  from  one  year  to  the 
next. It was subdued in 2024 (-74% down compared to 
2023) but showed signs of recovery in the first quarter 
of 2025 with net bond issuance of EUR 6.9 bn, higher 
than  during  the  whole  of  2024.  Nonetheless,  non-
financial corporations’ marketable debt represents but 

729  Relazione annuale 2024 CONSOB 
730  The  STOXX  Indices  are  the  intellectual  property  (including 
registered  trademarks)  of  STOXX  Limited,  Zug,  Switzerland 
(“STOXX”) and/or its licensors (“Licensors”). STOXX has not 
been involved in any way in the creation of financial instruments 
or  any  other  products  referencing  the  aforementioned  indices. 
Such products are neither sponsored nor promoted, distributed 
or  in  any  other  manner  supported  by  STOXX  and/or  its 
Licensors. STOXX does not give any warranty and excludes any 
liability  whatsoever  (whether  in  negligence  or  otherwise)  – 
including  without  limitation  for  the  accuracy,  adequateness, 
correctness,  completeness,  timeliness,  and  fitness  for  any 
purpose – in relation to any errors, omissions or interruptions in 
any of STOXX' indices or its data. 

731  Mini-bonds  are  emissions  from 

joint-stock  non-financial 
companies or cooperatives, normally SMEs, for an amount less 
than EUR 50 mn, not open to retail investors and typically listed 
on  Borsa  Italiana  ExtraMOT  Pro.  Based  on  data  by  the  mini-
bond observatory, since 2013 there have been 1,977 minibond 
issues with a nominal value of EUR 12.6 bn. 

732  SPACs are cash shell companies, listed on financial markets, the 
purpose  of  which  is  to  carry  out  a  merger  with  an  operating 
company, which then becomes listed on a regulated market or a 
multilateral trading facility. The SPAC process is an alternative 
to the standard IPO.  

462 

050100150200200820112014201720202023janv-08=100IT Bank indexSTOXX EUROPE 600 BANKSFTSE MIB INDEX - PRICE INDEXSTOXX EUROPE 600-40.0-20.00.020.040.060.080.0100.0120.0140.0160.020212022202320242025-Q1bn EURGovernmentMFIsNon-MFINon-financial corporations 
 
 
       
 
 
       
 
Banca d’Italia in 2021 of a regulatory sandbox to foster 
FinTech development.  

1.17.7 

Composition of HHs’ financial assets 

Further  capital  market  reforms  are  being 
implemented  or  are  planned  in  the  near  future. 
Building on past progress, the OECD prepared a capital 
market review for Italy in 2020, under an EU-funded 
technical support project. This was followed by a green 
paper  on  the  competitiveness  of  Italian  financial 
markets in support of growth, published by the Italian 
Ministry  of  Economy  and  Finance  in  March  2022. 
These  initiatives  led  to  the  adoption  of  the  Capital 
Markets  bill  (Decreto  Capitali,  Law  21/2024)  in 
February  2024.  This  Law  widens  the  definition  of 
SMEs and aims to stimulate the Italian IPO market and 
incentivise  investment  in  companies  listed  in  Italy, 
while at the same time making changes to the corporate 
financial 
governance 
literacy.  A  further  reform  of  the  Testo  Unico  della 
Finanza (TUF) is underway, although it was recently 
postponed by a maximum of one year.733 

framework  and  promoting 

Retail participation in capital markets 

Italian  households  tend  to  invest  their  above-
average wealth in a similar way to EU peers but are 
more risk-averse to direct exposure to shares. Italian 
households  have  a  higher  amount  of  financial  assets 
than the EU average both in per capita terms and as a 
share  of  GDP  (see  Graph  2.15.7).  The  share  of 
households’  financial  assets  held  in  pension  and 
investment  funds  or  directly  in  financial  investment 
instruments  is  only  slightly  below  the  EU  average 
(45.7% vs 46.6% as of end-2024). Compared to the EU 
average,  Italian  households  have  a  higher  share  of 
financial assets invested in bonds (8.6% vs 2.8%) and 
investment funds (14.9% vs 11.1%) and a lower share 
of  financial  assets  invested  in  listed  shares  (3%  vs 
4.9%)  and  insurance  and  pension  funds  (21.9%  vs 
31.4%).  Domestic  government  debt  in  particular  is  a 
popular investment for Italian households, which hold 
13% of the total outstanding general government debt 
of Italy as of June 2024. 

Source: Eurostat. End-2024. 

Further  measures  to  boost  retail  participation  in 
capital  markets  are  underway.  The  take-up  of  past 
initiatives to boost the level of retail participation, such 
as the  creation of individual savings plans (PIR), has 
waned  since  2019.734  However,  a  comprehensive 
reform of financial legislation planned for the first half 
of  2025  may  include:  i)  using  the  option  under  EU 
legislation735  for  a  registration  system  (instead  of 
authorisation) for alternative investment funds, and ii) 
allowing  retail 
investors  to  invest  in  registered 
alternative funds, thus facilitating investment in private 
equity and venture capital funds. 

1.18 Latvia 

Availability and use of domestic savings 

In 2021, Latvia switched from a net foreign lender 
to  a  net  borrower.  Over  the  last  decade,  the  private 
savings  ratio,  net  of  fixed  capital  consumption, 
fluctuated around its ten-year average of 6.2% of GDP, 
reaching a maximum of 10% in 2021 (Graph 2.16.1). 
The net private  investment ratio, which measures the 
net  contribution  of  the  private  sector  to  capital 
accumulation  in  the  country,  exhibited  a  ten-year 
average  of 3.0% of GDP and reached a maximum of 
5.4% in 2021. At the same time, during the same period 
the  government  balance  was  in  regular  surplus, 
averaging  0.8%  of  GDP.  Until  2020,  the  balance 
between net domestic savings, net investment, and the 
structural  government  deficits  was  positive,  resulting 

733  The TUF —the Consolidated Law on Finance—regulates non-
banking  financial  intermediation.  A  review,  which  aims  at 
simplifying this framework, was envisaged under a delegation 
granted in 2024’s Capital Markets bill, allowing the Ministry of 
Economy and Finance to issue one or more legislative decrees 
within  twelve  months  of  the  entry  into  force  of  the  Capital 
Markets bill, i.e. by March 2025. Moreover, within 18 months 
of the adoption of these legislative decrees, the Government may 
issue  one  or  more  legislative  decrees  supplementing  them. 

However, in March 2025, a 12-month extension was granted to 
the initial period for the issuance of the legislative decrees. 
734  PIRs offer tax incentives to invest savings into  Italian or EEA 
companies  permanently  established  in  Italy.  As  of  end-2024, 
only 1.5% of the assets under management of open-ended and 
closed-ended funds in Italy were in the form of original PIRs and 
only 0.2% in alternative PIRs. See PIR Observatory, May 2025, 
Assogestioni. 

735  Directive 2011/61/EU (AIFMD). 

463 

0100200300050100150ITEUITEUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Other equityUnlisted sharesListed sharesBondsInvestment fundsInsurance and pension fundsCurrency and depositsHH Debt (liability) 
 
 
 
 
   
1.18.2 

International investment position 

in net lending by Latvia averaging 0.8% of GDP, with 
a  peak of 4.8%  in  2020.  Hence,  some  of  Latvian  net 
savings,  i.e.  after  accounting for  the  investments  that 
are  necessary  to  merely  maintain  the  existing  capital 
structure of the economy, were used to finance projects 
abroad  until  2020.  In  2021  Latvia  became  a  net 
borrower from the rest of the world.  

1.18.1 

Net savings-investment balance 

Source: ECB. 

Structure of the financial sector 

In terms of capital market development, Latvia lags 
behind  the  rest  of  the  EU,  and  also  neighbouring 
countries.  Despite  a  similar  economic  structure  and 
size,  stock  exchanges  of  Estonia  and  Lithuania  have 
been  able  to  achieve  a  higher  level  of  development. 
Whereas  the  market  capitalisation  of  listed  stocks  in 
Estonia reached 12.7% at the end of 2024, and 6.2% in 
Lithuania, it was only 0.8% of GDP in Latvia, among 
the smallest percentages in the EU. In comparison, the 
EU average is 66.8% of GDP. Whereas state and local 
government-controlled companies account for slightly 
more than a third of market capitalisation Lithuania and 
Estonia,  Latvia  has  only  listed  bonds  for  three  state-
owned enterprises. The situation is similar in the debt 
securities  market:  the  corporate  bond  market  is  very 
thin and activity there was very weak. 

1.18.3 

Capital markets and financial intermediaries 

Source: AMECO. 

improvement 

The  Latvian  economy  exhibits  a  negative  net 
international investment position. Between 2009 and 
2023,  the  NIIP  strengthened  almost  every  year, 
reflecting  an 
in  competitiveness, 
however  remaining  in  negative  territory.  As  of  Q4-
2024,  total  assets  on  foreigners  reached  137.8%  of 
GDP, while liabilities to foreigners stood at 158.3% of 
GDP, resulting in a NIIP equivalent to -20.5% of GDP 
(Graph  2.16.2).  The  accumulated  net  portfolio 
investment,  which  reached  26.6%  of  GDP  as  of  Q4-
2024  and  the  stock  of  official  foreign  reserve  assets 
amounting  to  12.3%  of  GDP  did  not  suffice  to 
counterbalance  a  negative  accumulated  net  foreign 
direct investment balance of -49.3%, together with net 
other 
investments  of  -10.2%.  Thus,  Latvia  has 
systematically  been  a  net  capital  importer,  notably 
mainly by means of foreign direct investments into the 
country.  

Source: ECB, EIOPA, AMECO. End-2024. 

464 

-10-505101520253020172018201920202021202220232024% of GDPPrivate investment, netLending to the governmentPrivate savings, netPrivate savings, grossBorrowing from the rest of the world-60-50-40-30-20-100-250-200-150-100-5005010015020020172018201920202021202220232024% of GDP% of GDPOther investment, LiabilitiesPortfolio Investment, LiabilitiesForeign Direct Investment, LiabilitiesOfficial reserve assetsOther investment, AssetsPortfolio Investment, AssetsForeign Direct Investment, AssetsNIIP (rhs)Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIsPension fundsInsurance corporationsInvestment funds01020304050607080   Listed equity               Bonds                        Assets by sector% of GDP 
 
 
        
         
         
Financing of the economy 

Sources of NFC funding 

Firms  in  Latvia  rely  less  than  the  EU  average  on 
funding  from  bank  lending  and  capital  markets. 
The  relative  significance of bank credit to businesses 
continues to decline, with companies in Latvia utilising 
bank loans less than any other EU country. At the end 
of 2023, MFI credit accounted for merely 15% of the 
total corporate debt portfolio, down from 34% in 2010, 
and  among  the  lowest  in  the  EU.  Listed  shares  and 
bonds represented only 1.3% of all funding sources for 
Latvian  non-financial  corporations.  The  equivalent 
figures for the EU average are 27.2% and 23.8%, with 
the overall levels also substantially higher as a share of 
GDP (as the overall level of non-financial corporations 
funding was 137% in Latvia and 230% of GDP for the 
EU  average,  see  Graph  2.16.3).  The  market  funding 
ratio736 as of end 2023 was 21.2%, compared to an EU 
average of 49.6%. 

Internal financing accounted for the largest share of 
finance  for  firms  in  Latvia  in  2024.  Non-financial 
corporations tend to rely on their own funds as well as 
other  alternatives  (other  equity).  Limited  access  to 
finance is reflected in the 2024 SAFE survey results. In 
that  survey  30%  of  Latvian  SMEs  indicate  that  bank 
loans are relevant for them, compared to an EU average 
of 45%, and 29% of SME’s indicated that equity (other 
than shares) is relevant for them vs. an EU average of 
12%.737  Alternative  financial  service  providers  are 
competing and often outcompeting the traditional ones 
at high speed. Conducted empirical analysis shows that 
the  most  available  financing  sources  in  Latvia,  apart 
from banking products, are friends and family, venture 
capital, business angels, as well as diverse state support 
programmes (including EU grants, Altum). However, 
Altum’s  loan  portfolio  is  relatively  small  against  the 
total value of outstanding loans (a mere 2.5% as of mid-
2023). 

1.18.4 

Composition of NFCs’ funding 

Source: Eurostat. End-2024. 

Market finance 

Latvian  SMEs  find  it  difficult  to  access  and  take 
advantage of Latvia’s capital markets. In the 2024 
SAFE  survey  41%  of  SMEs  indicated  that  internal 
funds (retained earnings or sale of assets) are relevant 
for  them,  compared  to  an  EU  average  of  30%.738 
Moreover, Latvia cannot take advantage of this SME 
market because there are no established SME growth 
markets  in  Lithuania,  nor  in  the  other  Baltic  states. 
Recently,  work  started  on  setting  up  an  SME  Initial 
Public Offering Fund in the Baltics, with the help from 
ALTUM for Latvia and ILTE for Lithuania.  

1.18.5 

Net issuance of bonds 

Source:  

The prospects for capital market development are 
limited  by  the  low  number  of  listed  enterprises. 
Latvia has established a good market infrastructure, as 
well as a regulatory framework that meets international 
standards, ensuring adequate market transparency and 
investor  protection.  The  Baltic  countries  have 

736 

i.e.  the  volume  of  corporate  bonds  and  listed  shares  of  NFCs 
relative to the volume of those two and bank loans to NFCs. 
737  Data and surveys - SAFE - European Commission, 2024, Results 

by country, T23, T27. 

738  Data and surveys - SAFE - European Commission, 2024, Results 

by country, T20. 

465 

050100150200250LVEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity-0.50.00.51.01.52.02.520212022202320242025-Q1bn EURGovernmentMFIsNon-MFINon-financial corporations 
 
 
 
 
  
      
than  attracting 

consolidated their stock markets and CSDs which has 
facilitated  cross-border  transactions  and  improved  all 
Baltics markets’ visibility. Yet the number of investors, 
transactions  and  issued  securities  remains  low.  Local 
businesses  tend  to  rely  for  external  funding  on  bank 
intermediation  rather 
investments 
through  stock  and  bond  issues  or  from  alternative 
sources. This results in low interest from institutional 
and retail investors, and thus few local opportunities to 
raise  share  capital.  The  lacking  market  activity  by 
institutional  investors  lowers  demand  for  corporate 
stocks and bonds. In terms of the international market, 
projects developed in Latvia are relatively low value, 
which  makes  them  less  attractive  to  international 
investors.  For  the  local  capital  markets  to  come  onto 
their radars, they would first need to reach a sufficient 
level  of  capitalisation.  Listing  of  large  state-owned 
enterprises and facilitating greater exposure of pension 
funds to domestic securities could help attract investors 
and raise access to finance. It is also important to note 
that  the  outstanding  deposits  at  banks  significantly 
exceed the outstanding loans from banks, which may 
point  to  untapped  potential  since  those  savings  could 
be redirected towards capital markets. 

investments 

towards  vital 

The government is currently reviewing its strategy 
for activating capital markets. Several lines of action 
aim  at  meeting  the  ambitious  target  of  stock  market 
capitalization of 9% of GDP by 2027. This initiative is 
part of a broader strategy to leverage over EUR 10 bn 
in  household  savings  across  Latvia,  directing  these 
funds 
that  can  spur 
sustainable  economic  growth. Government  decisions 
made  earlier  in  2021  and  2022  foresee  specific 
instruments to increase the capitalisation of the  stock 
market and promote capital attraction and the entry of 
new issuers into the stock exchange. From the 10-step 
programme,  concrete  action  plans  were  derived  and 
included in the National Financial sector Development 
Plan  for  2021-2023.  In  May 2023  the  government  of 
Latvia approved the initiative “On further development 
of  the  Latvian  capital  market”  to  meet  the  target  of 
stock  market capitalization  of  9%  of  GDP  by  2027. 
Since then, progress has been made, but clearly there is 
potential  for  further  improvement.  More  work  is 
needed to open possibilities for domestic and foreign 
capital  flows  to  fund business  investment,  to  provide 
investors  with  an  opportunity 
the 
development  of  the  Latvian  economy.  In  February 
2025  Latvijas  Banka  updated  the  10-step  programme 
stating  that  measures  should be  taken  to  promote  the 
entry  of  large  state-owned  or  municipalities-owned 

invest 

in 

to 

companies into the capital market, notably by including 
shares in the market. 

Retail participation in capital markets  

relatively 

The  relatively  low  levels  of  income  and  savings  of 
Latvian households reduce the availability of credit 
for  enterprise  investments  and  suggests  that  the 
economy relies more on foreign savings. The Latvian 
households’  portfolio  is  tilted  towards  currency  and 
deposits  (33.2%)  and  more  than  one  third  of  their 
portfolio  is  held  in  “other  equity”739,  which  is  high 
compared to other EU countries where the average is 
few 
11.2%. Latvian  households  have 
financial  assets,  in  particular  related  to  investment, 
insurance and pension funds. The share of households’ 
financial assets held in pension and insurance funds or 
directly  in  financial  investment  instruments  in  total 
financial assets has risen to 28.7% in 2024 but still falls 
short  of  the  EU  average  of  46.6%.  Most  investments 
are  in  pension  funds,  mainly  due  to  the  larger 
mandatory  contribution  to  the  2nd  pension  pillar.  In 
Latvia,  most  of  households’  investments  are  in  life 
insurance, and other investment opportunities are used 
significantly  less.  Little  by  little,  households  are 
gradually  starting  to  invest  their  funds  in  higher-risk 
assets.  In  recent  years,  deposits  in  securities  and 
investment funds grew most rapidly.   

1.18.6 

Composition of HHs’ financial assets 

Source: Eurostat. End-2024. 

1.19 Lithuania 

Availability and use of domestic savings 

The  Lithuanian  economy  invests  a  part  of  its 
relatively high net savings abroad. In the last decade, 

739  Other  equity  comprises  all  forms  of  equity  other  than  those 
classified in sub-categories listed shares (AF.511) and unlisted 
shares  (AF.512).  In  Latvia,  the  largest  part  of  households' 

financial  assets  during  the  last  year  was  made  up  by  funds 
invested  in business activity  (e.g. the  equity  capital of  limited 
liability companies and individual merchants). 

466 

050100150200250020406080100LVEULVEUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Currency and depositsInsurance and pension fundsInvestment fundsBondsListed sharesUnlisted sharesOther equityHH Debt (liability) 
 
 
 
 
  
 
the  private  savings  ratio,  net  of  fixed  capital 
consumption, fluctuated around its ten-year average of 
9.7% of GDP, reaching a maximum of 15.3% in 2020 
(see  Graph  2.17.4).  The  net  private  investment  ratio, 
which  measures  the  net  contribution  of  the  private 
sector to capital accumulation in the country, was a bit 
more volatile, exhibited a ten-year average of 6.1% of 
GDP and reached a maximum of 13.2% in 2022. At the 
same  time,  during  the  same  period  the  government 
budget was in regular deficit that averaged 1% of GDP. 
Thus,  the  positive  balance  between  net  domestic 
savings  and  net 
low 
investment, 
government  deficits,  resulted  in  net  lending  by 
Lithuania to the rest of the world that averaged 2.6% of 
GDP, with a peak of 8.9% in 2020. The swing in 2022 
to net borrowing from the rest of the world is expected 
to be temporary, as it was driven by a massive increase 
in  net  energy  imports  and  elevated  energy  prices. 
Lithuania  experienced  strong  capital  inflows  during 
2022 which largely occurred through accelerated FDI 
and portfolio investments. 

together  with 

1.19.1 

Net savings-investment balance 

Source: AMECO. 

(NIIP) 

investment 

The  net  international  investment  position  turned 
positive  in  2024.  Between  2009  and  2023,  the  net 
international 
has 
position 
reflecting  an 
strengthened  almost  every  year, 
improvement  in  international  competitiveness.  As  of 
Q4-2024, total assets on foreigners reached 124.6% of 
GDP, while liabilities to foreigners stood at 124.2% of 
GDP, resulting in a NIIP equivalent to  0.4% of GDP 
(see  Graph  2.17.5).  The  accumulated  net  portfolio 
investment,  which  reached  14.1%  of  GDP  as  of  Q4- 
2024, together with net other investments of 10.9% and 
accumulated  foreign  reserves  of  9.1%  of  GDP 
counterbalanced  a  negative  accumulated  net  foreign 
direct investment balance of 33.7%.  

1.19.2 

International investment position 

Source: ECB. 

Structure and size of the financial sector 

Lithuania’s monetary financial sector is very small 
compared with the EU average and concentration is 
high.  At  the  end  of  2024,  banks’  total  assets  were 
equivalent  to  96.4%  of  GDP,  significantly  below  the 
EU average of 251.1%. Nevertheless, banks and other 
monetary financial institutions continue to account for 
the  largest  share  (76%)  of  the  Lithuanian  financial 
market,  a  share  that  has  remained  largely  stable  over 
the last years (Graph 2.17.6). 

1.19.3 

Capital markets and financial intermediaries 

Source: ECB, EIOPA, AMECO. End-2024. 

The  role  of  the  non-bank  financial  sector  in  the 
economy  is  still  considerably  less  important  as 
compared to other euro area countries. Total assets 
of pension funds amounted to 12.2% of GDP at the end 
of  2024,  vs.  an  EU  average  of  23.7  %  of  GDP.  The 
share  of  public  pension  spending  in  GDP  (6.2%)  is 
currently one of the lowest in the EU. The Lithuanian 
insurance sector is also very small, with a share of total 
assets in GDP of 2.6% as of end-2024 (vs. 54.8% for 

467 

-15-10-505101520253020172018201920202021202220232024% of GDPPrivate investment, netLending to the governmentPrivate savings, netPrivate savings, grossBorrowing from the rest of the world-50-40-30-20-10010-150-100-5005010015020172018201920202021202220232024% of GDP% of GDPOther investment, LiabilitiesPortfolio Investment, LiabilitiesForeign Direct Investment, LiabilitiesOfficial reserve assetsOther investment, AssetsPortfolio Investment, AssetsForeign Direct Investment, AssetsNIIP (rhs)Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIsInsurance corporationsInvestment funds020406080100120   Listed equity               Bonds                        Assets by sector% of GDP 
 
 
        
         
         
1.19.4 

Composition of NFCs’ funding 

the EU on average). In 2023, assets of all types of non-
bank  financial  institutions  increased,  especially  of 
pension  and  investment  funds.  Assets  managed  by 
pension  funds  grew  by  27%.  The  insurance  market 
experienced a 17.7% growth in 2023, but slowed down 
in  2024,  with  a  growth  of  9.1%.  This  increase  was 
driven  by  favourable  conditions  on  the  financial 
markets.  Although  the  number  of  registered  crypto-
is  relatively  high 
asset  companies  in  Lithuania 
compared  to  European  peers,  only  few  of  them  are 
profitable. 

Lithuanian  capital  markets  remain  relatively 
shallow, inactive and illiquid. At the end of 2024, the 
market  capitalisation  of  Nasdaq  Vilnius  Stock 
Exchange (consisting of 44 listed companies) was just 
about 6.2% of GDP (compared to 30% before the 2009 
crisis), which is extremely small compared to other EU 
countries (EU average of 66.8% as of end 2024).  The 
liquidity of securities traded on Nasdaq Vilnius, AB is 
limited  while  the  debt  markets  in  Lithuania  are 
dominated by government securities. The prospects for 
capital  market  development  are  limited  by  the  low 
number of listed enterprises. This results in few local 
investment 
from 
institutional  and  retail  investors,  and  thus  few  local 
opportunities  to  raise  share  capital.  In  terms  of  the 
international  market,  projects  developed  in  Lithuania 
are  of  relatively  small  size,  which  makes  them  less 
attractive to international investors. 

opportunities, 

interest 

low 

Financing of the economy 

Sources of NFC funding 

Firms in Lithuania rely less than the EU average on 
funding from banks or capital markets. At the end 
of  2023,  bank  finance  through  loans  constituted  only 
22.3%  of  all  funding  sources  for  Lithuanian  non-
financial  corporations,  while  listed  shares  and  bonds 
represented  only  6.0%  of  funding  sources.  The 
equivalent figures for  the  EU  average  are  27.3%  and 
23.8%,  with  the  overall  levels  for  Lithuania  also 
substantially lower as a share of GDP (as the overall 
level  of  NFC  funding  was  121.6%  in  Lithuania  and 
229.9% of GDP for the EU average, see Graph 2.17.4). 
The  market funding ratio740 as  of end 2023 was only 
31.5%, compared to an EU average of 49.6%.  

740 

i.e.  the  volume  of  corporate  bonds  and  listed  shares  of  NFCs 
relative to the volume of those two and bank loans to NFCs. 

Source: Eurostat. End-2024. 

There may be a financing gap relative to investment 
demand, especially for SMEs. According to the 2024 
EIB  Investment  Survey,  69%  of  investment  needs  of 
Lithuanian  firms  are  covered  by  internal  funding, 
compared to an EU average of 66%. Only 54% of all 
Lithuanian firms use external finance that rely on bank 
finance,  the  lowest  share  in  the  EU  (with  the  EU 
average at 81%. Moreover, the country has a high share 
of  finance-constrained  firms  (13.7%).  At  the  same 
time,  26%  of  all  Lithuanian  firms  believed  that  their 
investment activities over the last three years were not 
sufficient. This is – together with the other two Baltic 
countries  –  one  of 
levels  of 
underinvestment  in  the  EU  (EU  average  of  14%), 
suggesting  that  there  is  a  financing  gap  relative  to 
investment demand, especially for SMEs. 

the  highest 

Market finance 

So  far,  Lithuanian  capital  markets  experienced 
positive developments, and investors continue to be 
optimistic about the future. Between December 2022 
and  June  2025,  the  Vilnius  Exchange  Index  (OMX) 
increased by 26% (see Graph 2.17.5). However, local 
businesses  tend  to  rely  for  external  funding  on  bank 
intermediation  rather  than  attracting  funding  through 
stock and bond issues or from alternative sources. The 
limited  market  activity  by  institutional  investors 
reduces demand for corporate stocks and bonds. At the 
same time, risks exist, and both the interconnectedness 
of  markets  and  the  increased trading  of  crypto  assets 
warrant cautiousness. 

468 

050100150200250LTEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity 
 
 
 
 
  
1.19.5 

Stock market performance 

Source: London Stock Exchange Group741. 

The commercial bond market remains significantly 
underdeveloped. Markets in Lithuania are dominated 
by government securities. In the first quarter of 2025, 
the government issued EUR 2.6 bn of debt securities, 
which compares to only EUR 0.7 bn in 2021 (see Graph 
2.17.6). Banks issued EUR 0.3 bn in Q1 2025, almost 
double  the  2024  total  of  EUR  0.16  bn.  Issuance  of 
pension  funds, 
insurance 
companies are also not significant. The net issuance by 
non-financial corporations turned out negative in 2023, 
at EUR –0.26 bn. Hence, debt market finance appears 
as  a  minor  source  of  funding  for  Lithuanian  non-
financial corporations.  

investment  funds  and 

1.19.6 

Net issuance of bonds 

Source: ECB. 

In May 2022 the Bank of Lithuania set out capital 
market  development  action  guidelines  to  help  the 
capital  markets  to  grow.  They  set  out  concrete 
measures and recommendations that aim to make  the 
capital  markets  more  attractive  for  domestic  and 
foreign  investors,  and  to  encourage  businesses  to 
obtain  alternative  financing  by  issuing  securities  and 
allowing  more  securities  to  be  listed  on  the  stock 
exchange.  There is also a need to tap into the unused 
potential of pension funds (currently 90% of assets are 
invested  abroad),  e.g.  by  providing  a  wider  range  of 
financial  market  instruments  traded  on  the  capital 
markets.  Certain  key  measures  have  already  been 
adopted but not all have fully matured yet. The Capital 
Market  Council,  set  up  in  January  2023,  seeks  to 
combine  market  and  public  sector  efforts  to  advance 
capital market growth.  

SMEs find it difficult to access and take advantage 
of  Lithuania’s  capital  markets.  In  the  2024  SAFE 
survey,  38%  of  SMEs  indicated  that  internal  funds 
(retained earnings or sale of assets) were relevant for 
to  an  EU  average  of  30%.742 
them,  compared 
Moreover,  Lithuania  cannot  take  advantage  of  this 
SME  market  because  there  are  no  established  SME 
growth  markets  in  Lithuania,  nor  in  the  other  Baltic 
states.  Work  recently  started  on  setting  up  an  SME 
initial  public offering (IPO)  fund  in  the  Baltic  states, 
with  the  help  of  ALTUM  in  Latvia  and  ILTE  in 
Lithuania.  

Retail participation in capital markets  

of 

The  persistently  low  saving  rate  of  Lithuanian 
households  reduces  the  availability  of  credit  for 
enterprise 
the 
investments.  Two-thirds 
population’s savings are held in demand deposit bank 
accounts.  Lithuanian  households  have  relatively  few 
financial  assets,  in  particular  regarding  investment, 
insurance  and  pension  funds.  By  contrast,  they  hold 
more  unlisted  shares  compared 
to  other  EU 
countries. The  share  of  households’  financial  assets 
held  in  pension  and  insurance  funds  or  directly  in 
financial  investment  instruments  in  total  financial 
assets has risen from 13.5% in 2015 to 19.3% in 2023 
but still falls substantially short of the EU average of 
45.4%. By contrast, they have more unlisted shares743 

741  The  STOXX  Indices  are  the  intellectual  property  (including 
registered  trademarks)  of  STOXX  Limited,  Zug,  Switzerland 
(“STOXX”) and/or its licensors (“Licensors”). STOXX has not 
been involved in any way in the creation of financial instruments 
or  any  other  products  referencing  the  aforementioned  indices. 
Such products are neither sponsored nor promoted, distributed 
or  in  any  other  manner  supported  by  STOXX  and/or  its 
Licensors. STOXX does not give any warranty and excludes any 
liability  whatsoever  (whether  in  negligence  or  otherwise)  – 
including  without  limitation  for  the  accuracy,  adequateness, 
correctness,  completeness,  timeliness,  and  fitness  for  any 

purpose – in relation to any errors, omissions or interruptions in 
any of STOXX' indices or its data. 

742  Data and surveys - SAFE - European Commission, 2024, Results 

by country, T20. 

743  Unlisted  shares  in  Lithuania,  also  known  as  private  limited 
company shares (UAB) or public limited company shares (AB) 
that are not traded on a stock exchange, can be bought and sold, 
but  not  through  traditional  exchanges.  These  transactions 
typically  occur  through  over-the-counter  (OTC)  markets  or 
private  placements,  often  facilitated  by  intermediaries  or 
investment platforms 

469 

050100150200250300200820112014201720202023janv-yy=100LT Bank indexSTOXX EUROPE 600 BANKSOMX VILNIUS (OMXV) - TOT RETURN INDSTOXX EUROPE 600-0.50.00.51.01.52.02.53.03.520212022202320242025-Q1bn EURGovernmentMFIsNon-MFINon-financial corporations 
 
 
       
       
 
 
compared  to  other  EU  countries.   These  investments 
offer the chance to participate in companies before they 
go  public  (pre-IPO),  potentially  at  lower  valuations 
than  they  might  later  achieve  on  the  stock  market. 
However,  unlisted  shares  also  carry  significant  risks, 
including  lower  liquidity  and  limited  information, 
requiring  careful  consideration  and  a 
long-term 
investment horizon. 

The recently decided pension reform allowing opt-
outs and withdrawals from private funds is likely to 
reduce the level of savings in Lithuania. Under the 
changes, proposed by the Lithuanian Ministry of Social 
Security  and  Labour,  automatic  enrolment  in  the 
second-pillar  pension  accumulation  system  will  be 
eliminated, thus moving towards an 'opt-in' model, and 
enabling  far-reaching  withdrawal  options  with  loose 
conditions (individuals will be allowed to fully exit the 
system or make a one-time withdrawal of 25% of their 
savings). At present, the Lithuanian second-pillar funds 
have  accumulated  around  EUR  9.1  billion  (11.6%  of 
GDP)  in  savings,  around  EUR  1  billion  of  which  is 
invested  in  the  national  market.  An  ‘opt-in’  model 
combined with a withdrawal option is likely to reduce 
the level of savings in Lithuania, further undermining 
capital market development and complicating access to 
finance.  

1.19.7 

Composition of HHs’ financial assets 

the 

income 

intended 

investment 

subject to tax only on the profits withdrawn, rather than 
on  all 
for 
reinvestment. The initiatives also provide for a gradual 
phase-out  of  tax  incentives  related  to  long-term  life 
insurance and third-pillar pension contributions, which 
will be applied over the next 10 years, and to contracts 
concluded by the end of 2024. Encouraging the build-
up of universal funded supplementary pension schemes 
would positively contribute to (i) the sustainability and 
adequacy of pension benefits; (ii) investment in equity; 
(iii) access to finance; (iv) growth; and (v) innovation. 

1.20 Luxembourg 

Availability and use of domestic savings 

The economy of Luxembourg displays a moderate 
net  private  savings  ratio,  with  considerable 
fluctuations over the past decade. Net of fixed capital 
consumption,  private  savings averaged  3.7% of  GDP 
between 2014 and 2023, peaking at 9.7% in 2014 and 
dropping to –2.9% in 2022. In contrast, the net private 
investment  ratio  was  somewhat  higher  on  average 
(4.8% of GDP), but also volatile, ranging from –0.4% 
in  2024  to  8.0%  in  2019.  The  government  budget 
balance over the same period showed a small average 
deficit of 0.9% of GDP, with notable surpluses in some 
years  (e.g.  2020)  and  larger  deficits  in  others  (e.g. 
2018).  This  combination  of  relatively  modest  net 
savings  and  relatively  high  investment  means  that 
Luxembourg  has  often  been  a  net  borrower  from  the 
rest of the world. On average, net borrowing stood at 
0.2%  of  GDP  between  2014  and  2023,  although  in 
some years the country was a net lender. Gross private 
savings  remain  structurally  high,  averaging  13.4%  of 
GDP.  

1.20.1 

Net savings-investment balance 

Source: Eurostat. End-2024. 

Recent policy initiatives are aimed at promoting the 
level of retail participation. The Ministry of Finance 
recently  approved  a  financial  education  plan  (2024-
2028) with particular attention dedicated to challenges 
for  consumers  and  retail  investors  and  also  covering 
SMEs.  Moreover,  in  an  effort  to  boost  household 
investment in capital markets, a long-term investment 
product has been operational since the beginning of this 
year  that  offers  an  alternative  to  other  tax-supported 
long-term savings products (i.e. pension funds and life 
insurance  products).  This  investment  and  savings 
account  allows  Lithuanian  residents  to  invest  more 
conveniently in different financial products that will be 

Source: AMECO. 

Consistent with its status as a leading international 
investment  funds  hub,  the  Luxembourg  economy 

470 

050100150200250020406080100LTEULTEUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Currency and depositsInsurance and pension fundsInvestment fundsBondsListed sharesUnlisted sharesOther equityHH Debt (liability)-50510152020172018201920202021202220232024% of GDPPrivate investment, netLending to the governmentPrivate savings, netPrivate savings, grossBorrowing from the rest of the world 
 
 
  
 
         
at 

to 

stood 

foreigners 

has  accumulated  substantial  foreign  assets  and 
maintains  a  positive  net  international  investment 
position  (NIIP).  As  of  Q4  2024,  total  foreign  assets 
amounted  to  approximately  14 600% of GDP,  while 
about 
liabilities 
14 100% of GDP,  resulting  in  a  net  international 
investment  position  of  roughly  500%  of  GDP.  The 
accumulated  net  foreign  direct  investment  assets 
reached  around  1 204%  of  GDP.  The  portfolio 
investment  balance  remains  a  net  liability  due  to  the 
higher value of foreign portfolio investment liabilities 
compared  to  Luxembourg’s  portfolio  assets,  with  net 
liabilities of approximately 1 473% of GDP. The stock 
of  official  foreign  reserve  assets  is  negligible  in  this 
context. Hence, while Luxembourg is deeply integrated 
in international capital flows and acts as a significant 
hub for foreign capital, it remains a strong net capital 
exporter,  especially  through  direct  and  portfolio 
investments abroad. 

1.20.2 

International investment position 

outstanding shares worth 34.3% of GDP, compared to 
EU average of 51.1%. The dominance of the financial 
sector is also reflected in the outstanding value of debt 
securities.  While  non-financial  corporations  issued 
bonds  valuated  at  27.8  of  GDP  at  end-2024,  this  is 
dwarfed  by  bonds 
financial 
intermediaries.  These  other  financial  intermediaries 
comprise  Special  Purpose  Entities  (SPEs),  leasing 
companies,  securities  dealers  financial  holdings  , 
Venture Capital corporations.744  

issued  by  other 

Luxembourg 
is  a  major  European  hub  for 
investment funds and money market funds. It is the 
largest domicile for investment funds in the EU with 
EUR  7.3  trillion  of  assets  (85-times  the  size  of  the 
economy). Luxembourg is the second largest domicile 
for  MMFs  in  the  EU,  after  Ireland.  Luxembourg’s 
MMFs hold EUR 608 billion in total assets. Its banking 
sector  with  assets  worth  EUR  960  billion,  is  the  8th 
largest  by  assets  but  huge  relative  to  the  size  of  the 
economy.  The  MFI  sector,  that  is  banks  and  money 
market funds together, have assets of 18 times the size 
of the economy. 

1.20.3 

Capital markets and financial intermediaries 

Source: ECB, Eurostat 

Structure of the capital markets and size of the 
financial sector 

Luxembourg’s  small  economy  is  dominated  by  its 
financial sector, which is therefore larger in terms 
of employees and share in value added than in other 
countries.  The  value  of  shares  issued  by  financial 
corporations  listed  in  Luxembourg  is  extremely  high 
relative  to  GDP  at  213.7%  versus  EU  average  of 
15.3%. On the other hand, the non-financial corporate 
sector  is  smaller,  compared  to  other  countries,  with 

Source: ECB, EIOPA, AMECO. End-2024. 

Luxembourg  is  also  a  hub  for  the  European  life 
insurance business. Insurance corporations domiciled 
in  Luxembourg  held  assets  equivalent  to  382.3%  of 
GDP at end-2024, dominated by life insurers that work 
across Europe, far exceeding the EU average of 55% of 
GDP. Luxembourg’s pension funds sector is small and 
domestically focussed, with total assets of only 2.3% 
of GDP at end-2024 (see Graph 2.18.3). 

744  The  ECB  defines  Other  Financial  Intermediaries  (OFIs)  as  a 
corporation  or  quasi-corporation  other  than  an  insurance 
corporation and pension fund that is engaged mainly in financial 
intermediation  by  incurring  liabilities  in  forms  other  than 
currency,  deposits  and/or  close  substitutes  for  deposits  from 
institutional entities other than MFIs, in particular those engaged 

primarily in long-term financing, such as corporations engaged 
in financial leasing, financial vehicle corporations created to be 
holders  of  securitised  assets,  financial  holding  corporations, 
dealers in securities and derivatives (when dealing for their own 
account), venture capital corporations and development capital 
companies. (see ECB.europa.eu ) 

471 

01020304050607080-30000-20000-10000010000200003000020172018201920202021202220232024% of GDP% of GDPOther investment, LiabilitiesPortfolio Investment, LiabilitiesForeign Direct Investment, LiabilitiesOfficial reserve assetsOther investment, AssetsPortfolio Investment, AssetsForeign Direct Investment, AssetsNIIP (rhs)Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIsPension fundsInsurance corporationsInvestment funds0100020003000400050006000700080009000   Listed equity               Bonds                        Assets by sector% of GDP 
 
 
  
 
 
         
Financing of the economy 

Sources of NFC funding 

the  NFC  sector’s 

Luxembourg’s  NFC  sector has  an  unusually  large 
balance  sheet  driven  by  the  use  of  its  financial 
centre  for  global  financing.  Large  NFCs  take 
advantage  of  Luxembourg’s  financial  centre  by 
establishing subsidiaries that issue debt or obtain bank 
loans in Luxembourg for their global operations. This 
explains 
large  balance  sheet 
amounting to the equivalent of 468% of GDP in 2024, 
exceeding  by  more  than  double  the  EU  average  of 
about  225%.  Moreover,  Luxembourg  NFCs  show  a 
relatively high share of financial loans in their funding 
structure (51%), nearly twice the EU average (27.2%). 
In  fact,  to  finance  their  investments,  Luxembourg 
companies rely less on internal resources than their EU 
peers, which is also confirmed by their relatively high 
aggregate  reliance  on  bonds, 
trade  credit,  and 
advances. 

1.20.4 

Composition of NFCs’ funding 

(LGX).  LGX  features  issuers  who  allocate  100%  of 
their  raised  funds  to  green  investments  and  requires 
green securities to meet strict eligibility criteria. As of 
2024, there are over 2 100 green, social sustainability 
and  sustainability-linked  bonds  listed  on  on  LGX 
worth € 1.2 trn.  

Debt finance continues to be a significant source of 
market  funding  for  companies  in  Luxembourg.  In 
the first quarter of 2025 alone, NFCs issued EUR 41 bn 
of debt securities, which is more than half of the total 
amount  issued  in  total  over  2024.  The  increased 
momentum  for  bond  financing  may  be  related  to  the 
generally lower level of interest rates. In contrast, MFIs 
issued  a  negligible  amount  of  debt  in  Q1  2025, 
suggesting that debt issuance plays a very limited role 
in  the  funding  structure  of  banks,  as  opposed  to 
deposits  form  other  financial  institutions  and  other 
funding  means.  The 
the 
government  was  marginal  over  the  last  years,  but  is 
expected to pick up given that the general government 
balance is projected to turn to a deficit of 0.4% of GDP 
this year. 

issuance  of  debt  by 

1.20.5 

Net issuance of bonds 

Source: Eurostat. End-2024. 

Market finance 

Source: ECB. 

for 

leading 

exchanges 

The Luxembourg Stock Exchange (LuxSE) is one of 
the  world’s 
listing 
international  debt  securities.  In  addition  to  its 
prominent  investment  fund  industry,  Luxembourg 
boasts  one  of  the  largest  secondary  bond  markets 
globally,  having  established  itself  as  the  preferred 
listing venue for bonds issued by Public International 
Bodies, sovereigns, and public agencies.  By contrast, 
Luxembourg’s equity market is relatively small by EU 
standards, with only 18 companies listed, making it the 
8th  largest  stock  exchange  in  the  EU  by  market 
capitalization.  LuxSE  operates  two  distinct  markets: 
the regulated European market known as the Bourse de 
Luxembourg  (Bourse),  and  the  Euro  MTF  (MTF),  a 
multilateral trading facility. In September 2016, LuxSE 
became the first stock exchange worldwide to launch a 
platform  dedicated  exclusively  to  green  financial 
instruments  —  the  Luxembourg  Green  Exchange 

Retail participation in capital markets 

they 

the  EU  and 

Luxembourg households are among the wealthiest 
in 
favour  direct  market 
investments  over  insurance  and  pension  funds. 
Average financial household wealth in Luxembourg is 
estimated at EUR 186 100, making it one of the highest 
in  the  EU.  Although  Luxembourg  households  carry 
high  debt  levels  (61%  of  GDP),  these  are  offset  in 
aggregate  by  equally  large  cash  holdings  (63.7%  of 
GDP). In fact, most of households’ gross wealth is held 
in deposits. Households show less interest in insurance 
and  pension  funds,  which  account  for  only  21.2%  of 
their  financial  assets  compared  to  an  EU  average  of 
59.2%.  This  suggests  a  preference 
for  direct 
participation in financial markets rather than relying on 
intermediaries such as pension providers and insurance 
companies. 

472 

050100150200250300350400450500LUEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity-20.00.020.040.060.080.0100.020212022202320242025-Q1bn EURGovernmentMFIsNon-MFINon-financial corporations 
 
 
           
      
1.20.6 

Composition of HHs’ financial assets 

2.19.1: 

Net savings-investment balance 

Source: Eurostat. End-2024. 

Source: AMECO. 

1.21 Malta 

Availability and use of domestic savings 

The  Maltese economy  maintains its  comparatively 
high  net  private  savings  and  positive  net  external 
lending position. As of end-2024, the private savings 
ratio, net of fixed capital consumption, which has been 
historically very high, reached 10.3% of GDP, below 
its  ten-year  average  of  15.7%  of  GDP  (see  Graph 
2.19.1).  The  net  private  investment  ratio,  which 
measures the net contribution of the private  sector to 
capital  accumulation  in  the  country,  fell  to  3.7%  of 
GDP  as  of  end-2024,  significantly  below  its  ten-year 
average  of  7.1%.  Since  2020  the  government  has 
started  running  deficits  again,  thereby  absorbing 
private savings that averaged the equivalent of 2.3% of 
GDP  in  the  period  2015-2024.  As  a  result  of  these 
trends and structural changes, the Maltese economy has 
been  a  net  creditor  to  the  rest  of  the  world  for  the 
equivalent  of  6.3%  of  GDP  per  year  over  the  last 
decade,  with  the  notable  exception  of  2020,  when  it 
borrowed about 0.6% of GDP from abroad.  

Consistent with Malta’s annual positive lending to 
the rest of the world, Malta maintained its position 
of  a  net  annual  creditor  to  the  rest  of  the  world.   
Malta’s  net  international  investment  position  (NIIP) 
increased from 67.3% in 2017 to 84.6% of GDP as of 
Q4 2024. NIIP peaked in 2020 at 113.6% of GDP and 
since  then  is  gradually  decreasing.  Malta  has  an 
established  international  reputation  as  a  jurisdiction 
for  establishing 
legal  protection 
that  provides 
businesses  and  rerouting  investments.  Due  to  that 
national  particularity,  as  of  Q4  2024,  total  assets  on 
foreigners  reached  the  equivalent  of  3100%  of  GDP, 
down  from  3268%  in  2017,  while  liabilities  to 
foreigners stood at 3016% of GDP, down from 3201% 
in  2017  (see  Graph  2.19.2).  Though  lately  gross 
outstanding  volumes  of  foreign  assets  and  foreign 
liabilities  declined,  the  Maltese  economy  remained 
exceptionally  well-integrated  in  international  capital 
flow, successfully increasing its net foreign wealth. 

2.19.2: 

International investment position 

Source: ECB. 

473 

01002003000100200LUEULUEUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Other equityUnlisted sharesListed sharesBondsInvestment fundsInsurance and pension fundsCurrency and depositsHH Debt (liability)-15-10-50510152025303520172018201920202021202220232024% of GDPPrivate investment, netLending to the governmentPrivate savings, netPrivate savings, grossBorrowing from the rest of the world020406080100120-6000-4000-2000020004000600020172018201920202021202220232024% of GDP% of GDPOther investment, LiabilitiesPortfolio Investment, LiabilitiesForeign Direct Investment, LiabilitiesOfficial reserve assetsOther investment, AssetsPortfolio Investment, AssetsForeign Direct Investment, AssetsNIIP (rhs) 
 
 
         
 
         
        
Structure of the financial sector 

Financing of the economy 

The  capital  markets  in  Malta  appear  as  relatively 
underdeveloped,  characterized  by  small  market 
capitalization  and  a  limited  bond  market.  The 
market capitalisation of listed equity reached 40.8% of 
GDP at end-2024 (see Graph 2.19.3). Banks dominate 
in the share of market capitalization, as non-financial 
corporations accounted for only 21%, a sign of the high 
degree of financialisation of the Maltese economy. The 
domestic capital market is primarily composed of the 
equities market and the bonds market. The outstanding 
volume  of  debt  securities  reached  76.9%  of  GDP  at 
end-2024.  General  government  bonds  accounted  for 
56%  of  the  outstanding  amounts.  The  remainder  was 
distributed  between  banks 
(4%),  non-financial 
corporations  (7%)  and  other  financial  intermediaries 
(32%).  Thus,  the  contribution  of  capital  markets  in 
Malta to the financing of the domestic  economy, and 
especially of the private non-financial sector, appears 
to be very limited.  

2.19.3: 

Capital markets and financial intermediaries 

Sources of NFC funding 

Firms  in  Malta  rely  more  on  funding  from  banks 
and less on funding from capital markets than the 
EU  peers.  At  the  end of 2024,  bank finance  through 
loans  constituted  41.7%  of  all  funding  sources  for 
Maltese  non-financial  corporations  (NFCs),  while 
listed  shares  and bonds  represented  only  5.4%  of  the 
aggregate funding sources. The equivalent figures for 
the EU average are 27.0% and 23.8%, with the overall 
levels also substantially higher as a percentage of GDP 
(as  the  overall  level  of  NFC  funding  was  148.3%  of 
GDP in Malta and 225.6% of GDP for the EU average, 
see 2.19.4). 

2.19.4: 

Composition of NFCs’ funding 

Source: ECB, EIOPA, AMECO. End-2024. 

Banks continue to dominate the financial sector in 
Malta, but non-bank financial intermediaries have 
significant size as well. As of end-2023, banks’ total 
assets, stood at of 209.5% of GDP, much lower than 
their 2020 size of 281% of GDP. Foreign banks, which 
were  attracted  by  the  special  jurisdictional  status  of 
Malta but do not operate locally, significantly reduced 
their presence from 81% of total assets in 2020 to 58% 
as  of  end-2024.  The  insurance  sector  remains  well 
developed  with  its  total  assets  at  the  equivalent  of 
65.6% of GDP at end-2024. Investment funds are also 
very prominent in Malta, with total assets equivalent to 
133% of GDP in 2024. However, most of the non-bank 
financial  intermediaries  use  Malta  as  a  registration 
jurisdiction and do not have local business ties. 

Source: Eurostat. End-2023. 

Businesses  in  Malta  depend  more  on  internal 
financing than their European peers. According to 
the 2024 EIB Investment Survey, 79% of Maltese firms 
reported  that  their  investment  needs  are  covered  by 
internal funding, compared to an EU average of 66%. 
At the same time, 83% of Maltese firms believed that 
their investment activities over the last three years were 
about the right amount, higher than the EU average of 
80%, suggesting that there is no material financing gap 
relative to investment demand. However, this may not 
be  the  case  for  firms  with  no  or  limited  capacity  for 
internal funding, such as innovative start-up firms. 

Market finance 

Malta’s capital markets are insufficiently deep and 
play a limited role in financing domestic firms. The 
Malta  Stock  Exchange  (MSE)  is  the  country’s  only 
regulated  exchange  and  facilitates  equity  and  bond 
trading  and  also  provides  clearing,  settlement, 
depository and other security-related services. Traded 
volumes at the MSE are very low, at EUR 368 mn in 
2024, including bonds, equity, exchange-traded funds 
(ETFs)  and  treasury  bills,  with  trade  in  government 
bonds representing about half of the turnover. In terms 
of  performance,  the  general  stock  market  index  in 

474 

Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIsPension fundsInsurance corporationsInvestment funds050100150200250   Listed equity               Bonds                        Assets by sector% of GDP050100150200250MTEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity 
 
 
         
          
Malta  heavily  underperformed  the  Stoxx  Europe  600 
index, in particular after 2020 (see Graph 2.19.5). On 
the other hand, Maltese bank index kept the pace with 
relevant Stoxx Europe bank index.  

2.19.5: 

Stock market performance 

2.19.6: 

Net issuance of bonds 

Source: ECB. 

Retail participation in capital markets 

Maltese  households  favour  holding  their  financial 
assets  in  deposits  and  bonds.  Compared  to  the  EU 
average, Maltese households keep a much larger share 
of their assets in currency and deposits as well as bonds 
(see Graph 2.19.7) than EU average, which suggests a 
conservative approach to managing wealth. Also, their 
second  largest  exposure,  around  20%,  is  in  unlisted 
shares, which indicates presence of private or family-
owned businesses. Maltese also keep a smaller part of 
their  financial  assets,  in  comparison  to  other  EU 
countries, in insurance and pension funds. Two factors 
explain  this  outcome.  First,  despite  a  large  insurance 
sector,  given  Malta’s  special  jurisdictional  status,  the 
part of it that is relevant for residents is small. Second, 
the country does not have second-pilar pension scheme 
and about 85% of the members of third pillar pension 
funds are non-residents at the end of 2023, even though 
the number of domestic  participants has risen rapidly 
since 2019. 

Source: London Stock Exchange Group745. 

than 

Maltese  companies  are  using  capital  markets  less 
than  their  EU  peers.  Maltese  NFCs  have  a  higher 
share  of  unlisted  equity  compared  to  their  euro  area 
peers, which suggests that a large portion of corporate 
ownership remains private and that many businesses do 
not  need  or  want  to  access  capital  by  going  public. 
Bond  issuances  are  used  more  commonly  as  an 
instrument  for  raising  funds 
initial  public 
offerings  (IPOs)  or  stock  listings.  Over  2020-2023, 
Malta had the highest rate among all EU countries of 
NFC  bond  issuances  as  a  percentage  of  total  NFC 
financing,  due  to  few  large  bond  issuances.746  In 
addition, Malta is a less capital-intensive economy than 
the  EU  average,  which,  when  combined  with  the 
predominantly small size of its companies, creates less 
demand  for  capital  market  instruments.  The  use  of 
equity by small and medium-sized enterprises (SMEs) 
is low, despite 13% of SMEs having indicated in the 
2024 SAFE survey that equity was relevant for them, 
compared to an EU average of 11.7%.747 

745  The  STOXX  Indices  are  the  intellectual  property  (including 
registered  trademarks)  of  STOXX  Limited,  Zug,  Switzerland 
(“STOXX”) and/or its licensors (“Licensors”). STOXX has not 
been involved in any way in the creation of financial instruments 
or  any  other  products  referencing  the  aforementioned  indices. 
Such products are neither  sponsored nor promoted, distributed 
or  in  any  other  manner  supported  by  STOXX  and/or  its 
Licensors. STOXX does not give any warranty and excludes any 

liability  whatsoever  (whether  in  negligence  or  otherwise)  – 
including  without  limitation  for  the  accuracy,  adequateness, 
correctness,  completeness,  timeliness,  and  fitness  for  any 
purpose – in relation to any errors, omissions or interruptions in 
any of STOXX' indices or its data. 

746 AFME, CMU Key Performance Indicators, 2023. 
747 Data and surveys - SAFE - European Commission, 2024, Results 

by country, T27. 

475 

050100150200200820112014201720202023Jan-08=100MT Bank indexSTOXX EUROPE 600 BANKSMALTA SE MSE - PRICE INDEXSTOXX EUROPE 600-0.50.00.51.01.52.02.53.020212022202320242025-Q1bn EURGovernmentMFIsNon-MFINon-financial corporations 
 
 
      
 
 
 
      
2.19.7: 

Composition of HHs’ financial assets 

1.22.1 

Net savings-investment balance 

Source: Eurostat. End-2023. 

Source: AMECO. 

Consistent with its regular position of a net creditor 
to  the  rest  of  the  world,  the  Dutch  economy  has 
accumulated significant foreign assets and shows a 
positive net international investment position. As of 
end-2024, total assets on foreigners equated to 840% of 
GDP, while liabilities to foreigners stood at 777% of 
GDP,  resulting  in  a  net  international  investment 
position (NIIP) equivalent to 63% of GDP (see Graph 
2.20.2). At the same time, the accumulated net foreign 
direct investment reached 70% of GDP, while the net 
stock of other investments rose to 35% of GDP. Due to 
the  higher  value  of  foreigners’  investments  in  the 
Dutch capital markets than Dutch portfolio investments 
abroad,  the  portfolio  balance  showed  a  net  liability 
equivalent to 49% of GDP as of end-2024. The stock 
of  official  foreign  exchange  reserves  contributed 
almost  7  percentage  points  of  GDP  to  the  aggregate 
positive NIIP. Thus, while the Dutch economy appears 
to  be  deeply  integrated  in  international  capital  flows, 
including  as  a  major  recipient  of  foreign  capital,  it 
remains nevertheless a net capital exporter, notably by 
means of direct and other investments abroad. 

There  is  significant  scope  to  increase  the  level  of 
direct  or  indirect  retail  investment  in  Malta.  Cash 
and  deposits  represent  a  much  higher  share  of 
households’ assets compared to the EU average (51.9% 
vs 31.7%), which gives an opportunity to develop and 
use other types of saving and  investment options that 
may bring higher yield. 

1.22 Netherlands 

Availability and use of domestic savings 

The  Dutch  economy  invests  the  largest  part  of  its 
relatively high net savings abroad. In the last decade, 
the  private  savings  ratio,  net  of  fixed  capital 
consumption,  persistently  fluctuated  around  its  ten-
year average of 12.8% of GDP, reaching a maximum 
of 17.6% in 2021 (see Graph 2.20.1). The net private 
investment ratio, which measures the net contribution 
of  the  private  sector  to  capital  accumulation  in  the 
country,  was  significantly  more  volatile,  exhibited  a 
ten-year  average  of  4.0%  of  GDP  and  reached  a 
maximum  of  8.3%  in  2015.  In  the  last  decade,  the 
government budget balance, which showed quite some 
volatility,  resulted  in  a  comparatively  low  average 
deficit of 0.4% of GDP. Thus, the high positive balance 
between  net  domestic  savings  and  net  investment, 
together  with  the  low  government  deficit,  led  to  a 
structurally high net lending by the Dutch economy to 
foreigners  that  averaged  8.4%  of  GDP,  with  an 
exceptional  peak  of  17.2%  in  2022,  due  to  a  capital 
account  inflow  triggered  by  the  sale  of  intellectual 
property rights for about EUR 90 bn. Hence, most of 
Dutch  net  savings,  i.e.  after  accounting  for  the 
investments that are necessary to merely maintain the 
existing  capital  stock  in  the  economy,  are  used  to 
finance projects abroad. 

476 

050100150200250020406080100MTEUMTEUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Currency and depositsInsurance and pension fundsInvestment fundsBondsListed sharesUnlisted sharesOther equityHH Debt (liability)-20-1001020304020172018201920202021202220232024% of GDPPrivate investment, netLending to the governmentPrivate savings, netPrivate savings, grossBorrowing from the rest of the world 
 
 
        
 
        
1.22.2 

International investment position 

non-financial  corporations, 
increased from 8% to 10% of the total. 

the  share  of  which 

1.22.3 

Capital markets and financial intermediaries 

Source: ECB. 

Structure and size of the financial sector 

The  Dutch  economy  stands  out  with  one  of  the 
deepest domestic capital markets in Europe. Based 
on ECB data, the market capitalisation of listed equity 
issued by Dutch companies748 reached 122% of GDP at 
end-2024  (see  Graph  2.20.3),  which  is  the  fourth 
highest among member states, after Ireland, Denmark 
and  Sweden.  Characteristically,  the  total  market 
capitalisation  is  split  almost  equally  between  non-
financial and financial corporations, which reflects the 
strong  role  that  finance  plays  in  the  Dutch  economy. 
Interestingly, while the general stock market index in 
the Netherlands surpassed the EU average, the index of 
Dutch banks plummeted and never recovered from the 
post-GFC  crash  (see  Graph  2.20.4).  The  Netherlands 
are  also  home  to  the  ICE  Endex,  which  is  a  leading 
energy exchange in continental Europe, including for 
TTF derivatives and EU emission allowances.749 

The  outstanding  volume  of  debt  securities  reached 
193%  of  GDP  at  end-2024, which  is  also  among  the 
most  sizable  national  debt  markets  in  the  EU.  Bonds 
issued  by  other  financial  institutions  that  are  neither 
banks  nor  pension  funds  or  insurance  corporations 
represented  the  highest  share  with  47%  of  the  total, 
followed by debt securities issued by banks (26%) and 
by  the  government  (18%).  The  structure  of  the  debt 
securities market in the Netherlands has been relatively 
stable over the last years, except for bonds issued by 

Source: ECB, EIOPA, AMECO. End-2023. 

Even though the financial sector in the Netherlands 
remains  dominated  by  banks,  non-bank  financial 
intermediation  is  very  much  developed  along  all 
segments. After peaking at 311% of GDP in 2020, the 
size of the banking sector decreased to 250% of GDP 
as of end-2024, which is in line with the EU average of 
251%  and  slightly  below  the  EA  average  of  268%. 
Foreign presence is limited and accounts for about 10% 
in terms of assets. With the top five MFIs representing 
81% of the sector, banking concentration appears to be 
significantly higher than the EU average of 51%, which 
is  also  reflected  in  significantly  lower  inter-bank 
lending in the Netherlands than elsewhere in the EU. 
The pension funds sector, with total assets of 152% of 
GDP at end-2024, dominates non-bank intermediation 
and, together with Denmark, is among the largest750 in 
the EU (see Graph  2.20.3). Investment funds, though 
their  total  assets  dropped  by  almost  50  percentage 
points to 82% of GDP between 2020 and 2024, remain 
significant. Insurance corporations, whose assets were 
equivalent to 40% of GDP as of end-2024, are relevant 
as well, even if they appear less developed than the EU 
average of 55% of GDP. 

748  This figure is a proxy for the degree of development of the Dutch 
stock exchange, given that i) Dutch companies could be listed 
abroad  and  ii)  foreign  companies  could  be  listed  in  the 
Netherlands as well. 

749  Fore further details, consult the ICE Endex institutional website. 
750  The  Dutch  pension  funds  sector,  where  occupational  pension 
providers  are  set  up  under  the  IORP  Directive,  unlike  in 

Denmark where they are set up under the Solvency II Directive, 
is sometimes reported as the fifth largest in the world. Such a 
country  comparison  is,  however,  highly  inaccurate  because  of 
important  structural  differences  in  contributors’  ownership 
rights across national regimes.  

477 

020406080-1500-1000-50005001000150020172018201920202021202220232024% of GDP% of GDPOther investment, LiabilitiesPortfolio Investment, LiabilitiesForeign Direct Investment, LiabilitiesOfficial reserve assetsOther investment, AssetsPortfolio Investment, AssetsForeign Direct Investment, AssetsNIIP (rhs)Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIsPension fundsInsurance corporationsInvestment funds050100150200250300   Listed equity               Bonds                        Assets by sector% of GDP 
 
 
        
 
 
        
1.22.4 

Stock market performance 

a  minor  source  of  funding  for  Dutch  non-financial 
corporations. 

1.22.5 

Net issuance of bonds 

Source: London Stock Exchange Group751. 

Financing of the economy 

Market finance 

Dutch  capital  markets,  which  offer  a  high 
investment protection environment752, experienced 
positive developments, and investors continue to be 
optimistic about the future. Between December 2022 
and  mid-September  2025,  the  Amsterdam  Exchange 
Index  (AEX)  increased  by  32.8%,  mainly  thanks  to 
improved  valuations  of  technology  companies753  and 
high  AI  expectations.  So  far  capital  markets  have 
weathered  well 
turmoil 
generated  by  the  Gaza  conflict  and  the  energy  crisis. 
However, 
the 
interconnectedness  of  markets  and  the  increased 
trading of crypto assets warrant cautiousness. 

the  global  geopolitical 

exist, 

risks 

both 

still 

and 

Debt finance continues to be a significant source of 
market funding for banks and financial companies 
in the Netherlands. In the first quarter of 2025, banks 
issued  almost  EUR  35  bn  of  debt  securities,  which 
compares favourably to only EUR 8 bn for the whole 
of  2024  (see  Graph  2.20.5).  The  other  financial 
companies issued EUR 7.3 bn in Q1 2025, in line with 
the 2024 total of EUR 38 bn. The net issuance by non-
financial  corporations  turned  out  negative,  at  –  EUR 
1.7 bn in Q1 2025, consistent with the 2024 negative 
total  and  the  relatively  low  positive  volumes  from 
previous years. Hence, debt market finance appears as 

Source: ECB. 

Companies’ funding and households’ assets 

Even  though  Dutch  companies  are  more  indebted 
than their EU peers on average, they rely relatively 
moderately on debt finance to fund their activities. 
Financial  borrowing  by  non-financial  corporations 
(NFCs) in the Netherlands reached 108.6% of GDP in 
2024, which is significantly higher than the EU average 
of  71.6%  (see  Graph  2.20.6).  However,  given  the 
overall much larger size of the aggregate balance sheet 
of Dutch NFCs, which reached 352.6% of GDP at end-
2024 (versus  an EU  average of  225.6%),  the  relative 
share  of  financial  loans  in  their  funding  structure 
(30.8%) is slightly lower than the EU average (31.7%). 

To fund their investments, Dutch companies rely on 
internal resources more than their EU peers, which 
is also confirmed by the high aggregate reliance on 
unlisted equity. In 2023, Dutch NFCs financed almost 
four  fifths  (78%)  of  their  investments  with  internal 
resources, well above the two thirds (66%) equivalent 
share of the average EU company. At the same time, 
only 8% of companies in the Netherlands believe they 
invested too little in the last three years, as opposed to 
14%  in  the  EU.754  This  suggests  that  there  is  a  low 
overall investment gap. However, this may not be the 

751  The  STOXX  Indices  are  the  intellectual  property  (including 
registered  trademarks)  of  STOXX  Limited,  Zug,  Switzerland 
(“STOXX”) and/or its licensors (“Licensors”). STOXX has not 
been involved in any way in the creation of financial instruments 
or  any  other  products  referencing  the  aforementioned  indices. 
Such products are neither sponsored nor promoted, distributed 
or  in  any  other  manner  supported  by  STOXX  and/or  its 
Licensors. STOXX does not give any warranty and excludes any 
liability  whatsoever  (whether  in  negligence  or  otherwise)  – 
including  without  limitation  for  the  accuracy,  adequateness, 
correctness,  completeness,  timeliness,  and  fitness  for  any 

purpose – in relation to any errors, omissions or interruptions in 
any of STOXX' indices or its data. 

752  According to the Overview of CMU Indicators, the investment 
protection index for the Netherlands stood at 68 in 2024, versus 
an EU average of 54. 

753  The Amsterdam stock market is home to several tech companies, 
specialised  in  semi-conductors  and  science  materials,  e.g. 
ASML  Holding,  BE  Semiconductor  Industries,  and  ASM 
International.  Techs  account  for  about  one  third  of  the  total 
market  capitalisation  of  the  25  companies  that  compose  the 
AEX. 

754  For further details, see the 2024 EIB Investment Survey. 

478 

050100150200200820112014201720202023Jan-08=100NL Bank indexSTOXX EUROPE 600 BANKSAEX INDEX (AEX) - PRICE INDEXSTOXX EUROPE 600-60.0-40.0-20.00.020.040.060.080.0100.020212022202320242025-Q1bn EURGovernmentMFIsNon-MFINon-financial corporations 
 
 
      
 
 
     
Availability and use of domestic savings 

Poland’s  economy  channels a  growing  share  of  its 
net  savings  into  domestic  investment.  The  private 
savings  ratio,  net  of  fixed  capital  consumption,  has 
steadily climbed over the past decade, averaging 9.3% 
of GDP from 2014 to 2024, with a peak of 14.2% in 
2020  amid  pandemic-induced  caution  (see  Graph 
2.21.1). The net private investment ratio, more volatile, 
averaged 5.8% of GDP over the same period and stood 
at 3.8% in 2024 as EU recovery and resilience funds 
spurred  infrastructure  spending.  The  2025  and  2026 
forecast points to a further rebound towards 3.5% and 
4%  respectively.  As  mentioned,  government  budget 
deficits have been on the rise, consequently the private 
sector’s net lending to the government reached 6.6% of 
GDP in 2024. It is forecast to continue at a pace above 
6% of GDP in both 2025 and 2026. Borrowing from 
the  rest  of  the  world  remained  slightly  negative  over 
the  past  decade  at  -0.3%.  This  points  to  a  slowly 
changing  positive  net  savings-investment  balance 
which fuels some lending abroad.  

1.23.1 

Net savings-investment balance 

case for all firms, especially for the 4% of companies 
that consider themselves financially constrained. 

1.22.6 

Composition of NFCs’ funding 

Source: Eurostat. End-2024. 

Thanks to their large and mandatory contributions 
to asset-backed pension schemes, Dutch households 
hold  high  volumes  of  financial  assets.  As  of  end-
2024, households’ aggregate financial assets equated to 
293%  of  GDP,  which  is  above  the  EU  average  of 
212%,  but  significantly  behind  the  US  average  of 
437%.  Investments  in  insurance  and  pension  funds 
(164% of GDP) are almost three times larger than the 
EU average (59% of GDP). However, direct holdings 
of  bonds  and  equity  are  significantly  lower,  both  in 
nominal amounts per capita and relative to GDP (see 
Graph 2.20.7). As of end-2024, Dutch households held 
less than 20% of their financial wealth in cash and bank 
deposits, as opposed to 32% on average in the EU.  

1.22.7 

Composition of HHs’ financial assets 

Source: Eurostat. End-2024. 

1.23 Poland 

Source: AMECO. 

Between  2017  and  2024  the  economy  halved  its 
position as a net debtor to the global market. As of 
end-2024, total assets held by Polish residents abroad 
reached  60%  of  GDP,  while  liabilities  to  foreigners 
were  equivalent  to  90%  of  GDP,  yielding  a  net 
international  investment  position  (NIIP)  of  -30%  of 
GDP  (see  Graph  2.21.2).  Foreign  direct  investment 
liabilities,  standing  at  46.6%  of  GDP,  dwarf  direct 
investment  assets  at  12%  of  GDP,  underscoring  the 
country’s  heavy  reliance  on  foreign  capital  inflows. 
Portfolio investment liabilities, kept on decreasing over 
the  years  and  stood  at 18.4%  of  GDP  in  2024,  down 
from over 30% in 2017. Polish portfolio assets stood at 
8.2%  of  GDP  in  2024,  contributing  to  the  negative 
balance  in  Poland’s  NIIP.  Official  reserve  assets 
remained at 25.3% of GDP in 2024, offering a safety 
buffer  against  external  shocks.  Other  investment 
liabilities, at 25.1% of GDP, outweigh assets (14.5%), 

479 

050100150200250300350400NLEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity02004000100200NLEUNLEUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Other equityUnlisted sharesListed sharesBondsInvestment fundsInsurance and pension fundsCurrency and depositsHH Debt (liability)-10-5051015202520172018201920202021202220232024% of GDPPrivate investment, netLending to the governmentPrivate savings, netPrivate savings, grossBorrowing from the rest of the world 
 
 
          
       
 
 
        
1.23.3 

Capital markets and financial intermediaries 

Source: ECB, EIOPA, AMECO. End-2024. 

with 

non-bank 

Poland’s  financial  sector  remains  predominantly 
bank-driven 
financial 
intermediaries gradually expanding their footprint. 
By end-2024 the banking sector’s assets reached 95.1% 
of GDP, far below the EU average of 253.2% but well 
above any other part of the Polish financial system. The 
banking  system  is  moderately  concentrated  with  the 
top five lenders owning 58.5% of total assets. 58.6% of 
the  sector  is  domestically  owned  with  a  large  share 
(49.6%)  of  state-owned  banks  in  the  system.  The 
insurance  sector,  with  assets  below  6.1%  of  GDP  in 
2024  is  relatively  small  but  it  is  a  rapidly  growing 
market  segment  of  the  domestic  financial  market. 
Pension funds are a mix between second pillar legacy 
funds  (known  as  OFE)  and  third-pillar  employee 
capital plans (PPK), which are slowly getting traction. 
Altogether  pension  assets  represent  about  6%  of  the 
GDP,  whereas  local  asset  managers  have  under 
management assets worth about 11.2% of the GDP. 

the  economy’s  deep 

further deepening the NIIP deficit. This configuration 
highlights 
into 
international  capital  flows,  predominantly  as  a 
recipient  of  foreign  direct  investment,  supporting 
domestic growth while keeping Poland’s persistent net 
debtor status.   

integration 

1.23.2 

International investment position 

Source: ECB. 

Structure of the capital markets and size of the 
financial sector 

The domestic capital market is relatively modest in 
European comparison. The Warsaw Stock Exchange 
(WSE)  is  the  primary  platform  for  equity  trading  in 
Poland.  The  market  capitalisation  remained  fairly 
stable  in  2023  and  2024  at  19.2%  of  the  GDP  (see 
Graph 2.21.3), around a third of the European average 
of  68%  the  GDP.  Non-financial  corporations  (NFC) 
account  for  approximately  57%  of  the  capitalisation, 
underscoring  the  stock  market’s  role  in  supporting 
largest  Polish  NFC.  The 
mostly  some  of 
outstanding  volume  of  private  sector  debt  securities 
stood  at  12.7%  of  GDP  in  2024,  with  monetary 
financial institutions (MFIs) contributing around 72% 
of  this  total,  driven  by  a  banking  sector  that  plays  a 
central role in providing financing for local households 
and  corporate  clients.  General  government  bonds 
dwarf  the  rest  of  the  bond  market  and  account  for 
38.1% of GDP in 2024, influenced by increased public 
borrowing  to  fund  infrastructure  projects,  energy 
transition initiatives and investments into defence amid 
geopolitical tensions. 

the 

480 

-70-60-50-40-30-20-100-150-100-5005010020172018201920202021202220232024% of GDP% of GDPOther investment, LiabilitiesPortfolio Investment, LiabilitiesForeign Direct Investment, LiabilitiesOfficial reserve assetsOther investment, AssetsPortfolio Investment, AssetsForeign Direct Investment, AssetsNIIP (rhs)Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIs​Insurance corporationsInvestment funds0102030405060708090100   Listed equity               Bonds                        Assets by sector% of GDP 
 
 
         
         
 
1.23.4 

Stock market performance 

Source: London Stock Exchange Group755. 

Financing of the economy 

Market finance 

Poland's  capital  market  continues 
to  draw 
substantial  foreign  interest.  International  investors 
account  for  about  65%  of  the  equity  turnover  on  the 
main  market  in  2023-2024.  Domestic  institutional 
players  generated  an  aggregate  19%  of  turnover 
whereas retail investors share stood at 16%. The main 
market  is  dominated  by  blue-chip  firms  in  banking, 
energy,  and  retail.  The  Initial  Public  Offerings  (IPO) 
activity  of  the  WSE  remains  overall  rather  subdued, 
with only a handful of companies listing on the main 
market in the years 2023 and 2024. 2024 saw in total 
nine  listings  on  the  main  market  totalling  about 
EUR 1.53  bn  in  value,  largely  driven  by  the  high-
profile debut of convenience store giant Zabka Group 
at  EUR  1.5  bn,  alongside  eight  transfers  from  the 
NewConnect segment. The much smaller NewConnect 
(the  SME  market)  is  more  dynamic  but  small  and 
highly  illiquid.  The  Polish  government  has  launched 
several  measures  to  bolster  the  capital  market.  The 
main  one  was  the  2019  Capital  Market  Development 
Strategy,  developed  jointly  with  the  EBRD  and 
financed largely from EU funds. The strategy covered 
the  period  2019-2023  and  aimed  to  increase  market 
liquidity and the role of capital market instruments in 
financing  local  NFCs.  Overall,  the  equity  market  is 
underutilised in Poland and is hardly an alternative to 
bank  loans.  It  mainly  serves  a  handful  of  bluechip 
companies. 

Poland's debt market is predominantly funding the 
public  sector.  The  general  government  net  issuance 

surged  to  EUR 55 bn  in  2024,  equivalent  to 6.5% of 
GDP  amid  fiscal  expansion  to  finance  defence  and 
social spending. 2025 will see most probably a record 
high  level  debt  issuance  by  the  government  with 
EUR 28.4  bn  in  the  first  quarter  of  2025  alone. 
Financial corporations, including MFIs issued in total 
some  EUR  17.3  bn  net  in  2024,  with  non-MFI 
financials recording a negative net issuance of EUR -
1.6  bn  in  2024.  NFC  posted  modest  positive  net 
issuance  of  EUR  0.8  bn  in  2024  but  rising  to 
EUR 1.9 bn in Q1 2025, hinting at a nascent revival in 
corporate  bond  activity  as  benchmark  interest  rates 
started  a  descending  trend.  However,  at  the  current 
juncture, Poland’s debt market can be hardly perceived 
as a true alternative to banks loans. The debt market's 
depth  lags  EU  averages  and policymakers  are  eyeing 
some  reforms  to  boost  liquidity  and  green  bond 
issuance. 

1.23.5 

Net issuance of bonds 

Source: ECB. 

Polish firms are heavily reliant on internal funding. 
According to the 2024 EIB Investment Survey, 72% of 
Polish  firms'  investment  needs  are  covered  through 
internal financing, against an EU average of 66%. This 
reliance on internal funds highlights on the one hand a 
rather  cautious  approach  towards  external  funding 
overall, on the other hand it points out to some possible 
difficulties  that  the  relatively  small  Polish  firms  (the 
vast  majority  being  microenterprises)  might  have  in 
accessing  external  financing.  Notwithstanding  these 
figures, 85% of Polish entrepreneurs believe that they 
have made adequate investments to meet market needs 

755  The  STOXX  Indices  are  the  intellectual  property  (including 
registered  trademarks)  of  STOXX  Limited,  Zug,  Switzerland 
(“STOXX”) and/or its licensors (“Licensors”). STOXX has not 
been involved in any way in the creation of financial instruments 
or  any  other  products  referencing  the  aforementioned  indices. 
Such products are neither sponsored nor promoted, distributed 
or  in  any  other  manner  supported  by  STOXX  and/or  its 

Licensors. STOXX does not give any warranty and excludes any 
liability  whatsoever  (whether  in  negligence  or  otherwise)  – 
including  without  limitation  for  the  accuracy,  adequateness, 
correctness,  completeness,  timeliness,  and  fitness  for  any 
purpose – in relation to any errors, omissions or interruptions in 
any of STOXX' indices or its data. 

481 

050100150200200820112014201720202023Jan-08=100PL Bank indexSTOXX EUROPE 600 BANKSWARSAW GENERAL INDEX - TOT RETURN INDSTOXX EUROPE 600-10.00.010.020.030.040.050.060.070.080.020212022202320242025-Q1bn EURGovernmentMFIsNon-MFINon-financial corporations 
 
 
      
 
 
      
over  the  past  three  years756,  compared  to  the  EU 
average of 80%. 

External  NFC  funding  is  mostly  synonym  of 
owners’ equity and loans. The overall external NFC 
funding in Poland stood at 93.6% of the GDP in 2024 
(see  Graph  2.21.6),  way  less  than  the  EU  average  of 
225.6% the GDP. Not surprisingly, given the small size 
of  Polish  NFCs,  firms’  owners’  equity  remains  the 
most  significant  item  in  the  funding  mix  with  over 
33.7%  of  total  external  funding.  This  is  followed 
closely  by  bank  loans,  the  second  main  source  of 
external  financing  representing  31.3%  of  the  funding 
mix, a few percentage points above the EU’s average 
of 27%. Market equity financing, through listed shares 
and bonds, represented a modest 12.5% of the funding 
mix,  significantly  lower  than  the  EU’s  average  of 
23.8%. This pattern underscores the strong reliance of 
firms  in  Poland  on  traditional  bank  financing  over 
capital market related funding, which given the small 
size of local firms is not surprising. 

1.23.6 

Composition of NFCs’ funding 

Source: Eurostat. End-2024. 

Polish households are conservative when managing 
their financial assets. About 59% of the households’ 
financial assets are held on current accounts and bank 
deposits, almost twice as the European average of ca. 
(see  Graph  2.21.7).  The  capital  market 
32% 
participation  of  households  trails  other  EU  Member 
States. Polish households have about a quarter of their 
financial  wealth  invested  in  listed  stocks,  bonds, 
pension and investment funds. That figure is low when 
compared  to  the  EU  average  of  around  46.6%  and 
reflects on the one hand the cautious behaviour of local 
households and, on the other hand their relatively low 
financial  wealth  compared  to  the  EU  average.  In 
aggregate,  Polish  households  have  financial  assets 
equivalent to 83.3% of the Polish GDP, whereas the EU 
average  stands  at  212.2%  of  the  GDP.  In  2023,  the 

756  2024 EIB Investment Survey 

average monthly available income per capita in Poland 
stood at PLN 2917 (about EUR 677) and remains quite 
modest  by  European  standards,  whereas  the  savings 
rate  in  2023  stood  at  13.5%,  similar  level  as  the  EU 
average according to Eurostat. 

1.23.7 

Composition of HHs’ financial assets 

Source: Eurostat. End-2024. 

1.24 Portugal 

Availability and use of domestic savings 

a 

and 

focus 

subdued 

continued 

investment, 

Since  2017,  Portugal’s  private  sector  maintained 
high gross savings but low net savings and modest 
capital 
reflecting 
net 
accumulation 
on 
deleveraging. Over the past decade, the gross private 
savings  rate  remained  high  and  stable,  averaging 
around 17.7% of GDP between 2014 and 2023, with a 
temporary  increase  above  20%  in  2020–2021  and  a 
moderate  rise  again  in  2024  (18.6%  of  GDP).  In 
contrast, net private savings were considerably lower, 
averaging just 2.6% of GDP over the same period. In a 
similar  vein,  private  net  investment,  which  measures 
the  net  contribution  of  the  private  sector  to  capital 
accumulation  in  the  country,  remained  subdued  but 
positive in most years since 2018, with a notable dip 
during  the  pandemic.  It  averaged  just  0.9%  of  GDP 
between 2014 and 2023, indicating limited net capital 
accumulation by the private sector, partly reflecting a 
focus on deleveraging. 

Since 2012, Portugal has maintained a positive net 
external  lending  position.  The  difference  between 
private  net  savings  and  investment,  combined  with 
consistent public sector fiscal surpluses in recent years 
except during the pandemic years, helps explain why 
Portugal has remained a net external lender since 2012. 

482 

050100150200250PLEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity0100200300050100PLEUPLEUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Other equityUnlisted sharesListed sharesBondsInvestment fundsInsurance and pension fundsCurrency and depositsHH Debt (liability) 
 
 
          
 
 
        
 
This surplus ranged from 0.1 percent of GDP in 2020 
to 2.9 percent in 2024. 

1.24.2 

International investment position 

1.24.1 

Net savings-investment balance 

Source: AMECO. 

Source: ECB. 

into 

financial 

Consistent with its regular role of a net creditor to 
the  world, 
the  Portuguese  net 
the  rest  of 
international 
(NIIP)  has 
investment  position 
steadily improved, although it remains in negative 
territory.  Following  Portugal’s  entry 
the 
Economic  and  Monetary  Union  (EMU)  in  1999, 
Portugal’s  NIIP  deteriorated  sharply  driven  by  a 
domestic  demand  boom  financed  through  external 
borrowing,  particularly  by 
institutions 
channelling funds into housing and consumption. The 
adjustment  started  taking  place  during  the  sovereign 
debt  crisis  when  debt  servicing  costs  reached  4%  of 
GDP.  Between  end-2017  and  end-2024,  the  NIIP 
further  improved  from  –110%  to  –59%  of  GDP,  a 
remarkable  adjustment  reflecting  consistent  current 
account  surpluses  since  2013.  In  particular,  foreign 
direct  investment  liabilities  have  remained  stable  at 
around  –80%  of  GDP,  while  assets  declined  slightly 
from  42.4%  in  2017  to  35.0%  in  2024.  As  a  result, 
Portugal’s net FDI position deteriorated modestly over 
the period. And in the category of “Other investment 
liabilities”,  the  gross  stock  of  liabilities  fell  sharply 
from  –126.7%  of  GDP  in  2017  to  –94.2%  in  2024, 
while assets also declined slightly, leading to a gradual 
improvement  in  the  net  position.  Consequently,  by 
end-2024, Portugal’s NIIP stood at –58.8% of GDP, a 
notable  improvement  despite  still  being  a  net  debtor 
economy in global financial flows. 

Structure and size of the financial sector 

only 

This 

2.5%. 

Portugal’s domestic capital markets are moderately 
developed within the European context. The market 
capitalisation of listed equity reached 20.7% of GDP at 
the  end  of  2024.  Of  this,  non-financial  corporations 
accounted  for  18.2%,  while  financial  corporations 
represented 
relative 
underdevelopment  places  Portugal’s  equity  market 
among  the  smaller  ones  in  the  European  Union.  In 
contrast,  the  debt  securities  market  plays  a  more 
prominent role, with an outstanding volume of 102.8% 
of  GDP.  Government-issued  bonds  dominate  the 
market,  accounting  for  62.4%  of  GDP,  followed  by 
bonds  issued  by  banks  with  20.4%  and  by  non-
financial  corporations  with  14.1%.  The  remaining 
5.4%  consists  of  debt  securities  issued  by  other 
financial intermediaries. This structure  underlines the 
importance of public debt in Portugal, with corporate 
and bank debt playing a secondary role. The financial 
sector in Portugal remains predominantly bank-based. 
The  assets  of  the  banking  sector  reached  155.6%  of 
GDP  in  2024,  well  above  those  of  other  segments. 
Insurance corporations held assets equivalent to 19.5% 
of  GDP,  and  pension  funds  accounted  for  just  5.7%, 
pointing  to  a  relatively  modest  role  for  institutional 
investors and suggesting room for growth in long-term 
investment. By contrast, investment funds have gained 
traction, with total assets reaching 18.3% of GDP by 
the end of 2024, reflecting increased investor interest 
in capital markets. 

483 

-5051015202520172018201920202021202220232024% of GDPPrivate investment, netLending to the governmentPrivate savings, netPrivate savings, grossBorrowing from the rest of the world-120-100-80-60-40-200-400-300-200-100010020030020172018201920202021202220232024% of GDP% of GDPOther investment, LiabilitiesPortfolio Investment, LiabilitiesForeign Direct Investment, LiabilitiesOfficial reserve assetsOther investment, AssetsPortfolio Investment, AssetsForeign Direct Investment, AssetsNIIP (rhs) 
 
 
         
        
1.24.3 

Capital markets and financial intermediaries 

having  almost  tripled  its  value  since  June  2023 
Structural  challenges  such  as  legacy  non-performing 
loans continue to weigh on the sector.  

1.24.4 

Stock market performance 

Source: London Stock Exchange Group757. 

Companies’ funding and households’ assets 

(non-MFIs)  also 

Debt financing remains a modest but stable source 
of market funding for Portuguese  banks and, to a 
lesser  extent,  for  companies.  In  the  first  quarter  of 
2025, monetary financial institutions (MFIs) reported 
net  debt  issuance  of  negative  EUR  0.5  bn,  a  reversal 
from  the  EUR  2.5  bn  issued  in  2024,  suggesting  a 
slowdown  in  market-based  funding.  Other  financial 
corporations 
showed  negative 
issuance of negative EUR 0.3 bn in Q1 2025, compared 
to  a  modest  EUR  0.6  bn  in  2024.  In  contrast,  non-
financial corporations continued to make moderate use 
of  market  debt,  issuing  EUR  1.2  bn  in  Q1  2025, 
following a total of EUR 3.2 bn in 2024. These modest 
figures  confirm  the  limited  role  of  bond  markets  in 
corporate 
in  Portugal.  Meanwhile, 
government  debt  issuance  remained  significant,  with 
EUR 6 bn in net issuance in Q1 2025, following EUR 
11.8  bn  in  2024,  confirming  the  public  sector's 
dominant role in the domestic debt market. 

financing 

Source: ECB, EIOPA, AMECO. End-2024. 

Financing of the economy 

Market finance 

Portugal’s  stock  market  is  small  and  shrinking, 
with few listed companies and limited use of equity 
financing by firms. Portugal’s only regulated market, 
the  Lisbon  stock  exchange  (LSE),  is  owned  and 
operated  by  Euronext,  the  largest  stock  exchange 
operator  in  the  EU.  The  LSE  is  relatively  small  and 
currently lists only 47 companies (53 in 2024). In fact, 
most Portuguese firms do not rely on capital markets to 
cover  their  financing  needs.  This  explains  why 
Portugal  has  one  of  the  lowest  share  of  SMEs 
indicating  “equity”  as  a  relevant  mean  of  financing 
their business activity (in the ECB’s “Survey on Access 
to  Finance”).  As  a  matter  of  fact,  the  Lisbon  stock 
exchange  had only 1  IPO  in 2024 (one  REIT).  More 
importantly,  Portugal  has  lost  two-thirds  of  its  listed 
companies over the last two decades. 

The  performance  of  Portugal’s  stock  market  has 
lagged behind broader European benchmarks such 
as  the  Eurostoxx  Price  Index.  The  PSI-20  Index, 
Portugal’s  main  stock 
index,  has  shown  some 
resilience  since  the  euro  area  crisis,  but  its  recovery 
remains incomplete, as it has not yet returned to levels 
seen  before  the  global  financial  crisis.  The  index 
continues  to  be  affected  by  market  volatility  and 
broader  macroeconomic  uncertainty.  The  Portuguese 
index  has  also  faced  persistent 
banking  sector 
difficulties.  It  declined  sharply  during  the  financial 
crisis  and  has  yet  to  regain  pre-crisis  levels,  despite 

757  The  STOXX  Indices  are  the  intellectual  property  (including 
registered  trademarks)  of  STOXX  Limited,  Zug,  Switzerland 
(“STOXX”) and/or its licensors (“Licensors”). STOXX has not 
been involved in any way in the creation of financial instruments 
or  any  other  products  referencing  the  aforementioned  indices. 
Such products are neither sponsored nor promoted, distributed 
or  in  any  other  manner  supported  by  STOXX  and/or  its 

Licensors. STOXX does not give any warranty and excludes any 
liability  whatsoever  (whether  in  negligence  or  otherwise)  – 
including  without  limitation  for  the  accuracy,  adequateness, 
correctness,  completeness,  timeliness,  and  fitness  for  any 
purpose – in relation to any errors, omissions or interruptions in 
any of STOXX' indices or its data. 

484 

Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIsPension fundsInsurance corporationsInvestment funds020406080100120140160180   Listed equity               Bonds                        Assets by sector% of GDP050100150200200820112014201720202023Jan-08=100PT Bank indexSTOXX EUROPE 600 BANKSPORTUGAL PSI-20 - PRICE INDEXSTOXX EUROPE 600 
 
 
         
 
 
      
1.24.5 

Net issuance of bonds 

1.24.7 

Composition of HHs’ financial assets 

Source: Eurostat. End-2024. 

1.25 Romania 

Availability and use of domestic savings 

The  Romanian  economy  invests  its  net  savings 
domestically and also sources funding from abroad. 
From 2015 until 2024, the private savings ratio, net of 
fixed capital consumption, stood on average at 6.6% of 
GDP, peaking at 11.7% in 2023 and 2024 (see Graph 
2.23.1).  The  net  private  investment  ratio,  which 
denotes  the  net  contribution  of  the  private  sector  to 
capital  accumulation  in  the  economy,  recorded  an 
average  of  5%  of  GDP  during  the  reference  ten-year 
period and reached 10.2% in 2023. At the same time, 
during  the  same  period  the  government  has  been 
running very sizable budgetary deficits, which during 
2015-2024 on average amounted to a budgetary deficit 
of 5.1%. These recurrent and large general government 
budgetary deficits, combined with only a small positive 
difference  between  net  domestic  savings  and  net 
investment,  resulted  in  structural  net  borrowing  by 
Romania from foreign economies that averaged  3.5% 
of  GDP,  with  a  peak  of  7.5%  in  2022.  Thus,  the  net 
savings  in  Romania  have  been  invested  domestically 
(to  finance  private  investment  or  borrowing  by  the 
government), while they were also complemented by a 
substantial share of financing from abroad. 

Source: ECB. 

1.24.6 

Composition of NFCs’ funding 

Source: Eurostat. End-2024. 

Portuguese  households  strongly  favor  liquidity, 
with  currency  and  deposits  well  above  the  EU 
average while their investments in capital markets, 
including  insurance,  pension  funds,  bonds,  and 
listed  shares,  remain  significantly  below  EU 
averages.  Portuguese  households  exhibit  a  strong 
preference for liquidity, with their holdings in currency 
and deposits reaching 90.7% of GDP, well above the 
EU average of 67.6%. This contrasts sharply with their 
limited  exposure 
to  capital  markets.  Household 
investments in insurance and pension funds amount to 
21.3% of GDP, less than half the EU average of 58.3%. 
Direct  holdings  of  bonds  (2.3%  of  GDP)  and  listed 
shares  (3.0%  of  GDP)  also  fall  significantly  short  of 
respectively). 
(5.6%  and  10.0%, 
EU  averages 
Similarly, investment fund allocations (12.5% of GDP) 
lag  behind  the  EU  (21.0%),  while  unlisted  shares 
(22.7%  of  GDP)  align  closely  with  the  EU  average 
(22.6%).  In  per  capita  terms,  Portuguese  households 
allocate  significantly  less  money  to  financial  assets 
than the EU average, which is a natural consequence of 
the lower average savings rate and average disposable 
income. 

485 

-10.0-5.00.05.010.015.020.020212022202320242025-Q1bn EURGovernmentMFIsNon-MFINon-financial corporations050100150200250PTEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity0100200300050100PTEUPTEUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Other equityUnlisted sharesListed sharesBondsInvestment fundsInsurance and pension fundsCurrency and depositsHH Debt (liability) 
 
 
      
 
          
        
 
1.25.1 

Net savings-investment balance 

1.25.2 

International investment position 

Source: AMECO. 

As  a  net  borrower from  the  rest  of  the  world,  the 
Romanian  economy  has  been  recording  a 
persistently  negative  net  international  investment 
position.  As  of  Q4  2024,  total  assets  on  foreigners 
stood  at  around  42%  of  GDP,  while  liabilities  to 
foreigners  amounted  to  just  above  84%  of  GDP, 
resulting  in  a  net  international  investment  position 
(NIIP) equivalent to 42.4% of GDP (see Graph 2.23.2). 
The only factor with a net positive contribution to the 
NIIP  was  the  significant  stock  of  official  foreign 
reserve  assets  (at  19.9%  of  GDP),  which  reflects  the 
central  bank’s  focus  on  a  relatively  steady  exchange 
rate  of  the  leu,  particularly  against  the  euro.  The 
incoming  net  foreign  direct  investment  (-33.8%  of 
GDP as of Q4 2024) accounted for most of the NIIP. 
The  net  portfolio  investments,  which  are  directly 
affected  by  the  price  volatility  of  equity  valuations, 
have also been negative (at  -19.8% of GDP as of Q4 
2024), similarly to the net stock of other investments 
(at almost -9% of GDP). Thus, the Romanian economy 
seems well integrated in international capital flows as 
a  recipient  of  foreign  capital,  remaining  a  net  capital 
importer, notably in terms of direct investments. 

Source: ECB. 

Structure of the capital markets and size of the 
financial sector 

The Romanian economy stands out with one of the 
most  underdeveloped  domestic  capital  markets  in 
the  EU.  The  market  capitalisation  of  listed  equity 
reached 12.7% of GDP at the end of 2024 (see Graph 
2.23.3), which is well below the EU average of 66.8% 
of GDP. At the same time, non-financial corporations 
(NFCs) accounted for 83% of that capitalisation, which 
implies 
is 
predominantly  geared  towards  funding  the  non-
financial segment of the real economy. The outstanding 
volume of debt securities reached almost 46% of GDP 
at  end-2024,  which  is  significantly  below  the  EU 
average.  Bonds  issued  by  the  government  accounted 
for 95% of the total. 

the  stock  market 

in  Romania 

that 

1.25.3 

Capital markets and financial intermediaries 

Source: ECB, EIOPA, AMECO. End-2024. 

Romania has the smallest banking sector in the EU. 
Starting  from  56%  of  GDP  in  2020,  the  size  of  the 
banking sector declined to 52% of GDP in 2024 (with 

486 

05101520253020172018201920202021202220232024% of GDPPrivate investment, netLending to the governmentPrivate savings, netPrivate savings, grossBorrowing from the rest of the world-50-48-46-44-42-40-38-36-100-5005020172018201920202021202220232024% of GDP% of GDPOther investment, LiabilitiesPortfolio Investment, LiabilitiesForeign Direct Investment, LiabilitiesOfficial reserve assetsOther investment, AssetsPortfolio Investment, AssetsForeign Direct Investment, AssetsNIIP (rhs)Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIs​Insurance corporationsInvestment funds0102030405060   Listed equity               Bonds                        Assets by sector% of GDP 
 
 
          
         
          
the EU average at 251%), which constituted the lowest 
ratio  in  the  EU.  The  overall  low  degree  of  financial 
intermediation in Romania could be explained by:  

(i) the large share of non-bankable NFCs that continue 
to  have  significant  capitalisation  weaknesses,  and 
therefore have less access to finance;  

(ii) weak payment discipline in the economy;  

(iii)  companies’  reliance  mainly  on  loans  from 
suppliers  and  shareholders,  rather  than  loans  from 
financial institutions;  

(iv)  low  rates  of  bank  account  ownership,  with  low-
income individuals and adults outside the labour force 
among those least likely to have a bank account; and  

(v) the modest degree of financial literacy.  

by 

banks, 

non-bank 

While  the  financial  sector  in  Romania  remains 
financial 
dominated 
intermediaries also play an important role. Foreign 
presence is predominant and accounts for almost 63% 
in  terms  of  bank  assets.  The  consolidation  in  the 
banking  sector  has  been  ongoing  in  recent  years 
through the acquisition of smaller, less profitable banks 
with  weaker  capital  positions  by 
larger  credit 
institutions. Currently, banking concentration appears 
to be slightly higher than on average in the EU, with 
the  top  five  MFIs  representing  around  63%  of  total 
bank assets. The insurance and pension funds sectors, 
as well as investment funds (with total assets of almost 
2.1% of GDP and 2.5% of GDP at end-2024), play a 
very limited role in the financial intermediation. 

1.25.4 

Stock market performance 

Source: London Stock Exchange Group758. 

Financing of the economy 

Sources of corporate funding 

The Romanian corporate sector is heavily reliant on 
internal  financing.  According  to  the  2024  EIB 
Investment  Survey759,  for  firms  in  Romania  internal 
sources accounted for the largest share of investment 
finance  (73%),  followed  by  external  finance  (26%), 
with  the  remainder  (1%)  coming  from  intra-group 
financing.  On  average,  in  the  EU,  internal  financing 
accounted for 66% of investment finance, followed by 
external finance (25%) and intra-group financing (9%). 
According to the 2024 EIB Investment Survey, many 
Romanian firms (66%) were satisfied with their overall 
level of investment over the last three years, but 30% 
reported investment gaps, twice as many as EU firms 
(14%).  Romanian  firms  continue  to  focus  their 
investments  on  replacement  rather  than  capacity 
expansion, a focus that intensified in recent years. 

(NFCs) 

Romanian companies rely relatively moderately on 
debt  finance  to  fund  their  activities.  Borrowing  by 
in  Romania 
non-financial  corporations 
(including bank loans, trade credit and bonds) reached 
just 37% of GDP in 2024, which is significantly below 
the  EU  average  of  about  81%  (see  Graph  2.23.4).  In 
particular, as a percentage of GDP bank loans and bond 
issuances by companies in Romania were considerably 
lower  than  for  the  average  EU  company.    However, 
given  the  overall  much  smaller  size  of  the  aggregate 
balance sheet of Romanian NFCs, which reached only 
61.3% of GDP at end-2024 (versus an EU average of 
225.6%),  the  relative  share  of  borrowing  in  their 
funding  structure  (41.9%)  is  slightly  higher  than  the 

758  The  STOXX  Indices  are  the  intellectual  property  (including 
registered  trademarks)  of  STOXX  Limited,  Zug,  Switzerland 
(“STOXX”) and/or its licensors (“Licensors”). STOXX has not 
been involved in any way in the creation of financial instruments 
or  any  other  products  referencing  the  aforementioned  indices. 
Such products are neither sponsored nor promoted, distributed 
or  in  any  other  manner  supported  by  STOXX  and/or  its 

Licensors. STOXX does not give any warranty and excludes any 
liability  whatsoever  (whether  in  negligence  or  otherwise)  – 
including  without  limitation  for  the  accuracy,  adequateness, 
correctness,  completeness,  timeliness,  and  fitness  for  any 
purpose – in relation to any errors, omissions or interruptions in 
any of STOXX' indices or its data. 
759  See EIB Investment Survey 2024. 

487 

050100150200200820112014201720202023Jan-08=100RO Bank indexSTOXX EUROPE 600 BANKSROMANIA BET (L) - PRICE INDEXSTOXX EUROPE 600 
 
 
 
 
      
1.25.6 

Net issuance of bonds 

creates 

EU  average  (35.7%).  Trade  credit  and  advances 
represent  an  important  part  of  non-financial  sector 
liabilities (almost 11% of NFC funding in Romania, as 
compared with just under 4% on average in the EU), 
between 
which 
companies and exposure to the risk of non-payment by 
customers.  One  of  the  reasons  behind  this  type  of 
financing  is  the  large  share  of  NFCs  that  have 
significant  capitalisation  weaknesses,  and  therefore 
have only limited access to external finance. Payment 
discipline in the economy remains weak. 

interlinkages 

liability 

1.25.5 

Composition of NFCs’ funding 

Source: ECB. 

Source: Eurostat. End-2024. 

Market finance 

Romania’s  capital  markets  have  significant  room 
for  growth.  The  Romanian  stock  market  –  the 
Bucharest Stock Exchange (BVB) – is characterised by 
a lack of dynamism, low capitalisation and low levels 
of liquidity, driven by a large number of inactive shares 
and low levels of companies’ free-float.760 Moreover, 
Romania  does  not  yet  have  its  own  fully  operational 
domestic  central  clearing  counterparty  (CCP).  The 
underdeveloped  stock  market  is  partly  a  reflection of 
the Romanian corporate sector, with many companies 
showing  low  financial  strength  and  negative  equity. 
Despite these structural weaknesses, the trend in recent 
years  has  been  very  positive.  Bucharest’s  BET  stock 
index was among the world’s best performers in 2024. 
This was mainly driven by the successful initial public 
offering (IPO) of Hidroelectrica in 2023, which revived 
the  interest  of  domestic  and  foreign  investors  in  the 
stock  exchange.  This  IPO  could  be  followed  by  the 
listing of other state-owned companies. 

corporate 

bond  market 

The 
remains 
underdeveloped.  Although  the  domestic  equities 
market  is  somewhat  more  advanced  and  active,  the 
corporate bond market is among the least liquid in the 
region, with a relatively small number of outstanding 
bond issues (see Graph 2.23.6). This underperformance 
has  not  only  significantly  limited  access  to  financing 
for large segments of the Romanian corporate sector, it 
has  also  increased  institutional  investors’  reliance  on 
Romanian government securities. 

Romania  has  developed  a  comprehensive  strategy 
to  boost  its  capital  markets:  the  national  strategy 
for  the  development  of  the  capital  markets  2023-
series  of 
2026.  This 
recommendations 
the 
institutional,  legal  and  regulatory  framework,  to 
the  domestic 
enhance  opportunities 
market.761  Certain  key  measures  in  this  strategy have 
been adopted but not all have fully matured yet. 

sets  out 
focus  on 

a 
improving 

strategy 
that 

to  develop 

Retail participation in capital markets 

One  of  the  main  obstacles  to  the  expansion  of 
Romania’s  capital  markets  is  the  limited  levels  of 
household savings and their low allocation to capital 
products. Retail investment remains relatively modest 
compared to other EU countries, partly due to limited 
disposable  income  and  a  cultural  preference  for 
traditional savings methods, such as bank deposits. As 
of  end-2024,  Romanian  households  almost  44%  of 
their  financial  wealth  in  cash  and  bank  deposits,  as 
opposed  to  32%  on  average  in  the  EU  (see  Graph 
2.23.7).  Households’  aggregate  financial  assets  stood 
at  63%  of  GDP,  which  is  below  the  EU  average  of 
212%.  Romanian  households’  investments  across  all 
categories are significantly below the EU average. For 

760  See  Capital  Market  Review  of  Romania:  Towards  a  National 

Strategy, 2022, OECD. 

761  See Decision No. 506/2023 approving the National Strategy for 
the Development of the Romanian Capital Market for the period 
2023-2026, Official Journal, Part I, No. 478, 30 May 2023. 

488 

050100150200250ROEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity-5.00.05.010.015.020.025.030.035.020212022202320242025-Q1bn EURGovernmentMFIsNon-MFINon-financial corporations 
 
 
           
 
 
      
1.26.1 

Net savings-investment balance 

example, investments in insurance and pension funds, 
relative to GDP, are almost six times smaller than the 
EU average. Direct holdings of bonds and listed equity 
are also significantly lower, both in nominal amounts 
per capita and relative to GDP. One of the objectives 
of  the  national  strategy  for  the  development  of  the 
capital  markets  2023-2026 
the 
participation of individual investors in capital markets. 
Financial inclusion in Romania is still lagging behind 
EU peers. 

increase 

to 

is 

1.25.7 

Composition of HHs’ financial assets 

Source: AMECO. 

some 

(NIIP) 

despite 

Slovakia has a negative net international investment 
position 
rebalancing 
throughout  the  last  years.  As  of  Q4  2024,  total 
foreign assets reached 92.2% of GDP, while liabilities 
to foreigners stood at 142.8% of GDP, resulting in a net 
international investment position (NIIP) equivalent to -
50.6% of GDP (see Graph 2.24.2). This is a reduction 
compared  to  previous  three  years,  owing  to  strong 
nominal GDP growth. At the same time, the net stock 
of foreign direct investment (FDI) stood at -40.8% of 
GDP  as  of  Q4  2024.  The  net  portfolio  investments 
turned positive to 8.8% of GDP as of Q4 2024. The net 
stock  of  other  investments  amounted  to  -29.2%  of 
GDP.  The  stock  of  official  foreign  reserve  assets 
increased  to  10.6%  of  GDP  at  the  end  of  2024, 
compared to 3.6% of GDP at the end of 2017. Thus, the 
Slovak  economy  appears  to  be  well  integrated  in 
international capital flows, notably as a stable recipient 
of FDI and other investments. 

1.26.2 

International investment position 

Source: Eurostat. End-2024. 

1.26 Slovakia 

Availability and use of domestic savings 

The  growing  net  private  savings  of  the  Slovak 
economy  have  been  supporting  domestic  private 
investment  and  public  finances.  In  the  last  decade, 
the  private  savings  ratio,  net  of  fixed  capital 
consumption, fluctuated around its ten-year average of 
4.3% of GDP, reaching a maximum of 8.1% in 2024 
(see  Graph  2.24.1).  The  net  private  investment  ratio, 
which  measures  the  net  contribution  of  the  private 
sector to capital accumulation in the country, exhibited 
a  ten-year  average  of  3.9%  of  GDP  and  reached  a 
maximum  of  5.8%  in  2016.  During  the  same  period, 
lending to the government showed an average deficit 
equivalent to 3.1% of GDP. Thus, the slightly positive 
balance  between  net  domestic  savings  and  net 
investment,  together  with  the  substantial  government 
deficit,  resulted  in  net  borrowing  by  Slovakia  from 
foreign economies that averaged 2.7% of GDP, with a 
peak  of  9.7% 
in  2022.  Hence,  Slovak  private 
investment and public spending are partially financed 
by foreign savings.  

Source: ECB. 

489 

050100150200250020406080100ROEUROEUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Currency and depositsInsurance and pension fundsInvestment fundsBondsListed sharesUnlisted sharesOther equityHH Debt (liability)-10-5051015202520172018201920202021202220232024% of GDPPrivate investment, netLending to the governmentPrivate savings, netPrivate savings, grossBorrowing from the rest of the world-80-60-40-200-200-150-100-5005010015020172018201920202021202220232024% of GDP% of GDPOther investment, LiabilitiesPortfolio Investment, LiabilitiesForeign Direct Investment, LiabilitiesOfficial reserve assetsOther investment, AssetsPortfolio Investment, AssetsForeign Direct Investment, AssetsNIIP (rhs) 
 
 
         
 
         
         
Structure of the financial sector 

Banks dominate the financial sector in Slovakia and 
there is scope for the future development of all non-
bank intermediaries. The banking sector is the largest 
segment of the financial services, accounting for 95.8% 
of GDP in 2024, which remains however significantly 
below the EU average of 251.1%. The assets of Slovak 
pension funds equated to 16.2% of GDP in 2024, which 
makes pension funds the second largest segment of the 
financial  system  after  the  banking  sector.  The  total 
assets of investment funds accounted for 8.6% of GDP 
in 2024. The insurance sector assets accounted for only 
4.2% of GDP in 2024 (EU average: 54.8%).  

1.26.3 

Capital markets and financial intermediaries 

funding from capital markets. As a source of finance 
for  Slovak  NFCs,  loans  were  equivalent  to  39%  of 
GDP as of end-2024, below the EU average of 60.9%. 
When  expressed  as  a  percentage  of  overall  NFCs 
financing,  loans  accounted  for  a  large  share  of  all 
financing (40% versus the EU average of 27% at end-
2024). On the other hand, Slovak NFCs’ use of listed 
shares and bonds was much lower than the EU average, 
both expressed as a percentage of GDP (2.6 vs 53.8%) 
and as a percentage of overall NFC financing (2.4% vs 
23.8%) at end-2024. The overall level of non-financial 
corporation (NFC) funding in Slovakia was equivalent 
to 93.5% of GDP, which is substantially lower than the 
EU average of 225.6% of GDP at end-2024 (see Graph 
2.24.4).  

1.26.4 

Composition of NFCs’ funding 

Source: Eurostat. End-2024. 

Source: ECB, EIOPA, AMECO. End-2024. 

Slovakia 

Capital  markets 
remain 
in 
underdeveloped.  The  market  capitalisation  of  listed 
equity as a share of GDP is very small by EU standards, 
at 1.7% of GDP as of end-2024 (EU average: 66.8%) 
(see Graph 2.24.3). Non-financial corporations (NFCs) 
accounted  for  only  35.3%  of  that  capitalisation.  The 
outstanding  volume  of  debt  securities  reached  70.4% 
of  GDP  at  end-2024.  However,  marketable  debt 
securities issued by NFCs accounted for only 3.1% of 
the total. Indeed, the domestic bond market in Slovakia 
is  dominated  by  government  securities,  which 
accounted  for  almost  70.6%  of  the  total  bonds  as  of 
end-2024. Financial institutions, whether banks or not, 
accounted  for  the  remaining  20.2%  of  the  total  debt 
securities.  

Financing of the economy 

Sources of NFC funding 

Slovak companies rely a lot  more than on average 
in the EU on funding from banks and much less on 

Slovak businesses also rely on internal financing, as 
do their peers in the EU. According to the 2024 EIB 
Investment  Survey,  the  investment  needs  of  66%  of 
Slovak  firms  are  covered  by 
internal  funding, 
equivalent to the EU average of 66%.762 At the same 
time, 82% of Slovak firms believe that their investment 
activities over the last three years were sufficient (close 
to the EU average of 80%), suggesting that there is no 
material 
investment 
demand.763 However, this may not be the case for firms 
with no or limited capacity for internal funding, such 
as innovative start-up firms (see further below). 

financing  gap 

relative 

to 

Market finance 

Slovakia’s stock market remains under-developed. 
As mentioned before, the market capitalisation of listed 
equity  was  only  1.7%  of  GDP  in  2024  (EU  average: 
66.8%).  When 
stock  market 
capitalisation  of  both  shares  and  bonds,  bonds 

looking  at 

the 

762  EIB, 2024, 2024 EIB Investment Survey, p.29. 

763  Ibid, p.7. 

490 

Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIsPension fundsInsurance corporationsInvestment funds020406080100120   Listed equity               Bonds                        Assets by sector% of GDP050100150200250SKEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity 
 
 
  
 
 
           
accounted for 97.2% of market  funding  at the end of 
2024.764 

market finance does not appear to be a major source of 
funding for Slovak non-financial corporations (NFCs). 

The  main  stock  exchange  in  Slovakia  is  the 
Bratislava  Stock  Exchange  (BSSE),  that  was 
established in 1991 and started trading in 1993.765 
The BSSE operates as a regulated marketplace where 
investors can trade a variety of financial  instruments, 
including  stocks,  bonds,  investment  funds,  and  other 
securities.  The  official  stock  index  for  the  Bratislava 
Stock  Exchange  is  the  SAX  (Slovenský  akciový 
index).766  In  terms  of  stock  market  performance,  the 
index  of  the  general  stock  market  in  Slovakia  was 
below the EU average, while the index of Slovak banks 
was  above  the  EU  average  (see  Graph  2.24.5).  Since 
1992,  the  BSSE  owns  and  operates  the  central 
securities  depository  CDCP-SR  (Centrálny  depozitár 
cenných papierov Slovenskej republiky).  

1.26.5 

Stock market performance 

Source: London Stock Exchange Group767. 

Net  bond  issuance  continues  to  be  dominated  by 
government debt. In Q1 2025, the government issued 
EUR 5.3 bn of debt securities (91% of total net bonds 
issuance),  compared  to  EUR  8.7  bn for  the  whole  of 
2024 (92% of total issued bonds). In Q1 2025, banks 
issued EUR 0.7 bn of debt securities (12.4% of total net 
bonds issuance), compared to EUR 0.4 bn for the whole 
of 2024 (see Graph 2.24.6). The net issuance of other 
financial companies was negative at EUR -0.2 bn in Q1 
2025, compared to EUR 0.6 bn in 2024.  Hence, debt 

1.26.6 

Net issuance of bonds 

Source: ECB. 

In the past, Slovakia prepared a concept report on 
the development of capital markets, but this has not 
been updated. In April 2014, the Ministry of Finance, 
together with the Ministry of Economy, the NBS, the 
BSSE  and  the  Central  Securities  Depository  of  the 
Slovak Republic (CDCP), developed a concept report 
for  the  development  of  the  capital  markets768,  which 
put  forward  a  number  of  measures  to  modernise  the 
capital  market  infrastructure.  Moreover,  in  2023  the 
Slovak  Business  Association  prepared  an  analysis  on 
how to promote alternative forms of raising capital for 
SMEs.769 

Retail participation in capital markets 

Slovak households hold about half of their financial 
assets in cash and deposits. Slovak households have a 
low savings rate (5.9% vs EU average: 14.4% in 2024), 
with a high share of cash and deposits in households’ 
assets (49.6% vs EU average of 31.7% at end-2024). 
At  end-2024,  40.8%  of  households’  financial  assets 
were  held  in  pension  and  investment  funds  or  held 
directly  in  financial  investment  instruments,  but  this 
still  falls  short  of  the  EU  average  of  46.6%.  More 
specifically, at end-2024, household’s’ direct holdings 
of  investment  insurance  and  pension  funds  was  at 
23.4%  (EU  average:  27.9%),  investment  funds  at 

764  NBS, 2024. Financial sector analytical data. 
765  BSSE, 2024. 2024 Factbook. 
766  BSSE,  2024.  2024  Factbook,  Basket  31/12/24:  Biotika 
(10.22%),  Tatry  mountain  resorts  (21.29%),  Tatra  bank 
(19.54%),  Vipo  (8.83%),  Gevorkyan  (20.86%),  Dolkam  Suja 
(19.26%). 

767  The  STOXX  Indices  are  the  intellectual  property  (including 
registered  trademarks)  of  STOXX  Limited,  Zug,  Switzerland 
(“STOXX”) and/or its licensors (“Licensors”). STOXX has not 
been involved in any way in the creation of financial instruments 
or  any  other  products  referencing  the  aforementioned  indices. 
Such products are neither sponsored nor promoted, distributed 

or  in  any  other  manner  supported  by  STOXX  and/or  its 
Licensors. STOXX does not give any warranty and excludes any 
liability  whatsoever  (whether  in  negligence  or  otherwise)  – 
including  without  limitation  for  the  accuracy,  adequateness, 
correctness,  completeness,  timeliness,  and  fitness  for  any 
purpose – in relation to any errors, omissions or interruptions in 
any of STOXX' indices or its data. 

768  Ministry of Finance of the Slovak Republic, 2014, Concept for 

the development of capital market.  

769  BSA,  2023,  Alternative  forms  of  raising  capital  for  SMEs 

through the capital markets.  

491 

050100150200200820112014201720202023Jan-08=100SK Bank indexSTOXX EUROPE 600 BANKSSLOVAKIA SAX 16 - PRICE INDEXSTOXX EUROPE 600-2,00,02,04,06,08,010,012,014,020212022202320242025-Q1bn EURGovernmentMFIsNon-MFINon-financial corporations 
 
 
      
 
 
       
12.5%  (EU  average:  11.1%),  bonds  at  4.1%  (EU 
average: 4.9%), and listed shares at 0.8% (EU average: 
4.9%)  (see  Graph  2.24.7).  In  Slovakia,  direct  and 
intermediated  retail  investment  by  households  was 
41.9% in 2023 (EU average: 56.2%).770 

1.26.7 

Composition of HHs’ financial assets 

1.27.1 

Net savings-investment balance 

Source: Eurostat. End-2024. 

1.27 Slovenia 

Availability and use of domestic savings 

The Slovenian economy is a net creditor to the rest 
of  the  world.  In  the  last  decade,  the  private  savings 
ratio,  net  of  fixed  capital  consumption,  persistently 
fluctuated around its ten-year average of 8.2% of GDP, 
reaching  a  maximum  of  15.7%  in  2020  (see  Graph 
2.25.1).  The  net  private  investment  ratio,  which 
measures the net contribution of the private  sector to 
capital  accumulation  in  the  country,  evolved  quite 
differently. It exhibited a ten-year average of 1.3% of 
GDP, with a phase of negative investment from 2011 
to  2016  followed  by  a  phase  of  positive  investment 
until  now.  During  the  same  period  the  government 
budget was in regular deficit (except in 2017-2019) that 
averaged 2.2% of GDP with a peak at 11.2% of GDP 
in  2013  (banks’  bail-out).  Thus,  the  high  positive 
balance  between  net  domestic  savings  and  net 
investment,  together  with  the  moderate  government 
deficits, resulted in structural net lending by Slovenia 
to  foreigners  (except  in  2022)  that  averaged  4.6%  of 
GDP, with a peak of 7.2% of GDP in 2020.  

Source: AMECO. 

1.27.2 

International investment position 

Source: ECB. 

Consistent with its regular position of a net creditor 
to the rest of the world, the Slovenian economy has 
exhibited  a  positive  and  steadily  improving  net 
international investment position since 2023.  As of 
Q4-2024,  total  assets  on  foreigners  reached  133%  of 
GDP, while liabilities to foreigners stood at 126% of 
GDP,  resulting  in  a  net  international  investment 
position (NIIP)  equivalent to  7% of GDP (see Graph 
2.25.2). While significantly negative in 2017 (-25%), 
the NIIP has steadily improved and it became positive 
for the first time in 2023. The accumulated net portfolio 
investments and other investments, which respectively 
reached  13%  and  10%  of  GDP  as  of  Q4-2024, 
accounted for most of the positive NIIP. In contrast, net 
foreign direct investments were significantly negative 
(-19% of GDP). Thus, while the Slovenian economy is 

770  European  Commission,  2024,  Overview  of  CMU  Indicators  – 

2024 Update, Indicator 22. 

492 

050100150200250020406080100SKEUSKEUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Currency and depositsInsurance and pension fundsInvestment fundsBondsListed sharesUnlisted sharesOther equityHH Debt (liability)-10-50510152025303520172018201920202021202220232024% of GDPPrivate investment, netLending to the governmentPrivate savings, netPrivate savings, grossBorrowing from the rest of the world-30-25-20-15-10-50510-200-150-100-5005010015020172018201920202021202220232024% of GDP% of GDPOther investment, LiabilitiesPortfolio Investment, LiabilitiesForeign Direct Investment, LiabilitiesOfficial reserve assetsOther investment, AssetsPortfolio Investment, AssetsForeign Direct Investment, AssetsNIIP (rhs) 
 
 
       
 
 
 
           
 
         
a  major  recipient  of  foreign  direct  investment,  it  has 
recently  become  a  net  capital  exporter,  notably  by 
means of portfolio and other investments abroad.  

Structure of the capital markets and size of the 
financial sector 

1.27.3 

Capital markets and financial intermediaries 

1.27.4 

Stock market performance 

Source: ECB, EIOPA, AMECO. End-2024. 

The Slovenian domestic capital market lacks depth. 
The  market  capitalisation  of  listed  equity  is  quite 
modest and reached only 18% of GDP at end-2024 (vs 
67%  in  the  EU)  (see  Graph  2.25.3).  The  index  of 
Slovenian  banks  and  the  general  stock  market  have 
both  performed  well  since  2008,  and  significantly 
better  than  their  European  counterparts  (see  Graph 
2.25.4).  The  outstanding  volume  of  debt  securities  is 
very low as well and reached 62% of GDP at end-2024. 
Bonds issued by the government accounted for 89% of 
the total. This reflects the very high weight of the gross 
public debt in the Slovenian bond market. 

Source: London Stock Exchange Group771. 

All  financial  intermediaries,  and  in  particular 
banks,  are  small  in  terms  of  GDP.  Banks’  assets 
represented 84% of GDP in Q4-2024 (vs. 251% in the 
EU), one of the lowest in the EU, sharply down from 
150% in 2012. The insurance sector, with total assets 
of  15%  of  GDP  at  Q4-2024,  dominates  non-bank 
intermediation but much below the EU average (55% 
of GDP). The pension funds’ assets are much smaller: 
they  only  represent  3% of  GDP  (vs  23%  in  the  EU). 
Investment funds represent a relatively small share of 
9% of GDP, below the EU median. 

Financing of the economy 

Sources of NFC funding 

Firms  in  Slovenia  rely  on  funding  from  banks 
rather than on funding from capital markets. More 
specifically, at the end of 2024, bank finance through 
loans  constituted  26%  (vs  27%  in  the  EU)  of  all 
funding 
non-financial 
corporations  (NFCs),  while  listed  shares  and  bonds 
represented  only  9%  (vs  24%  in  the  EU)  of  funding 
sources. When expressed in terms of GDP, the overall 
level of NFC funding was lower in Slovenia (124% of 
GDP) than in the EU (226%), see Graph 2.25.5. 

for  Slovenian 

sources 

As  a  result,  Slovenian  businesses  depend  more  on 
internal  financing  than  their  European  peers. 
According to the 2024 EIB Investment Survey, 74% of 
investment  needs  of  Slovenian  firms  are  covered  by 
internal funding, compared to an EU average of 66%. 
At the same time, 81% of Slovenian firms believe that 
their investment activities over the last three years were 
about  the  right  amount,  in  line  with  the  EU  average 

771  The  STOXX  Indices  are  the  intellectual  property  (including 
registered  trademarks)  of  STOXX  Limited,  Zug,  Switzerland 
(“STOXX”) and/or its licensors (“Licensors”). STOXX has not 
been involved in any way in the creation of financial instruments 
or  any  other  products  referencing  the  aforementioned  indices. 
Such products are neither sponsored nor promoted, distributed 
or  in  any  other  manner  supported  by  STOXX  and/or  its 

Licensors. STOXX does not give any warranty and excludes any 
liability  whatsoever  (whether  in  negligence  or  otherwise)  – 
including  without  limitation  for  the  accuracy,  adequateness, 
correctness,  completeness,  timeliness,  and  fitness  for  any 
purpose – in relation to any errors, omissions or interruptions in 
any of STOXX' indices or its data. 

493 

Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIsPension fundsInsurance corporationsInvestment funds0102030405060708090   Listed equity               Bonds                        Assets by sector% of GDP050100150200250300201820212024Dec-18=100SI Bank indexSTOXX EUROPE 600 BANKSSLOVENIAN BLUE CHIP (SBI TOP) - PRICE INDEXSTOXX EUROPE 600 
 
 
           
 
 
      
(80%),  suggesting  that  there  is  no  material  financing 
gap relative to investment demand. However, this may 
not be the case for firms with no or limited capacity for 
internal funding, such as innovative start-up firms (see 
further below). 

1.27.5 

Composition of NFCs’ funding 

(negative)  net 

EU 0.09 bn in 2023, but no issuance yet in Q1-2025. 
The 
issuance  by  non-financial 
corporations  steeply  decreased  from  EUR -0.05 bn  in 
2023  to  EUR -0.10 bn  in  2024,  with  no  substantial 
issuance  in  Q1-2025.  Hence,  debt  market  finance 
appears  as  a  minor  and  decreasing  source  of  funding 
for Slovenian non-financial corporations. 

1.27.6 

Net issuance of bonds 

Source: Eurostat. End-2024. 

Market finance 

Slovenia’s  capital  markets  are  under-developed. 
The main stock exchange in Slovenia is the Ljubljana 
Stock  Exchange.  The  equity  market  is  very  small  in 
terms  of  capitalisation  (17.9%  of  GDP  vs  an  EU 
average of 67% as of end-2024) and volumes traded, 
and even more so when compared with the US (213%). 
The  market  breadth  of  bond  markets  has  steadily 
decreased  since  2018  and  is  largely  below  the  EU 
average  (0.6  vs  1.5).  The  bid-ask  spread  on  equity 
markets is much higher than the EU average (12.6 vs 
1.6). The use of equity by SMEs is relatively high, as 
23% of SMEs indicated in the 2023 SAFE survey that 
equity  was  relevant  for  them,  compared  to  an  EU 
average of 12%.772 

included 

Some  reforms  are  underway.  The  recovery  and 
resilience  plan 
two  reforms  aimed  at 
strengthening  capital  markets  in  Slovenia,  namely  (i) 
the  adoption  of  a  new  act  on  forms  of  alternative 
investment funds and (ii) the implementation of a new 
strategy  for  Slovenian  capital  markets,  setting  out 
specific measures for further development. 

Debt  finance  is  a  minor  but  increasing  source  of 
funding  for  financial  companies  in  Slovenia.  In 
2024,  banks  issued  EUR 0.4 bn  of  debt  securities, 
down from EUR 1 bn in 2023 (see Graph 2.25.6), but 
the issuance observed in Q1-2025 (EUR 0.5 bn) seems 
to  reverse  this  declining  trend.  The  other  financial 
companies  issued  EUR 0.14 bn  in  2024,  up  from 

772  Data and surveys - SAFE - European Commission, 2023, Results 

by country, T27. 

Source: ECB. 

Retail participation 

1.27.7 

Composition of HHs’ financial assets 

Source: Eurostat. End-2024. 

Slovenian  households  do  not  invest  enough  in 
financial  assets  and,  more  importantly,  equity. 
Slovenian  households’  financial  assets  equated  to 
119%  of  GDP  in  2024,  less  than  the  EU  average 
(212%)  and  much  less  than  the  US  (446%).  Worse, 
assets invested in equity equated to only 52% of GDP, 
below  the  EU  average  (91%)  and  almost  six  times 
below  the  US  (291%).  Slovenian  households  invest 
relatively little in investment funds, bonds, shares and 
insurance  and  pension  funds,  while  allocating  a 

494 

050100150200250SIEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity-0.50.00.51.01.52.02.53.03.520212022202320242025-Q1bn EURGovernmentMFIsNon-MFINon-financial corporations050100150200250020406080100SIEUSIEUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Currency and depositsInsurance and pension fundsInvestment fundsBondsListed sharesUnlisted sharesOther equityHH Debt (liability) 
 
 
           
 
 
       
         
the  sustained  and  positive 
budgetary  deficits, 
difference  between  net  domestic  savings  and  net 
investment, resulted in structural net lending by Spain 
to  foreign  economies  that  averaged  2.6%  of  GDP 
during 2015-2024, with a peak of 3.7% in 2023. Thus, 
most  of  the  net  savings  in  Spain  have  been  invested 
domestically 
investment  or 
borrowing by the government), while a comparatively 
smaller share was used to finance projects abroad. 

finance  private 

(to 

1.28.1 

Net savings-investment balance 

Source: AMECO. 

While  the  Spanish  economy  has  accumulated 
significant  foreign  assets,  the  even  more  sizable 
investments  from  abroad  have  resulted 
in  a 
investment  position 
international 
negative  net 
(NIIP). In 2024, total assets abroad reached 194% of 
GDP, while liabilities stood at almost 239% of GDP, 
resulting in a NIIP equivalent to -44.2% of GDP (see 
Graph  2.26.2).  The  stock  of  official  foreign  reserve 
assets, which amounted to 6.5% of GDP, was the only 
factor  that  contributed  positively  to  the  NIIP.  All 
investment categories contributed to a similar extent to 
the  negative  NIIP.  The  net  portfolio  investments, 
which  are  directly  affected  by  the  price  volatility  of 
equity  valuations,  stood  at  almost  -16%  of  GDP  in 
2024, while net foreign direct investment was at 15%. 
The net stock of other investments amounted to -21% 
of  GDP.  While  the  Spanish  economy  seems  well 
integrated in international capital flows as a source of 
foreign capital, it remains a net capital importer across 
all investment categories. 

significant  portion  to  deposits,  which  generate  much 
lower returns than equity. 

towards  equity 

investment  and 

The  design  of  the  overall  pension  system  is  not 
the 
geared 
development of capital markets. The pay-as-you-go 
nature of the public pension system means that only the 
supplementary  private  schemes  invest  in  high-return 
assets like equity. However, the supplementary private 
schemes are not universal and accumulated rights often 
remain limited for those covered. As a result, they only 
contribute  to  a  moderate  extent  to  the  total  pension 
income  and  do  not  fully  foster  the  development  of 
capital markets. Encouraging the build-up of universal 
funded 
schemes  would 
positively  contribute  to  (i)  the  sustainability  and 
adequacy  of  pensions  benefits;  (ii)  investment  in 
equity;  (iii)  access  to  finance;  (iv)  growth;  and  (v) 
innovation. 

supplementary  pension 

individual 

Slovenia’s  new 
investment  account 
discriminates against foreign financial instruments. 
On 27 May 2025, Slovenia adopted a law introducing 
individual  investment  accounts  aimed  at  promoting 
retail  investment  in  financial instruments.  In order  to 
benefit  from  the  preferential  scheme,  investors  may 
invest  up  to  EUR 5,000  per  year,  with  an  additional 
EUR 5,000  permitted 
in  Slovenian 
if 
securities. The total outstanding amount on the account 
is  capped  at  EUR 150,000.  This  distinction  between 
domestic  and  foreign  financial  products  effectively 
incentivizes 
Slovenian-issued 
instruments  and  puts 
foreign  companies  at  a 
disadvantage.  It  raises  concerns  about  the  measure’s 
compatibility with the EU single market’s fundamental 
freedoms—particularly  the free  movement  of  capital. 
Consequently, a pilot letter has been sent to Slovenia 
regarding this issue. 

investment 

invested 

in 

1.28 Spain 

Availability and use of domestic savings 

The  Spanish  economy  invests  the  bulk  of  its  net 
savings  domestically.  From  2015  until  2024,  the 
private savings ratio, net of fixed capital consumption, 
stood  on  average  at  11.6%  of  GDP,  reaching  a 
maximum of 14% in 2020 (see Graph 2.26.1). The net 
private  investment  ratio,  which  denotes  the  net 
to  capital 
contribution  of 
accumulation in the economy, recorded an average of 
4.4% of GDP during the reference ten-year period and 
reached  5.8%  in  2019.  At  the  same  time,  during  the 
the  government  has  been  running 
same  period 
recurrent and sizable budgetary deficits, which during 
2015-2024 on average amounted to a budgetary deficit 
of  4.6%.  Regardless  of  these  general  government 

the  private 

sector 

495 

-10-50510152025303520172018201920202021202220232024% of GDPPrivate investment, netLending to the governmentPrivate savings, netPrivate savings, grossBorrowing from the rest of the world 
 
 
 
    
1.28.2 

International investment position 

with  total  assets  of  almost  21%  of  GDP  and  11%  of 
GDP  at  end-2024,  play  a  lesser  role  in  the  non-bank 
intermediation  (see  Graph  2.26.3).  Investment  funds 
also play a role, even though their total assets dropped 
by around 2 percentage points to almost 28% of GDP 
between 2021 and 2024. 

1.28.3 

 Capital markets and financial intermediaries 

Source: ECB. 

Structure of the capital markets and size of the 
financial sector 

The  Spanish  economy  stands  out  with  one  of  the 
domestic capital markets with potential for further 
growth in the EU. The market capitalisation of listed 
equity  reached  49%  of  GDP  at  the  end  of  2024  (see 
Graph 2.26.3), which is well below the EU average. At 
the  same  time,  non-financial  corporations  accounted 
for 71%  of  that  capitalisation,  which  implies  that  the 
stock  market  in  Spain  is  to  a  large  extent  geared 
towards funding the non-financial segment of the real 
economy.  The  outstanding  volume  of  debt  securities 
reached  138%  of  GDP  at  end-2024,  which  is  in  line 
with the EU average. Bonds issued by the government 
and  monetary  financial  institutions  (MFIs)  accounted 
for almost 66% and 21% of the total, respectively. 

Source: ECB, EIOPA, AMECO. End-2024. 

Financing of the economy 

Market finance 

1.28.4 

Stock market performance 

banks, 

non-bank 

in  Spain  remains 
While  the  financial  sector 
financial 
by 
dominated 
intermediaries also play an important role. Starting 
from  256%  of  GDP  in  2020,  the  size  of  the  banking 
sector  steadily  declined  to  196%  of  GDP  in  2024, 
which remains below the EU average of 251%. Several 
large Spanish banking groups (in particular Santander 
and Banco Bilbao Vizcaya Argentaria) have substantial 
international  operations,  notably  in  Latin  America, 
United  Kingdom  and  Türkiye.  The  Spanish  banking 
sector is predominantly domestically owned, with the 
top five  lenders owning almost  68% of total banking 
sector assets. The insurance and pension funds sectors, 

Source: London Stock Exchange Group773. 

Over the past fifteen years, Spanish companies have 
gradually  moved 
towards  a  more  balanced 
financing structure. In 2008, their aggregate funding 
was composed of 63% debt and 37% equity. By 2024, 
the split had become nearly even—53% debt and 47% 
equity—largely  driven  by  “other  equity”  such  as 

773  The  STOXX  Indices  are  the  intellectual  property  (including 
registered  trademarks)  of  STOXX  Limited,  Zug,  Switzerland 
(“STOXX”) and/or its licensors (“Licensors”). STOXX has not 
been involved in any way in the creation of financial instruments 
or  any  other  products  referencing  the  aforementioned  indices. 
Such products are neither sponsored nor promoted, distributed 
or  in  any  other  manner  supported  by  STOXX  and/or  its 

Licensors. STOXX does not give any warranty and excludes any 
liability  whatsoever  (whether  in  negligence  or  otherwise)  – 
including  without  limitation  for  the  accuracy,  adequateness, 
correctness,  completeness,  timeliness,  and  fitness  for  any 
purpose – in relation to any errors, omissions or interruptions in 
any of STOXX' indices or its data. 

496 

-100-80-60-40-200-400-300-200-100010020030020172018201920202021202220232024% of GDP% of GDPOther investment, LiabilitiesPortfolio Investment, LiabilitiesForeign Direct Investment, LiabilitiesOfficial reserve assetsOther investment, AssetsPortfolio Investment, AssetsForeign Direct Investment, AssetsNIIP (rhs)Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIsPension fundsInsurance corporationsInvestment funds050100150200250   Listed equity               Bonds                        Assets by sector% of GDP020406080100120140160180200820112014201720202023Jan-08=100ES Bank indexSTOXX EUROPE 600 BANKSIBEX 35 - PRICE INDEXSTOXX EUROPE 600 
 
 
         
 
 
         
      
significant  pickup 

limited liability shares. Despite a slowdown in revenue 
growth  in  2024,  Spanish  firms  continued  to  improve 
their  financial  and  balance  sheet  positions.  However, 
this favourable financial standing did not translate into 
investment.  Business 
in 
a 
investment  grew  by  3.6%  compared  to  the  previous 
year, falling short of nominal GDP growth (6.2%). As 
of  2024,  Spanish  non-financial  corporations  (NFCs) 
relied slightly less on loans (57.9% of total liabilities) 
than the EU average (62.7%) and significantly less on 
market-based instruments such as listed shares (22.0% 
vs. 43.9%) and bonds (8.2% vs. 10.8%). Trade credit 
and  advances  also  accounted  for  a  smaller  share  in 
Spain (4.9% vs. 8.7%). In contrast, Spanish firms made 
greater use of other equity (76.4% vs. 47.8%), possibly 
reflecting  the  specific  legal  form  of  own  funds  in 
Spanish  SMEs.  Overall,  this  points  to  a  more  bank-
oriented  and  less  capital  market-intensive  funding 
model for Spanish NFCs compared to their EU peers. 

Corporate funding and  households’ assets 

In  2024,  Spanish  companies  continued  to  rely 
primarily on debt issuance to obtain financing from 
financial markets. Notably, an increasing number of 
smaller firms accessed alternative markets for the first 
time  to  raise  funding,  both  through  debt  and  equity 
instruments. However, overall private debt issuance by 
Spanish  entities  declined  in  2024  in  gross  terms 
compared to 2023. This decrease was largely driven by 
the financial sector, whose issuance fell by 16.1% over 
the  year,  totalling  EUR 151.8 bn.  The  non-financial 
sector  also  saw  a  reduction,  issuing  EUR 40.7 bn  — 
7% less than in the previous year.  

1.28.5 

Composition of NFCs’ funding 

highest  level  since  2007.  For  the  second  consecutive 
year,  the  textile  sector  recorded  the  largest  market 
capitalization growth, thanks largely to the revaluation 
of  Inditex,  followed  by  the  banking  sector.  Market 
concentration continued to rise, surpassing 2023 levels. 
Only  five  stocks  accounted for  more  than  half  of  the 
total  market  capitalization,  repeating  the  list  of  the 
largest  stocks  seen  in  previous  years.  The  top  three 
companies  increased  their  share  further,  representing 
nearly 40% of the market. Capital market financing by 
companies  recovered  compared  to  the  previous  two 
years, with 66 operations amounting  to EUR 7.93 bn, 
though below the average levels over the last decade.   

1.28.6 

Net issuance of bonds 

Source: ECB. 

In  2023,  the  financial  asset  portfolio  of  Spanish 
households remained notably distinct from the EU 
average, reflecting both structural and institutional 
specificities.  Spanish  households  had  significantly 
lower  exposure  to  insurance  and  pension  funds 
(EUR 7,500 vs.  EUR 22,400 per capita, or 24.2% vs. 
58.3%  of  GDP),  underscoring  the  relatively  modest 
development  of  long-term  savings  instruments  in 
Spain.  Conversely,  Spanish  households  allocated  a 
greater share of their wealth to investment funds than 
the  EU  average,  both  per  capita  (EUR 9,100  vs. 
EUR 8,100) and as a share of GDP (29.3% vs. 21.0%). 
They also had higher holdings in “other equity”—often 
reflecting stakes in SMEs or family-owned businesses 
at 40.5% of GDP, well above the EU average of 24.1%. 
Overall, Spanish households show a more conservative 
and cash-oriented financial profile, with lower reliance 
on pension funds. 

Source: Eurostat. End-2024. 

At the end of 2024, the number of companies listed 
on Spanish stock exchanges stood at 129, one more 
than in 2023, yet remaining at its lowest level in the 
past  25  years.  Notably,  the  Spanish  company  Puig 
Brands  led  the  IPO  activity  by  size  in  Europe  in 
2024The  market  capitalization  of  Spanish  stock 
exchanges  increased  by  11.8%  in  2024,  driven  by 
market  revaluation,  reaching  nearly  EUR 768 bn,  its 

497 

050100150200250ESEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity-40.0-20.00.020.040.060.080.0100.0120.0140.020212022202320242025-Q1bn EURGovernmentMFIsNon-MFINon-financial corporations 
 
 
          
      
1.28.7 

Composition of HHs’ financial assets 

1.29.1 

Net savings-investment balance 

Source: Eurostat. End-2024. 

1.29 Sweden 

Availability and use of domestic savings 

The Swedish economy invests the largest part of its 
relatively high net savings abroad. In the last decade, 
the  private  savings  ratio,  net  of  fixed  capital 
consumption,  persistently  fluctuated  around  its  ten-
year average of 10.6% of GDP, reaching a  maximum 
of 14.2% in 2020 (see Graph 2.27.1). The net private 
investment ratio, which measures the net contribution 
of  the  private  sector  to  capital  accumulation  in  the 
country,  significantly  more  volatile,  exhibited  a  ten-
year average of 6.6% of GDP and reached a maximum 
of  7.7%  in  2022.  At  the  same  time,  during  the  same 
period  the  government  budget  was  in  regular  deficit, 
averaging  0.2%  of  GDP.  Thus,  the  high  positive 
balance  between  net  domestic  savings  and  net 
investment,  together  with  the  government  deficits, 
resulted  in  structural  net  lending  by  Sweden  to 
foreigners,  averaging  3.9%  of  GDP,  with  a  peak  of 
6.6% in 2021. Hence, most of Swedish net savings, i.e. 
after accounting for the investments that are necessary 
to merely maintain the existing capital structure of the 
economy, are used to finance projects abroad. 

Source: AMECO. 

Consistent with its position as a net creditor to the 
rest  of  the  world,  the  Swedish  economy  has 
accumulated significant foreign assets and exhibits 
a positive net international investment position. As 
of end-2024, total assets on foreigners reached 357.2% 
of GDP, while liabilities to foreigners stood at 291.3% 
of  GDP,  resulting  in  a  net  international  investment 
position (NIIP) equivalent to 65.9% of GDP (see Graph 
2.27.2). The accumulated portfolio investment and net 
foreign direct investment, which reached respectively 
29.7%  of  GDP  and  21.6%  of  GDP  as  of  end-2024, 
accounted  for  most  of  the  NIIP.  The  net  portfolio 
investments,  which  are  also  affected  by  the  price 
volatility  of  equity  valuations  abroad  (assets)  and  in 
Sweden  (liabilities),  were  negative  until  2020,  but 
turned  positive  afterwards  (caused  by  an  increase  in 
equity and investment fund shares and long-term debt 
securities).  Non-bank  financial  institutions  hold  the 
bulk of net foreign assets, while banks and NFCs are 
the  main  net  external  debtors.  Sweden’s  foreign 
currency  assets  are  almost  three  times  as  high  as  its 
foreign currency liabilities, providing a hedge against 
currency  valuation  changes.  Despite  being  a  floating 
exchange  rate  regime,  it  is  important  to  maintain 
adequate  foreign  reserves  in  view  of  the  high 
dependence of commercial banks on wholesale funding 
in foreign currency, and potential disruptions in such 
funding  during  global  financial  distress.  Although 
rollovers  of  external  debt  (which  include  banks’ 
covered  bonds)  pose  some  vulnerability,  risks  are 
moderated by banks’ ample liquidity and large capital 
buffers (see below). 

498 

050100150200250020406080100ESEUESEUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Currency and depositsInsurance and pension fundsInvestment fundsBondsListed sharesUnlisted sharesOther equityHH Debt (liability)-10-505101520253020172018201920202021202220232024% of GDPPrivate investment, netLending to the governmentPrivate savings, netPrivate savings, grossBorrowing from the rest of the world 
 
 
         
 
        
1.29.2 

International investment position 

Source: ECB. 

Structure of the financial sector 

for  many 

Sweden’s  capital  markets  rank  thirteenth  in  the 
world, and are more liquid, mature and deeper than 
elsewhere  in  the  EU.  The  Swedish  stock  market  is 
currently the third largest EU market by capitalisation 
(equivalent  to  163.7%  of  GDP  vs  an  EU  average  of 
66.8%  of  GDP  as  of  end-2024)  and  the  largest  by 
number  of  listed  companies,  with  just  over  950 
companies  at  year-end  2024.  In  Sweden,  the  total 
market capitalization of publicly listed companies is a 
significant percentage of the country's GDP, currently 
standing  at  123  (Graph  2.27.3).  The  Swedish  equity 
market is characterised by active trading and by broad 
access 
types.  Another  key 
characteristic  is  the  substantial  activity  by  small  and 
medium-sized 
companies. 
Sweden’s market in initial public offerings (IPOs) has 
been particularly dynamic enabling smaller companies 
to list. Most publicly listed companies in Sweden are 
listed  on  a  growth  market,  functioning  as  a  stepping 
stone to the regulated market. Sweden stands out as the 
only EU Member State where capital markets are more 
than  twice  as  deep  today  than  they  were  a  decade 
ago. This growth over the last ten years is nearly five 
times the average growth rate in the EU and has been 
driven by a large increase in venture capital (VC) and 
private equity (PE) activity.  

enterprises 

investor 

(SMEs) 

The domestic bond market is dominated by the debt 
of  financial 
institutions,  notably  through  the 
issuance of covered bonds. The ratio of debt securities 
issued by financial institutions to GDP (81.2% of GDP) 
is four times more than those issued by the government, 
and  more  than  twice  the  EU  average  (36.3%),  while 

774  AFME CMU Key Performance Indicators, November 2023. 

bonds issued by NFCs equate to 24% of GDP, which is 
the largest corporate segment in the EU. The number 
of issuers has increased manifold over the last decade 
and,  in  parallel,  the  average  size  of  both  issues  and 
issuers has decreased substantially. Bond financing is 
now  commonplace  and  an  integral  part  of  Swedish 
companies’ financing strategies. Several factors are at 
interplay  to  enable  this  combination  of  market  depth 
and  profitability,  resulting  in  a  well-functioning  and 
robust ecosystem. 

1.29.3 

Capital markets and financial intermediaries 

Source: ECB, EIOPA, AMECO. End-2024. 

Non-bank financial intermediation is growing and 
managing  assets  to  an  amount  almost  as  large  as 
that  of  the  entire  Swedish  banking  sector.  Banks 
dominate the financial system, yet their relative share 
is  declining  as  the  non-bank  financial  sector  – 
including  pension  funds,  mutual  funds  and  insurance 
companies  –  is  growing.  The  insurance  sector  is 
relatively large with an assets-to-GDP ratio of around 
73%  compared  to  an  EU  average  of  55%,  while  the 
total  assets  of  the  pension  funds  sector  equate  to 
roughly half of Swedish GDP. According to data from 
Riksbank, total assets of the Swedish investment fund 
sector  would  come  close  to  100%  of  GDP  as  it  has 
almost quadrupled in size since 2012. 

Financing of the economy 

Sources of NFC funding 

Firms  in  Sweden  rely  heavily  on  funding  from 
capital  markets.  Almost  three  quarters  of  NFC 
funding is in bonds and equity (incl. unlisted shares and 
other equity). Over 2020-2023, the 3Y average of NFC 
bond and equity issuance as percentage of total NFC 
financing was the second highest rate of the EU after 
Malta.774  This  already  high  use  of  market-based 

499 

-20020406080-400-200020040020172018201920202021202220232024% of GDP% of GDPOther investment, LiabilitiesPortfolio Investment, LiabilitiesForeign Direct Investment, LiabilitiesOfficial reserve assetsOther investment, AssetsPortfolio Investment, AssetsForeign Direct Investment, AssetsNIIP (rhs)Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIsPension fundsInsurance corporations050100150200250300   Listed equity               Bonds                        Assets by sector% of GDP 
 
 
         
 
 
         
secondary 

equity  offerings 

funding  has  even  been  increasing  in  2023  following 
strong 
and  bond 
issuance. More  specifically,  at  the  end  of  2024  listed 
shares  and  bonds  represented  32.3%  of  all  funding 
sources for Swedish firms, vs. an EU average of 23.8%, 
while  bank  finance  through  loans  constituted  23% of 
funding sources, less than the EU average of 27% (see 
Graph 2.27.4).  

1.29.4 

Composition of NFCs’ funding 

Source: Eurostat. End-2024. 

In terms of percentage of GDP, banks in Sweden are 
a stronger lender to the NFCs as compared to the 
EA average. Loans to NFCs were at 45.4% of GDP in 
2024 (vs. 30.2% for the EA). Financial borrowing by 
NFCs in Sweden constituted 93.3% of GDP in 2024, 
which  is  significantly  higher  than  the  EU  average  of 
about 61%. The overall levels of NFCs funding are also 
substantially higher as a share of GDP, with 408% in 
Sweden and 225.6% of GDP for the EU average, given 
the overall much larger size  of the aggregate  balance 
sheet of Swedish NFCs. 

Sweden  leads  the  rest  of  the  EU  in  terms  of  SME 
equity  financing.  In  the 2024  SAFE  survey, 45%  of 
SMEs indicated that they used equity, compared to an 
EU average of 12%.775 Sweden has a high number of 
publicly listed small companies, second only to Finland 
in  terms  of  capital  raised  as  a  percentage  of  GDP. 
According  to  reports  of  the  European  Securities  and 
Markets  Authority,  Sweden  alone  accounts  for  more 
than 40% of EU SME trading volumes with UK pre-
Brexit  trading  volumes  included.  Supporting  factors 
that facilitate the listing process include a strong start-
up ecosystem, supportive regulation and retail-investor 

participation.  Sweden  also  consistently  ranks  first  in 
the EU for number of IPOs. 

Swedish  businesses  depend  more  on  internal  or 
intra-group  financing  than  their  European  peers. 
Sweden exhibits the lowest reliance on external finance 
for investment: only 26% of all firms use it, vs an EU 
average of 42%, according to the 2024 EIB Investment 
Survey. Also, only 15% of Swedish firms’ investment 
needs are covered by external funding, compared to an 
EU average of 25%776, which is also confirmed by the 
high aggregate reliance on unlisted equity. At the same 
time,  only  75%  of  Swedish  firms  believed  that  their 
investment  activities  over  the  last  three  years  were 
about  the  right  amount,  less  than  the  EU  average 
(80%), while 21% believed that they were too little (vs 
an EU average of 14%). 

Market finance 

The  Swedish  market  has  been  one  of  the  best 
performing equity markets in the world. The main 
broad  local  market  index  (OMX  Stockholm)  has 
consistently  outperformed  major  international  indices 
over  long  periods  of  time,  including  the  EU  average 
(Graph 2.27.5). Between June 2020 and June 2025, the 
annualized  net  return  of  the  MSCI  Sweden  was 
11.22%,  mainly  thanks  to  the  performance  of  banks 
and  information  technology.  The  strong  performance 
of  the  Swedish  market  is  also  reflected  in  its 
representation in international indices.  

1.29.5 

Stock market performance 

Source: London Stock Exchange Group777. 

Bond financing is now a commonplace and integral 
part  of  Swedish  companies’  financing  strategies. 

775  Data and surveys - SAFE - European Commission, 2024, Results 

by country, T27. 

776  For further details, see the 2024 EIB Investment Survey. 
777  The  STOXX  Indices  are  the  intellectual  property  (including 
registered  trademarks)  of  STOXX  Limited,  Zug,  Switzerland 
(“STOXX”) and/or its licensors (“Licensors”). STOXX has not 
been involved in any way in the creation of financial instruments 
or  any  other  products  referencing  the  aforementioned  indices. 

Such products are neither sponsored nor promoted, distributed 
or  in  any  other  manner  supported  by  STOXX  and/or  its 
Licensors. STOXX does not give any warranty and excludes any 
liability  whatsoever  (whether  in  negligence  or  otherwise)  – 
including  without  limitation  for  the  accuracy,  adequateness, 
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purpose – in relation to any errors, omissions or interruptions in 
any of STOXX' indices or its data. 

500 

050100150200250300350400450SEEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity050100150200250300350200820112014201720202023janv-yy=100SE Bank indexSTOXX EUROPE 600 BANKSOMX STOCKHOLM (OMXS) - PRICE INDEXSTOXX EUROPE 600 
 
 
   
 
 
       
Since the financial crisis, the Swedish corporate bond 
market  has  also  grown  significantly  in  size  and 
changed in character and Sweden has now the largest 
corporate bond segment (23.8% of GDP) compared to 
the  other  EU  member  states  (10.8%  of  GDP  on 
average). The number of issuers, both Nordic and non-
Nordic,  has  increased  manifold  (among  the  highest 
number of individual issuers in the EU) and, in parallel, 
the  size  of  both  issues  and  issuers  has  decreased 
substantially. 

1.29.6 

Net issuance of bonds 

of their financial wealth in cash and bank deposits, as 
opposed to 31.7% on average in the EU.  

1.29.7 

Composition of HHs’ financial assets 

Source: Eurostat. End-2024. 

Source: ECB. 

Retail participation in capital markets 

large  and  often  automatic 
Thanks 
to 
their 
insurance  and  pension  funds, 
in 
investments 
Swedish  households  have 
rather  high 
a 
participation  in  capital  markets  by  EU  standards. 
The  gross  saving  rate  of  Swedish  households  was 
around 27.1% in 2024, which is one of the highest rates 
in  the  EU.  As  of  end-2024,  households’  aggregate 
financial  assets  equated  to  347.5%  of  GDP,  which  is 
above  the  EU  average  of  212.2%.  The  largest 
component  of  these  assets  consists  of  collective 
savings, namely premium and occupational pensions, 
which households cannot take hold of in the short term. 
Insurance  savings  in  Sweden  are  also  high  from  an 
international  perspective.  Together,  they  account  for 
39.8%  of  households’  financial  assets  (vs  an  EU 
average  of  27.9%).  Another  significant  share  (18%) 
consists of ‘other equity’, covering all forms of equity 
other than listed and unlisted shares (Graph 2.27.7). In 
addition 
funds, 
households own just over one tenth of the outstanding 
volume  in  listed  equities.  At  the  same  time,  foreign 
investors own almost 40% of Swedish listed equities. 
As of end-2024, Swedish households held only 12.6% 

indirect  ownership 

through 

to 

in  equity 
The  high  households’  participation 
markets observed in Sweden is not only backed by 
a  mature  capital  market,  but  also  by  a  unique 
investment culture. Swedish households’ investments 
in  insurance  and  pension  funds,  relative  to  GDP,  are 
more  than twice  larger than the  EU average (138.2% 
vs. 59.2% of GDP). Smart policies have driven this: (1) 
a  pension  system  where  capitalisation  plays  a  strong 
role  through  a  series  of reforms in  the  1990s.778  The 
premium pension is a mandatory defined contribution 
system where every year, pension holders are allowed 
to invest themselves 2.5% of their pensionable income 
in  a  savings  account,  administered  by  the  Swedish 
Pensions  Agency; 
of 
“Investingsparkskonto” (ISK) accounts in 2012, which 
are  exempt from  reporting holdings  or paying  tax  on 
capital  gains  but  subject  to  a  low  flat  tax  on  ISK's 
market value. From 2025, ISK accounts are exempted 
from capital gains taxes on amounts up to SEK 150000 
in  2025  and  SEK  300000  in  2026.  Moreover, 
organizations  such  as  Aktiespararna  begin  financial 
education early, teaching children the benefits of stock 
ownership. These policies have contributed to a unique 
culture  of  high  financial  literacy and  stock  market 
engagement,  as  well  as vast  domestic  equity 
holdings of  Sweden’s  four  largest  pension  funds. 
Measures  to  scale  up  retail  investment  have  been 
combined with more structural reforms of pensions and 
retirement savings and mutually nurtured one another.  

introduction 

the 

(2) 

778  Sweden  implemented  major pension reforms  in  1999,  shifting 
from a defined benefit system to a mixed system combining a 
pay-as-you-go notional defined contribution scheme and a fully 

funded scheme, both of which are based on lifetime earnings and 
individual accounts.  

501 

-30.0-20.0-10.00.010.020.030.040.050.020212022202320242025-Q1bn EURGovernmentMFIsNon-MFINon-financial corporations0100200300400050100150200SEEUSEEUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Currency and depositsInsurance and pension fundsInvestment fundsBondsListed sharesUnlisted sharesOther equityHH Debt (liability)