ECB approves EU plan to strengthen financial supervision

The European Central Bank on Friday endorsed the European Commission’s proposal to strengthen integration across European Union capital markets through a system of joint supervision.

However, the central bank cautioned that the initiative would require sufficient staffing and financial resources to be implemented effectively.

The proposal seeks to shift the supervision of major financial market participants from national regulators to a centralised EU-level authority.

This initiative forms part of a broader push led by France and Germany to enhance the bloc’s competitiveness at a time when it faces sluggish economic growth and increasing competition from the United States and China.

Move aimed at boosting competitiveness

The plan focuses on placing systemically important and cross-border financial entities under unified supervision.

These include major trading venues, central counterparties, central securities depositories, and crypto-asset service providers.

The ECB noted that such a move could strengthen oversight consistency and improve efficiency across the EU’s fragmented financial landscape.

By consolidating supervision at the European level, policymakers aim to create deeper and more integrated capital markets, which are seen as essential for economic growth and investment within the bloc.

ECB signals confidence but urges caution

The central bank’s endorsement is expected to send a positive signal to financial markets, as well as to governments of smaller EU member states such as Ireland and Luxembourg, which have shown limited enthusiasm for the plan.

In its formal opinion required as part of the EU legislative process but not binding on lawmakers the ECB expressed clear support for the Commission’s approach.

It stated, "The ECB fully supports the Commission proposals, which constitute an ambitious step towards deeper integration of capital markets and financial market supervision within the Union."

At the same time, the ECB highlighted the need for careful implementation.

It stressed that the European Securities and Markets Authority, which is proposed to take on the expanded supervisory role, must be adequately resourced to handle its new responsibilities.

Role of ESMA and ECB involvement

Under the proposal, supervisory authority would shift from national regulators to ESMA, which is based in Paris.

The ECB also recommended that it should have a non-voting seat on ESMA’s board, allowing its expertise to contribute to supervisory decisions, technical standards, guidelines, and recommendations.

The central bank emphasised that its involvement would add value, particularly in areas where its experience in financial stability and oversight could support effective regulation.

Transition and next steps

The ECB further advised that the transition from national to EU-level supervision should be carefully sequenced to minimise potential disruptions to financial markets.

A gradual approach, it suggested, would help ensure continuity and stability during the shift.

The European Commission’s proposal will now enter negotiations between EU member states and the European Parliament.

This legislative process is expected to take several months before any final framework is adopted and implemented.