EU watchdog seeks oversight of cross-border finance firms

The European Securities and Markets Authority (ESMA) has called for direct supervisory powers over cross-border financial firms to expedite the progress of the European Union’s Capital Market Union (CMU), Reuters reported on Wednesday.

The ESMA has proposed 20 recommendations, including direct supervision of cross-border exchanges and crypto-asset firms.

The CMU aims to encourage companies to raise funds through share issuance rather than bank loans. Despite slow progress due to resistance from some countries to EU-level supervision, there are signs of change. German Finance Minister Christian Lindner has urged the European Commission to prioritise the CMU.

The urgency has increased due to London becoming a competitor after Brexit and the need to raise trillions of euros for a net-zero economy. While EU leaders backed more progress on the CMU in April, divisions remain over granting more supervisory powers to the ESMA.

ESMA Chair Verena Ross emphasised the need for a significant change and highlighted supervision as a key aspect. Ross also mentioned that the majority of entities would remain under national supervision.

The ESMA is seeking ‘forbearance’ powers to suspend financial rules temporarily during market turmoil, similar to the ‘no-objection’ letters issued by US regulators like the SEC. The ESMA aims to act as a “gatekeeper” to prevent firms outside the bloc from “forum shopping” among national regulators for the most favourable pan-EU “passport” or license terms.