Market Integration Package: From 19 National Regimes to One

On 4 December 2025 the European Commission tabled a legislative proposal that is read, depending on the observer, as either the long-overdue breakthrough for the European Capital Markets Union or as a centralising overreach that pushes smaller financial centres to the margins. The Market Integration Package amends 19 EU legal acts in one stroke, introduces a unified Pan-European Market Operator (PEMO) licence, and transfers supervision of cross-border infrastructures and all Crypto-Asset Service Providers (CASPs) to ESMA in Paris. In Brussels circles the package is considered the most ambitious structural overhaul of European capital markets since MiFID II entered into force in 2018.

For German banks, Deutsche Börse, the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) and for every capital markets participant with cross-border business, the package is more than yet another reform exercise. It determines whether the European capital market will converge into an integrated zone over the next decade or remain 27 partially connected national compartments. And it determines how large ESMA's regulatory footprint will become relative to national supervisors. The legislative process between the Commission, the European Parliament and the Council is under way – with visible fault lines along the size of the respective financial centres.

The scale is considerable. With a single proposal, the European Commission intervenes in the European Market Infrastructure Regulation (EMIR), the Markets in Financial Instruments Regulation (MiFIR), the Central Securities Depositories Regulation (CSDR), the Markets in Crypto-Assets Regulation (MiCA), the ESMA Founding Regulation, the Undertakings for Collective Investment in Transferable Securities Directive (UCITS), the Alternative Investment Fund Managers Directive (AIFMD) and MiFID II – complemented by changes to the Securities Financing Transactions Regulation (SFTR), the Distributed-Ledger-Technology (DLT) Pilot Regime, the Benchmarks Regulation, the Credit Rating Agencies Regulation and further legal acts. In his 2024 report on European competitiveness Mario Draghi calculated an additional annual investment requirement of EUR 750 to 800 billion that the fragmented capital market fails to mobilise. The package is the legislative attempt to address this fragmentation.

The Regulatory Framework

Three Legal Texts, One Systemic Overhaul

The Market Integration Package consists of three distinct legal instruments designed to operate in concert. The central Master Regulation is an omnibus regulation amending 14 directly applicable EU regulations – including EMIR, MiFIR, CSDR, MiCA and the ESMA Founding Regulation. The accompanying Master Directive adjusts three directives: UCITS, AIFMD and MiFID II. On top of this sits the Settlement Finality Regulation, which converts the Settlement Finality Directive into a directly applicable regulation, ending the divergent national transposition that persists to this day. Together, this delivers 19 amended legal acts – a scope that substantively justifies comparisons with MiFID II, even though MiFID II itself was thematically narrower.

The political framing matters as much as the legal architecture. The package is the most visible building block of the Savings and Investments Union proclaimed by European Commission President Ursula von der Leyen – a strategic reinterpretation of the older Capital Markets Union. The core thesis is straightforward: Europe does not suffer from a lack of savings but from a lack of mechanisms to channel those savings into productive capital. The means are familiar: a deeper, more liquid single market, less national regulatory arbitrage, scalable European market infrastructures. 4 December 2025 is the date on which the Commission translated this thesis into concrete legislative text.

Context: Why the MiFID II Comparison Holds – and Where It Falters

The comparison with MiFID II is now being drawn routinely in the legal press. It is warranted, but deserves qualification. MiFID II entered into force in 2018 and is considered one of the densest capital markets rulebooks in the world – focused on conduct rules, pre- and post-trade transparency, position limits and product governance. The Market Integration Package has a different thrust. It does not change the conduct rules for individual market participants but rather the architecture within which they operate: Who licenses trading venues? Who supervises cross-border central counterparties? Who sets the guardrails for Crypto-Asset Service Providers? The difference can be sharpened to a metaphor: MiFID II regulated what happens on the pitch; the Market Integration Package rebuilds the stadium.

This is precisely why the political response is more heterogeneous than it was with MiFID II. The finance ministers of Germany, France, Italy, Spain, the Netherlands and Poland support the transfer of supervisory competences to ESMA. Luxembourg, Ireland and Malta – three member states whose financial sectors are disproportionately large relative to their gross domestic product – are pushing back. The calculus on both sides is transparent: larger member states expect a European supervisor to curb regulatory arbitrage at the expense of their domestic institutions. Smaller financial centres fear the loss of their niche.

The Four Central Building Blocks

Building Block 1: The PEMO Single Licence

The most striking single element of the package is the introduction of the Pan-European Market Operator status. Today, any exchange operator running trading venues in multiple member states requires a separate national licence in each country. Euronext operates regulated markets in Amsterdam, Brussels, Dublin, Lisbon, Milan, Oslo and Paris – and maintains a separate licensed entity with its own supervisory relationship in each of those countries. For Deutsche Börse the question arises in a similar form as soon as it moves beyond its German home venue into other member states.

The PEMO licence dissolves this pattern. An exchange operator will in future be able to run trading venues in multiple EU states under a single authorisation issued by ESMA. Operational supervision of a PEMO will then no longer rest with national authorities but directly with ESMA. The status is optional – a national provider focused on its home market can remain within the existing regime. Those seeking to unlock the European potential will for the first time have a unified legal basis for doing so.

Building Block 2: ESMA Direct Supervision of Significant Infrastructures

In parallel with the PEMO licence, the package establishes thresholds above which cross-border market infrastructures automatically migrate to direct ESMA supervision – whether they hold a PEMO licence or not. A central counterparty is considered significant if the average open interest of cleared securities transactions over one year exceeds EUR 100 billion, if the average outstanding notional of cleared Over-the-Counter derivatives (OTC derivatives) exceeds EUR 500 billion, or if the average aggregated initial margin and default fund contributions exceed EUR 25 billion. Anyone crossing one of these thresholds, or belonging to a group that already includes an ESMA-supervised CCP, CSD or trading venue, falls under direct ESMA supervision.

For central securities depositories, significance is measured differently: a CSD is considered significant if it accounts for more than five percent of annually settled value in the EU, or if it belongs to a group of an already ESMA-supervised cross-border CSD, CCP or trading venue. For trading venues, significance is determined by market share – in essence: whoever attracts a relevant portion of EU trading volume in an instrument class migrates to European direct supervision. Less significant players remain under national supervision – a two-tier system designed to preserve proportionality but read by critics as the entry point into creeping consolidation.

Building Block 3: CASP Centralisation

Perhaps the most abrupt intervention concerns Crypto-Asset Service Providers. Since MiCA entered into force, CASPs have been authorised and supervised on a decentralised basis by national competent authorities. The Market Integration Package reverses this principle: as soon as a CASP generates more than 50 percent of its annual turnover from crypto services over two consecutive years, authorisation, supervision and market abuse oversight shift entirely to ESMA. For cross-border crypto service providers this marks a departure from today's licence-shopping across member states with looser supervisory practices.

The European Central Bank (ECB) has explicitly welcomed this centralisation and describes it as an overdue step against what observers call "licence-lending" – the de facto use of an authorisation from a member state with lax supervision to operate across the entire EU single market. Dissenting voices come from countries with an established crypto authorisation industry: Malta, Luxembourg and Ireland warn of a precedent that could extend beyond the crypto sphere into other sectors.

Building Block 4: Harmonised Fund Passport and Depositary Regime

The fourth block of the package addresses the asset management industry. Under the current UCITS and AIFMD regime, cross-border distribution of investment funds is theoretically possible but is obstructed in practice by nationally divergent notification requirements, marketing rules and depositary requirements. The Master Directive smooths these frictions: fund passport notifications are standardised, depositary services can be provided across borders without requiring a local subsidiary in each case, and for asset management groups with assets under management (AUM) of EUR 300 billion or more operating in multiple member states, a recurring ESMA-led review framework will kick in, designed to identify and correct divergent national supervisory practices.

The German Perspective

Deutsche Börse, BaFin and the Significant Infrastructures

For Deutsche Börse, the package represents a strategic fork in the road. Its CCP, Eurex Clearing, is likely to exceed the significance thresholds under each of the three EMIR criteria by a clear margin. Its central securities depository, Clearstream Banking Frankfurt, is part of the internationally active Clearstream group alongside Clearstream Banking Luxembourg and will – once the 5% threshold is met – also migrate to ESMA direct supervision. For BaFin this implies a loss of weight in the core business of market infrastructure supervision; for Deutsche Börse it implies a shortening of the supervisory chain: instead of co-ordination with BaFin, Luxembourg's Commission de Surveillance du Secteur Financier (CSSF) and further national authorities, a single European counterparty.

Whether this is beneficial on balance depends on ESMA's supervisory style – and this is precisely where strategic uncertainty resides. ESMA has developed a profile under its existing supervisory convergence mandate, but the operational leap to direct institutional supervision would be a new qualitative step. The Association of German Banks (Bundesverband deutscher Banken) explicitly argues in its position statement that ESMA supervision should focus primarily on market integrity and efficiency rather than adding regulatory burdens. Banks should not be treated as market infrastructures – a differentiated approach to transparency and reporting obligations is indispensable.

The Position of German Institutions

The Association of German Public Sector Banks (Bundesverband Öffentlicher Banken Deutschlands, VÖB) welcomes the Commission's objective to make EU trading and post-trading more efficient and transparent. At the same time, the association warns that expanded EU-level supervision risks complicating the supervisory structure between European and national authorities. Centralised supervision should apply exclusively to cross-border matters, not to purely domestic business models. The Bankenverband adds that a unified European post-trade structure with consistent standards should precede decisions on new supervisory architectures – not the other way round.

This reluctance cannot be reduced to reflexive concern about Brussels. It touches on a real diagnosis: the Commission promises simplification, yet experience with EMIR, CSDR and MiFID II shows that European harmonisation in practice frequently does not replace national regulation but adds an additional layer on top. The package's credibility will depend on whether the Commission – and later the co-legislators – are consistent in dismantling parallel structures, or whether ESMA supervision will merely sit alongside the existing national regimes.

The Political Process: What the Trilogue Will Decide

The proposal has been submitted to the European Parliament and to the Council. According to market expectations, the trilogue negotiations are likely to last until the end of 2026, with application of key parts 12 months after entry into force and full supervisory transfer 24 months after that. The target state is application no later than 2029 – with the caveat that political agreement will be made more difficult by the diverging positions of member states.

Three lines of conflict are emerging. First, the subsidiarity question: Article 5 of the Treaty on European Union (TEU) and Protocol No 2 oblige the Union to act only where the objective cannot be achieved at national level. Critics contend that the Commission has not made a sufficiently sector-specific case for the supervisory transfer. Second, the proportionality question: do smaller cross-border players require the same supervisory intensity as systemically important infrastructures? Third, the institutional dimension: as supervisory powers grow, so does ESMA's need for staff, budget and democratic legitimacy – subjects that are typically negotiated separately in the trilogue.

What German Capital Markets Participants Should Do Now

The probability that the package will be adopted in substantially unchanged form is high – even if individual thresholds and transitional periods may still shift in the trilogue. Capital markets participants in Germany should use the remaining preparation time to answer positioning questions structurally rather than waiting for entry into force:

Risks and Open Questions

For all its reform impetus, the package remains conceptually unclear on several points. First, the question of operational supervisory capacity: ESMA currently has around 400 staff. Direct supervision of significant CCPs, CSDs, PEMOs and all cross-border CASPs will require considerably more staff, different competences and a different institutional culture. Whether this scale-up can be achieved without a dip in supervisory quality during the transition is an open question.

Second, the question of regulatory duplication: the Commission promises EU-wide simplification alongside the package. Experience with the last three reform waves – MiFID II, the Digital Operational Resilience Act (DORA), the Anti-Money Laundering Regulation – suggests, however, that European Level-1 legislation and national Level-3 implementation frequently continue to coexist. If national supervisors remain responsible for non-significant actors while ESMA additionally steps in for the significant ones, the result is not a unified supervisory regime but a two-tier arrangement with its own interface complexity.

Third, the competition question: Luxembourg, Ireland and Malta do not pursue the preservation of national supervision merely for fiscal reasons. Their financial centres have developed over the past two decades in part because they have introduced nuances into supervisory practice – shorter processing times, more flexible interpretation of technical standards, closer industry dialogue. Once these nuances are flattened by ESMA direct supervision, smaller financial centres lose their differentiating feature. Whether this is positive or negative on balance for the Capital Markets Union will only become clear empirically.

And finally, the political question: the package stands or falls on member states' willingness to hand supervisory sovereignty to the European level. Germany, France, Italy and Spain have signalled this willingness – so long as the infrastructures concerned are ones in which they themselves hold a stake. Whether that willingness will hold when specific German institutions are in specific supervisory disputes with a Paris-based authority remains to be seen. The Capital Markets Union has stalled at exactly this point too often: at the gap between abstract integrationist rhetoric and concrete surrender of sovereignty.

For German capital markets participants, the strategic takeaway is this: the Market Integration Package is neither the promised liberation nor the feared Brussels power grab. It is a structural reform exercise with a realistic risk-and-opportunity profile. The opportunity lies in the possibility of running cross-border business models in the EU without the friction of 27 parallel national regimes. The risk lies in an incomplete European supervisory architecture merely overlaying the existing national one, without effectively replacing it. Those who want to capture the opportunity side must adapt the structure of their business to the new regulatory architecture before the legislator finalises it – not after.