EU Moves to Cut Cross-Border Barriers for Asset Managers and Digital Markets

The Council’s proposed market reforms include a new fund depositary passport and an expanded digital-ledger pilot regime, as Brussels seeks to make Europe’s capital markets more integrated.

The Council of the European Union has agreed key elements of its negotiating position on a package of measures designed to reduce fragmentation across European capital markets, including reforms affecting asset managers, fund infrastructure and digital securities.

Agreed on 9 October, the proposed Market Integration and Supervision Package (MISP) aims to reduce cross-border barriers, improve supervisory consistency and make it easier for capital to flow between EU member states.

One significant proposal would allow funds to appoint a depositary in a different EU member state from the country in which they are established. The new depositary passport could give fund managers greater choice over their operating arrangements and support a more integrated European fund market. Under the Council’s position, the regime would be optional for member states.

The package would also transfer supervision of the EU’s most significant cross-border trading venues and post-trading entities, including central securities depositories and central counterparties, to the European Securities and Markets Authority (ESMA). The Council has proposed a new governance structure for ESMA while retaining a role for national regulators.

Digital market infrastructure is another component. The Council’s position would broaden the activities permitted under the EU’s distributed-ledger technology pilot regime, giving market operators greater scope to test new approaches to trading and settling financial instruments using digital infrastructure.

The proposals form part of the EU’s wider Savings and Investments Union initiative, which seeks to connect European savings more effectively with businesses requiring investment. The Council cited an estimated €10 trillion in household savings held in low-yield bank deposits across the EU.

For asset managers and fund-service providers, the proposed changes could have implications for how funds are domiciled, administered and distributed across borders. For market infrastructure providers, the reforms could create a more consistent regulatory environment for traditional and emerging digital-market activities.

The Council’s agreement establishes its negotiating position rather than completing the legislative process. Formal negotiations with the European Parliament can begin once Parliament has adopted its own position.

The proposals nevertheless mark a further step towards connecting Europe’s fragmented investment markets through common rules, cross-border fund services and infrastructure that can accommodate both conventional and digital financial instruments.