22 April 2024

In this spotlight, the focus is on financial services (FS) policy, looking at the important areas of the capital markets union (CMU), banking, digital finance and sustainable finance. These will continue to be key areas of focus for the next Commission. The sections below include what has been achieved in the current mandate, what the priorities for the next Commission will be, and a shortlist of key files.

Capital Markets Union – soon to be rebranded to Savings and Investment Union courtesy of Enrico Letta

During its current term, the Commission has adopted two main packages of files to reform the capital markets union (CMU). The first covered files including the Review of the Markets in Financial Instruments Regulation (MiFIR), impacting e.g. fund managers and trading venues, and the Review of the Alternative Investment Fund Managers Directive (AIFMD), affecting e.g. hedge funds, private equity and real estate investment funds. The second package covered files such as the European Market Infrastructure Regulation (EMIR) and the Listing Act.

The Eurogroup finance ministers and Commissioner McGuinness have started setting the agenda for the next Commission’s mandate, where boosting the CMU further will be a key priority. Looking ahead, the Eurogroup’s plan highlighted three priority areas to boost the EU’s capital markets: increasing access to private funding for European businesses; increasing retail participation in capital markets; and streamlining regulation. The latter may be achieved through further harmonisation of company law, continued move towards Regulations over Directives, and crucially a European supervisor for large entities – a move France continues its push for. Meanwhile, Financial Services Commissioner Mairead McGuiness has highlighted in an op-ed that limited access to finance in the EU is a strategically important issue. With the finalisation of the retail investment strategy, the review of the Securitisation Regulation as well as new proposals auto-enrolling workers in private pensions and consolidating EU stock exchanges and market infrastructures, the aim will be to increase availability of capital from retail and wholesale sources within the European market.

The key development for banking regulation has been the finalisation of the Banking Package, set to be adopted in the final April plenary. The aim was ensuring banks become more resilient with increased capital requirements by implementing Basel III. Basel provisions should come into force on 1 January 2025. Moreover, the Commission has proposed reforming the existing bank crisis management and deposit insurance (CMDI) framework, to ensure failing banks are dealt with efficiently. However, this work has not been completed, with the Council and Parliament yet to finalise their positions.

Going forward, implementation of Basel III is still uncertain given the developing situation in the US, where the Federal Reserve’s Jay Powell has indicated there may be a delay. To remain competitive, the EU may end up delaying its own implementation as a result – although to date Commission officials still suggest there will be a timely implementation. CMDI negotiations will also have to resume when a new Parliament is in place, with the trilogues yet to kick off.

Digital Finance

Much has happened in digital finance during this mandate, with finalisation of rules for the crypto industry with the Markets in Crypto-Assets Regulation (MiCA) and rules for banks, insurance and investment firms on cybersecurity with the Digital Operational Resilience Act (DORA). Progress has also been made to foster data sharing in the industry through the Financial Data Access framework (FIDA) and debates have kicked off on issuing a digital euro. Also relevant for banks, fintechs and payment services providers, the Payment Services Regulation and Payment Services Directive (PSR/PSD3) have progressed with trilogues to take place after the EU elections.

In the next mandate, given several files are yet to be finalised, the newly elected European Parliament could have an impact on the development of key files. PSR/PSD3 trilogues will restart in the second half of the year, with discussions over the digital euro also taking centre stage – a proposal which has drawn criticism, including from the ECR and ID groups (and their shadow rapporteurs). Nevertheless, digital finance will remain high on the agenda with potential additional rules around the use of AI and other innovative technologies in the FS space.

Sustainable Finance

During the current mandate, while much progress was made on sustainable finance, there was also a notable pushback towards the end of the term. New rules were introduced to increase transparency and prevent greenwashing, for instance through the EU green bond standard (EUGBS), which impacts both issuers and investors, and the rules for ESG ratings providers. However, the Corporate Sustainability Reporting Directive (CSRD) was updated to push back the European Sustainability Reporting Standards (ESRS) for specific sectors and non-EU companies by two years, to June 2026. Moreover, the Corporate Sustainability Due Diligence Directive (CSDDD) was heavily contested in the Council, with the scope ultimately reduced to a significant extent, doubling the employee threshold to 1,000 employees and tripling the net worldwide turnover threshold to EUR 450 million.

Early in the term of the next Commission, a review of the Sustainable Finance Disclosure Regulation (SFDR) is expected to be published, which will simplify reporting obligations for investment firms, banks, insurers, and other financial institutions. Although the green transition will remain a key objective of the new Commission, competitiveness and a more right-leaning European Parliament will reduce the ambitions. Therefore, the expectation is that the focus will shift from creating new rules to streamlining and simplifying existing rules.

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