EU’s six big economies seek move on capital market union despite Irish worries

The European Union ’s six largest economies have proposed the “phased” introduction of a central oversight body for financial trading to break the political deadlock over plans for a shared European capital market. Amid ongoing concerns from the Republic and Luxembourg , German federal finance minister Lars Klingbeil held talks on Thursday in Berlin with counterparts from Poland , France , Italy , Spain and the Netherlands in the so-called E6 format. Klingbeil insisted compromise was necessary on all sides to ease a decade-old logjam and create a European financial market to rival Wall Street. “We’re won’t be successful competing with China and the US at a snail’s pace,” he said. “The world is not waiting for us.” From the start, the Republic and Luxembourg have been wary of ambitions for a unified capital market, fearing a significant negative impact on their respective significant financial sectors. Previous E6 draft documents envisaged the Paris-based European Securities and Markets Authority (ESMA) taking over ever more responsibility from national authorities and central banks. That sparked fears in the State and Luxembourg of a centrifugal effect, with companies and funds potentially relocating to the French capital to be near the new authority. The latest E6 proposal maintains the main demand to “drive market efficiency, reduce fragmentation and strengthen liquidity” – to allow companies in the 27-state union access European funding instead of looking to the United States. However, the E6 suggest supervision of significant securities depositories and transactions by big clearing houses, essential institutions for managing credit risk, should be “transferred to ESMA in a phased approach”. This period should be “appropriate and as short as possible”, they add, with close, ongoing supervision by the European Commission . The transitional period to central European supervision, the E6 ministers added, should be used to allow ESMA “develop sound, recognised and robust supervisory expertise and resources”. As part of the shift, ESMA staff should be “closely embedded in the supervisory process alongside” national authorities via “structured co-operation supervisory mechanisms”, with national legislators defining both agencies’ roles and tasks. Their draft continues to see roles for national authorities alongside ESMA, though with clear definition of co-operation and responsibilities to “avoid duplication, ensure cost control and create legal certainty for supervised entities”. The paper proposes a phased approach, too, for the introduction of European oversight for a “sound” common cryptocurrency market. This would mean “significant” cryptoasset service providers placed under direct ESMA supervision, the E6 ministers propose. The Paris authority should also be granted a formal say in future licensing procedures for new providers. “Where ESMA’s opinion identifies unaddressed significant risks to EU market integrity or investor protection,” the paper proposes, “the national competent authority should not grant the licence”. The European Central Bank said last month it “fully supports” these efforts, warning large crypto firms can be “systemically relevant” with risks that could spill into the banking system.