Plans for a European SEC are doomed unless the EU first harmonises divergent regulatory approaches.
The debate on the future of capital market supervision in Europe has gained momentum, particularly following European Central Bank President Christine Lagarde’s remarks in November about creating a European Securities and Exchange Commission (European SEC). This idea presents a significant shift from the current fragmented supervisory landscape to a centralised, pan-European authority overseeing capital markets. However, moving from the status quo to a fully-fledged European SEC would be an extreme leap. Instead, Europe should focus on improving coordination through ‘single supervision,’ a crucial first step toward eventual centralisation.
The current landscape of supervision
At present, Europe’s capital markets are overseen by a mix of national competent authorities (NCAs), which regulate financial markets within their respective Member States. While some coordination exists, through the European Securities and Markets Authority (ESMA) for example, each NCA operates under its national legal framework, leading to regulatory fragmentation. This fragmentation is a significant obstacle to the development of a truly integrated and efficient European capital market. Divergent interpretations of EU laws, varying levels of enforcement, and inconsistencies in supervisory practices undermine the goal of capital market integration that initiatives like the Capital Markets Union (CMU) seek to achieve.
Christine Lagarde’s call for a European SEC is valid in addressing these disparities, but a hasty move to centralisation could exacerbate existing challenges. Without first addressing the misalignments between national supervisors, a European SEC might face difficulties in its effectiveness and legitimacy. As Verena Ross, Chair of ESMA, pointed out, strengthening the supervisory framework before considering centralisation is crucial for building a sustainable solution.
The case for single supervision
The distinction between ‘single supervision’ and a ‘single supervisor’ is essential. Single supervision refers to the harmonisation of supervisory practices across EU Member States, ensuring that all NCAs operate under the same regulatory standards and interpretations of EU laws, without centralising supervisory powers under one body. In the banking sector, the Single Supervisory Mechanism (SSM) has successfully applied this approach, ensuring uniform supervision for significant banks in the Eurozone and contributing to improved financial stability. However, the complexity of capital markets—comprising a broader range of actors such as asset managers, insurers, and trading venues—presents a greater challenge for creating a unified supervisory approach.
Achieving single supervision requires robust coordination mechanisms. ESMA could play a key role by setting common standards and offering guidance on the interpretation of EU regulations. Peer reviews, mutual evaluations, and enhanced data-sharing between NCAs would also help ensure uniform supervision across borders. Ultimately, single supervision would foster a more consistent regulatory environment, improve market confidence, and lay the groundwork for a potential single supervisor in the future.
Addressing three gaps
One of the main challenges of single supervision is the uneven regulatory capacity of NCAs. Some Member States have well-funded, experienced supervisors, while others face resource constraints. This creates an uneven playing field, where the quality of supervision depends on available resources. To address this, single supervision should include resource pooling and capacity-building programs to ensure all NCAs meet the same supervisory standards.
Another gap exists in the interpretation of EU laws. While EU directives aim to harmonise regulations, Member States often interpret them differently, resulting in fragmented regulatory practices. ESMA could issue binding guidelines to ensure that NCAs apply EU regulations uniformly, and better coordination between NCAs, ESMA, and the European Commission could reduce regulatory arbitrage opportunities.
The third gap concerns enforcement across Member States. Some NCAs are more proactive in enforcement than others, leading to discrepancies in how EU rules are applied. A unified supervisory framework would require not only consistent supervision but also uniform enforcement of penalties. ESMA could play a greater role in coordinating enforcement actions and ensuring consistent treatment of breaches across all Member States.
Table – Examples of diverging interpretations and enforcement of EU financial services directives and regulations across Member States
| Directive/Regulation | Country | Interpretation/Enforcement |
| Market Abuse Regulation (MAR) | e.g. France, Germany, Italy | France: stringent approach (e.g. insider trading) and high penalties for breaches;
Italy: prioritise administrative measures over heavier fines; Germany: lenient enforcement (e.g. Wirecard scandal). |
| MiFID II Research Unbundling | e.g. France, Germany | France: strict adherence -> asset managers significantly reduced reliance on paid research;
Germany: more flexibility -> asset managers accessing a broader scope of research, creative fee structures. |
| Anti-Money Laundering Directives (AMLDs) | e.g. Sweden, Malta, the Netherlands | Sweden: stricter monitoring after high-profile scandals;
the Netherlands: aggressive stance, active monitoring even for small transactions; Malta: lenient enforcement (e.g. cryptocurrency and gaming), scrutiny from the EU. |
| General Data Protection Regulation (GDPR) | e.g. France, Ireland, Italy | France: firm stance, large fines for violations;
Ireland: slower enforcement, especially with large tech companies; Italy: middle-ground approach, more compliance warnings before fines. |
Notes: Red represents a strict or rigorous approach. Yellow indicates a moderate or flexible stance. Green signifies a lenient or more relaxed approach.
Single supervision as a prerequisite for a single supervisor
Creating a European SEC or another centralised supervisor would be a logical step only after single supervision is fully implemented and functioning. Without harmonised supervisory practices, a centralised authority would be overwhelmed by the existing disparities across Member States. The transition from decentralised to centralised supervision would be smoother once all NCAs are aligned with common supervisory standards.
A phased approach is needed. First, single supervision would ensure that all NCAs operate within the same framework. Over time, as these practices become entrenched, discussions about creating a single supervisor, such as a European SEC, could be revisited. By that point, the necessary structures for consistent supervision and enforcement would be in place, making the transition more feasible and effective.
Conclusion
The proposal for a European Securities and Exchange Commission is an appealing long-term goal, but it should not be pursued hastily. The establishment of a single, centralised supervisor is not a one-size-fits-all solution for Europe’s capital markets challenges. Even in the US, the SEC faces significant criticism despite its long-standing role. For Europe, the priority should be to strengthen the current supervisory system by improving coordination, consistency, and enforcement. A move towards single supervision would address regulatory fragmentation and create a more harmonised environment, laying the groundwork for a future transition to a European SEC.
In this context, single supervision is a practical and necessary step forward. It offers a more consistent framework for national regulators while preserving flexibility. Once the NCAs are operating under a unified supervisory system, discussions about a European SEC can be grounded in practical realities, rather than idealistic ambition. Until then, efforts must focus on enhancing coordination and harmonisation across Europe’s capital market supervision to build a robust and integrated financial system.
Dr Apostolos Thomadakis is Head of Research at the European Capital Markets Institute (ECMI) and Research Fellow at the Financial Markets and Institutions Unit at the Centre for European Policy Studies (CEPS).
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