A supervisory efficiency test for EU financial markets: Taking an operational approach to integration and oversight

The EU’s supervision of financial markets remains fragmented and misaligned with the depth of market integration achieved through initiatives such as the Capital Markets Union (CMU) and the Savings and Investment Union (SIU). Political resistance to centralising supervision, particularly under ESMA, has stalled reform, leaving a hybrid system of national oversight, mutual recognition and limited supranational authority. This fragmented landscape hampers consistency, weakens enforcement and exposes the EU to regulatory arbitrage and inefficiencies – especially in fast-evolving and cross-border segments like fintech, ESG, and crypto-assets.

This ECMI Policy Brief proposes a supervisory efficiency test as a practical, functional tool to assess whether supervisory arrangements match the degree of market integration for specific financial products, services or actors. Rather than forcing political agreement on institutional reform, the test offers an evidence-based, task-specific method to evaluate which level of supervision (e.g. national, coordinated, centralised) is most appropriate.

If systematically embedded into the EU’s regulatory process, the test can help build a more coherent, proportionate and resilient supervisory framework that evolves in step with Europe’s financial markets.

Fabrice Demarigny is Global Head of Financial Markets at Forvis Mazars and Chairman of the ECMI Board. Apostolos Thomadakis is Research Fellow and Head of the Financial Markets and Institutions Unit at CEPS, and Head of Research at ECMI.