The European Commission’s plans to transfer new powers to the European Securities and Markets Authority are widely expected to face resistance from EU member states’ national regulators.
The National Competent Authorities, as EU jargon calls them, have long sought to protect domestic companies from foreign encroachment by combatting further integration of financial supervision.
Regulated firms, which at times have benefited from lenient treatment, have also supported the existing arrangements. Market functioning has sometimes suffered.
One particularly egregious example was German regulator BaFin’s attempt to protect Wirecard, the payments company that was one of the German stockmarket's tech champions, but became embroiled in fraud.
Bafin banned short selling of Wirecard stock in 2019 and launched an investigation into the Financial Times for market manipulation.
For years, NCAs could count on the support of their governments, which shared their goal of shielding homegrown companies.
But European governments now appear more eager to complete capital market integration, in part due to the rapidly shifting global geopolitical situation.
According to a Danish Defence Intelligence Service report published this week, the US now uses “economic power, including threats of high tariffs, to enforce its will, and no longer rules out the use of military force, even against allies.”
Whether firms should be supervised by Esma or national regulators may seem tangential to global power politics.
But for European policymakers, belatedly completing the integration of European capital markets is increasingly seen as an urgent need.
If US money becomes suspect in strategic industries, it will need to be replaced by European funds, freed from barriers.
Where does that leave the NCAs? Rather than pushing back, they must define what role they ought to play in an Esma-led regulatory system.
There is some truth to the oft-stated defence of national regulation: that national regulators have greater knowledge of their country’s markets.
Some regulators have also become experts in specific sectors.
Rather than using this argument to defend the status quo, the NCAs ought to make it a pillar of their future role, integrated under a European umbrella.
Only by being open to change will they preserve a place in an increasingly European supervisory system.