A union for Europe’s capital markets: from vision to implementation

Guest article by Miye Kohlhase, Member of the Executive Board, published in the September 2026 edition of the Journal of Financial Services (Projective Group) on "Scaling Europe’s Financial System".

Abstract

Europe is under immense economic, demographic, and geopolitical pressure: above all, Europe must strengthen its resilience and overcome its persistently weak growth. The coming months will be critical in determining whether Europe can safeguard its longterm economic and political capacity to act. In this context competitiveness, capital market integration, and strong banks are a strategic issue.

Competitiveness is a core pillar of European sovereignty. It is a prerequisite for expanding modern infrastructure, for the digital transformation, for defense capability, and for the transition to a sustainable economy. The investment required for this is enormous and calls for an efficient system to finance it. Strong banks and a high-performing capital market are, therefore, indispensable. They finance investment, innovation, and growth and ensure the efficient allocation of capital. At the same time, the European capital market is still not making sufficient use of its potential and capabilities. Europe needs a capital market that mobilizes private capital on a large scale, reliably finances companies and businesses and offers retail and institutional investors attractive, non-complex, and competitive financial products. The European Commission’s project, the Savings and Investments Union, can provide the right framework for this, provided it does not become mired in additional regulation but removes concrete market barriers and bureaucracy, thereby facilitating cross-border investment. Creating deep and liquid capital markets in the EU is more than a financial-market initiative. It is the strategic foundation for Europe’s economic capacity to act and for Europe’s independence in geopolitically uncertain times, because public finances alone will not be sufficient to address the challenges. The course must now be set correctly. From the perspective of the private banks in Germany, this concerns five fields of action:
1. Streamlining regulation; 2. modernizing market processes; 3. advancing market integration; 4. increasing financing capacity; and 5. support from the Member States at national level.

1. Introduction: a key year for Europe’s capacity to act

Europe is under economic, demographic, and geopolitical pressure. The question is no longer whether additional investment is necessary, but how Europe can mobilize the private capital needed to remain globally competitive, resilient, and sovereign over the long term. Modern infrastructure, digitalization, defense capability, and the transition to a sustainable economy require a financial system that channels capital quickly and efficiently to where it enables growth and innovation. Europe has strong banks and substantial private savings. These must now be directed into productive capital.

This makes the competitiveness of capital markets in Europe a question of European sovereignty. A deep, liquid, and integrated capital market increases Europe’s resilience, facilitates crossborder investment, and improves financing conditions for businesses. At the same time, it is essential for mobilizing and allocating private capital at scale. Only then can retail and institutional investors fully benefit from the value created by the companies in which they invest.

The measures taken so far for a Capital Markets Union have achieved some progress. Yet European capital markets could make much better use of its potential. To do so, there is a need to reduce, as quickly as possible, the fragmentation that still exists in some areas and thereby become more liquid in many segments. Unlike other international markets, complex and partly inconsistent regulation hampers capital-market-based investment in the EU. This makes investing more difficult, increases costs, and diverts resources away from financing, innovation, and client service.

Europe should now work in a targeted way to revitalize the market economically by increasing liquidity. The next phase of the Capital Markets Union must, therefore, focus on simplifying legal requirements, increasing market integration, and achieving the rapid and ambitious implementation of harmonization measures. Modern market structures are just as important as simple access to capital-market participants and to efficient, secure market infrastructures.

2. Savings and Investments Union: more market, less micromanagement

Policymakers in the European Union are rightly focusing on a high-performing capital market and strong banks. There is no lack of political ambition to create a single, attractive market. In the current legislative period, the Savings and Investments Union (SIU) is one of the European Commission’s stated objectives for establishing a Single Market for capital.

What is decisive, however, is that competition and market mechanisms remain at the center of these efforts. Policymakers and supervisors should create a clear, reliable, and internationally competitive framework in which markets and fair competition can operate, rather than prescribing specific products, ordering the consolidation of market structures, or adding new detailed obligations to existing complexity. Only the market and its participants decide what is attractive from their perspective and in the global context.

An attractive capital market needs stability, integrity, and liquidity. Financial stability and market integrity are indispensable, but without global competitiveness even a formally stable system will not remain high performing in the long term. Anyone who wants to make Europe attractive to international investors must, therefore, consistently assess regulation in terms of its benefits, costs, and impact on liquidity, and thus ultimately on the attractiveness of the market.

The principle of proportionality plays a key role here: it is not only the size of the market participants or the business model that should be taken into account. The focus should be on whether the rules in question promote the objective of supporting a capital market that is globally competitive. In other words: is the rule really necessary, is its scope sensible, and does the rule achieve its objective without unnecessary costs?

This also requires a clear division of roles: banks and capital markets complement one another. Banks provide financing, advice, and risk management, but they also connect their customers with market infrastructures. They serve, on the one hand, companies that issue capitalmarket instruments and, on the other, investors who provide their capital. In particular, banks, other market participants, and financial-market infrastructures have complementary tasks and offer different services. Anyone who deliberately disregards or unintentionally changes these roles risks rendering other useful measures ineffective or even achieving the opposite of what was intended. Capital markets function globally. The roles of market participants and infrastructures are defined internationally and evolve through global interaction. Europe needs these different roles, as well as competition, for a functioning and effective capital market. Only then can the market depth be achieved that is needed to finance the transformation of our economy at scale, something traditional financing channels alone will no longer be able to provide.

Particularly important: banks are not market infrastructures! They have a direct and trust-based contractual relationship with their clients; they connect issuers and investors via market infrastructures and often assume risks on their own account. Market infrastructures, by contrast, are neutral technical platforms for trading, clearing, and settlement, enabling investors to conduct financial transactions anonymously, and they generally do not take risks onto their own books. They operate, for example, as regulated exchanges, central counterparties (CCPs), and central securities depositories (CSDs).

These differences must be reflected in regulation, especially in transparency, reporting, and supervisory obligations.

3. The EU MISP as a practical test for capital-market integration

The EU Market Integration and Supervision Package, or MISP, is currently being negotiated in Brussels. The MISP is a central practical test of whether Europe is addressing the right capital-market regulatory requirements in order to achieve EU-wide usable market infrastructure under the existing framework and to promote cross-border investment. The package can effectively deliver market integration if it genuinely supports less costly and less complex infrastructures, harmonizes post-trade processes, and creates legal certainty.

Many MISP proposals are already heading in the right direction. But the MISP, too, must recognize the difference between banks and market infrastructures. Transparency and in particular reporting obligations should be applied in a differentiated way in trading (lit versus dark trading) and in settlement (CSD versus internalization). Otherwise, cost-effective, efficient banking services will be made more difficult or prevented, ultimately harming market liquidity. Banks should not be regulated like infrastructures, but like banks.

When amending, for example, the requirements for equity markets in the EU, legislators should take into account the needs and wishes of capital-market investors. A variety of execution options gives investors the best conditions for price-creation mechanisms and counterparties. Investors, especially institutional investors, are a central factor in strengthening the attractiveness and liquidity of the EU market. The expertise of the European Securities and Markets Authority, ESMA, should also be taken into account. ESMA recently carried out an analysis of the development of equity markets and sought the financial industry’s assessment through a call for evidence.

More competition could also be achieved, for example, by creating cost transparency for CSDs. If CSDs published uniform and transparent fee schedules, CSD costs in Europe could be compared and overall costs thereby reduced. When disclosing costs, however, it should not be overlooked that banks already compete intensely with one another when responding to their customers’ requests for individual service offerings, and that a general disclosure obligation in this area would only create unnecessary bureaucracy without additional benefit.

More effective than introducing further reporting and transparency obligations would be to remove existing barriers in post-trade. The barriers identified by the European Central Bank’s working group “AMI-SeCo SEG” show that a lack of harmonization, insufficient data quality, and inefficient processes cause concrete costs and stand in the way of creating a single European capital market. From the report “Remaining barriers to integration in securities post trade services – issues and recommendations,” the following measures should be prioritized to simplify post-trade processes, reduce transaction costs, and improve the functioning of capital markets.

Civil-law harmonization in areas such as custody law and company law should be addressed in a targeted way. Targeted harmonization means limiting EU-wide harmonization to rules that are relevant to capital markets. This would also improve the currently insufficient freedom to choose the CSD when issuing securities, under Article 49 CSDR. Amendments to the Shareholder Rights Directive would also be helpful, such as the introduction of a golden source for information on securities-related data, the improvement of issuers’ data quality through uniform formats or the expansion of the scope of application.

It would be particularly helpful if data were made available digitally and completely at source, that is, by the issuing company. In post-trade and also in asset servicing, banks act as the link between issuing companies and investors. Digitalization and standardization in this area can make processes much more efficient. The same applies to procedures for refunding withholding tax. These must become simpler and more practical. The FASTER Directive is an important starting point here; what matters now is pragmatic implementation.

Finally, Europe’s competitiveness must be part of ESMA’s mandate. As a regulator and in its supervisory activities, the supervisor too must be committed to the objective of competitiveness. Analogous to the practice of the UK Financial Conduct Authority, ESMA should systematically consider how its actions influence the long-term growth, attractiveness, and international position of the EU economy and its capital markets.

A more integrated market may require more centralized European supervision in certain areas. However, this must not be the starting point but should be the result of reform. Centralized market supervision is, therefore, only one facet of the MISP and not its core: markets must first be harmonized, processes simplified, and legal frameworks made practical; coherent supervision can then build on this. More centralized supervision alone does not create a deep market. 

4. Streamlining regulation and creating capital-market depth

A key competitive disadvantage for Europe lies in regulatory complexity and red tape. In order to simplify regulation and remove unnecessary requirements, reviews of legislation should be used specifically to delete what is superfluous and simplify what is complex. Policymakers should resist the temptation to keep adding new layers. Even avoiding new statutory procedures and reporting obligations helps.

Reporting obligations that have grown in parallel in various EU legal acts and other, for example supervisory, requirements cause considerable operational burdens; the requirements under MiFIR, EMIR, and SFTR are just three examples. A more fundamental reform of transaction reporting, ideally centered on reporting at source, could reduce costs and free up resources. Germany’s private banks support ESMA’s current considerations to fundamentally reform and simplify reporting. A reduction in reporting obligations of at least 25 percent should also mean that the resources tied up for this purpose will in future be available for growth and competition.

The Retail Investment Strategy also shows how well-intentioned regulation can miss its target. If new requirements make access to the capital market more complicated, they are more likely to deter service providers and retail investors than to mobilize private capital. In any event, the new detailed regulation does not do justice to the objective of bringing more retail investors into the capital market.

Another lever for greater capital-market depth is a high-performing securitization market. Given the high investment needs, this instrument is strategically important for Europe. Securitizations can give banks capacity for additional lending, broaden corporate financing, and channel private capital more precisely into the economy. The existing safeguards for financial stability have proven themselves. What matters now is simplifying processes, calibrating capital requirements in a risk-adequate manner, and avoiding new regulatory categories that increase barriers to market entry.

5. Strengthening innovation

Capital-market integration is not only a question of traditional market infrastructure. It must also allow for technological change. Opening regulatory frameworks to distributed ledger technology (DLT) and further developing the Regulation on Markets in Crypto Assets (MiCAR) are important building blocks for ensuring that Europe remains competitive in digital market structures.

Expanding the DLT pilot regime to all MiFID financial instruments, as well as significantly raising the thresholds, is therefore logical. Issuing securities using DLT is now established practice.

Innovation also needs clear and consistent regulatory responsibilities. For example, it is not clearly regulated whether and which restrictions under the DLT pilot regime apply to traditional loans by banks. Among other things, clarification would be needed regarding activities such as a DLT Settlement System or DLT Trading and Settlement System, alongside lending that is not related to securities services.

Competent authorities for supervision and reporting obligations should also not diverge, as is currently the case for banks under MiCAR. If responsibilities are fragmented or duplicate structures arise, innovation is slowed and bureaucracy increases. The same applies to cross-border issuance structures, for example in the case of multiissuance stablecoins: legal certainty and a level playing field are essential for viable market models.

6. EU Inc.: from company law to a financing framework

To strengthen Europe’s innovation potential and to keep high-growth companies in Europe, the new and voluntary European company form, EU Inc., is a real opportunity. This idea of an optional European company form should also be conceived with capital markets in mind.

It leaves the national rules for existing and established company forms in the EU untouched. Nevertheless, the legislative draft supports companies in cross-border business within the EU and aims to enable modern, digital register management. This creates an opportunity to harmonize the laws that reflect the key life stages of a company: formation, equity financing, and liquidation. It would be even better to include the rules for debt and loan financing and collateral. The new legal framework should reflect the entrepreneurial reality from the outset.

Especially for young AI and deeptech companies, whose scaling phase is short and whose capital requirements are high, the question of where to establish, finance, and scale is not a company-law question but a strategic one. Value creation should be built and remain in Europe.

The proposed legislative draft for the EU Inc. company is therefore a promising building block for reducing fragmentation in the European market. As an optional 28th regime, companies could have a uniform European legal form available to them, thereby facilitating growth, investment and internationally used financing options. The new regime also creates an EU-wide uniform framework for investors, and thus significantly lower investment and advisory costs. 

Although this draft should not be watered down, the focus must not be narrowed solely to formation, capitalization, and company-law issues: companies need financing at every phase of their life cycle, initially often equity capital, but with increasing maturity also increasingly debt capital, especially bank loans. This is precisely where there is a central need for improvement: cross-border financing and collateral agreements in the EU continue to be based largely on national contract and insolvency law. These differences create legal uncertainty, make it harder to use standardized agreements, and increase financing costs.

A targeted European framework for financing contracts and collateral could, therefore, have a much broader impact than a special insolvency regime for individual EU Inc. companies. It would be conceivable to integrate harmonized rules into, or align them with, the EU Financial Collateral Directive. Lenders, investors, and companies across Europe should be able to conclude reliable, effective, and standardizable financing and collateral agreements.

By contrast, the proposed special insolvency regime for certain innovative start-ups should not be pursued further. It would not solve the actual obstacles to cross-border financing and could even make debt capital more difficult. If creditor rights are disproportionately restricted, collateral or netting mechanisms are devalued and no sufficient protective mechanisms are provided, risk premiums rise, or financing may not materialize at all.

A robust digital register is also important for the success of EU Inc. companies. It should create legal reliability for third parties, provide comprehensive and accurate information. It should also record transfers of shares, pledges, and other rights in rem over shares. Only if market participants can legally rely on the register information can the digital register have its integrating effect. This applies in particular regarding know-your-customer requirements. The information in the company register will often not be sufficient for these requirements, so linking it to the transparency register should also be considered.

Finally, EU Inc. companies should, under certain conditions, be able to form legally separate pools of assets, so-called compartments. They could then be used not only for operating companies but also as a European standard vehicle for investment funds and securitizations. This would be another important building block for deeper capital markets. 

7. Financial literacy as the foundation of the capital market

Capital markets function better when citizens understand their opportunities and risks. Financial education is, therefore, not a marginal issue, but a prerequisite for economic participation in the value created by companies and for retirement pension plans. It helps people make informed consumer and financial decisions, protects against over-in-debtedness, and opens access to long-term capital investment.

National financial literacy strategies, a central coordination office, and a compulsory school subject in economics and financial literacy would be concrete steps for anchoring financial competence more broadly. If the capital market is also to grow through the population’s savings, knowledge about saving, investing, risk, and retirement planning must be taught early and in a way that is close to real life. Appropriate information and education offerings are needed so that financial knowledge can be built up from a young age and barriers to the capital market can be reduced. In the long term, this can also relieve the social security systems.

Citizens need access to capital markets to build long-term financial security. They also need opportunities to learn how capital markets work and to gain practical experience of their opportunities and risks.

8. Member States must use national levers decisively

Europe needs an overall concept for integrated capital markets. At the same time, important levers remain national. Germany can support this, for example, by lowering corporate taxes more quickly to an internationally competitive level and implementing withholding-tax procedures pragmatically, with little bureaucracy and without gold plating.

A second national lever is capital-market-based pension plans. The retirement plan account (Altersvorsorgedepot) without contribution guarantees and with flexibility in the payout phase is a milestone for a stronger securities culture. What matters is a simple, cost-efficient, and understandable approach. The early-start pension (Frühstartrente) additionally offers the opportunity to familiarize young people with the capital market and retirement planning at an early stage.

Thirdly, access to the capital market must become easier for companies. Start-ups and scale-ups need growth and venture capital; too often they turn to financing outside Europe or relocate their business activities there. The goal in the Member States too should be to enlarge the entire ecosystem, expand this market, and pave the way to a stock-market listing.

A graduated regulatory approach after the IPO, more flexible downlisting and delisting rules, and reforms in company and capital-market law can make this path more attractive for many companies.

9. Conclusion: competitiveness must become the benchmark for action

Completing the Single Market for capital is necessary, but not sufficient. What is essential is that this Single Market is globally competitive. The agenda for competitive capital markets is clear: Europe must simplify regulation, remove market barriers, treat banks and market infrastructures differently, revive securitizations, enable innovation, and consistently advance national reforms. Implementation is what matters now.

The SIU will only be successful if it can mobilize private capital quickly, reliably, and permanently. This requires less regulatory self-absorption and more focus on liquidity, efficiency, and genuine competition in the market. Capital markets are not an end in themselves. They are a prerequisite for Europe to generate the financing needed for growth, transformation, and prosperity from its own resources.