EXPERT ANALYSIS– By MFSA Chief Officer Supervision and ESMA Board Member Prof. Chris P Buttigieg
The architecture of the European Capital Markets Union (now the Saving and Investments Union) is undergoing a structural evolution. It is shifting its centre of gravity away from the continuous expansion of harmonised rules and towards ensuring consistent supervisory outcomes across Member States.
To achieve a uniform supervisory landscape, two competing paradigms emerge: centralisation of supervision under a singular European authority, or the refinement of supervisory convergence within a decentralised network.
With the exception of a few direct oversight mandates granted to the European Securities and Markets Authority (ESMA) over specific sub-sectors, the prevailing institutional design remains anchored in the principle of decentralised supervision, with supervisory convergence acting as the primary mechanism for consistency.
Join The European Business Briefing
New subscribers this quarter are entered into a draw to win a Rolex Submariner. Join 40,000+ founders, investors and executives who read EBM every day.
ESMA has already achieved significant milestones in operationalising supervisory convergence. This progress is visible in the establishment of the Senior Supervisors Forum, the rollout of practical tools such as the Supervisory Convergence Heatmap, the application of risk based supervisory principles, and the development of common authorisation practices for Crypto-Asset Service Providers (CASPs). This type of incremental integration is far more effective and proportionate than centralised supervision.
The advancement of supervisory convergence presents a more efficacious and politically viable alternative to the comprehensive centralisation proposals articulated by the Commission in initiatives such as the Market Integration and Supervision Package (MISP). By refining the mechanisms of convergence, ESMA can ensure that a decentralised network of National Competent Authorities (NCAs), coordinated through a common supervisory culture and a rigorous regime of peer accountability, realises the same harmonised outcomes as a singular European supervisor. This model supports deep market integration without triggering the political resistance, institutional disruption, or jurisdictional displacement typically associated with wholesale centralisation.
In this context, an expansive application of ESMA’s peer review mechanism, augmented by the strategic deployment of fast-track assessments, would serve to reinforce supervisory convergence by transforming these evaluations into a potent instrument of institutional accountability capable of driving behavioural change. By systematically identifying best practices and remediating supervisory shortcomings, a broadened peer review mandate ensures that NCAs function as a cohesive unit rather than a fragmented collection of jurisdictions. Ultimately, this approach would achieve a high degree of European convergence while safeguarding the indispensable local market expertise of NCAs, thereby maintaining a unified supervisory front without sacrificing regional nuance.
The digital asset ecosystem provides a case study for the effectiveness of convergence since ESMA has deployed supervisory briefings to harmonise the authorisation process for CASPs.
Within the ESMA toolkit, a supervisory briefing constitutes a non-binding yet highly influential regulatory instrument, engineered to provide NCAs with granular guidance on the consistent oversight of market participants. These briefings serve as a fundamental pillar for fostering a common supervisory culture by establishing standardised frameworks for the application of the Markets in Crypto-Assets (MiCA) regulation and related sectoral mandates.
By articulating precise and uniform supervisory expectations, this mechanism serves as a pre-emptive strike against supervisory arbitrage. Consequently, it ensures that a “passported” license represents a consistent “gold standard” of compliance across the Union.
The convergence framework can be further strengthened through several strategic enhancements that could deepen institutional integration: First, the centralisation of data, coupled with the creation of harmonised analytical tools, would generate significant economies of scale while ensuring that all NCAs utilise identical evaluative methodologies, thereby guaranteeing convergent analytical outcomes for supervision.
Second, reinforcing the supervisory knowledge network through informal interaction, such as specialised workshops and cross-border training, thereby facilitating the organic alignment of professional judgment among national regulators. Third, establishing a framework for ESMA’s direct participation in national supervisory engagements would provide the Authority with granular insights into the localised nuances of supervision, fostering a more precise Union-wide coordination.
Fourth, identifying specialised regulatory domains to create “centers of excellence” for research and shared supervision would allow for the concentration of technical expertise, providing NCAs with high-level support and fostering a sophisticated, research driven supervisory culture. Lastly, by establishing a common risk management framework and a mandatory minimum engagement level, ESMA can ensure that high-risk entities face consistently rigorous inspection cycles across the Union.
By strengthening convergence as outlined above, ESMA would effectively be building a supervisory “central nervous system” that ensures the European market is defined by a single, unwavering standard of excellence.
The sophisticated operational framework spearheaded by ESMA underscores the inherent advantages of supervisory convergence as a dynamic alternative to centralized oversight. Unlike the rigid, top-down structure of a centralised supervisor, this model leverages the collective intelligence of the NCAs, ensuring that European supervision remains deeply rooted in local market realities while adhering to a unified strategic vision. Ultimately, a strengthened convergence model offers a more resilient and politically viable architecture for the Internal Market, ensuring that the integrity of the European financial landscape is upheld through a shared, high-performance network rather than a distant, monolithic bureaucracy.
