The EU Capital Markets Union and Financial Services Regulation

The EU Capital Markets Union and Financial Services Regulation

1. Introduction: Building a Single Market for Capital

The European Union has established a sophisticated system for the movement of goods, services, persons, and capital. Yet the integration of European financial markets remains incomplete. Although investors can legally transfer capital across national borders, companies can issue securities, and financial institutions can provide services throughout the internal market, the practical conditions under which these activities take place continue to differ considerably between Member States.

National differences in securities regulation, taxation, insolvency procedures, company law, supervisory practices, and market infrastructure increase the cost of cross-border investment. They also influence where businesses seek financing and where investors choose to place their savings. As a result, European capital markets remain less integrated and less extensive than their economic potential would suggest.

The Capital Markets Union (CMU) is the European Union’s long-term project to create a more integrated single market for capital. Its purpose is to connect savings with productive investment throughout the Union, reduce dependence on traditional bank lending, improve access to finance for businesses, and give individuals more opportunities to invest.

The project is closely connected with the EU’s wider economic and monetary framework, but it is distinct from the Economic and Monetary Union and the Banking Union. Whereas monetary integration concerns the euro and the common monetary policy, and the Banking Union concerns the supervision and resolution of participating banks, the Capital Markets Union focuses on securities markets, investment funds, financial intermediaries, market infrastructure, and the cross-border allocation of private capital.

In March 2025, the European Commission introduced the Savings and Investments Union (SIU) strategy. This broader initiative builds on the Capital Markets Union and seeks to improve the relationship between savings, investment opportunities, and business financing. It addresses both the supply of investment opportunities and the demand for investment products, including financial literacy, retail participation, institutional investment, and the integration of national markets.

The distinction is important. The Capital Markets Union remains the structural project of integrating European capital markets. The Savings and Investments Union provides a wider policy framework intended to accelerate that integration and connect it more directly to the financial needs of European households and businesses.

2. Legal Foundations of the Capital Markets Union

The Capital Markets Union does not rest on a single treaty provision or a single legislative instrument. It is constructed through several interconnected areas of EU law.

The principal constitutional foundation is the internal market established under Article 3(3) of the Treaty on European Union and Articles 26 and 114 of the Treaty on the Functioning of the European Union (TFEU). Article 26 defines the internal market as an area without internal frontiers in which the free movement of goods, persons, services, and capital is ensured. Article 114 provides the principal legal basis for adopting measures approximating national laws where necessary for the establishment and functioning of the internal market.

The free movement of capital, protected by Articles 63–66 TFEU, is particularly significant. Article 63 prohibits restrictions on capital movements between Member States and, subject to the Treaty framework, between Member States and third countries. This freedom supports cross-border investment, securities transactions, financial participation, and the movement of funds.

However, the legal freedom to move capital does not automatically create an integrated financial market. Investors may have the right to purchase securities issued in another Member State, but the transaction can still be affected by differences in disclosure obligations, tax treatment, settlement arrangements, insolvency law, investor protection, and supervisory requirements.

Other Treaty provisions are relevant to financial services and economic integration. Article 49 TFEU protects freedom of establishment, while Article 56 protects the freedom to provide services. Both are important for investment firms, fund managers, financial advisers, trading platforms, and other regulated financial service providers operating across borders.

Article 63 must also be understood alongside the specific Treaty provisions governing taxation, prudential supervision, and monetary policy. The Capital Markets Union does not eliminate Member States’ competence in taxation or company law, nor does it create a general EU power to regulate every aspect of national financial systems.

The legislative architecture is therefore based on a combination of harmonisation, directly applicable regulations, supervisory cooperation, mutual recognition, and national implementation.

3. Historical Development: From the First Action Plan to the Savings and Investments Union

The Capital Markets Union was formally launched in 2015 as a response to the fragmentation of European financial markets and the excessive reliance of European businesses on bank financing.

The financial crisis of 2008–2009 had demonstrated the risks associated with concentrated banking exposure and the transmission of financial instability through interconnected institutions. European companies, particularly small and medium-sized enterprises, often had limited access to alternative financing when bank lending contracted.

In September 2015, the European Commission presented its first Capital Markets Union Action Plan. It sought to develop deeper and more liquid capital markets, improve access to financing, encourage long-term investment, and remove obstacles to cross-border capital flows.

The initial programme included reforms concerning prospectuses, securitisation, venture capital, investment funds, and the financing of infrastructure. It also addressed the practical difficulties faced by smaller businesses seeking to access public or private capital markets.

In September 2020, the Commission adopted a second Action Plan containing sixteen legislative and non-legislative measures. Its objectives were to support economic recovery, improve opportunities for individuals to save and invest over the long term, and integrate national capital markets into a genuine single market. The plan also addressed settlement services, insolvency-related barriers, shareholder engagement, investment protection, and supervision. European Commission: Capital Markets Union 2020 Action Plan.

Subsequent legislative packages addressed market infrastructure, investment funds, listing requirements, long-term investment vehicles, and financial data. The Listing Act, adopted in 2024, sought to make public markets more attractive by simplifying certain requirements for companies seeking admission to trading and by facilitating access to capital, particularly for smaller issuers.

Despite this progress, the underlying problem remained. European markets continued to operate through national structures, with different legal traditions, tax arrangements, supervisory practices, and market infrastructures.

On 19 March 2025, the European Commission adopted the Savings and Investments Union strategy. The initiative expanded the original Capital Markets Union concept by treating the integration of savings and investment opportunities as a broader economic priority. It sought to mobilise private capital, improve the investment opportunities available to individuals, strengthen institutional investment, and make it easier for businesses to obtain financing.

The strategy also reflected the scale of Europe’s investment needs in areas such as technological innovation, energy infrastructure, defence, digitalisation, and the green transition. European Commission: Savings and Investments Union.

The SIU is not a replacement for the CMU. It is an expanded framework intended to advance the same structural objective through a wider combination of European legislation, national reforms, market development, and financial education.

4. Why the EU Needs Integrated Capital Markets

European businesses traditionally rely more heavily on bank lending than businesses in certain other advanced economies. Bank finance remains essential, but an economy that depends too heavily on it may struggle to finance innovative businesses, long-term infrastructure, and projects whose commercial risks are difficult to accommodate within conventional lending arrangements.

Capital markets provide alternative forms of financing. Companies can issue shares, corporate bonds, commercial paper, and other financial instruments. They can also obtain investment through venture capital, private equity, private credit, and specialised investment funds.

For businesses, a more integrated market can provide access to a larger pool of investors. A company established in one Member State should be able to attract investment from another Member State without facing disproportionate regulatory and administrative barriers.

For investors, integration can increase the range of available products and opportunities. A retail investor in one country may be able to invest more easily in a fund, bond, or listed company established elsewhere. Institutional investors, including pension funds and insurance companies, may also gain access to a wider range of investment opportunities.

The economic argument is not simply that more investment is desirable. It is that capital should be allocated more efficiently. When savings remain concentrated in relatively low-yield deposits or national financial markets, businesses elsewhere in the Union may struggle to obtain the financing necessary for expansion.

An integrated market can improve the matching of available savings with productive investment needs. It can also reduce the cost of capital by increasing competition among financing providers and expanding the number of potential investors.

Nevertheless, deeper integration does not guarantee higher returns or eliminate investment risk. Capital markets expose investors to market fluctuations, issuer insolvency, liquidity problems, and the possibility of losing part or all of their investment. The purpose of regulation is not to remove these risks entirely, but to ensure that markets operate transparently, fairly, and with appropriate safeguards.

5. The Regulatory Architecture of EU Financial Services

EU financial services regulation is a complex system of primary legislation, directly applicable regulations, directives, delegated acts, implementing acts, and technical standards.

The European Commission develops legislative proposals and adopts certain delegated and implementing measures. The European Parliament and the Council act as co-legislators under the applicable legislative procedures. National competent authorities supervise many regulated entities, while European supervisory authorities coordinate and strengthen the consistent application of EU law.

This architecture developed significantly after the financial crisis, when the Union recognised that purely national supervision was insufficient for financial markets operating across borders.

The European System of Financial Supervision includes three European Supervisory Authorities:

The European Securities and Markets Authority (ESMA) focuses on securities markets, investment services, market integrity, investor protection, and supervisory convergence.

The European Banking Authority (EBA) develops common regulatory and supervisory standards for the banking sector, including prudential requirements and aspects of financial stability.

The European Insurance and Occupational Pensions Authority (EIOPA) addresses insurance and occupational pensions, including consumer protection and supervisory convergence.

The European Systemic Risk Board (ESRB) monitors systemic risks to the financial system and provides warnings and recommendations where vulnerabilities may threaten financial stability.

The three supervisory authorities do not have identical powers. Their responsibilities arise from their founding regulations and sector-specific legislation. In particular, ESMA has certain direct supervisory responsibilities over specified entities and activities, but national authorities continue to supervise many investment firms, market participants, and financial institutions.

The European Commission describes the system as a regulatory process involving both EU-level technical standards and national supervisory implementation. European Commission: Regulatory Process in Financial Services.

6. The Main Legislative Framework Governing Capital Markets

The Capital Markets Union is supported by a substantial body of financial services legislation. These instruments regulate the activities of market participants, the issuance and trading of securities, the provision of investment services, and the infrastructure through which financial transactions are completed.

6.1 Markets in Financial Instruments: MiFID II and MiFIR

The Markets in Financial Instruments Directive (MiFID II), Directive 2014/65/EU, and the Markets in Financial Instruments Regulation (MiFIR), Regulation (EU) No 600/2014, form a central part of the EU securities-market framework.

MiFID II regulates investment firms, trading venues, investment services, conduct of business, and organisational requirements. It establishes requirements relating to authorisation, governance, conflicts of interest, client classification, suitability, appropriateness, best execution, and the protection of client assets.

The framework distinguishes between retail clients, professional clients, and eligible counterparties. These categories reflect different levels of presumed knowledge, experience, and capacity to assess investment risks. The classification affects the extent of protection and the obligations imposed on investment firms.

The suitability assessment is particularly important where an investment firm provides investment advice or portfolio management. The firm must obtain information about the client’s knowledge and experience, financial situation, investment objectives, and risk tolerance to determine whether the recommended investment is suitable.

The appropriateness assessment applies in relevant non-advised situations and examines whether the client possesses sufficient knowledge and experience to understand the risks associated with a particular investment product.

MiFIR complements MiFID II through directly applicable requirements concerning transparency, transaction reporting, trading obligations, and market structure. Together, the two instruments seek to improve market transparency and ensure that trading takes place through appropriately regulated systems.

The framework also regulates trading venues, including regulated markets, multilateral trading facilities, and organised trading facilities. These categories provide different legal structures through which financial instruments may be traded.

The MiFID II and MiFIR framework has been amended over time. The 2024 amendments seek, among other things, to improve market data transparency, develop consolidated market data arrangements, and adjust certain trading and reporting requirements. These reforms form part of the broader effort to make European markets more efficient and competitive.

6.2 Prospectus Regulation

The Prospectus Regulation, Regulation (EU) 2017/1129, governs the disclosure document required when securities are offered to the public or admitted to trading on a regulated market, subject to applicable exemptions.

A prospectus provides investors with information about the issuer, its financial position, business activities, risks, and the securities being offered. The objective is to enable investors to make informed decisions based on sufficiently complete and reliable information.

The prospectus regime is particularly important for companies seeking to raise capital through public offerings. Without common disclosure standards, cross-border offerings could require issuers to navigate substantially different national requirements.

The Prospectus Regulation provides a harmonised framework and a mechanism for the recognition of prospectuses across Member States. Its operation is supported by ESMA and national competent authorities.

The Listing Act introduced changes intended to reduce unnecessary burdens on companies seeking to access public markets. These reforms reflect a broader policy concern: disclosure requirements must protect investors without making the process of raising capital prohibitively expensive, particularly for smaller issuers.

6.3 Market Abuse Regulation

The Market Abuse Regulation (MAR), Regulation (EU) No 596/2014, protects the integrity of financial markets by prohibiting insider dealing, unlawful disclosure of inside information, and market manipulation.

Insider dealing occurs when a person possessing inside information uses it to acquire or dispose of financial instruments. Inside information is generally information of a precise nature, not publicly available, relating directly or indirectly to an issuer or financial instrument, and likely to have a significant effect on prices if made public.

Market manipulation involves conduct that gives, or is likely to give, false or misleading signals about the supply, demand, or price of financial instruments, or that secures an artificial price level.

The regulation also imposes obligations on issuers concerning the disclosure of inside information and the maintenance of insider lists. Delayed disclosure may be permitted under specified conditions, but the issuer must comply with the applicable safeguards and notification requirements.

MAR is fundamental to investor confidence. A market cannot function fairly if participants believe that insiders can exploit confidential information or that prices are systematically distorted through manipulative conduct.

6.4 Securitisation Regulation

Securitisation allows financial assets, such as loans or receivables, to be pooled and used as the basis for issuing securities to investors.

The EU Securitisation Regulation, Regulation (EU) 2017/2402, establishes requirements for securitisation transactions, including transparency, due diligence, risk retention, and disclosure. It also provides the framework for simple, transparent and standardised securitisations, commonly referred to as STS securitisations.

Securitisation can help financial institutions transfer or redistribute credit risk, release balance-sheet capacity, and obtain additional funding. It can also provide investors with access to financial assets that might otherwise be difficult to acquire directly.

However, the financial crisis demonstrated that complex and poorly understood securitisation structures can amplify systemic risk. The EU framework therefore attempts to balance market development with investor protection and financial stability.

In October 2026, the Council and European Parliament reached a provisional political agreement on reforms intended to simplify and revive the EU securitisation market. The proposed changes include adjustments to capital requirements for certain transactions and the introduction of a category of resilient securitisations. At the date of this article, the political agreement should be distinguished from a fully completed legislative and implementation process. Council of the EU: Agreement to Revitalise the EU’s Securitisation Market.

6.5 EMIR and Derivatives Markets

The European Market Infrastructure Regulation (EMIR), Regulation (EU) No 648/2012, governs over-the-counter derivatives, central counterparties, and trade repositories.

Derivatives are financial contracts whose value is linked to an underlying asset, rate, index, or other reference. They can be used for hedging, speculation, or risk management. However, extensive derivatives exposures can create interconnected risks between financial institutions.

EMIR introduced requirements concerning central clearing for certain standardised OTC derivatives, risk mitigation techniques for uncleared contracts, and reporting obligations to trade repositories.

Central counterparties (CCPs) stand between the parties to certain financial transactions, becoming the buyer to every seller and the seller to every buyer. This arrangement can reduce bilateral counterparty risk, but it also concentrates risk within the clearing infrastructure.

The regulation therefore imposes requirements relating to CCP authorisation, capital, risk management, governance, and supervision.

The EMIR 3 reforms, adopted through Regulation (EU) 2024/2987, seek to improve the attractiveness and resilience of EU clearing services and address excessive reliance on certain third-country central counterparties. The framework illustrates the connection between capital market integration and financial stability: market infrastructure must be efficient, but it must also remain capable of absorbing serious financial shocks.

6.6 Central Securities Depositories and Settlement

The Central Securities Depositories Regulation (CSDR), Regulation (EU) No 909/2014, regulates central securities depositories and securities settlement systems.

A central securities depository provides infrastructure for the recording, safekeeping, and settlement of securities. It plays a critical role in ensuring that securities transactions are completed reliably and that ownership records remain accurate.

Settlement is the process through which the securities and corresponding payments are transferred between the parties to a transaction. Differences in national settlement systems can increase costs and create obstacles to cross-border investment.

CSDR seeks to improve settlement discipline, establish common requirements for central securities depositories, and facilitate more efficient cross-border settlement.

Settlement finality is equally important. Financial markets require legal certainty about when a transfer or payment becomes irrevocable, particularly where a participant becomes insolvent. The Settlement Finality Directive 98/26/EC provides protections for designated settlement systems and the transfer orders processed through them.

6.7 Investment Funds: UCITS and AIFMD

Investment funds are important intermediaries between individual and institutional savings and the businesses and financial instruments in which those savings are invested.

The Undertakings for Collective Investment in Transferable Securities Directive (UCITS), Directive 2009/65/EC, establishes a harmonised framework for collective investment schemes that meet its requirements. UCITS funds benefit from a passporting system that allows qualifying funds to be marketed to retail investors across the Union, subject to notification procedures and applicable rules.

The Alternative Investment Fund Managers Directive (AIFMD), Directive 2011/61/EU, regulates managers of alternative investment funds. Its scope includes a wide range of funds, such as private equity, hedge funds, and real estate funds, although the precise regulatory obligations depend on the manager’s status and the applicable thresholds and exemptions.

The AIFMD framework addresses authorisation, organisational requirements, risk management, valuation, delegation, depositaries, and reporting.

The AIFMD II reforms, adopted through Directive (EU) 2024/927, address matters including loan-originating funds, liquidity management, delegation, and supervisory reporting. Member States were required to transpose the amendments by 16 April 2026, subject to the transitional arrangements in the legislation.

These frameworks contribute to the Capital Markets Union by allowing investment funds to operate within common regulatory structures and, where applicable, distribute their products across national borders.

7. Investor Protection and the Regulation of Financial Intermediaries

An integrated capital market requires investor confidence. Individuals and institutions must be able to participate in markets without being exposed to unacceptable risks arising from misleading information, conflicts of interest, unsuitable products, or misconduct by financial intermediaries.

EU investor protection is therefore not based on one general statute. It emerges from the interaction of MiFID II, the Prospectus Regulation, MAR, the PRIIPs Regulation, UCITS, AIFMD, and other sector-specific instruments.

The Packaged Retail and Insurance-based Investment Products Regulation (PRIIPs), Regulation (EU) No 1286/2014, requires manufacturers and persons advising on or selling relevant packaged retail investment and insurance-based investment products to provide a key information document (KID).

The KID is intended to present essential information in a standardised form, including the nature of the product, its risks, possible performance scenarios, costs, and other relevant characteristics. Standardisation helps investors compare products that may otherwise be difficult to evaluate.

MiFID II also requires investment firms to act honestly, fairly, and professionally in accordance with the best interests of their clients. Firms must identify and manage conflicts of interest, provide appropriate information, and comply with rules concerning inducements and client assets.

The regulatory approach recognises that formal disclosure alone is insufficient. A document may contain extensive technical information without enabling an ordinary investor to understand the actual risks of a product. The legal framework therefore combines disclosure with conduct-of-business obligations and organisational safeguards.

Investor protection also includes access to complaints procedures, competent authorities, and, where available, alternative dispute resolution mechanisms. The precise remedies depend on the national legal system and the nature of the infringement.

Importantly, EU investment regulation does not guarantee investment returns. Investors remain exposed to market risk, credit risk, liquidity risk, currency fluctuations, and the possibility of capital loss.

8. The European Securities and Markets Authority and Supervisory Convergence

ESMA is central to the functioning of the EU capital markets regulatory system.

Established by Regulation (EU) No 1095/2010, ESMA contributes to investor protection, orderly financial markets, and financial stability. It develops draft regulatory and implementing technical standards, issues guidelines and recommendations, promotes supervisory convergence, and coordinates national authorities.

Its responsibilities also include monitoring market developments, assessing risks, and exercising direct supervisory powers over certain entities and activities where EU legislation provides for them.

The distinction between regulatory coordination and direct supervision is important. ESMA does not replace every national securities regulator. In many areas, national competent authorities remain responsible for authorisation, day-to-day supervision, enforcement, and administrative sanctions.

Nevertheless, divergent national supervisory practices can undermine the effectiveness of harmonised legislation. Two firms conducting substantially similar activities in different Member States may face different interpretations, supervisory expectations, or enforcement approaches.

ESMA’s convergence work seeks to reduce these differences. It may issue guidelines, coordinate supervisory action, facilitate information exchange, and use its statutory powers to address breaches of Union law or disputes between national authorities.

The Savings and Investments Union agenda places greater emphasis on more integrated supervision. The Commission’s December 2025 Market Integration and Supervision Package proposed significant changes to the allocation of supervisory responsibilities and to the role of ESMA.

On 9 October 2026, the Council agreed on key elements of its negotiating position. Its approach envisages transferring supervision of certain significant cross-border trading venues and post-trading entities, including central securities depositories and central counterparties, to ESMA. It also supports a pan-European market operator framework and a strengthened ESMA governance structure.

The Council’s position would establish a full-time executive board for entity-specific supervisory decisions while retaining a board of supervisors as the principal body for wider regulatory decisions and strategy. The proposal also envisages a transition period involving cooperation between ESMA and national authorities.

These measures are not yet a completed transfer of supervisory powers. The Council’s negotiating position forms part of the legislative process, and the final outcome depends on agreement between the Council and the European Parliament. Council of the EU: Market Integration and Supervision Package, 9 October 2026.

9. The Savings and Investments Union: The Next Stage of Integration

The Savings and Investments Union broadens the objectives of the Capital Markets Union by focusing more directly on the relationship between household savings, institutional investment, and business financing.

The initiative recognises that the existence of investment opportunities is not sufficient. Individuals must also be able to access suitable products, understand the risks, compare costs, and participate in financial markets through trustworthy intermediaries.

Its approach can be understood through several connected policy areas.

9.1 Retail Investment and Savings and Investment Accounts

The Commission has promoted the development of savings and investment accounts as a means of making participation in capital markets more accessible to individuals.

These accounts are intended to provide a relatively simple route through which individuals can invest in financial products using authorised financial services providers. The policy approach includes consideration of tax incentives, administrative simplicity, digital access, and consumer protection.

The Commission’s blueprint is not a uniform EU investment account that automatically replaces national savings arrangements. Taxation remains substantially within national competence, and the practical design of such accounts depends on national implementation and market conditions.

The objective is to make investment more accessible without encouraging individuals to take risks they do not understand or cannot afford.

9.2 Financial Literacy

Financial literacy is a significant component of the SIU strategy.

Many individuals have limited knowledge of financial instruments, investment costs, diversification, inflation, and the relationship between risk and potential return. This can discourage participation in capital markets or expose inexperienced investors to inappropriate products.

In September 2025, the Commission presented an EU financial literacy strategy intended to improve citizens’ ability to make informed financial decisions. In July 2026, it launched further initiatives to identify effective financial education practices and develop a voluntary code of conduct for organisations promoting financial literacy.

Financial education is not a substitute for legal investor protection. Rather, it complements the regulatory framework by helping individuals understand the information and safeguards that the law requires financial firms to provide.

9.3 Institutional Investors and Long-Term Capital

Pension funds, insurers, and other institutional investors can provide significant sources of long-term financing.

However, prudential requirements, investment restrictions, market fragmentation, and differences in national pension structures can influence their ability to invest across borders.

The SIU seeks to encourage greater institutional participation in productive investment, including infrastructure, innovation, and equity financing. The challenge is to achieve this without weakening the prudential standards designed to protect policyholders, pension beneficiaries, and the financial system.

9.4 Cross-Border Asset Management

The integration of investment funds is another priority.

Asset managers operating in several Member States may face different administrative procedures, regulatory interpretations, and operational requirements. These differences can make cross-border activity more expensive, particularly for smaller managers.

The Market Integration and Supervision Package addresses certain barriers affecting asset managers and proposes measures intended to simplify cross-border operations.

One proposed development is a depositary passport, which would allow certain funds to appoint a depositary in another Member State rather than requiring the depositary to be established in the same state as the fund. Under the Council’s October 2026 negotiating position, participation in this regime would remain optional for Member States.

9.5 Securitisation and Business Financing

The SIU also seeks to revive the securitisation market as a means of expanding financing capacity.

A properly structured securitisation can allow banks to transfer or redistribute certain exposures and potentially release capital for further lending. This may support financing for households, small and medium-sized enterprises, and infrastructure projects.

The challenge is to encourage market activity without recreating the weaknesses associated with opaque and excessively complex financial products.

9.6 Digital Market Infrastructure

Digital technologies may improve the efficiency of securities trading, ownership records, settlement, and financial asset management.

The EU has already established a distributed ledger technology (DLT) pilot regime through Regulation (EU) 2022/858. It provides a controlled framework for certain market infrastructures using distributed ledger technology to trade and settle financial instruments.

The regime allows eligible operators to test innovative arrangements subject to specified conditions and regulatory oversight. It is not a general exemption from financial services legislation.

The Council’s October 2026 negotiating position on the Market Integration and Supervision Package envisages improvements to the pilot regime, including broader opportunities for market participants to experiment with DLT-based infrastructure.

The wider regulatory challenge is to accommodate innovation while maintaining legal certainty regarding ownership, settlement finality, custody, operational resilience, and investor rights.

10. Cross-Border Investment and the Remaining National Barriers

The existence of harmonised EU financial legislation does not mean that all obstacles to cross-border investment have disappeared.

Some barriers arise from differences in national tax systems. Investors may face different withholding tax procedures, documentation requirements, or refund mechanisms when receiving income from securities issued in another Member State.

Other barriers concern company law and shareholder rights. National rules governing corporate governance, voting, disclosure, and shareholder engagement can affect the attractiveness of cross-border investment.

Insolvency law is another important area. Investors need to assess what happens if an issuer or borrower becomes insolvent. Differences in creditor priorities, avoidance rules, enforcement procedures, and restructuring mechanisms can influence the expected recovery and therefore the price of financial instruments.

The EU has taken steps to address some of these problems. On 30 March 2026, the Council gave final approval to legislation harmonising certain aspects of insolvency law. The measures concern areas including avoidance actions, asset tracing, pre-pack proceedings, directors’ duties, creditors’ committees, and transparency of national insolvency systems.

Member States have two years and nine months to transpose the directive. It does not create a fully uniform European insolvency code, but it seeks to reduce selected differences that create uncertainty for cross-border investors. Council of the EU: Common Rules for Insolvency Proceedings.

Differences in national pension systems and the availability of long-term savings products also affect the supply of investment capital. Some Member States have substantial funded pension markets, while others rely more heavily on public pension systems and bank deposits.

The Capital Markets Union cannot resolve all these differences through securities legislation alone. It requires a broader combination of financial regulation, national legal reform, tax cooperation, market infrastructure, and political agreement.

11. The Relationship Between the Capital Markets Union, Banking Union, and Economic and Monetary Union

The Capital Markets Union is closely connected with the Banking Union and Economic and Monetary Union, but each has a distinct legal and institutional purpose.

The Economic and Monetary Union establishes the framework for economic policy coordination and the common monetary policy of euro-area Member States. The European Central Bank and the Eurosystem are central to the monetary dimension.

The Banking Union addresses the supervision and resolution of participating banks. Its principal mechanisms are the Single Supervisory Mechanism and the Single Resolution Mechanism, supported by the applicable deposit guarantee framework.

The Capital Markets Union concerns the broader financing system beyond bank lending. It seeks to strengthen securities markets, investment funds, venture capital, private investment, and the infrastructure through which capital is raised and allocated.

These initiatives are complementary. A resilient banking sector remains essential to the European economy, but businesses should not depend exclusively on banks for financing. Equally, capital markets cannot replace the banking system, which provides payment services, credit, liquidity, and other essential financial functions.

A more integrated financial system requires banks and capital markets to operate within a coherent regulatory environment. The objective is not to favour one financing model over another, but to increase the diversity and resilience of funding sources.

12. Financial Stability and the Risks of Deeper Integration

Capital market integration offers economic advantages, but it also creates regulatory challenges.

As markets become more interconnected, financial difficulties in one jurisdiction can spread more rapidly to institutions and investors elsewhere. A disruption involving a major clearing house, investment fund, or trading platform may have consequences beyond the Member State in which the entity is established.

Market concentration can also create systemic risks. If a small number of large financial infrastructure providers become essential to cross-border transactions, their operational failure could affect a substantial part of the European financial system.

Another concern is regulatory arbitrage. Where national authorities apply common rules differently, financial firms may seek to establish operations in jurisdictions perceived to have more favourable supervisory practices.

The transfer of certain supervisory responsibilities to ESMA is partly intended to address this problem. However, stronger central supervision must be accompanied by adequate resources, transparent decision-making, accountability, and effective judicial review.

Financial innovation presents further challenges. Digital assets, algorithmic trading, artificial intelligence, and distributed ledger technology may improve market efficiency, but they can also introduce new forms of operational, cyber, liquidity, and conduct risk.

The Capital Markets Union must therefore be evaluated not only by the volume of investment it generates, but also by the quality and resilience of the markets it creates.

13. Judicial Review, Enforcement, and Legal Accountability

EU financial services regulation is subject to the general principles of EU law, including legality, proportionality, legal certainty, equal treatment, and effective judicial protection.

Regulatory decisions taken by national competent authorities are generally subject to the relevant national administrative and judicial review procedures, which must comply with applicable EU law.

Decisions of EU institutions and bodies, including ESMA where it exercises powers capable of producing legal effects, may be subject to judicial review under the Treaty framework.

Article 263 TFEU provides for actions seeking the annulment of acts of EU institutions, bodies, offices, and agencies intended to produce legal effects. The admissibility of proceedings brought by private applicants depends on the standing requirements established by the Treaty and interpreted by the Court of Justice.

Article 267 TFEU allows national courts to refer questions concerning the interpretation or validity of EU law to the Court of Justice. This mechanism is particularly important where disputes concern the interpretation of financial services legislation or the compatibility of national supervisory action with EU law.

The European Securities and Markets Authority also operates within a framework of institutional accountability. Its actions are constrained by its founding regulation, the relevant sector-specific legislation, procedural safeguards, and the possibility of judicial review.

Enforcement may involve administrative measures and sanctions, including fines, withdrawal or suspension of authorisations, orders to remedy infringements, and other measures provided for by the applicable legislation.

The precise enforcement powers differ between instruments and supervisory authorities. It would therefore be inaccurate to assume that every financial services infringement is subject to one uniform EU sanctioning regime.

14. Practical Examples

Example 1: A company seeking investors in several Member States

A technology company established in one Member State wishes to raise capital by issuing shares to investors throughout the Union.

The Prospectus Regulation determines whether a prospectus is required and establishes the relevant disclosure framework. MiFID II and MiFIR govern the activities of investment firms and trading venues involved in the transaction. Market abuse rules apply to relevant conduct and information disclosure.

The Capital Markets Union seeks to make this process more accessible by reducing unnecessary differences between national markets and improving the ability of investors to participate in cross-border offerings.

Example 2: An individual investing through a foreign investment fund

A retail investor wishes to invest in a UCITS fund established in another Member State.

The UCITS framework provides a harmonised regulatory structure and a passporting mechanism for qualifying funds. The fund and its manager remain subject to applicable regulatory requirements, including disclosure and investor protection obligations.

The investor should still consider the fund’s investment strategy, costs, risks, and suitability for their financial circumstances. Cross-border distribution does not make an investment risk-free.

Example 3: A bank securitising a portfolio of loans

A bank holds a portfolio of loans and wishes to use securitisation to obtain funding or redistribute credit risk.

The Securitisation Regulation establishes requirements concerning transparency, due diligence, risk retention, and, where relevant, STS classification. Prudential rules also affect the treatment of the transaction.

The purpose of the framework is to permit responsible use of securitisation while reducing the likelihood that opaque or excessively risky structures undermine financial stability.

Example 4: A trading platform operating across the Union

A financial market operator seeks to provide trading services in several Member States.

MiFID II and MiFIR establish the relevant regulatory framework, while national competent authorities and ESMA exercise supervisory responsibilities according to the applicable allocation of powers.

The proposed Market Integration and Supervision Package seeks to make the supervision of certain significant cross-border market operators more consistent at EU level. Until the legislative process is completed and the relevant provisions apply, existing supervisory responsibilities continue to govern.

15. Key Takeaways

1. The Capital Markets Union is the EU’s long-term project to create a more integrated single market for capital and improve cross-border investment and business financing.
2. Its legal foundations include Articles 26, 49, 56, 63–66, and 114 TFEU, together with a broad body of financial services legislation.
3. The Savings and Investments Union, introduced in March 2025, is a broader policy framework that builds on the Capital Markets Union and places greater emphasis on connecting household savings with productive investment.
4. MiFID II and MiFIR regulate investment services, trading venues, market transparency, and investor protection.
5. The Prospectus Regulation establishes harmonised disclosure requirements for relevant public securities offerings and admissions to trading.
6. The Market Abuse Regulation prohibits insider dealing, unlawful disclosure of inside information, and market manipulation.
7. EMIR and CSDR regulate essential post-trading infrastructure, including derivatives clearing, central counterparties, securities depositories, and settlement.
8. UCITS and AIFMD establish important regulatory frameworks for investment funds and their managers.
9. ESMA promotes supervisory convergence and exercises direct supervisory powers in specified areas, while national authorities continue to perform many supervisory functions.
10. The Market Integration and Supervision Package remains subject to the EU legislative process. The Council agreed key elements of its negotiating position in October 2026, but this should not be treated as a completed transfer of supervisory responsibilities.
11. National differences in taxation, insolvency, company law, and financial market structures remain significant obstacles to integration.
12. The Capital Markets Union must balance market efficiency and access to finance with investor protection, transparency, financial stability, and effective supervision.

16. Frequently Asked Questions

1. What is the EU Capital Markets Union?

The Capital Markets Union is an EU initiative intended to create a more integrated market for capital. It seeks to make it easier for businesses to obtain financing from investors across the Union and to give individuals and institutions wider access to investment opportunities.

2. Is the Capital Markets Union a single financial institution?

No. It is not a bank, regulator, fund, or central financial institution. It is a programme of legislative and policy reforms supported by a broad framework of EU financial services law.

3. What is the difference between the Capital Markets Union and the Savings and Investments Union?

The Capital Markets Union focuses on integrating capital markets and removing barriers to cross-border investment. The Savings and Investments Union, introduced in 2025, builds on that project and includes a broader strategy for connecting savings with investment, improving financial literacy, encouraging retail participation, and mobilising institutional capital.

4. Does the Capital Markets Union replace the Banking Union?

No. The two initiatives have different purposes. The Banking Union concerns the supervision and resolution of participating banks, while the Capital Markets Union focuses on securities markets, investment funds, market infrastructure, and alternative sources of business financing.

5. What is ESMA’s role in the Capital Markets Union?

ESMA promotes consistent application of EU securities legislation, develops technical standards, coordinates national supervisors, monitors financial markets, and exercises direct supervisory responsibilities in specified areas. Its role is intended to reduce fragmentation and strengthen investor protection.

6. What is MiFID II?

MiFID II is Directive 2014/65/EU. It regulates investment firms, investment services, trading venues, and conduct of business. It contains important requirements concerning authorisation, client classification, suitability, appropriateness, best execution, and conflicts of interest.

7. Does EU financial regulation guarantee that investors will not lose money?

No. Financial regulation seeks to protect investors against misconduct, misleading information, market abuse, and certain operational risks. It does not eliminate market risk or guarantee investment returns.

8. Can a company established in one Member State raise capital in another?

Yes. EU law facilitates cross-border investment and securities offerings through harmonised rules and passporting mechanisms. However, the applicable requirements depend on the instrument, the type of offering, the market concerned, and the relevant exemptions.

9. Why does insolvency law matter to capital market integration?

Investors need to understand what happens when a company or financial institution becomes insolvent. Differences in national insolvency rules affect creditor priorities, enforcement, restructuring, and the likely recovery of invested funds. Greater legal predictability can therefore encourage cross-border investment.

10. What is the Market Integration and Supervision Package?

It is a legislative package proposed by the Commission in December 2025 as a central part of the Savings and Investments Union. It seeks to reduce barriers in trading, post-trading, asset management, and financial supervision. The Council agreed key elements of its negotiating position in October 2026, but the package remains subject to the legislative process.

17. Conclusion

The Capital Markets Union represents one of the most ambitious unfinished projects of European economic integration. The free movement of capital is already a fundamental Treaty freedom, and the Union has developed an extensive regulatory framework governing securities, investment firms, trading venues, market infrastructure, and investment funds. Yet legal freedom alone cannot create a fully integrated market.

The remaining obstacles are structural. National differences in insolvency procedures, taxation, corporate governance, supervisory practice, pension systems, and market infrastructure continue to influence where capital is invested and how businesses obtain financing.

The Savings and Investments Union attempts to address these problems through a wider strategy that connects market integration with the financial interests of individuals, institutional investors, and European businesses. Its success will depend not only on legislative reform but also on the willingness of Member States to reduce national barriers and on the capacity of European institutions to supervise increasingly interconnected markets effectively.

The central legal and economic challenge is to create a market that is genuinely European without sacrificing the safeguards that make financial activity trustworthy. Deeper integration must not mean weaker investor protection, excessive concentration, or the removal of national accountability. It must mean that capital can move more efficiently within a framework of common standards, effective supervision, and predictable legal consequences.

The ultimate measure of the Capital Markets Union will therefore not be the number of legislative acts adopted or the volume of securities traded. It will be whether European savings can finance productive investment more effectively, whether businesses can obtain capital on fairer terms, and whether individuals can participate in financial markets with meaningful information and adequate legal protection.

18. Primary Legal Sources and Further Reading

Treaty provisions

• Treaty on European Union, Article 3
• TFEU, Article 26 – The Internal Market
• TFEU, Article 49 – Freedom of Establishment
• TFEU, Article 56 – Freedom to Provide Services
• TFEU, Articles 63–66 – Free Movement of Capital
• TFEU, Article 114 – Approximation of Laws
• TFEU, Article 267 – Preliminary Rulings

Principal EU legislation

• Directive 2014/65/EU – Markets in Financial Instruments (MiFID II)
• Regulation (EU) No 600/2014 – Markets in Financial Instruments (MiFIR)
• Regulation (EU) 2017/1129 – Prospectus Regulation
• Regulation (EU) No 596/2014 – Market Abuse Regulation
• Regulation (EU) 2017/2402 – Securitisation Regulation
• Regulation (EU) No 648/2012 – European Market Infrastructure Regulation
• Regulation (EU) No 909/2014 – Central Securities Depositories Regulation
• Directive 2009/65/EC – UCITS
• Directive 2011/61/EU – Alternative Investment Fund Managers
• Regulation (EU) No 1286/2014 – PRIIPs
• Regulation (EU) No 1095/2010 – Establishing ESMA
• Regulation (EU) 2022/858 – Distributed Ledger Technology Pilot Regime
• Directive 98/26/EC – Settlement Finality
• Regulation (EU) 2024/2987 – EMIR 3
• Directive (EU) 2024/927 – AIFMD and UCITS Amendments

Institutional materials

• European Commission – What Is the Capital Markets Union?
• European Commission – Capital Markets Union 2020 Action Plan
• European Commission – Savings and Investments Union Strategy
• European Commission – Financial Services Legislation
• European Commission – European System of Financial Supervision
• ESMA – European Securities and Markets Authority
• Council of the European Union – Savings and Investments Union