European Commission publishes Market Integration and Supervision Package

RegCORE Client Alert | Banking Union, Capital Markets Union + Savings and Investment Union

QuickTake

Despite progress under the Capital Markets Union (CMU) – relaunched as the Savings and Investments Union (SIU)See analysis on the SIU Strategy here, updates from PwC Legal’s EU RegCORE on the SIU here and general information on the SIU on PwC’s dedicated hub here.Show Footnote –, European capital markets still face:

• Persistent fragmentation. EU financial markets remain fragmented along national lines. In 2024, the EU's combined stock market capitalisation was approximately 73% of GDP, far below the US figure of 270%, highlighting structural underdevelopment.
• Barriers across the value chain. Divergent national regulations, supervisory practices and infrastructure continue to hamper cross border investment, raise compliance costs, and limit scale and liquidity.

Deeper capital-market integration is vital for EU competitiveness and for financing key EU priorities such as the green and digital transitions, defence, and sustainable growth, underscoring the SIU's strategic importance.

On 4 December 2025, the European Commission released the Market Integration and Supervision Package (MIP)Available here along with the links to the individual publications assessed in this Client Alert.Show Footnote to deepen EU capital-market integration. The package targets barriers to cross-border activity and transfers select supervisory duties from national competent authorities (NCAs) to the European Securities and Markets Authority (ESMA). This move materially expands ESMA's role, giving it a new Executive Board and enhanced enforcement powers.

As explored in this Client Alert the MIP’s proposals, set out over more than 1,000 pages, collectively amount to the most substantial single-market integration move in EU capital markets since the Markets in Financial Instruments Regulation (MiFIR) and Markets in Financial Instruments Directive II ((MiFID II). The package’s reforms will have material consequences for trading venues, post-trade infrastructures, asset managers, depositaries, investment firms/brokers and crypto-asset service providers (CASPs). The expected net effect of the MIP is to reduce operational/legal frictions, lower (cross-border) costs, accelerate market consolidation where commercially rational and provide legal certainty for Distributed Ledger Technology (DLT) and post-trade as well as settlement finality.

Although the proposals could change during the 2026 legislative process, market participants should begin preparing for the reforms, particularly where they intersect with other existing or planned regulations.

Key instruments and objectives

The MIP is comprised of the following documents:

1. Commission Communication (Capital Market Integration and Supervision Strategy): setting out the policy narrative and roadmap for removing cross border frictions, enhancing supervisory convergence and enabling innovation (including DLT).
2. Proposal for a Regulation on measures to strengthen market integration and supervision (the Master Regulation): in the form of a cross-cutting i.e., “horizontal” Regulation that amends multiple sectoral Regulations (including MiFIR, the European Market Infrastructure Regulation (EMIR), the Central Securities Depositories Regulation (CSDR), the Securities Financing Transactions Regulation (SFTR), the Markets in Crypto-Assets Regulation (MiCAR), the DLT Pilot, Benchmarks, the Credit Rating Agencies Regulation (CRA), Securitisation Regulation (itself under review – see standalone Client Alerts on that topic), EU Green Bonds and ESG ratings) and establishes an EU-level supervisory model in targeted areas. Accompanied by detailed annexes (correlation tables, implementation matrices and data/systems arrangements).
3. Proposal for a Directive on measures to strengthen market integration and supervision (the Master Directive): that introduces targeted amendments to the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive, the Alternative Investment Fund Managers Directive (AIFMD) and MiFID II framework to remove residual barriers best addressed in Directives, including more operational fund passports and cleanup of venue provisions left in MiFID II. Accompanied by correlation annexes.
4. Proposal for a Settlement Finality Regulation (SFR): conversion of the Settlement Finality Directive (SFD) into a directly applicable Regulation to harmonise finality protections, conflict of law rules, designation practices and transparency and to ensure full technological neutrality (including tokenised securities and digital money), with consequential alignment to the EU’s Financial Collateral Directive (FCD) framework.
5. Summary Impact Assessment plus the full Impact Assessment: collating the options analysis underpinning the shift towards harmonisation, selective ESMA direct supervision, operational passports and modernised post trade rules, with monitoring indicators and staged application timelines.
6. Commission commissioned studies (barriers to scaling up funds; fragmentation and consolidation in trading/post trading): providing empirical evidence on the costs of legal and supervisory divergence, supporting maximum harmonisation (including the SFR) and streamlined cross border operation.

Building on the goals of the SIU, the MIP's proposals aim to unlock the full potential of the EU’s Single Market for financial services by:

1. Moving key trading-venue requirements from MiFID II to MiFIR and creating a single licence Pan European Market Operator (PEMO), with ESMA supervising significant trading venues and all PEMOs.
2. Strengthening ESMA’s convergence and escalation toolkit across sectors and transferring direct supervision to ESMA in targeted areas (notably all Crypto-Asset Service Providers (CASPs), significant trading venues, elements of central counterparties (CCPs) and central securities depositaries (CSDs) governance and access arbitrations). 
3. Enhancing true passport operability for UCITS/Alternative Investment Funds (AIFs), introducing a streamlined “passporting upon authorisation” concept for funds/Alternative Investment Fund Managers (AIFMs)/UCITS Management Companies (ManCos), curtailing goldplating and tightening NCA discretion and facilitating an EU-wide depositary passport.
4. Converting the SFD into the SFR to achieve maximum harmonisation of finality protections, clarify conflict of law rules, harmonise designation practices and transparency and achieve technological neutrality (including for DLT/tokenised securities and digital money concepts), while articulating a regime for EU participants in third country systems.
5. Updating linked regimes (EMIR, CSDR, SFTR, Regulation (EU) 2019/1156 on the cross-border distribution of collective investment undertakings (CBDR), DLT Pilot Regime, MiCAR, CRA, Benchmarks, Securitisation Regulation, EU Green Bonds, ESG ratings) to reduce overlap, remove burdens and modernise for innovation.
6. Emphasising interconnection (including broader, more consistent use of TARGET2-Securities (T2S) for settlement where applicable), open access and group synergies (clarifying intragroup resource allocation is not “outsourcing” under MiFIR).

Next steps

The MIP's proposals are expected to ease cross-border fundraising, improve liquidity, lower compliance burdens, and enhance investor protection, ultimately creating a more attractive EU financial ecosystem.

Communication: Capital Market Integration and Supervision Strategy

This communication sets the policy frame, identifying barriers from divergent rules and inefficient cross border activity. It outlines a four-part strategy of integration, efficient supervision, simplification, and innovation, and flags future work on non-bank macroprudential oversight for 2026.

Key takeaways:

• Integration through harmonisation and reduced gold plating across trading, post trading and asset management.
• Operational passporting (not just formal rights), new PEMO status and better interconnection (T2S, open access).
• ESMA upgrade: convergence tools, binding mediation on own initiative and selective direct supervision.
• DLT enablement via both changes to the DLT Pilot and to core frameworks.

Proposal for a Regulation (the Master Regulation)

The Master Regulation is the operational engine of the MIP. Its proposals would amend an extensive list of existing EU Regulations (ESMA Regulation, EMIR, MiFIR, CSDR, SFTR, CBDR, the CCP Recovery and Resolution Regulation (CCP R&R), DLT Pilot Regime, MiCAR, CRA, Benchmarks Regulation, Securitisation Regulation (itself currently subject to review, the EU Green Bond Standard (EU GBS), ESG Ratings).

The Annexes to the Master Regulation provide correlation tables, detailed amendments, infringement/timeline matrices, fee/turnover concepts for cross cutting supervision and data/digital implementation elements (e.g. “collect once/use many” via ESMA central databases). These Annexes are likely to be very useful for compliance teams to map changes to internal controls. 

The Master Regulation’s core structural changes, key implications by sector and next steps:

The Master Regulation, if passed, would constitute the most consequential consolidation of EU capital markets supervision and market plumbing since MiFID II/EMIR/CSDR were first enacted. Firms should treat it as both a supervisory migration programme (to ESMA) and a strategic market structure opportunity (PEMO, open access, DLT). Early mobilisation – combining legal, compliance, technology and business change – is advisable to capture benefits and minimise transition risk. The impact will depend both on what is changing and for whom. This can be summarised as follows: 

ESMA: mandate, governance, funding and powers

The Master Regulation significantly reinforces ESMA’s role in the following areas:

Direct supervision of:

• “Significant” CCPs and CSDs (with colleges rationalised).
• “Significant” trading venues and all trading venues operated by a PEMO.
• All CASPs under MiCAR (save that credit institutions remain under banking supervision unless crypto services become their main activity).

A single horizontal supervisory procedure and enforcement toolbox: across sectors (on site inspections, information powers, fines/penalties, public disclosures), replacing duplicative sectoral processes.

Governance: new Executive Board of full time independent members; clarified roles vis à vis the Board of Supervisors.

Funding: harmonised fee principles for entities under ESMA’s direct supervision; EU and Member State contributions for non fee funded functions.

New supervisory convergence and “no action letter” capacities: to deal with regulatory gaps and exceptional market conditions.

Practical takeaway: Firms moving under ESMA direct supervision should anticipate centralised portals, harmonised procedures, and consolidated data requests, replacing multiple NCA interfaces.

Trading and market structure (MiFIR changes)

A new Title in MiFIR moves and harmonises trading venue authorisation and ongoing requirements from MiFID II into a directly applicable Regulation, reducing national gold plating.

Creation of the PEMO (Pan European Market Operator) status:

• One ESMA authorisation to operate multiple venues across Member States.
• Host Member States must permit operation via services or a branch without additional venue-level authorisations.
• For non-harmonised areas (e.g., tax), the applicable law remains that of the Member State where each venue is deemed situated.

ESMA gains direct supervision of significant trading venues and all PEMOs. National 'surveillance authorities' (which may not be the NCA) retain local oversight for market abuse and orderly trading. For example, in Germany, BaFin is the NCA, but each federal state has its own stock exchange surveillance authority.

Open access reforms:

• Streamlined, time bound CCP/venue access with ESMA arbitration of disputes.
• “Preferred clearing” practices are prohibited where interoperable CCPs are available.

Transparency/market data:

• Enhancements to the consolidated tape, including best bid/offer venue identity and depth of book for shares/ETFs.
• Systematic internalisers (SIs) must update quotes when executing retail orders at price improvement.
• Additional order data can be requested (via national surveillance authorities and ESMA).

Group synergies and outsourcing:

• Intra group resource/function allocation is expressly not “outsourcing” for venue compliance purposes and location within the EU is not a compliance factor, easing cross border operating models.

Post trade – EMIR and CSDR

EMIR:

• ESMA empowered to determine/signpost “significant” CCPs and to supervise them directly, including penalties and an updated infringement annex.
• Simplified college structures for non significant CCPs with ESMA chairing.
• ESMA to arbitrate open access and interoperability approvals.

CSDR modernisation:

• Definitions and constructs adapted to enable DLT for core CSD services (book entry, accounts).
• A fuller integration of cross border links and hubs; clearer, time bound procedures for CSD links and access.
• Comprehensive infringement lists for “significant” CSDs.
• Wider use of T2S is encouraged to cut costs and improve cross border settlement.
• Settlement discipline and efficiency obligations are tightened with reporting to central databases.

Digital assets and innovation – DLT Pilot Regime and MiCAR

DLT Pilot Regime:

• Scope and scale expanded materially; aggregate cap raised to EUR 100bn with asset-specific caps removed.
• CASPs authorised to operate DLT trading venues and trading/settlement systems (subject to the trading/post trading rulebook with proportionate exemptions).
• A simplified regime for smaller DLT infrastructures recording up to EUR 10bn in DLT financial instruments (more principles based, proportionate CSDR overlay).
• Time limits on pilot permissions removed to address durability concerns.
• Strong push for interoperability standards across DLT infrastructures; ESMA to advise on technical measures.

MiCAR amendments:

• ESMA becomes the direct supervisor of CASPs, with a full set of supervisory powers, sanctions and a central register.
• Transitional arrangements for ongoing applications and file transfers from NCAs.
• Arrangements for entities also subject to other EU financial regimes; banking supervision remains for credit institutions unless crypto services are the main activity.

Funds and cross border distribution

• CBDR updates and migration of some UCITS/AIFMD marketing provisions into CBDR to reduce divergence and present a single rule set for cross border marketing.
• ESMA’s role strengthened to resolve home host disputes and cross border barriers.  Increased standardisation of forms, notifications and marketing communications content expectations.

Central data architecture and reporting

ESMA will operate central databases and digital supervisory platforms covering:

• Authorisations, notifications, supervisory requests and responses for PEMOs, significant trading venues, CCPs, CSDs and CASPs.
• Settlement, link authorisations, interoperability and settlement efficiency metrics (CSDR).
• CASP authorisations, market abuse surveillance and cross border notifications (MiCAR).
• The "collect once, share many times” principle will be embedded through harmonised templates and secure portals.

Timelines and transition considerations in relation to the above

• Most ESMA powers and new horizontal procedures will apply 12 months after the Regulation enters into force.
• Supervision of significant trading venues, PEMOs, CSDs, and CCPs will transfer to ESMA 24 months after the Regulation enters into force.
• The transition for CASP supervision includes managing file transfers and applications already in progress.
• Consolidated tape changes for shares/ETFs align with the first five-year Consolidated Tape Provider (CTP) period ending; other MiFIR changes phase in at 12–24 months.

Key implications by sector

a) Trading venues, market operators, brokers and investment firms

A new uniform framework will govern authorisation and compliance, which will move into MiFIR and limit national variations.

If operating multiple venues cross border, PEMO offers a powerful single licence route with ESMA as supervisor; firms should assess:

• the case for centralising venue operations under a PEMO license;
• how to designate a venue’s “situated” Member State for non harmonised rules; and
• the interface with national surveillance authorities for market abuse/orderly trading oversight.

Intra group synergies explicitly facilitated (intra group not treated as outsourcing), supporting operational consolidation and shared services.

Market structure:

• Open access timelines and criteria become tighter, with ESMA arbitrating disputes and a ban on “preferred clearing” where CCP interoperability exists—this may alter clearing/venue commercial arrangements and fee structures.
• Enhanced retail quote obligations for SIs and a richer consolidated tape will change best execution policies, market data usage and client disclosures.

Data and reporting:

Firms must prepare for filings via ESMA central database, using harmonised templates, and for potential order level data requests from surveillance authorities.

Suggested action points:

• Assess if venues meet "significant" criteria and evaluate the feasibility of a PEMO structure.
• Review intragroup support models to capitalise on the new outsourcing flexibility.
• Update best execution policies, retail pricing, and disclosures to align with new consolidated tape and SI quote requirements.
• Review clearing access agreements and interoperability strategies.

b) CCPs

• Potential re designation as “significant” CCP leads to direct ESMA supervision, an EU level penalty regime and monthly reporting via ESMA systems.
• Supervisory colleges will be streamlined and processes centralised, with ESMA directly handling open access and interoperability approvals.
• CCPs should expect more consistent stress tests, greater margin model transparency and stricter disclosure obligations.

Suggested action points:

• Conduct a gap analysis of governance, risk, and transparency measures against the new infringement lists.
• Prepare monthly reporting packs and integrate systems with ESMA’s central platform.
• Update interoperability and access processes to reflect new timelines and ESMA’s arbitration role.

CSDs

• “Significant” CSDs will be supervised by ESMA under expanded infringement schedules covering governance, segregation, settlement discipline, links and access.
• The rules introduce technical neutrality, enabling DLT for reconciliation and DLT account keeping is possible within an ESMA-assessed and authorised settlement schemes.
• The Master Regulation strengthens obligations for CSDs to link to hubs, permit DVP, align finality points, and improve settlement efficiency via structured reporting.

Suggested action points:

• Assess DLT readiness, including account models and potential participation in ESMA assessed settlement schemes.
• Review cross border link frameworks and hub participation against the new mandatory bilateral link construct and associated authorisations/notifications.
• Align settlement discipline monitoring and reporting with ESMA templates.

Asset managers and funds (UCITS/AIFs)

• The cross border marketing regime will be consolidated under the CBDR, with ESMA empowered to resolve disputes between home and host regulators.
• Marketing communications rules are becoming centralised and clearer, meaning more uniform templates and fewer national checks.

Suggested action points:

• Standardise EU cross border marketing packs, disclosures, hyperlinks and investor rights summaries to align with CBDR templates.
• Ensure fee and charge transparency in marketing materials aligns with the Key Information Document (KID) and prospectus.
• Crypto asset service providers (CASPs)
  
  ESMA becomes the single EU supervisor for CASPs, including market abuse surveillance, with comprehensive infringement lists and sanctions.
• Entities authorised under other EU regimes that primarily conduct crypto services will be re scoped to ESMA for those activities; credit institutions are carved out unless crypto becomes their main activity.
• CASPs can operate DLT market infrastructures under the expanded DLT Pilot but must meet trading and post trading rules, with proportionate exemptions

Suggested action points:

• Prepare for ESMA authorisation, central register entries and file transfers from NCAs; review governance, outsourcing, wind down, custody and market abuse controls against the new lists.
• Banks and broker dealers must determine if crypto services constitute their “main activity” and plan for a potential supervisory handover to ESMA.

DLT and tokenisation programmes

• The DLT Pilot Regime is expanding significantly: the aggregate cap will rise to €100bn, asset specific caps will be removed, and a simplified regime for small operators will be introduced, with CASPs eligible to participate.
• The CSDR and DLT Pilot Regime now jointly enable DLT account keepers within authorised settlement schemes, with the industry tasked to develop interoperability standards under ESMA's watch.

Suggested action points:

• Re-evaluate business cases for tokenised issuance and trading in light of the expanded DLT Pilot Regime and CSDR changes.
• Engage in industry technical standard setting for DLT interoperability and prepare internal controls for ESMA exemption and opinion processes.

Compliance planning and timelines set out in the Master Regulation

ESMA governance/funding and most sectoral supervisory alignments apply 12 months after entry into force, with:

• Trading venues: Transfer to ESMA no earlier than 24 months after entry into force, with per venue transition plans and a one year window from ESMA’s significance notification.
• CCPs: Significance assessments begin upon entry into force, with ESMA supervision applying after 12 months, subject to aligned transitional provisions.
• CSDs: Significance assessments begin upon entry into force, with ESMA supervision applying 24 months after entry into force.
• CASPs: A transitional regime will manage the transfer of files and in flight authorisations to ESMA.

Other changes: Amendments to the DLT Pilot Regime, CBDR and MiFIR venue rules will phase in over a 12–24 month cadence, with some synchronisation to consolidated tape milestones.

Firms with multiple roles (e.g., exchange groups with CCP, CS,and a CASP affiliates) should map these staggered effective dates to their change programmes.

Key risk and compliance themes

• Supervisory intensity: Expect more frequent EU level inspections, stronger data driven monitoring and explicit infringement catalogues for CCPs and CSDs.
• Operational resilience: alignment with the EU Regulation known as the Digital Operational Resilience Act (DORA) in post-trade settings; business continuity and ICT requirements are embedded in infringement lists.
• Market integrity: A clearer split of duties emerges between ESMA (venue supervision) and national market surveillance authorities. Firms should monitor the interfaces for incident handling and trading suspensions.
• Access and competition: stricter discipline on open access/interoperability; new constraints on venue practices that inhibit interoperable clearing.
• Fees: harmonised ESMA fee principles will change cost allocation for entities under ESMA supervision; budget accordingly.

Immediate action points some regulated firms may wish to consider

Governance and supervision readiness

• Determine if an entity qualifies as “significant” (venue, CCP, CSD) and assess the benefits of PEMO status.
• Develop an ESMA engagement plan covering data readiness, inspection protocols, fee budgeting, and executive briefings.

Legal and structuring

• Trading venue groups: Assess the business case for a PEMO structure and the opportunities from new intragroup resource rules.
• CCPs and CSDs: plan for authorisation updates, link/hub applications, and disclosure upgrades through ESMA databases.
• Asset managers: Align cross border marketing with new CBDR constraints and documentation standards.

Technology and data

• Mobilise IT to connect to ESMA central platforms and adapt to standardised templates.
• DLT initiatives: Reassess tokenisation scale and operating models under the expanded Pilot, including e money token settlement.

Policies and procedures

• Update market access and interoperability procedures. SIs must adjust quote management for retail price improvement.
• Refresh operational resilience, default management and transparency policies consistent with new infringement standards and DORA alignment.

Roadmaps and stakeholder management

• Sequence change across the 12–24 month horizon; coordinate with NCAs on transition plans and with ESMA on early guidance.
• Engage with trading/clearing clients, distributors and service providers on the practical impact of interoperability, settlement options and marketing rule changes.

What to watch next

• The co legislators’ process (possible refinements to ESMA scope, PEMO criteria, significance thresholds and DLT exemptions).
• ESMA technical standards, guidelines and operational notices (notably for databases, templates and simplified DLT regime).
• National adjustments to surveillance frameworks and any residual domestic constraints in non harmonised areas (e.g., tax).
• The consolidated tape build out timeline and provider implementation.

Next steps

Taken together, the MIP but certainly the Master Regulation marks a decisive migration of supervisory gravity to the EU level, accompanied by a clearer, technology neutral Single Rulebook and materially streamlined cross border mechanics.

For regulated firms, the opportunity is to leverage scale – via PEMO structures, interoperable clearing, simplified CSD links and harmonised fund distribution – while rationalising duplicative national overlays and embedding ESMA ready data, governance and controls. The corresponding trade off is a step up in supervisory intensity, granularity of reporting and operational resilience expectations, particularly for entities designated as significant or operating across trading, clearing, settlement and digital finance perimeters.

Firms that front load readiness – mapping significance, re engineering group operating models, aligning to ESMA’s central platforms and recalibrating tokenisation strategies under the broadened DLT Pilot Regime – will be best placed to convert regulatory change into strategic advantage as the SIU agenda takes effect over the next 12–24 months.

Proposal for a Directive (the Master Directive)

The Master Directive would amend the EU’s existing UCITS, AIFMD and MiFID II Directives to remove residual barriers best handled at Level 1 where Directives remain necessary. It targets four themes: (i) removing cross border frictions in asset management and trading; (ii) acknowledging group synergies; (iii) strengthening ESMA’s convergence and intervention toolkit; and (iv) simplifying/aligning rulebooks by shifting material from directives to directly applicable regulations.

For asset management, the package is significant.  It introduces an EU-wide depositary passport for UCITS and AIFs (limited to credit institutions and investment firms), recognises intra-EU group resource sharing (no longer treated as “delegation”), compresses timelines and removes additional local “goldplating” for management passporting, harmonises authorisations via RTS/ITS and migrates cross-border marketing rules into the existing Distribution Regulation to harden harmonisation. For UCITS, it also removes the UCITS Key Investor Information Document (KIID) obligation (on the basis that the Packaged Retail and Insurance-based Investment Products (PRIIPs) KID already applies) and modestly recalibrates investment limits (including for qualifying securitisations and index-referenced strategies recognised by ESMA).

For trading venues/investment firms, the proposal advances the shift of trading venue operational provisions out of MiFID II into MiFIR (continuing the “regulation over directive” philosophy), deletes duplicative “open access” provisions in MiFID II and clarifies cross border mechanics. Commodity derivatives position limit/reporting provisions are streamlined. The supervisory roles of ESMA vis à vis venues are further aligned with parallel MiFIR reforms.

A powerful, practical change is the creation of an ESMA led, recurring review framework for the largest cross border asset management groups (≥ EUR 300bn AUM and multi Member State footprint), enabling ESMA to detect and correct divergent/duplicative/deficient supervisory approaches and, if required, to escalate to binding tools and even suspend cross border activity in defined circumstances.

Transposition is expected 18 months after the Directive enters into force. Although the proposal may evolve, firms should begin planning for significant changes to their operating models and supervisory engagement.

Scope of the Master Directive and who is affected

• UCITS management companies, UCITS investment companies and AIFMs, especially groups operating across multiple Member States or using white label/initiator models.
• Depositaries of UCITS/AIFs (notably banks and investment firms) and asset managers procuring depositary services cross border.
• Trading venues/market operators (regulated markets (RMs), Multilateral Trading Facilities (MTFs), Organised Trading Facilities (OTFs)) and investment firms interacting with venues.
• Cross border distributors and marketing teams (due to consolidation of marketing/cross border rules in Regulation (EU) 2019/1156).
• NCAs and ESMA (due to reinforced convergence and intervention powers).

Key legal and policy changes

Asset management (UCITS/AIFMD)

EU group concept and resource sharing:

• The proposal introduces an explicit EU group definition for management companies/AIFMs including EU investment firms and credit institutions in the group.
• Intra EU group resource sharing (human/technical resources) ceases to be treated as “delegation” if notified and the recipient entity is duly authorised. This materially reduces governance, due diligence and oversight burdens compared with third party delegation, while preserving accountability and “no letter box” constraints.

Authorisations and passporting:

• ESMA to develop Regulatory Technical Standards (RTS) and Implementing Technical Standards (ITS) to harmonise authorisation content, forms, templates, timelines and IT data standards for UCITS/AIFM authorisations and notification formats for cross-border services.  Expect more prescriptive, digitalised filing.
• Shorter home to host transmission timelines and clear prohibition on host Member States imposing additional requirements for management passporting (branch and services).
• Clarified obligations for notifying and assessing material changes pre implementation.

Cross border marketing and host powers:

• Moving UCITS and AIFMD marketing rules into CBDR creates a single, directly applicable rulebook. This change enforces uniformity, reduces national differences, and centralises procedures for notifications, facilities, and host authority powers.

Depositary passport:

• A new EU-wide passport allows UCITS and AIFs to appoint a depositary in any member state. Eligible depositaries must be an EU authorised credit institution or investment firm. The reform aims to boost competition and service quality, especially in smaller markets with few providers.

White label/initiator disclosure:

• For UCITS/AIFs managed at the initiative of a third party, managers must disclose the relationship at authorisation and be able to demonstrate, upon request, conflict identification/management - not an ongoing proactive evidence dump.  This rationalises the 2023 AIFMD II approach.

UCITS product rules and disclosures:

• Removal of the UCITS KIID requirement, in recognition of the PRIIPs KID regime for retail marketing.
• Targeted limits adjustments: higher concentration cap (up to 15%) for qualifying securitisations; extended 20% issuer limit for UCITS managed by reference to an ESMA recognised index; various technical calibrations across Articles 52–57.

ESMA reviews of large groups:

• ESMA will identify large cross border groups (≥ EUR 300bn EU AUM) and conduct at least annual reviews of supervisory approaches across the group, focusing on organisation, governance, resource allocation and risk systems, using existing data.  ESMA can recommend corrective actions to NCAs and escalate (breach of Union law, binding mediation, collaboration platforms) where issues persist.

ESMA cross border intervention:

• ESMA gains an explicit mandate to address divergent/deficient supervisory actions hindering passporting or non compliance in cross border operations, and, if necessary, to suspend a manager’s or depositary’s cross border activities after due process.

Trading and markets (MiFID II adjustments)

Migration to MiFIR and simplification:

• To create a more uniform Single Rulebook, operational and authorisation provisions for trading venues are moving from MiFID II to MiFIR. Duplicative 'open access' rules in MiFID are being removed to reduce national variations.

Cross border clarity and terminology:

• Consequential amendments clarify the interplay of branch/freedom to provide services and re align MiFID II definitions with MiFIR. National notification standards to be specified via ESMA standards.

Commodity derivatives:

• Position limits/reporting are streamlined and clarified, with ESMA empowered to set reporting formats via ITS and to maintain a public database of limits.

ESAP alignment:

• Staged obligations to file certain public information to the European Single Access Point (ESAP) in data extractable formats, with designated collection bodies.

Practical implications for regulated firms

Asset managers and management companies

Operating model:

• Firms can now centralise functions like portfolio management, IT, compliance across their EU group without triggering complex delegation rules. This change supports efficiency and scale, but firms must ensure they do not become 'letterbox' entities and that all entities involved are EU-authorised.
• Expect more standardised authorisation and change-in-control/change-in-business engagements with NCAs via ESMA-specified templates and timelines.

Cross border execution:

• Faster passporting and fewer host additions should shorten time to market. Internal processes should be recalibrated to the new timeframes and evidence standards.
• Marketing and facilities arrangements should be re baselined against the consolidated CBDR rulebook.

Governance and oversight:

• Large asset management groups now face annual ESMA supervisory reviews. They should prepare for coordinated responses involving multiple national regulators and be ready to fix any identified inconsistencies within strict deadlines.

Product manufacturing:

• Update UCITS disclosure suites to remove the legacy KIID and rely on PRIIPs KID. Reassess concentration policies for securitisation positions and index referenced strategies to leverage the added flexibility where appropriate.

Depositaries

Strategy and footprint:

• The EU wide passport enables cross border client acquisition and service provision. Banks and investment firms should evaluate target markets, licensing scope, operational capacity and local law frictions (e.g., insolvency, property law interfaces).
• Expect intensified competition and fee pressure in concentrated smaller markets; conversely, managers gain optionality to consolidate providers at group level.

Supervision and risk:

• Enhanced ESMA escalation tools imply tighter expectations on cross border compliance and responsiveness to supervisory findings.

Trading venues and investment firms

Rulebook migration:

• Compliance, legal and market structure teams should track the MiFIR centric venue rule changes and remove reliance on MiFID II provisions that are being deleted.
• Commodity derivatives desks should update position management/reporting processes to align with the revised scope and ESMA formats.

Cross border services:

• Notification content and process will be increasingly standardised through ESMA RTS/ITS. Firms should plan for data and system updates to meet new templates and IT specifications.

Supervisory architecture and enforcement

ESMA’s role is materially strengthened through:

• Annual reviews of the largest fund groups and the ability to issue recommendations with time bound implementation.
• Clear escalation pathways: breach of Union law proceedings, binding mediation, collaboration platforms and ultimately the ability to suspend cross border activity where justified.

NCAs retain day to day prudential and conduct supervision but with reduced discretion where provisions are moved to regulations or harmonised by RTS/ITS.

The Master Directive’s timelines and transition periods

At present the proposed Master Directive is a Commission proposal. The text will undergo trilogue negotiations and may change. The draft sets:

• Transposition by Member States 18 months after entry into force, with application from the same date.
• ESMA RTS/ITS mandates typically within 12 months post entry into force.
• Staged ESAP obligations with key dates from January 2030 for applicable MiFID items.

Firms should plan for a two to three year implementation horizon, with some dependencies on ESMA standards.

The Master Directive’s key risks and dependencies

• Legislative risk: scope of the depositary passport, ESMA suspension powers and the precise contours of group resource sharing may be amended during co legislation.
• Depositary liability across borders: Expect debates on liability triggers, restitution and loss standards where safekeeping is performed from another Member State; ensure contractual clarity and investor disclosures.
• Index recognition: The pathway and criteria for ESMA “recognised indices” will matter for active/index referenced UCITS; asset managers may need to engage with providers and ESMA.
• Interactions with related files: parallel MiFIR/ESMA supervision reforms, DLT Pilot Regime adjustments and post trade initiatives will influence implementation detail.
• National law frictions: while EU harmonisation increases, company/insolvency/securities law differences may still drive operational complexity for cross border depositaries and fund operations.
• National implementation variances: Despite harmonisation aims, some Member State differences will persist until the Master Regulation is equally fully in force. Firms may want to consider transitional guidance by NCAs.

Recommended next steps for regulated firms

Governance and operating model

• Map current group resource allocations and identify functions that can be consolidated intra EU without triggering delegation rules; refresh “letter box” assessments and board oversight frameworks.
• Establish an ESMA review playbook for large groups: single point of contact, data collation, issue remediation governance and escalation protocols.

Cross border and marketing

• Re baseline passporting and marketing procedures to the timelines and formats envisaged; prepare for the shift to CBDR as the single source for cross border distribution mechanics.
• Update white label/initiator documentation and conflicts frameworks to the new disclosure on request model.

Depositary strategy

• For depositaries: assess licensing scope, capacity and commercial strategy for cross border services.
• For managers: develop a multi jurisdiction depositary sourcing strategy and a playbook for transition and oversight.

Product and disclosure

Plan to retire UCITS KIID artefacts and ensure comprehensive reliance on PRIIPs KID; review investment guidelines to use the recalibrated UCITS limits where beneficial.

Trading/markets

Monitor MiFIR technical changes, adjust internal rule repositories, policies and reporting for venues/participants and ready systems for revised position reporting formats.

Regulatory engagement and horizon scanning

Track ESMA RTS/ITS development and provide input via industry bodies. Maintain dialogue with home and host NCAs regarding anticipated implementation sequencing and supervisory expectations.

Next steps

The Master Directive, alongside the Master Regulation and SFR, marks a significant move toward a more integrated EU capital market. For asset managers and depositaries, it creates efficiencies through group resource sharing and a cross border depositary passport, while giving ESMA more power to resolve disputes and ensure consistent supervision.

For trading venues and investment firms, the changes advance the shift to a uniform, regulation-based market structure. Proactive planning around operating models, cross-border processes, and supervisory engagement will be key to harnessing these reforms.

Proposal for a Settlement Finality Regulation (SFR)

The proposal to replace the Settlement Finality Directive (SFD) with a Settlement Finality Regulation (SFR) aims to create a single, directly applicable rulebook. This will eliminate inconsistent national rules that create legal and operational risks in cross border settlement. The SFR also includes targeted upgrades to the Financial Collateral Directive (FCD).

Key changes under the SFR include harmonised criteria for system designation, a central ESMA database, and clear definitions for settlement finality points: entry, irrevocability, and final settlement. It also creates a coordinated registration process for systems from outside the EU.

The framework is technology-neutral, specifically accommodating DLT systems. ESMA and the EBA will define how technical consensus on a DLT translates into legal finality, including for systems with probabilistic settlement.

Targeted FCD amendments (i) confirm that “cash”, “financial instruments” and “credit claims” issued or recorded on DLT fall within scope; (ii) align the “account” concept with the SFR; and (iii) validate cryptographic instructions/notifications. The reforms materially improves legal certainty, transparency and cross border operability, while imposing disciplined rulebook articulation of finality, clearer admission/accountability standards and tighter digital reporting via the central database. Open issues include national divergences on “possession/control” under the FCD and the practical validation of probabilistic finality.

Detail on the proposed changes

The SFR’s proposed changes to established principles under the SFD and FCD are broad and before delving into the detail can be summarised in the following snapshot:

Topic	Under SFD (current Directive)	Under SFR (final proposal)
Legal form	Fragmented national transpositions	Directly applicable Regulation, harmonised conditions/procedures
Transparency	Uneven publication of system details	ESMA central database; two‑day publication of designation/registration and updates
Finality moments	Largely system/national discretion	System rules must define entry, irrevocability, final settlement; RTS detail for non‑CSD systems/payment systems and DLT mapping
Third‑country access	National extensions, fragmented	Coordinated national registrations tied to "institution" status; ESMA‑published register; five‑year transition
Insolvency	No retroactivity; varying clarity	Clarified opening moment; day‑of‑opening use of funds/margins/DF; immediate notifications via central database
Conflict of laws	Lex loci registri not DLT‑explicit	DLT explicitly included; "location" of a legal entity's register is its registered office; fallback to system law if indeterminate
DLT	Implicit/uncertain scope	Technology‑neutral; explicit DLT coverage; deterministic legal finality required; RTS for probabilistic/layered models
FCD alignment	Potential gaps for DLT assets	DLT‑recorded cash/instruments/credit claims in scope; "account" aligned; cryptographic signing recognised; 18‑month transposition

Scope, legal form and objectives

• The SFR is a Regulation, directly applicable across the EU, replacing fragmented national transpositions. Its core aims are risk reduction via settlement finality, legal certainty across borders and technology neutrality, expressly including DLT based systems and records.
• Systems designated under national law are brought into a harmonised EU framework; protections also extend to EU institutions participating in registered third country systems.

Harmonised designation and a central ESMA database

• Designation remains with the competent authority of the Member State whose law governs the system, but on harmonised conditions and procedures with defined assessment windows and content.
• ESMA must publish, within two working days, a standardised disclosure set covering system identity, governing law, participant list, finality moments, system rules and the authority’s compliance assessment and must operate a central database handling electronic submissions, on chain data access and change notifications.
• ESMA and EBA (in close cooperation with the European System of Central Banks (ESCB)) are empowered to develop regulatory and implementing technical standards to specify application content and uniform electronic formats.

Practical effect: operators need complete, consistently structured designation packs and to maintain current published data; participants gain a reliable single source of truth for due diligence and risk assessments.

Participation, admission and operator accountability

• The list of admissible participants is enumerated and can include entities performing validation/consensus functions essential for settlement integrity.  Member States may, in exceptional systemic risk cases, deem an indirect participant to be a participant; primary responsibility of the direct participant remains intact.
• System operators must set objective, transparent, non discriminatory admission criteria; ensure members have the capacity to meet obligations and mitigate risks; monitor concentration risks where clients access the system via a participant.
• Operators are legally responsible for compliance and must promptly notify material changes via the central database.

Practical effect: review member admission frameworks, client access models and governance lines; ensure operational capacity and reporting align with the Regulation’s accountability standards.

Third country systems: coordinated national registration

• A third country system can be registered in each Member State where a participating EU member is established, provided that member is an “institution” as defined.  Registration decisions are national but coordinated and convergent, with ESMA/EBA/ESCB facilitating and ESMA publishing registrations and updates within two working days.
• Registration conditions include authorisation/supervision in the home jurisdiction, a governing law that upholds settlement finality, clear rulebook moments (entry, irrevocability, final settlement), adequate operator structure/financing and material compliance with global Financial Market Infrastructures (FMI) principles.
• Transitional measures deem existing national extensions under the SFD to be registered for up to five years.

Practical effect: groups with establishments in multiple Member States may require multi track registrations for the same third country system; confirm institutional status and track national registering authorities’ decisions and timelines.

Finality moments and mapping to DLT

System rules must clearly define:

• Entry: when a transfer order enters the system.
• Irrevocability: when the order cannot be revoked by a participant or third party.
• Final settlement: when obligations are discharged unconditionally and irrevocably, consistent with applicable proprietary transfer law.

ESMA/EBA may specify, via regulatory technical standards, the methodology for systems not operated by a CSD and for payment systems, including:

• How ledger events correspond to legal entry/irrevocability.
• How probabilistic/layered models can achieve legal certainty.

DLT based designated systems must implement mechanisms guaranteeing deterministic and legally enforceable finality at the legal level.

Practical effect: rulebooks must precisely pin down the three moments and, for DLT, evidence the mapping from protocol consensus to legal finality; expect RTS detail to shape testing, monitoring and attestation.

Insolvency protections and continued settlement on the day of opening

• Transfer orders and netting (including close out netting) are legally enforceable if entered before the moment of opening of insolvency; day of opening orders are protected if settled that business day and the operator neither knew nor should have known of the opening at irrevocability.
• On the business day of opening, funds and financial instruments on settlement/collateral accounts, including EMIR margins and default fund resources, may be used to discharge obligations; connected credit facilities can be drawn against available collateral.
• The “moment of opening” is the time of the competent authority’s decision; immediate notifications must be made through the central database; no retroactive effects (“zero hour” disapplied).
• In interoperable settings, protections extend to participants and non participant system operators as specified.

Practical effect: update insolvency playbooks to reflect day of opening usage, knowledge tests and notification cadences; align CCP/DF and CSD operations and communications.

Conflict of laws: lex loci registri with DLT explicitness and fallback

• Rights in financial instruments provided as collateral are governed by the law of the Member State where the instrument is legally recorded on a register/account/centralised deposit system, including where recorded on a distributed ledger.
• For a register/account held at a legal entity, the location is the Member State of that entity’s registered office.
• If the location cannot be determined, the law governing the relevant system (or interoperability arrangement) applies; references to a Member State’s law mean its domestic law.

Practical effect: For tokenisation projects, this means clearly defining the legal 'location” of records and documenting the governing law. Where ambiguity exists, system law choices and conflict clauses must be robust.

Governance, cooperation and transition

Member States must appoint designating, registering and insolvency notification competent authorities; ESMA publishes the list and coordinates information sharing. ESMA/EBA/ESCB facilitate convergent registration assessments; ESMA/EBA issue RTS/ITS within one year of entry into force where mandated.

Transitional provisions:

• Existing SFD designations continue for up to five years pending re designation.
• Existing national third country extensions are deemed registered for up to five years.

Review clause: ESMA report at five years; Commission general report at six years.  

Targeted amendments to the Financial Collateral Directive (FCD)

• Scope confirmation: “cash”, “financial instruments” and “credit claims” include those issued or recorded on DLT; Member States may extend “financial instruments” to MiFID instruments negotiable on capital markets.
• “Account” is aligned with the SFR as any record (including decentralised digital records) on which assets are credited/debited or otherwise recorded.
• Instructions/notifications may be electronically signed, including via cryptographic keys; any reference to “account”, “registration” or “register” includes electronic/DLT records.
• Transposition: Member States must implement these specific FCD changes within 18 months of SFR entry into force.

What is not changed: The coal scope of eligible collateral providers and takers remains the same. Crucially, there is no harmonised redefinition of 'possession or control' for security financial collateral, meaning national divergences will persist.

Key implications for regulated firms and FMIs from the SFR and FCD amendments

Banks, investment firms and CCP clearing members

• Expect consistent, published finality data across systems via ESMA’s portal, easing cross border due diligence and onboarding.
• For third country systems, protections now depend on a firm's 'institution' status and registration in the relevant Member State. Firms should map their memberships and plan for multi jurisdiction registrations within the five year transition period.
• Refresh insolvency playbooks to rely on day of opening liquidity/margins/default fund usage subject to knowledge tests; embed central database notifications.
  CSDs, CCPs and other system operators
• Prepare for re designation under harmonised criteria; align rulebooks to clearly state entry/irrevocability/finality; map DLT consensus milestones to legal moments where relevant.
• Establish robust governance and disclosure processes to meet ESMA's two-day publication deadline and maintain a clear audit trail.
• For interoperable links, coordinate finality moments where possible while preserving each system’s independence.

Payment institutions and e money institutions

Where admitted as participants, be ready to demonstrate sufficient capacity and risk controls. Monitor EBA technical standards that will shape payment flow finality, including for instant and DLT-based models.

DLT infrastructures and tokenisation platforms

• Demonstrate deterministic legal finality. Where consensus models are probabilistic, prepare legal and technical analysis showing how RTS criteria for legal certainty are met.
• Ensure a legally accountable operator is identifiable, even where nodes form a consortium, and that records are structured so that legal 'n” is determinable. 
  Collateral, treasury and custody functions
• Update eligibility frameworks to admit DLT recorded assets, subject to refreshed legal opinions on perfection/priority and conflict of laws; operationalise cryptographic instruction flows and reconciliation for digital records.
• Anticipate continued heterogeneity on “possession/control” tests under national law; structure custodial/key arrangements to support control/perfection narratives.

Areas for market participants to watch

• RTS/ITS detail: application content, electronic formats and the mapping of DLT mechanics to legal moments - especially for systems not operated by a CSD and for payment systems - will drive implementation specifics.
• Probabilistic finality: The evidence required to prove legal certainty for layered or probabilistic models will be pivotal for the viability of certain DLT protocols.
• Third country registration practice: while coordinated, registration remains national and institution tied; operational planning should assume parallel processes across Member States.
• Interplay with adjacent regimes: interfaces with CSDR, EMIR, Bank Recovery and Resolution Directive (BRRD)/CCP R&R, the Insolvency Regulation and forthcoming payments legislation (including the new Payment Services Regulation (PSR) framework) will matter for detailed compliance.

Suggested immediate actions for market participants

• Conduct a readiness assessment against the SFR designation/registration requirements, rulebook articulation of finality, admission criteria, operator accountability and change notification processes.
• Inventory all third country system participations, confirm “institution” status, identify required Member State registrations and plan within the five year transition.
• Update collateral policies, documentation (e.g., CSAs, triparty terms, custody mandates) and ops to support DLT recorded assets and cryptographic instructions; commission/refresh legal opinions on conflict of laws and perfection.
• Prepare to engage on ESMA/EBA consultations for RTS/ITS, particularly on finality moments and DLT mapping.
• Align insolvency and resolution runbooks with the clarified opening moment, day of opening resource usage and central database notification workflows.

Next steps

The proposals for a SFR deliver a pragmatic and materially harmonised settlement finality regime with a modern digital backbone and explicit DLT pathways.  Benefits for firms include (i) greater legal certainty, transparency and smoother cross border participation; (ii) costs concentrate in rulebook precision, governance, digital reporting and the legal/technical substantiation of DLT finality; and (iii) collateral operations can move with greater confidence into tokenised assets, though national “possession/control” divergences remain a practical constraint to manage and also subject to EU Member State variation due to national legislative frameworks notably when it comes to property law, which is beyond the EU’s (current) legislative mandate. It remains to be seen whether the EU will (if/where it can) adopt a similar policy approach to that taken of the UK and other jurisdictions to improve this area – see separate analysis available from our EU RegCORE on such developments.

The SFR’s five year transition window for re designation/registration should be used to front load the operational changes and to shape the RTS/ITS that will determine much of the day to day application.

Accompanying documents to the MIP

Summary Impact Assessment and full impact Assessment

The European Commission produces two companion “Staff Working Documents” alongside major legislative proposals: an Executive Summary Impact Assessment (the Summary IA) and a Full Impact Assessment (the Full IA). Each serves a distinct function in the legislative process and for market participants assessing the likely trajectory and calibration of new rules.

Summary Impact Assessment: a concise decision aid for co legislators and stakeholders

The Summary IA distils the essentials of the Commission’s analysis into a short, accessible brief. Its purpose is to set out, in a non technical format, the case for action, the policy options considered (including the baseline and discarded options), the preferred option and a high level view of expected impacts, costs and benefits, proportionality and subsidiarity. It frames the initiative in plain terms: the problems being solved (market fragmentation, non aligned supervision, barriers to DLT uptake), the objectives (integration and scale, efficient supervision, facilitation of innovation) and why EU level legislation - rather than national steps - is necessary.

In relation to the proposed Master Regulation, the Master Directive and the SFR, the Summary IA functions as the Commission’s “front page” justification. It shows why the broad review (the so-called Option 2 route) is preferred, how harmonisation and targeted supervisory centralisation interlock and the expected direction of travel for costs, competition and legal certainty. Co legislators and stakeholders use it to grasp quickly what is on the table, what will change in practice and the anticipated balance of costs and benefits without having to navigate the technical annexes.

Full Impact Assessment: the detailed evidence base and legal policy rationale

The Full IA is the comprehensive, technical backbone of the legislative package. It operationalises Better Regulation requirements by providing:

• A detailed problem definition, baseline and intervention logic across trading, post trading, asset management, innovation (DLT Pilot Regime) and supervision, including legal context and market diagnostics.
• The policy options, including those discarded at an early stage, with comparative assessment against effectiveness, efficiency and coherence criteria.
• Quantified and qualitative impacts by stakeholder group (venues, CSDs, asset managers, investors, SMEs), cost-benefit elements, competitiveness and SME checks and administrative burden analysis (including “one in, one out”).
• Legal basis, subsidiarity and proportionality analysis supporting the specific choice of Regulations versus Directives and the conversion of the Settlement Finality Directive into a directly applicable Regulation.
• Consultation evidence, analytical methods and sectoral annexes that translate the horizontal approach into concrete rule changes (e.g., MiFIR/MiFID re partitioning, CSDR/SFR clarifications, CBDR/UCITS/AIFMD distribution reforms, DLT Pilot Regime scope/thresholds, ESMA governance and remit).
• Governance and resourcing implications for ESMA, including indicative staffing, fee funding, IT/data investments and transition phasing, together with monitoring and evaluation indicators and timelines.

In relation to the proposed legislative instruments, the Full IA does four critical things. First, it maps specific measures to the identified problem drivers and demonstrates necessity and suitability at EU level (legal basis and subsidiarity). Second, it justifies instrument choice and scope – what is moved into directly applicable Regulations (to reduce gold plating and improve time to market) versus what remains in Directives. Third, it provides the co legislators with the calibrations and trade offs behind the preferred option, informing negotiations on thresholds, scope of ESMA’s direct supervision, passport mechanics, CSD interconnections and DLT enablement. Fourth, it sets out the monitoring framework that will shape Level 2/3 implementation and subsequent evaluations, anchoring predictability for firms.

What this means for regulated firms

Taken together, the Summary IA signals the policy direction, headline choices and expected net effects; the Full IA provides the technical granularity firms need to plan licensing, operating model, connectivity, reporting and governance changes with reasonable confidence. Firms can read across from the Full IA to the draft legal text to anticipate where harmonisation will lower cross border friction, where ESMA level supervision will raise consistency and data expectations, how post trade interconnections and SFR finality clarifications will change legal and operational risk and how DLTPR adjustments will expand viable tokenisation use cases. The monitoring and evaluation sections also show which metrics the Commission and ESMA will track post adoption – an early indicator of where supervisory attention and future Level 2 calibrations, are likely to focus.

Commission commissioned studies (barriers to scaling-up funds; fragmentation in trading/post trading)

The MIP’s proposals are accompanied by two reports that (unsurprisingly and perhaps too simplisticallyNotably the firms preparing these reports are based outside in the UK and at the EU’s periphery with limited capital markets access and do not include EU financial services regulatory lawyers’ input. The reports thus largely read as an extensive if incomplete literature review on some very well-known and very heavily commented issues even if the procurement process for this report had an allocated budget of EUR 500,000.Show Footnote) converge on the same (pretty well known) diagnosis: Europe’s capital markets remain fragmented by national law, supervisory divergence and procedural “gold plating” and this materially raises complexity and cost. For fund managers, the tightest bottlenecks are on the fundraising side (prudential constraints on LPs and tax uncertainty) and for market infrastructures the choke points are post trade (CSD/CCP access, lack of interoperability and supervisory balkanisation). The policy direction of travel is clear: deeper harmonisation, more supervisory centralisation (a larger role for ESMA) and mandated open access/interoperability across layers of market infrastructure.

Regulated firms should plan now for (i) proportionate reporting reforms under AIFMD/SFDR/DORA being enforced more consistently cross border, (ii) changing prudential treatments for long term equity (particularly under Solvency II), (iii) accelerated post trade integration and resilience standards (including T+1/T+0 preparedness) and (iv) a potential “opt in” enhanced integration perimeter (SECMA) that will create a two speed rulebook for those Member States that join early.

Cross cutting themes and direction of travel

Collectively the MIP proposals have the following cross-cutting themes and resulting implications

• From fragmentation to scale: the shift of trading venue rules into MiFIR, PEMO licensing, harmonised post trade finality and operational passports aim for fewer parallel legal regimes and more pan EU platforms.
• ESMA as system integrator: new governance, mediation on own initiative, escalation powers, direct supervision in selected high impact areas and central data platforms.
• Tech neutrality/DLT readiness: targeted L1 fixes enable DLT outside the Pilot and reduce cliff edges as pilots scale; collateral/finality adapted accordingly.
• Less gold plating, fewer local add ons: moving content into Regulations and strengthening convergence curtails divergent NCA practices.
• Interconnection and open access: improved access/interoperability decisions and push towards broader use of T2S to simplify cross border settlement where relevant.

Implications by market participant type

While the components of MIP may, following consultation and the legislative process change somewhat, the following presents some current known areas that market participants may wish to forward plan for and action.

Client type	Key changes and duties	Opportunities and risks	Likely timelines/critical path
Trading venues/market operators (RMs, MTFs, OTFs)	Core operational and authorisation rules migrate to MiFIR (Single Rulebook). New PEMO status enables operation of multiple venues across Member States under one licence. ESMA direct supervision for "significant" venues and PEMOs; national market surveillance remains locally. ESMA access/interoperability arbitration strengthened. Intra‑group resource sharing not deemed outsourcing under MiFIR.	Strategic consolidation/scaling across borders becomes easier; material cost and control‑framework redesign needed for ESMA supervision. Reduced local divergence lowers compliance burden but tightens EU‑level expectations and scrutiny. Open access cases likely quicker but with EU‑level stakes.	12-24 months after entry into force for core MiFIR amendments; ESMA readiness (Executive Board, fees, systems) is a dependency. Early decision: whether to pursue PEMO and rationalise venue footprints.
Investment firms/brokers (including SIs)	Adjustments to data/reporting interactions with ESMA/national surveillance authorities; broadened access to ESMA central databases. Clarified cross‑border regime under harmonised MiFIR venue rules; open access processes streamlined.	Improved cross‑border client servicing and membership portability; potential fee savings via standardisation. More consistent surveillance expectations; need to align with ESMA data pulls via national surveillance authorities.	Largely concurrent with MiFIR changes; internal compliance mapping to ESMA data requests advisable.
Asset managers (UCITS ManCos, AIFMs)	Passporting upon authorisation for UCITS/AIFs/AIFMs; compressed notification timelines; host NCAs cannot add extra requirements. "White label" disclosure simplification (keep evidence on file). ESMA empowered to correct supervisory divergences; possible suspension powers for serious breaches. EU‑wide depositary passport.	Faster time‑to‑market and reduced local frictions; scalability of cross‑border platforms. Heightened ESMA coordination means less room for local workarounds; governance and conflict‑of‑interest documentation must be robust for on‑request inspection. Depositary choice expands across borders; procurement and oversight models may change.	Directive amendments will require national transposition; allow a standard 18-24 months post‑adoption. Begin revising passporting playbooks and distribution controls early.
Depositaries	Introduction of an EU‑wide depositary passport; level playing field across borders. ESMA convergence powers may influence interpretation of safekeeping/oversight standards.	Broader addressable market; competitive dynamics intensify; prudential and operational capacities must scale. Oversight models across multiple jurisdictions need strong harmonised control frameworks.	Transposition cycle under the Directive; commercial planning can begin earlier given directionality.
CSDs	Push towards T2S settlement for currencies offered; enhanced interconnection. SFR harmonises finality, designation practices, conflict‑of‑law clarity and transparency; DLT compatibility. ESMA's role in access/interoperability and convergence expands.	Legal certainty reduces cross‑border risk; potential to scale links and cross‑CSD services. Operational changes for T2S connectivity and internal definitions (accounts/book‑entry) to ensure tech‑neutral compliance. Third‑country link assessments become more structured.	SFR enters 20 days after OJ publication with staged application; expect 12-24 months for full effect plus Level 2. Firms should monitor ESMA templates/central registers and update rulebooks accordingly.
CCPs	ESMA chairs colleges for "less significant" CCPs; governance changes as CCP Supervisory Committee is removed. ESMA arbitrates certain open access/interoperability matters.	More predictable EU‑level processes; need to recalibrate college engagement and data submissions.	Parallel with Master Regulation changes; engage early with ESMA on governance/process transitions.
CASPs (MiCAR)	Transfer to direct ESMA supervision for all CASPs, plus central registers and authorisation data flows.	Uniform supervisory processes reduce forum shopping; higher consistency and possibly higher supervisory expectations; fee model to follow ESMA framework.	12-24 months post‑entry into force for the supervision shift; readiness for ESMA platforms is key.
Issuers/treasurers (including sovereigns/public sector)	Greater "freedom of issuance" via reduced local barriers; improved CSDR/T2S harmonisation; SFR legal certainty for settlement and collateral. For listed securities, venue landscape may consolidate via PEMOs with clearer national law allocation per venue.	Lower issuance frictions and more choice of infrastructures; better cross‑border investor reach. Need to adjust internal issuance procedures to standardised EU definitions and timelines.	Changes phase in with SFR and Master Regulation; engage with lead banks/CSDs on migration to harmonised practices.
Third‑country infrastructures and EU participants in them	SFR establishes a registration approach for third‑country systems for the purpose of EU participant protection, with ESMA/ECB assistance and central transparency.	More predictable EU treatment; but formal registration process and criteria introduce new compliance asks. For EU participants, legal certainty improves for collateral/finality.	Expect sequencing with ESMA Level 2 guidance/templates under SFR; engage early to plan registrations.

Compliance, governance and operating model impacts for all of the above

• Supervisory relationship management: many firms will have dual interfaces: ESMA (licensing/supervision/convergence) plus national surveillance authorities (market integrity). Establish clear RACI, data flow maps and single sources of truth for submissions.
• Licensing strategy: trading groups should assess the feasibility and value case for a PEMO.  Asset managers should re plan cross border launches around “passporting upon authorisation” to shorten critical paths.
• Policy/controls refresh: update definitions/policies to tech neutral language for “book entry”, “account”, “transfer order”, “settlement finality” and DLT based operations; align outsourcing vs intra group resource sharing in MiFIR terms.
• Data and systems: prepare to leverage ESMA’s “collect once/use many” central databases; ensure data quality, lineage and timely responses to ESMA initiated requests via national surveillance authorities.
• Open access/interoperability playbooks: anticipate ESMA arbitrated processes; curate evidence packs; align legal positions with harmonised rules.
• Depositary/oversight frameworks: revisit depositary networks and fund oversight for expanded cross border options; update due diligence and liability apportionment language.

Further considerations and strategic impacts

In addition to the items discussed above, the following strategic considerations are likely to arise.

• Asset managers and fund sponsors. Expect the potential to reach a broader EU investor base with single structure funds, reduced friction in cross border distribution, portfolio management and post trading access and the ability to scale across Member States.
• Issuers and companies seeking capital. Anticipate easier access to pan EU capital markets for debt and equity and more efficient processes for listing, issuance and secondary trading as reforms take effect.
• Retail and institutional investors. Better access to a wider array of EU wide investment products, with scope for lower costs and improved transparency where cross border funds or securities are involved.
• Supervisors and market infrastructure providers. Need to adapt to a more integrated regulatory and supervisory architecture and, for post trade providers, to the operational and governance changes prompted by SFR harmonisation.
• NCAs. Greater supervisory convergence will reduce autonomy in some areas and require closer coordination with EU authorities to manage cross border supervision and implementation.

For many, this also means taking a strategic view as follows:

• For market operators: Evaluate a PEMO licence early, assessing governance, IT, and cost synergies while planning new surveillance interfaces.
• For asset managers and depositaries: Redesign EU distribution and servicing models to exploit simplified passports and depositary mobility; rationalise documentation and host NCA interactions; prepare for ESMA led convergence.
• For CSDs/CCPs: Advance T2S/links programmes; review rulebooks for SFR alignment; organise playbooks for ESMA access/interoperability decisions; engage with ESMA’s new governance.
• For CASPs: Prepare transition plans for ESMA authorisation/ongoing supervision; align governance/risk frameworks to ESMA expectations; prepare for central register publicity.
• For all: Refresh legal opinions and control libraries for SFR finality and FCD collateral under DLT; adjust onboarding, collateral and default management procedures; update contracts and disclosures to reflect harmonised definitions and law governing logic.

Where things go from here

• Legislative process. The Master Regulation, Master Directive and SFR will proceed through the ordinary legislative process; final scope and timelines may evolve as the consultation and trilogue process advances.
• Implementation and transposition. Following adoption, Regulations will apply on a staged basis, while Directive changes will require Member State transposition - timing and residual national variation will influence how uniform integration is in practice.
• Market response. Exchanges, asset managers, custodians and post trade infrastructures will need to assess structural, regulatory and operational readiness; some may need to consider how to restructure or consolidate footprints to exploit the new framework.
• Supervisory coordination: The pivot towards EU level supervision for cross border firms will demand substantial cooperation between national and EU authorities.
• Opportunities for innovation. Expect impetus for pan European fund structures, cross border listings and broader participation, including new investment vehicles and securitisation or fund of funds strategies focused on growth and green/ESG segments.

Further timeline considerations are relevant once the individual legislative proposals become law, namely:

• The Master Regulation staggers application of different Articles, with significant tranches at 12 months and 24 months post entry into force. ESMA institutional readiness (Executive Board, fee model, data platforms) is an explicit dependency.
• The Master Directive requires national transposition, typically 18–24 months post adoption. Expect ESMA guidance and convergence tools to land in parallel.
• The SFR enters into force directly and applies following staged timelines, with consequential FCD amendments having an 18 month transposition for specific points. ESMA/ECB/ESCB Level 2 and templates will follow to operationalise designation/registration and transparency.

Outlook

The MIP is a transformative moment for Europe’s capital markets. It is not merely regulatory housekeeping; it is a strategic pivot towards a true, scalable single market in financial services. Individually, each legislative instrument being advanced as part of the MIP reduces a major class of friction: (i) MiFIR/MiFID II/ESMA reforms make cross border trading more scalable and consistently supervised; (ii) AIFMD/UCITS/CBDR reforms make fund passports operational and suppress local divergences; and (iii) the SFR modernises the legal bedrock of post trade finality and collateral for a digital era.  Collectively, they enable genuine single market operation for groups that choose to organise at EU scale, with ESMA increasingly the anchor supervisor. The onus now shifts to firms to re optimise their licences, supervision interface, technical connectivity and control frameworks to capture the cost, speed and reach benefits envisaged by the package.

For market participants – whether fund managers, corporates seeking capital, or institutional investors – the package promises significant opportunities. Realising them will require proactive planning: reassessing cross border readiness, aligning governance and operations to forthcoming EU level supervision, re thinking distribution and listing strategies and preparing for a more integrated market environment. Now is the time to review business models, capital raising plans, distribution networks and supervisory compliance frameworks to position for success in a more unified Single Market for financial services.

About us

PwC Legal is assisting a number of financial services firms and market participants in forward planning for changes stemming from relevant related developments. We have assembled a multi-disciplinary and multijurisdictional team of sector experts to support clients navigate challenges and seize opportunities as well as to proactively engage with their market stakeholders and regulators.  

Moreover, we have developed a number of RegTech and SupTech tools for supervised firms, including PwC Legal’s Rule Scanner tool, backed by a trusted set of managed solutions from PwC Legal Business Solutions, allowing for horizon scanning and risk mapping of all legislative and regulatory developments as well as sanctions and fines from more than 2,500 legislative and regulatory policymakers and other industry voices in over 170 jurisdictions impacting financial services firms and their business.  

Equally, in leveraging our Rule Scanner technology, we offer a further solution for clients to digitise financial services firms’ relevant internal policies and procedures, create a comprehensive documentation inventory with an established documentation hierarchy and embedded glossary that has version control over a defined backward plus forward looking timeline to be able to ensure changes in one policy are carried through over to other policy and procedure documents, critical path dependencies are mapped and legislative and regulatory developments are flagged where these may require actions to be taken in such policies and procedures.   

The PwC Legal Team behind Rule Scanner are proud recipients of ALM Law.com’s coveted “2024 Disruptive Technology of the Year Award” as well as the “2025 Regulatory, Governance and Compliance Technology Award”. 

If you would like to discuss any of the developments mentioned above, or how they may affect your business more generally, please contact any of our key contacts or PwC Legal’s RegCORE Team via de_regcore@pwc.com or our website.