European markets regulatory body will gain more powers

On the finance stage, the fight for more oversight may hide the same logic that once left markets too free to fail.

Nearly fifteen years after the financial crisis that rocked the world, the ghosts of deregulation and fragmented oversight still haunt the corridors of power in Brussels. Now, the European Union (EU) is preparing to take a significant – and controversial – step towards greater centralization of control over its financial markets. The preliminary plans that have been made public, which will grant new and expanded powers to the European Securities and Markets Authority (ESMA), are more than a mere technical adjustment. They are a symptom of a fundamental tension in the European project: the struggle between national sovereignty and the pressing need for collective and robust economic governance.

The European Commission’s proposal is clear: empower ESMA to directly supervise clearing houses, depositories and trading platforms considered “significant”, without failing the emerging and volatile world of cryptocurrencies.

The official justification lies in the noble objective of allowing capital to flow more freely, eliminating barriers and promoting economic growth. It’s a seductive argument, but one that cannot be analyzed without looking at the broader context.

Since its founding, ESMA has been an entity with a relatively short arm. Unlike its North American counterpart, the SEC – which has broad powers to directly supervise vast areas of the market – ESMA’s role has historically been that of a coordinator, a harmonizer of standards between national regulators.

This new change therefore represents a philosophical evolution. It is the tacit recognition that, in a deeply interconnected financial market, a web of national supervisors, sometimes with divergent interests, is insufficient to contain systemic risks. The crisis showed us, painfully, that when a financial giant stumbles, the fall is felt across the board, without asking the borders for permission.

However, it is naive to ignore the forces at play behind this centralization. The change, defended with “greater enthusiasm by France and the EU institutions”, as the information reveals, is not consensual. On the one hand, there are those who see centralized supervision as a necessary antidote to the “race to the bottom” that some member states could embark on to attract business, relaxing rules to the detriment of general stability. On the other, there are member states that are reluctant to give up more portions of their sovereignty and companies that fear, rightly or wrongly, being suffocated by yet another layer of bureaucracy.

This tension is at the heart of the democratic question in the EU. The creation of an independent executive board for ESMA is a crucial element. To whom will this body be accountable? How will it be ensured that its actions serve the European public interest, and not just the intrinsic logic of financial markets?

The transfer of power from national bodies, however imperfect they may be, to a technical and supranational body, requires a counterbalance of transparency and democratic scrutiny to match. The proposal to reduce national discretion, converting directives into regulation, is an example: it gains in uniformity, but loses in capacity for local adaptation and, potentially, in national democratic debate on these same rules.

The inclusion of cryptocurrency companies within ESMA’s direct purview is a nod to realism. This sector, which proclaims itself as the vanguard of decentralization, has become a field of unbridled speculation and opaque risks for ordinary citizens. Bringing it within the scope of supervision is a protection imperative, a recognition that no space in the economy, no matter how new, can operate like a legal Wild West.

In short, the expansion of ESMA’s powers is an ambivalent move. It can be read as a victory of technical rationality over the national particularisms that have so often weakened the EU. It is an attempt to build the foundations of true European financial sovereignty, capable of facing giants like the American SEC on an equal footing.

However, from the left’s point of view, this process cannot be celebrated uncritically. Centralization, in itself, is not synonymous with justice or democratic control. The real question that arises is: who will this reinforced supervision serve? Will it serve to tame speculative finance, to effectively tax transactions, to protect the funds of small investors and to direct capital towards the ecological and social transition? Or is it, ultimately, a mechanism to “allow capital to flow more freely”, unimpeded and uncompromised with social rights and the environment?

The European Union is, once again, at a crossroads. The path to strong, centralized financial supervision is necessary, but it is a path that must be paved with more democracy, more citizen control and a clear subordination of markets to the interests of the majority.

Otherwise, we will simply be exchanging inefficient fragmentation for an equally dangerous concentration of power. The devil, as always, will be in the details of the regulation that are yet to come.

With information from Bloomberg*