The Capital Markets Union (“CMU”) is a major initiative by the European Commission aimed at strengthening and integrating capital markets across all 27 European Union (“EU”) Member States (“MS”). Its objectives are to broaden access to finance, diversify funding sources, and improve the EU’s economic resilience, especially in comparison to the more unified market in the United States.
Despite being the world’s second-largest economic zone, EU capital markets remain fragmented. The CMU seeks to overcome these divisions by facilitating cross-border investments and capital flows, supporting one of the EU’s founding principles, free movement of capital. A key benefit of the CMU is the creation of alternative financing paths, particularly for Small and Medium-sized Enterprises (“SMEs”), which often struggle to secure non-bank capital.
Initial reforms included modernising the Prospectus Directive, promoting pan-European venture capital, and boosting SME visibility through crowdfunding and angel investing. These changes helped remove administrative barriers and encourage investment diversity, a clear strength of the CMU framework.
However, aligning 27 different legal, tax, and insolvency regimes has proved difficult. Progress has been gradual. By 2017, the Commission had completed around 20 of 33 proposed measures. These included simplified prospectus rules, enhanced venture capital legislation, Simple, Transparent and Standardised securitisation, covered bond frameworks, and adjustments to Solvency II.
While these steps have eased cross-border financial flows, some experts argue that regulatory changes risk weakening investor protection if not properly balanced—one of the CMU’s challenges. The 2020 Action Plan sought to address these concerns and build momentum post-COVID-19. Its three core goals were:
These goals offer clear advantages. For example, more consistent rules across Member States make it easier for investors to allocate capital efficiently, while stronger financial literacy improves long-term participation. Yet obstacles remain, fragmented national regulations and uneven levels of financial sophistication still prevent full participation by retail investors.
In December 2022, the Commission introduced a clearing, insolvency, and listing package to further accelerate CMU progress. It proposed tighter oversight of central counterparties , reduced reliance on non-EU clearinghouses, harmonised insolvency procedures, and lighter prospectus and disclosure requirements, particularly to benefit SMEs through the proposed Listing Act.
On 1 February 2024, the Council and European Parliament reached a provisional agreement on the Listing Act. It aims to make EU capital markets more attractive by cutting red tape for listings, improving research coverage of SMEs, and fostering cooperation between European Securities and Markets Authority and national regulators. These improvements will help level the playing field, particularly for smaller firms and investors.
Still, some drawbacks persist. Critics argue that simplifying listing rules may reduce transparency, and the benefits of integration may disproportionately favour countries with already developed financial sectors. The CMU risks deepening the gap between financially advanced and less advanced Member States unless carefully managed.
To track progress, a CMU monitoring framework was launched in 2021 and is updated annually through 2023.
On 3 February 2025, the Commission launched a call for evidence on the Savings and Investments Union, a successor initiative to the CMU. Its goal is to increase returns on household savings while widening funding for businesses, complementing banking and capital market reforms. The final strategy was published on 19 March 2025, confirming a push for deeper financial integration to support competitiveness, innovation, and the green transition.
For information or assistance, please contact us at info@gtg.com.mt
Author: Dr Neil Gauci