INTERVIEW | If 500 pages of regulatory text isn’t on your summer reading list, Karel Lannoo, general manager of the think tank European Capital Markets Institute, has done the reading for you, and distilled Europe’s latest attempt to fix post-trade fragmentation to five considerations.
The Market Integration and Supervision Package (MISP), published in December 2025, bundles 19 pieces of legislation into one vote: a 387-page “master regulation,” a 64-page “master directive,” and a standalone Settlement Finality Regulation that repeals the 1998 directive outright. It’s the latest attempt at a problem Brussels has never quite solved: the Giovannini reports flagged 15 barriers to integration back in 2001-03, a harmonised Target2-Securities (T2S) settlement platform was meant to fix cross-border settlement in 2007, the Central Securities Depository Regulation (CSDR) gave CSDs a single licence in 2014, and more than two decades on, investors still navigate 27 markets rather than one. So its density is intentional.
Karel Lannoo, general manager of the think tank European Capital Markets Institute, has just published what looks like the first whole-package analysis of MISP, as against the sectional lobbying positions filed by interest groups defending their own corner of the text. Five considerations, in his reading, matter most and lead to his conclusion that MISP mixes harmonisation, home-country control and ESMA centralisation all in one place.
1. A custody licence that adds regulation without adding a single supervisor
MISP creates a European depositary passport: a new, harmonised EU licence for custody. It traces back to the 2008 Madoff case, which exposed how little protection existed for client assets not properly segregated from a custodian’s own books, and to the reforms since aimed at closing that gap. Lannoo points out the industry didn’t ask for this version of the fix: it’s “additional regulation and it’s an additional licence… which there wasn’t until today.”
His objection is about what the passport doesn’t do. Unlike CSDs, CCPs and the big exchanges, which move to direct ESMA supervision, “for custody, it’s the home country which is in charge.” Providers get a new EU-wide licensing obligation layered on top of business they already run, while the supervisor stays exactly where it was: national, local, unchanged. That’s the opposite, in his view, of what a genuine single market in custody would look like: real cross-border scale needs either a single licence with a single supervisor, or none of it. For users, the underlying question of asset segregation and title certainty across borders is no clearer than before. It’s a point he thinks has had far too little scrutiny: “it’s something which is hidden in this entire package.”
2. Settlement finality moves from directive to regulation
A directive requires transposition into 27 sets of national law, each with room for local variation; a regulation applies directly and identically everywhere. Lannoo is unambiguous about why this matters. Finality and security of title, he says, is “a very important issue for settlement business” – precisely the clarity Belgium and Luxembourg built their original Eurobond business on. Replacing 27 transpositions with one binding regulation removes, at a stroke, the divergence home countries have used to shape their own settlement and insolvency law. For market participants, existing legal opinions on finality, netting and collateral (built around national implementations of the 1998 directive) will need re-testing against a single new EU text.
3. The domiciles — Ireland, Luxembourg and Belgium — and what’s on the line
Each built a genuine financial-centre business on today’s fragmented model. Ireland’s rests on a lower corporate tax rate and a fund-servicing industry — registry, depositary, fund administration — grown around “a degree of decentralisation of financial markets.” Luxembourg’s rests on a “lenient supervisory regime” that approves firms quickly, plus its role as home to Clearstream. Belgium, alongside Luxembourg historically, built its settlement business – Euroclear included – on the same title-certainty framework now being rewritten. These centres don’t just coexist with regulatory competition, Lannoo argues, they depend on it: “they both benefit from some form of regulatory competition, which some others don’t want.” That’s precisely what centralised ESMA supervision threatens, since Clearstream and Euroclear are exactly the scale of entity MISP earmarks for it — moving oversight away from the Central Bank of Ireland, Luxembourg’s CSSF and the National Bank of Belgium and up to Brussels.
4. Central supervision of CSDs and CCPs, and what it replaces locally
MISP hands ESMA direct authority over “significant” CSDs and CCPs, scrapping the existing supervisory colleges and introducing “CSD hubs” required to build reciprocal links with one another. It’s the closest the package comes to the single EU CSD and CCP Mario Draghi called for, without going that far. For Euroclear and Clearstream, which handle roughly three-quarters of the settlement market between them, this is the most direct hit – the biggest beneficiaries of single-market scale, and the most exposed to a supervisor with sweeping new powers. Lannoo is sceptical it automatically delivers lower fees, which run well above North American levels: “the problem so far has been weak enforcement” rather than an absence of legal tools, so a new supervisor with the same instincts may not move pricing. Below the “significant” threshold, smaller CSDs stay under home-country control – a two-tier map to navigate rather than one clean line.
5. Systemic internalisers get their own EU27 licence
Where a bank runs a systematic internaliser, that business will need its own supervisor and licence, held inside the EU27 even if the desk sits in London. “This was not the case until today,” Lannoo notes. Exchanges have lobbied hard for it, arguing volume has migrated off lit venues into internalised execution for too long, undermining price discovery. For banks running internalisation desks, it means separating out and re-licensing part of an existing business; for counterparties trading against those desks, the connectivity and reporting behind that flow will need remapping around a licensing perimeter that didn’t exist before.
Run the five together and Lannoo’s underlying concern comes into focus: MISP doesn’t commit to one model of integration, it runs three at once – full harmonisation for some elements, home-country control for others, ESMA centralisation for a third. Custody gets EU-wide rules but keeps local supervision; settlement finality gets one EU text applied uniformly; CSDs, CCPs and the biggest venues go to ESMA outright; systemic internalisers get an entirely new EU27 licensing perimeter. It’s no coincidence that the beneficiaries of the centralising strand – chiefly cross-border exchange groups like Euronext, angling for the scale a genuine single liquidity pool would bring – are among the package’s most enthusiastic backers, while the domiciles whose models depend on the home-country strand staying intact are among its sharpest critics. Whether that patchwork adds up to a coherent single market, or a more complicated version of the fragmented one it replaces, is a question Lannoo leaves open. Time will tell.
This piece draws on Karel Lannoo’s ECMI Explainer, “Much more than an omnibus – will MISP turn ESMA into the EU’s very own SEC?” (June 2026), and an interview with the author.
