Brussels’ push to integrate the EU’s fragmented capital markets risks being undermined if haggling by member states over who supervises key financial services groups goes too far, the bloc’s top market watchdog has said. The warning by Verena Ross, chair of the European Securities and Markets Authority, underlines how talks over major reform of EU financial supervision have reached a critical point.

"It’s really important to keep the coherence of what is proposed and not end up, through compromises, effectively undoing the coherence of trying to achieve more integrated markets," Ross told the FT as she prepared to step down from the Paris-based watchdog next month. The European Commission presented plans this year for a big increase in Esma’s authority by handing it responsibility for supervising large cross-border stock exchanges, market infrastructure providers and crypto companies, which are currently overseen by national authorities in each of the EU’s 27 member countries.

A proposed compromise seen by the FT would allow Germany to exempt most of the Deutsche Börse group, which runs the Frankfurt Stock Exchange, from Esma supervision unless it meets certain market share thresholds. The compromise requires backing from a majority of EU countries during a meeting of EU finance ministers scheduled on October 8 and 9. Other countries are seeking similar carve-outs. Sweden, which operates several stock exchanges owned by larger multinational groups, wants to ensure that they would not be automatically placed under Esma supervision.

"We need to really be careful how the compromises in the end will be designed," said Ross, who has pushed for Esma’s limited powers to be expanded since joining the authority as it launched in 2011, and as its chair over the past five years. Asked about the deal sought by Germany, her native country, Ross said it was "hard to predict" how the final overall reform would end up. "What is important is that the package is much broader than a specific trading venue being in or out of scope," Ross said. The Paris-based authority is expected to double its staff to about 700 if the EU expands its powers as much as initially envisaged by the Commission.