Will the Omnibus Market Integration and Supervision Package break down barriers to investment fund distribution?
Topics: Regulation, Trends
In brief
The European Commission’s proposed Market Integration and Supervision Package (“MISP”) represents a significant step towards deeper capital market integration within the European Union. By seeking to reduce regulatory fragmentation and facilitate cross-border fund distribution, the proposed reforms may enhance the operating framework for UCITS and AIF managers across the Single Market.
Introduction: Europe’s unfinished agenda for capital market integration
The persistent fragmentation of European financial markets remains one of the most significant structural obstacles to the EU’s economic competitiveness.
Despite decades of regulatory harmonisation, the Single Market for financial services and for investment funds in particular, has yet to deliver on its full potential.
The European Commission (“EC”) has long recognised that deeper capital market integration is essential to advancing the Union’s core strategic objectives, from long-term competitiveness and the green and digital transitions to the reinforcement of Europe’s economic sovereignty.
Against this background, the ability to mobilise private capital efficiently through well-functioning fund markets is not merely desirable, it is an economic imperative.
The reality on the ground, however, tells a different story. According to the EC[1], EU capital markets remain largely compartmentalised along national lines.
In the specific area of fund distribution, the passporting frameworks established under the UCITS Directive and the AIFMD have facilitated cross-border market access in principle, but significant practical barriers continue to hinder their effectiveness.
Among the most frequently cited obstacles are divergent national marketing requirements, inconsistent application of notification procedures, additional local documentation or disclosure obligations, and varying interpretations of regulatory standards by Member States.
As a consequence, cross-border fund distribution remains considerably more costly and operationally burdensome than one would expect in a genuinely integrated market.
The challenges extend well beyond distribution. Asset managers operating cross-border groups face additional friction in the form of overlapping or contradictory reporting frameworks across jurisdictions, gold-plating of EU rules at national level, and difficulties in maintaining consolidated oversight across entities within the same corporate structure.
Taken together, these cumulative barriers prevent financial institutions from fully exploiting the Treaty freedoms underpinning the Single Market, ultimately raising costs for end-investors and undermining the competitiveness of the European fund industry.
It is against this background that the European Commission, as part of the broader Savings and Investments Union (“SIU”) strategy, has put forward the Market Integration and Supervision Package (“MISP”).
“The persistent fragmentation of European financial markets remains one of the most significant structural obstacles to the EU’s economic competitiveness.”
Market Integration and Supervision Package (“MISP”). Key proposals
Published on 4 December 2025, the MISP constitutes the most comprehensive legislative effort undertaken to date towards genuine capital market integration in the EU. The package pursues a twofold objective: (i) dismantling the regulatory and supervisory barriers that continue to segment national financial markets, and (ii) fostering greater convergence in the way EU rules are applied across Member States.
To that end, it introduces a broad set of reforms spanning multiple areas of EU financial services regulation. From a structural standpoint, the MISP is built around three legislative instruments:
Taken together, the package touches upon 19 distinct legislative acts across EU financial services regulation.
Of particular relevance to the asset management industry are the amendments to the UCITS Directive and the AIFMD, brought forward by the Master Directive and the amendments to the Cross-Border Distribution of Funds Regulation (EU) 2019/1156[5] (“CBDR”), brought forward by the Master Regulation.
The package also introduces changes to MiFID II and MiFIR, the European Market Infrastructure Regulation (“EMIR”), the Central Securities Depositories Regulation (“CSDR”), the Prospectus Regulation, the Benchmarks Regulation, and the European Supervisory Authorities founding regulations.
Substantively, the reforms introduced by the MISP can be grouped around five main thematic areas:
- First, the package targets the removal of unjustified national barriers to the cross-border distribution of financial products, including through the harmonisation of notification and marketing procedures.
- Second, it seeks to reduce duplicative and overlapping reporting obligations that currently burden firms operating across multiple jurisdictions.
- Third, the MISP reinforces supervisory convergence by enhancing the mandates and powers of the ESAs (most notably ESMA) to promote a more consistent application of EU rules.
- Fourth, the package modernises and consolidates post-trade infrastructure, with a particular focus on clearing and settlement processes.
- Finally, it streamlines product-level regulation with a view to enhancing the competitiveness and scalability of EU fund structures.
Why MISP matters for cross-border fund distribution and asset management?
For the asset management industry, the MISP introduces targeted measures designed to simplify cross-border fund distribution and reduce regulatory fragmentation. The key changes can be grouped as follows:
Marketing and pre-marketing framework for UCITS and AIFs
Article 6 of the proposed Master Regulation would amend the CBDR to establish a more integrated framework for the cross-border marketing and pre-marketing of UCITS and AIFs.
As regards marketing communications, the proposed amendments to Article 4 of the CBDR would prohibit host Member States from imposing requirements beyond those set out in the Regulation or from requiring prior notification of marketing materials.
The EC would be empowered to adopt delegated acts specifying the format and content of such communications.
As regards fund passporting, the current notification regime under Articles 93 to 93a of the UCITS Directive and Articles 31 to 32 of the AIFMD would be replaced by a centralised system.
Under the proposed framework, UCITS management companies and AIFMs would indicate, as part of their authorisation application, the Member States in which they intend to market their funds. The home NCA would transmit this information to a central ESMA platform, enabling managers to access selected markets without a separate passporting procedure.
ESMA would maintain a central database of marketing notifications, supporting documentation and de-notification records.
The proposal further simplifies the de-notification process and removes the current 36-month restriction under Article 32a(2) of the AIFMD that prevents the pre-marketing of similar AIFs following de-notification.
As regards supervisory oversight, the proposal would clarify the powers of host competent authorities over UCITS and AIFs marketed within their territory. ESMA would be granted an enhanced role, with powers to identify and address diverging or deficient supervisory practices that hinder cross-border distribution.
In certain circumstances, ESMA would also be empowered to suspend the cross-border marketing of UCITS or AIFs where Union rules are not being applied effectively by national competent authorities.
These measures reflect a deliberate shift towards a more centralised supervisory architecture in which ESMA acts as a guarantor of regulatory consistency across the Single Market.
Harmonisation of operational requirements for EU groups
The proposed Master Directive introduces amendments to the UCITS Directive, the AIFMD and MiFID II aimed at harmonising the operational framework for AIFMs and UCITS management companies operating on a cross-border basis, namely:
- Reduced timelines for management company passports: the proposed Master Directive would shorten the period within which national competent authorities (“NCAs”) must transmit passporting notifications to 15 days. Additionnally, Host Member States would no longer be permitted to impose additional information requirements beyond those specified in the applicable legislation.
- The authorisation process for AIFMs and UCITS management companies would be harmonised through Regulatory Technical Standards (“RTS”) to be developed by ESMA, specifying the information to be submitted to the NCA as part of the authorisation application and the applicable procedural timelines.
- EU intra-group delegation: the proposed Master Directive would introduce a simplified framework enabling entities within an EU group of AIFMs or UCITS management companies to share resources and allocate functions among themselves without triggering the delegation requirements under the AIFMD or the UCITS Directive, subject to the condition that such intra-group arrangements do not result in the management company becoming a letter-box entity.
- Introduction of a depositary passport: Under the existing framework, both the UCITS Directive (Article 23(1)) and the AIFMD (Article 21(5)) require that a fund’s depositary be established in the same Member State as the fund.
The proposed Master Directive would remove this restriction, allowing AIFMs and UCITS management companies to appoint a depositary located in any Member State, provided that such depositary is a credit institution authorised under the Capital Requirements Directive (Directive 2013/36/EU) or an investment firm authorised under MiFID II.
The EC has acknowledged that robust safeguards will be required in order to implement such cross-border depositary passport, including supervisory cooperation arrangements between the NCAs of the fund’s home Member State and those of the depositary’s Member State.
- In addition, the ability of EU AIFMs managing closed-ended AIFs pursuing private equity or real estate strategies to appoint a “lite-depositary” would be widened, as this option would no longer be subject to Member State discretion.
Timing and next steps
Following their publication by the Commission, the MISP proposals have entered the ordinary legislative procedure and are now being examined in parallel by the European Parliament and the Council of the European Union. According to the indicative timetable set out by both co-legislators, a political agreement on the key elements of the package is expected to be reached by the end of the second quarter of 2026, with formal adoption anticipated in the second half of the year.
From an implementation standpoint, the two principal instruments follow distinct timelines. The Master Regulation, as a directly applicable legislative act, would take effect across all Member States upon its entry into force, without the need for national transposition measures. The Master Directive, by contrast, would enter into force on the twentieth day following its publication in the Official Journal of the European Union, triggering an 18-month transposition window during which Member States would be required to incorporate the relevant amendments into their domestic legal frameworks.
Accordingly, the substantive reforms introduced by the package are unlikely to produce practical effects before the third quarter of 2028 at the earliest. This timeline remains contingent on the pace of inter-institutional negotiations and the efficiency of national transposition processes.
“From an implementation standpoint, the two principal instruments follow distinct timelines. The Master Regulation, as a directly applicable legislative act, would take effect across all Member States upon its entry into force, without the need for national transposition measures. The Master Directive, by contrast, would enter into force on the twentieth day following its publication in the Official Journal of the European Union, triggering an 18-month transposition window during which Member States would be required to incorporate the relevant amendments into their domestic legal frameworks.”
[1] European Commission: Questions and answers on the market integration package (https://ec.europa.eu/commission/presscorner/detail/en/qanda_25_2894)
[2] https://eur-lex.europa.eu/eli/reg_del/2013/231/oj/eng
[3] https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52025PC0942
[4] https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52025PC0941
[5] Regulation (EU) 2019/1156 of the European Parliament and of the Council of 20 June 2019 on facilitating cross-border distribution of collective investment undertakings and amending Regulations (EU) No 345/2013, (EU) No 346/2013 and (EU) No 1286/2014
Authors
Laurent Fessmann
Partner
Baker & McKenzie
Ana Vazquez
Director
Baker & McKenzie
