The European Securities and Markets Authority (ESMA) is making digital innovation a supervisory priority, with a new Union Strategic Supervisory Priority (USSP) due to begin in 2027.

USSPs aim to help the Paris-headquartered European Union (EU) authority to direct resources towards ‘risks that matter most for investor protection, financial stability and the orderly functioning of EU financial markets.’

The digital innovation USSP ‘aims to ensure supervisors have the expertise and capacity to oversee the use of new technologies.’

The initial focus, in collaboration with national competent authorities (NCAs), will be on how supervised entities use artificial intelligence (AI) and tokenisation. ‘We will continue our efforts and coordination to address the challenges ahead, including those emerging from advanced models such as frontier AI,’ ESMA said in its digital innovation USSP announcement (23 September).

The move will likely interest finance ministries across the 27-member bloc and beyond for reasons including that Treasury functions are increasingly examining and experimenting with AI applications in forecasting, cash management and fraud detection; and government debt markets are increasingly exploring tokenised securities.

TOKENISATION: EXPLAINED Tokenisation is the process of issuing or representing assets in the form of digital tokens, typically recorded on distributed-ledger technology (DLT) networks.

ESMA’s evolving USSPs

USSPs aim to ensure that supervisors across the 27-member bloc coordinate efforts on risks that require EU-wide attention. Every three years, ESMA identifies up to two priorities deemed relevant across the EU and reflect emerging developments and trends. The USSPs follow an incremental approach over time, concluding with what it refers to as a ‘phase out’ period.

In an eight-page USSPs factsheet, ESMA notes ‘key risks to watch out for’ on digital innovation include that supervisors ‘need the right skills and tools’; that ‘AI outputs may be biased, unclear or misleading’; that ‘new products may be hard to understand or create new risks for investors’; and that ‘new technologies, such as AI, may create increased dependency on a limited number of third-party providers.’

The new digital innovation priority will ‘run alongside’ a USSP on cyber and operational resilience, which has been in place since last year (2025).

ESMA is, meanwhile, this year concluding a USSP on environmental, social and governance (ESG) disclosures, which was introduced in 2023. The authority deems that it has achieved ‘strong progress in improving ESG disclosures and helping investors better understand sustainability information and receive quality advice’.

But it also warns that ‘while this [phasing out] marks a significant milestone, ESG remains a long-term journey.’

Global Government Finance’s editorial newsletter (free): sign up here

MISP negotiations underway

ESMA’s broader 2027 priorities and work programme were set out in a 2027-2029 Programming Document published in January.

The authority noted in the 111-page document’s foreword that the ‘overall environment remains characterised by uncertainty, modest economic growth, and heightened global tensions, all of which influence market behaviour, investment conditions, and risks to financial stability.’

In a section titled ‘General Context’, ESMA described itself as ‘in the midst of a significant expansion of its direct supervisory responsibilities’ but that ‘internally, ESMA continues to operate in a constrained environment with limited resources, significant technological developments, and increasingly complex mandates, requiring careful prioritisation to ensure effective delivery across its expanding responsibilities.’

Less than two months previously (in December 2025) the European Commission proposed the Market Integration and Supervision Package (MISP) in as part of its broader Savings and Investments Union (SIU) agenda.

The objective of MISP, on which legislative negotiations continue, is to make EU capital markets more integrated, reduce supervisory fragmentation between member states and strengthen ESMA’s role.