The European Commission's proposal to broaden the European Securities and Markets Authority's (ESMA) authority over cryptocurrency and capital markets has ignited a significant debate across Europe. Critics are voicing concerns that this move could potentially hinder innovation and lead to a slowdown in decision-making processes.
Reports indicate that the European Union is considering granting the ESMA direct supervisory powers over stock exchanges and crypto service providers. This potential shift aims to establish a centralized regulatory framework, drawing parallels to the structure of the US Securities and Exchange Commission (SEC). The European Commission is anticipated to release a draft of this plan in December.
Under the existing Markets in Crypto-Assets Regulation (MiCA), which became effective for crypto asset service providers in December 2024, companies that are authorized in one EU member state are permitted to "passport" their licenses, allowing them to operate across all 27 member nations of the bloc.
Industry Expresses Concerns Over Innovation Slowdown
However, Faustine Fleuret, head of public affairs at the decentralized lending protocol Morpho, has warned that concentrating authorization and supervision solely within the ESMA could impede innovation, particularly for companies in the crypto and financial technology (fintech) sectors.
Fleuret stated, "Centralizing authorization and supervision entirely within ESMA would demand vast human and financial resources."
“ESMA supervision would likely slow down decision-making and innovation, particularly for newer players in crypto and fintech companies who rely on close collaboration with their domestic regulators.”
Fleuret suggested that a more balanced approach would involve empowering the ESMA with enhanced oversight powers over national regulators. This could include the ability to suspend or revoke licenses, rather than consolidating all decision-making authority in Brussels.
In September, France's securities regulator indicated a potential ban on crypto license "passporting" under the MiCA regime, which brought to light concerns about enforcement gaps within the EU's overarching regulatory framework.
Fleuret further commented, "The EU passport is the cornerstone of EU financial regulations, including MiCA: jeopardising it means depriving crypto market players of the only competitive advantage that Europe currently offers them."
Experts Advocate for Balanced Supervision
Conversely, some policy experts view the expansion of the ESMA's jurisdiction as a positive development for the maturity of crypto regulation within the EU.
Dea Markova, director of policy at the digital asset custody platform Fireblocks, believes that centralizing control and standards across EU member states could effectively address some of the most pressing issues related to MiCA. These include concerns surrounding licensing, cybersecurity, and custodial risks.
Markova explained, "At a principal level, we believe that more standard-setting and guidance is needed to address risks stemming from operational resilience of the custody function. We can extrapolate from this specific risk that other areas of MiCA and DORA [Digital Operational Resilience Act] can benefit from supervisory convergence, be it through more guidance or through creating a single EU supervisor."
Markova also cautioned that the ultimate success of centralized supervision will be heavily dependent on the effective implementation and resourcing of the proposed plan.
The concept of establishing a singular supervisory body, similar to the SEC, has also received support from European Central Bank (ECB) President Christine Lagarde. She expressed her backing for this idea during the European Banking Congress in November 2023.