The European Commission’s plan to expand the European Securities and Markets Authority’s (ESMA) authority over cryptocurrencies and capital markets has sparked debate across Europe, with critics warning it could stifle innovation and slow decision-making.
The European Union is reportedly considering giving ESMA direct supervisory powers over crypto exchanges and service providers, potentially creating a centralized regulatory framework similar to that of the United States Securities and Exchange Commission (SEC). The European Commission is expected to publish a draft plan in December.
Under the current Markets in Crypto Assets (MiCA) Regulations, which came into effect for crypto asset service providers in December 2024, companies licensed in an EU member state can “passport” their licenses to operate in all 27 countries.
Industry warns of slowing innovation
However, granting control to ESMA risks slowing innovation, particularly among crypto and financial technology (fintech) companies, according to Faustine Fleuret, head of public affairs at decentralized lending protocol Morpho.
“To fully centralize authorization and supervision within ESMA would require enormous human and financial resources,” she told Cointelegraph.
“(ESMA supervision) would likely slow down decision-making and innovation, particularly for new players in crypto and fintech companies that rely on close collaboration with their national regulators.”
Fleuret said a more balanced approach would involve giving ESMA stronger supervisory powers over national regulators, such as the ability to suspend or revoke licenses, rather than centralizing all decision-making in Brussels.
In September, the French securities regulator threatened to ban “passporting” crypto licenses under the MiCA regime, raising concerns about enforcement gaps in the EU-wide regulatory framework.
“The EU passport is the cornerstone of EU financial regulation, including MiCA; putting it at risk means depriving crypto market participants of the only competitive advantage that Europe currently offers them,” Fleuret said.
Experts call for balanced oversight
Other policy experts see the expanded jurisdiction of the Paris-based ESMA as a promising sign for the regulatory maturity of crypto in the EU.
Centralizing control and standards across EU member states could help address the most pressing concerns related to MiCA, including licensing, cybersecurity and custody risks, according to Dea Markova, policy director at digital asset custody platform Fireblocks.
“At the core level, we believe more standards and guidance are needed to address risks arising from the operational resilience of the custody function,” Markova told Cointelegraph. “We can extrapolate from this specific risk that other areas of MiCA and DORA (Digital Operational Resilience Act) can benefit from supervisory convergence, whether through more guidance or the creation of a single supervisor within the EU. »
Markova warned that the success of centralized supervision will depend on how the plan is implemented and resourced.
The idea of creating a single supervisory body, similar to the SEC, was also supported by the President of the European Central Bank (ECB), Christine Lagarde, who expressed support for the concept at the European Banking Congress in November 2023.
