ESMA Authority Over Cryptocurrency: EU Considers Regulatory Expansion
Background: EU Eyes Greater ESMA Authority Over Cryptocurrency and Markets
The European Commission is evaluating a plan to expand the European Securities and Markets Authority (ESMA) authority over cryptocurrency and capital markets. The move could create a single supervisory framework similar to the U.S. Securities and Exchange Commission. The draft plan is expected this December and, if advanced, would give ESMA direct supervision of stock exchanges and crypto service providers across the European Union. The current regulatory landscape, shaped by the Markets in Crypto-Assets Regulation (MiCA), allows crypto asset service providers authorized in one EU country to “passport” their licenses throughout the 27-nation bloc.
Industry Reactions and Concerns Over Innovation
The proposal to centralize ESMA authority over cryptocurrency providers and capital market players has drawn mixed responses. Critics warn it could inhibit innovation, particularly among startups and fintech businesses. Faustine Fleuret, head of public affairs at the decentralized lending protocol Morpho, told Cointelegraph that placing full supervisory and authorization powers with ESMA would “demand vast human and financial resources.”
Fleuret advocated for empowering ESMA to oversee national regulators and potentially to suspend or revoke licenses, instead of centralizing all authorization in Brussels. She noted that “jeopardising [the EU passport] means depriving crypto market players of the only competitive advantage that Europe currently offers them,” referencing threats to passporting provisions voiced by France’s securities regulator this September.
The cryptocurrency market in the EU has relied on MiCA’s passporting provision as a way to foster competition and streamline compliance across jurisdictions. Uncertainty about ESMA’s supervisory role raises questions about the future shape of crypto regulation and the pace of innovation in the sector.
Support for Centralization and Calls for Standardization
Other policy experts see enhanced ESMA authority over cryptocurrency as a step toward consistent and robust regulation. Dea Markova, director of policy at Fireblocks, told Cointelegraph that centralizing supervisory standards could address challenges around licensing, cybersecurity, and custodial risk under MiCA. “We believe that more standard-setting and guidance is needed to address risks stemming from operational resilience,” Markova said.
Markova added that greater supervisory convergence, through guidance or potentially a single EU-wide supervisor, could benefit not only MiCA but also other frameworks like the Digital Operational Resilience Act (DORA). However, she emphasized that the effectiveness of centralization will depend on proper implementation and resources.
The idea of EU-level oversight mirrors suggestions from top policymakers. European Central Bank President Christine Lagarde endorsed the formation of a single supervisor akin to the SEC in November 2023.
What’s Next for European Crypto Regulation?
The European Commission is set to release a draft of its proposal in December, which could define the future of ESMA authority over cryptocurrency markets. Stakeholders await further details on how centralized oversight will be executed and whether it will preserve the balance between market innovation and robust regulatory standards.
In the meantime, debates among national authorities, market participants, and policymakers continue over the optimal structure for regulating the rapidly evolving digital assets sector within the European Union.
Sources: Cointelegraph
