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The European Commission’s plan to expand the European Securities and Markets Authority’s (ESMA) authority over cryptocurrency and capital markets has sparked debate across Europe, with critics warning it could stifle innovation and slow decision-making.
U The European Union is said to be exploring giving ESMA direct supervisory powers over exchanges and crypto service providers, potentially creating a centralized regulatory framework more akin to the United States Securities and Exchange Commission (SEC). The European Commission is expected to publish a draft of the plan in December.
Under the existing Markets in Crypto-Assets Regulation (MiCA), which came into effect for crypto-asset service providers in December 2024, companies authorized in an EU member state can “passport” their licenses to operate in the 27-nation bloc.
Industry warns against slowing innovation
However, granting control to ESMA risks slowing down innovation, especially among crypto and financial technology (fintech) companies, according to Faustine Fleuret, head of public affairs at the decentralized lending protocol Morpho.
“Centralizing authorization and supervision entirely within ESMA would require enormous human and financial resources, he told Cointelegraph.
“[ESMA supervision] it will likely slow down decision-making and innovation, especially for new players in crypto and fintech companies that rely on close collaboration with their domestic 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 licences, rather than centralizing all decisions in Brussels.
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In September, French securities regulator threatened to ban crypto “passporting” licenses under the MiCA regime, raising concerns about enforcement gaps in the EU-wide regulatory framework.
“The EU passport is the basis of EU financial regulations, including MiCA: putting it at risk means depriving crypto market players of the only competitive advantage that Europe offers them today,” said Fleuret.
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Experts call for balanced supervision
However, other policy experts see ESMA’s expanding jurisdiction as a promising sign for crypto regulatory maturity in the EU.
Centralizing control and standards across EU member states could help with the most pressing concerns related to MiCA, including licensing, cybersecurity and custody risks, according to Dea Markova, director of policy at digital asset custody platform Fireblocks.
“At the main level, we believe that more standards and guidance are needed to address the 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, either through more guidance or through the creation of a single EU supervisor.”
Markova warned that the success of centralized supervision will depend on how the plan is implemented and resources.
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 during the European Banking Congress in November 2023.
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