Europe Weighs Centralized Crypto Oversight as ESMA's Role Expands
The European Union is actively considering a significant shift in the regulatory landscape for cryptocurrencies, with momentum building for increased centralization of oversight under the European Securities and Markets Authority (ESMA). This move, driven by the European Commission, aims to create a more unified and effective regulatory framework for digital assets across the EU's 27 member states.
Currently, the Markets in Crypto-Assets Regulation (MiCA), which became applicable to crypto asset service providers in December 2024, allows firms authorized in one EU member state to extend their services across the bloc using a "passport". However, concerns have arisen regarding inconsistent interpretation and implementation of MiCA across different member states, potentially undermining the goal of a single European crypto rulebook. France, Austria, and Italy have been particularly vocal, with France even threatening to block cross-border license passporting. These nations have advocated for ESMA to directly oversee major crypto firms.
The European Commission has proposed granting ESMA direct supervision of crypto service providers, trading venues, and central counterparties. This proposal is part of a broader effort to fully integrate EU financial markets and reduce regulatory fragmentation, mirroring the structure of the US Securities and Exchange Commission (SEC). The Commission believes that centralizing supervision at ESMA would address discrepancies in supervisory practices among EU countries and make oversight more effective for cross-border activities.
However, the proposed shift has sparked debate and divisions within the industry. Some experts warn that centralizing supervision under ESMA could stifle innovation, particularly for smaller crypto and fintech startups that rely on close collaboration with national regulators. Faustine Fleuret, head of public affairs at the decentralized lending protocol Morpho, argued that centralizing authorization and supervision entirely within ESMA would necessitate substantial resources and likely decelerate decision-making. She and others have suggested a more balanced approach, with ESMA having stronger oversight powers over national regulators, such as the authority to suspend or revoke licenses, rather than centralizing all decision-making in Brussels.
Despite these concerns, other policy experts view ESMA's expanding jurisdiction as a sign of growing crypto regulatory maturity in the EU. They believe that centralizing control and standards across member states could address pressing concerns related to MiCA, including licensing, cybersecurity, and custodial risks. Dea Markova, director of policy at digital asset custody platform Fireblocks, stated that more standard-setting and guidance are needed to address risks stemming from the operational resilience of the custody function.
ESMA itself has acknowledged the concerns about uneven practices but has stated that the current MiCA framework mandates national oversight. According to an ESMA spokesperson, the current model is one of national supervision within a harmonized rulebook, and a new regulatory framework would be needed to allow for centralized supervision. Despite these limitations, ESMA is working to promote supervisory convergence to ensure a level playing field and prevent regulatory arbitrage between member states.
The European Commission's proposal requires approval from the European Parliament and the Council. As the EU moves closer to a decision, the debate continues regarding the optimal balance between centralized regulation and fostering innovation in the crypto space. The outcome will have significant implications for the future of crypto in Europe, its competitiveness in the global market, and the protection of investors.
