The European Commission has proposed expanding the powers of the European Securities and Markets Authority (ESMA) over crypto and broader financial markets in a bid to narrow the competitive gap with the United States.
Published Thursday, the package would transfer “direct supervisory competences” for key pieces of market infrastructure, including crypto-asset service providers (CASPs), trading venues and central counterparties, to ESMA and strengthen its coordination role in the asset management sector.
The proposal still needs approval from the European Parliament and the Council, where it is under negotiation.
If adopted, ESMA’s role in overseeing EU capital markets would more closely resemble the centralized framework of the US Securities and Exchange Commission.
EU proposal aims to streamline markets and strengthen ESMA’s authority. Source: finance.ec.europa.eu
In September, France became the third European country to call for the Paris-based ESMA to take over supervision of major crypto firms, joining Austrian and Italian securities regulators.
The move followed growing criticism of Malta’s crypto licensing regime. In July, ESMA released a peer review of the Malta Financial Services Authority’s authorization of a crypto service provider, saying that the regulator only “partially met expectations.”
Due to concerns over more lenient regulations in some jurisdictions, France has also threatened to block the “passporting” of European licenses obtained from member states, raising enforcement gaps about Europe’s Markets in Crypto-Assets Regulation (MiCA).
The three EU countries also backed revisions to MiCA, including stricter rules for crypto activities outside the EU, stronger cybersecurity oversight and a review of how new token offerings are regulated.
EU policy-making timeline: Source: finance.ec.europa.eu
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ECB President Lagarde first proposed a “European SEC” in 2023
The European Union began exploring whether to give ESMA direct supervisory powers over crypto companies in early November, as previously reported by Cointelegraph.
The EU’s current framework comprises multiple national and regional regulatory agencies, which are hindering cross-border trade and startup innovation.
European Central Bank (ECB) President Christine Lagarde first proposed the idea of creating a “European SEC” in 2023.
“Creating a European SEC, for example, by extending the powers of ESMA, could be the answer. It would need a broad mandate, including direct supervision, to mitigate systemic risks posed by large cross-border firms,” Lagarde said at the European Banking Congress in November 2023.
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ESMA leadership sparks concerns for crypto, fintech startup development in the EU
Industry watchers previously told Cointelegraph that ESMA’s supervision across the entire block may slow innovation, particularly for smaller crypto and financial technology (fintech) companies relying on closer collaboration with domestic regulators.
“Centralizing authorization and supervision entirely within ESMA would demand vast human and financial resources,” which would “slow down decision-making and innovation, particularly for newer players,” Faustine Fleuret, head of public affairs at decentralized lending protocol Morpho, told Cointelegraph.
EU capital markets fragmentation statistics. Source: finance.ec.europa.eu
The broader package aims to boost wealth creation for EU citizens by making the bloc’s capital markets more competitive.
In 2024, the market capitalization of stock exchanges accounted for only 73% of EU GDP, compared to 270% in the US, according to the European Commission’s report.
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