The European Commission has put forward a proposal to enhance the powers of the European Securities and Markets Authority (ESMA) concerning crypto and broader financial markets. This initiative aims to reduce the competitive disparity between the European Union and the United States.
The proposed package, published on Thursday, intends to transfer "direct supervisory competences" for critical market infrastructure, including crypto-asset service providers (CASPs), trading venues, and central counterparties, to ESMA. Additionally, it seeks to strengthen ESMA's coordination role within the asset management sector.
This proposal must now gain approval from the European Parliament and the Council, where it is currently under negotiation.
If adopted, ESMA's oversight of EU capital markets would more closely mirror the centralized framework managed by the US Securities and Exchange Commission.
In September, France became the third European nation to advocate for ESMA, based in Paris, to assume supervision of major crypto firms. This followed similar calls from Austrian and Italian securities regulators.
This development emerged amid mounting criticism of Malta's crypto licensing regime. In July, ESMA released a peer review of the Malta Financial Services Authority's authorization process for a crypto service provider, stating that the regulator had only "partially met expectations."
Concerns about less stringent regulations in certain jurisdictions have also led France to threaten blocking the "passporting" of European licenses obtained from member states. This action highlights potential enforcement gaps within Europe's Markets in Crypto-Assets Regulation (MiCA).
The three EU countries have also expressed support for revisions to MiCA, which include more stringent rules for crypto activities originating outside the EU, enhanced cybersecurity oversight, and a review of the regulation of new token offerings.
ECB President Lagarde First Proposed a "European SEC" in 2023
The European Union began examining the possibility of granting ESMA direct supervisory authority over crypto firms in early November, as previously reported.
The EU's current regulatory structure involves numerous national and regional agencies, which are seen as obstacles to cross-border trade and startup innovation.
European Central Bank (ECB) President Christine Lagarde initially proposed the concept of a "European SEC" in 2023.
Lagarde stated at the European Banking Congress in November 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."
ESMA Leadership Sparks Concerns for Crypto and Fintech Startup Development in the EU
Industry observers have previously suggested that ESMA's centralized supervision across the entire bloc could potentially slow down innovation, particularly for smaller crypto and financial technology (fintech) companies that benefit from closer collaboration with domestic regulators.
Faustine Fleuret, head of public affairs at decentralized lending protocol Morpho, commented to Cointelegraph, "Centralizing authorization and supervision entirely within ESMA would demand vast human and financial resources," which could "slow down decision-making and innovation, particularly for newer players."
The broader package aims to foster wealth creation for EU citizens by enhancing the competitiveness of the bloc's capital markets.
According to a European Commission report, the market capitalization of stock exchanges in 2024 represented only 73% of EU GDP, in contrast to 270% in the US.