The European Commission is poised to expand the powers of the European Securities and Markets Authority (ESMA), aiming to centralize oversight of the cryptocurrency sector across the EU. This proposed shift could fundamentally reshape how the region regulates digital assets, consolidating authority under a single body instead of relying on multiple national regulators.
ESMA’s Central Role in Cryptocurrency Regulation
If approved, the ESMA will become the sole supervisory authority for all cryptocurrency service providers in the European Union. This decision marks a significant shift in regulatory approach, handing centralized control of oversight and compliance to the ESMA rather than allowing 27 different national regulators to guide the industry.
This proposal, anticipated to be announced next month, comes just before the full implementation of the Markets in Crypto-Assets (MiCA) regulation, which was adopted in 2023 as the EU’s primary framework for cryptocurrency governance.
Under MiCA, companies currently require only a single licensing agreement from one member state to operate throughout the EU, a structure designed to streamline processes and reduce fragmentation across the market.
Concerns and Criticism
While MiCA was established to promote legal clarity and coherence across the EU, the new proposal appears to shift this balance, placing the responsibility for approval and oversight directly with the ESMA, regardless of a provider’s country of origin. Although the ESMA may delegate certain tasks to national authorities, the centrality of its oversight remains a concern for industry stakeholders.
With the implementation window closing in 2024, many businesses and local regulators worry that altering the framework at this late stage could lead to delays and confusion during the rollout of MiCA. Critics argue that reopening discussions on MiCA could undermine its intended legal security.
Moreover, the transfer of responsibilities to the ESMA without adequate resources could impede effective enforcement of regulations. This proposal must be approved by the European Parliament and the Council of the EU before it becomes law.
Industry Response and Future Implications
The Commission’s decision has raised alarms within the cryptocurrency sector. Many believe that local regulators are better positioned to interact directly with businesses on a day-to-day basis. Organizations like Blockchain for Europe warn that centralizing control at this juncture might detract from ensuring smooth implementation of MiCA.
Some experts have stressed that the ESMA would need significantly more personnel and funding to effectively fulfill its new role. There is a concern that replacing existing local frameworks with a centralized system could delay permissions and regulatory oversight.
France, along with other EU institutions, has actively pushed for an expansion of ESMA’s powers. Recently, regulators from France, Austria, and Italy proposed that the ESMA supervise larger cryptocurrency firms directly while allowing smaller companies to remain under national jurisdiction, a move that suggests a compromise between full centralization and local control.
This proposal aligns with a broader EU trend towards centralized financial oversight, with discussions also about extending ESMA’s authority over clearinghouses, trading platforms, and custodians. However, resistance from some member states highlights the potential drawbacks of reducing national control, which risks introducing unnecessary bureaucracy and diminishing flexibility.
The urgency of reform was highlighted in July when concerns were raised about Malta’s cryptocurrency licensing practices, which prompted questions about regulatory coherence and due diligence across the EU. This incident has strengthened the argument for a more unified oversight model.
As the proposal evolves, the cryptocurrency sector remains anxious, with companies eager to understand whether licensing and regulation will remain at a national level or shift entirely to a central EU authority.
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