Malta has pushed back against a European Union plan to move oversight of major crypto firms from national regulators to the European Securities and Markets Authority, or ESMA.
Malta has been opposing the proposal for months as EU officials worked to move it forward, Bloomberg reported on Wednesday.
If EU governments and lawmakers approve the plan, Malta will lose direct oversight of some of the biggest crypto companies licensed on the island, e.g., Crypto.com, Gemini, and Bitpanda.
Last December, the European Commission proposed giving ESMA a stronger role in supervising key parts of the financial system, including major crypto firms.
The European Union says moving crypto supervision to the Paris-based European Securities and Markets Authority would make investing safer.
Officials also hope the change would help redirect roughly EUR 11 trillion held in bank deposits toward growth-focused investments like stocks and bonds, Bloomberg noted.
The Commission’s proposals still need approval from EU governments and the European Parliament before they can take effect.
For Malta, the issue is about more than just regulatory changes. The country has spent years building its image as one of Europe’s most crypto-friendly markets. It started this strategy long before MiCA, the European Union’s Markets in Crypto-Assets regulation.
Malta’s early lead in crypto regulation
Malta earned the nickname “Blockchain Island” after becoming the first country in Europe to introduce a broad legal framework for crypto and distributed ledger technology in 2018.
That policy, along with a tax rate as low as five percent for some international firms, attracted strong interest from the crypto sector.
When the EU’s Markets in Crypto-Assets framework started to take effect, Malta moved quickly. The country issued four of the first 15 MiCA licenses in the bloc.
The Malta Financial Services Authority has about 520 staff members. That is close to the size of Switzerland’s financial regulator, even though Malta has a much smaller economy.
Kenneth Farrugia, chief executive of the MFSA, says other nations should not penalize Malta for acting early.
“Regulating the sector and allowing other European countries to develop their own crypto economies should not come down to disempowering those who got there first,” he said. He added that rivals “should have foreseen where the market is going.”
Why Malta resists centralized control
Malta’s early lead has made it one of the strongest critics of the plan. Reuters reported in September that the Malta Financial Services Authority supported better coordination across Europe but opposed giving ESMA direct control over large crypto firms.
The regulator said the move would add bureaucracy and reduce efficiency as the EU tries to stay competitive.
“We believe that centralisation at this stage would only introduce an additional layer of bureaucracy, which could hinder efficiency during a period when the EU is actively striving to enhance its competitiveness,” a spokesperson for the MFSA said at that time.
Scrutiny and tensions rise
France, Italy, and Austria support centralized oversight. They argue that MiCA may not be enforced equally across the EU, the report stated.
Tensions rose after ESMA reviewed Malta’s crypto licensing decisions.
The review looked at Malta’s early approval of a major crypto firm, later identified as OKX. That approval came just one month before OKX agreed to pay $504 million in U.S. fines linked to an unlicensed money-transmitting case involving about $1 trillion.
ESMA sent around 12 officials to review more than 7,000 documents. In the end, the regulator said Malta’s system was largely meeting expectations.
However, it also said officials did not examine the firm’s background closely enough and should have carried out a more thorough review.
Farrugia rejected that criticism and said the review looked like an attempt to slow Malta’s licensing work. Chris Buttigieg, an ESMA board member and the MFSA’s head of supervision, also defended Malta’s approach during MiCA’s early phase.
He said it was still too early to justify such criticism. He added that there was no crisis and that regulators had not yet given supervisory convergence enough time to work.
The European Council and the European Parliament will make the final decision. If they approve the measure, large crypto exchanges licensed in Malta could come under both MFSA and ESMA supervision.
Smaller firms may face less direct pressure, but the overall regulatory system would become more complex.
Malta is not against cooperation completely.
The MFSA supports closer coordination between national regulators and clearer guidance from ESMA. However, it says the EU should not transfer core supervisory powers at this stage.