The European Commission’s proposal to extend the European Securities and Markets Authority (ESMA) jurisdiction over cryptocurrency and financial markets has ignited debate across the continent, with industry leaders warning it could stifle innovation and create regulatory bottlenecks.
The initiative would give ESMA direct supervisory powers over stock exchanges and crypto service providers, centralizing oversight in a manner similar to the US Securities and Exchange Commission (SEC). A draft proposal is expected in December, according to reports.
Under the Markets in Crypto-Assets Regulation (MiCA), which came into effect for crypto asset service providers in December 2024, companies licensed in one EU member state can “passport” their authorization across all 27 member nations.
Industry warns against innovation slowdown
Critics say the plan could hinder Europe’s fintech competitiveness. Centralizing authorization and supervision entirely within ESMA would demand vast human and financial resources, said Faustine Fleuret, head of public affairs at Morpho, a decentralized lending protocol.
[ESMA supervision] would likely slow down decision-making and innovation, particularly for newer players in crypto and fintech companies who rely on close collaboration with their domestic regulators.
Fleuret proposed a hybrid approach, suggesting ESMA should focus on oversight of national regulators such as the power to suspend or revoke licenses instead of fully centralizing control in Brussels.
In September, France’s securities regulator raised concerns over MiCA’s enforcement, even threatening to ban passporting of crypto licenses, a move that Fleuret said could undermine one of Europe’s key advantages.
The EU passport is the cornerstone of EU financial regulations, including MiCA; jeopardizing it means depriving crypto market players of the only competitive advantage that Europe currently offers them.
Experts call for balanced supervision
Not all observers are critical. Some policy experts believe expanding ESMA’s reach could strengthen EU-wide standards and reduce regulatory fragmentation.
More standard-setting and guidance are needed to address operational risks in custody and cybersecurity.
She noted that centralized supervision could improve consistency under MiCA and the Digital Operational Resilience Act (DORA) if properly implemented and resourced.
The concept of a single EU market watchdog has also gained support from European Central Bank (ECB) President Christine Lagarde, who endorsed it during the European Banking Congress in November 2023.