EU’s ESMA Expansion Sparks Fears of Regulatory Overreach and Innovation Stifling
European Commission’s Plan to Expand ESMA Authority Triggers Debate Across Europe
The European Commission is reportedly planning to expand the authority of the European Securities and Markets Authority (ESMA) over cryptocurrency and capital markets, sparking debate among critics who warn that it could stifle innovation and slow decision-making.
The plan aims to give ESMA direct supervisory powers over stock exchanges and crypto service providers, potentially creating a centralized regulatory framework similar to the US Securities and Exchange Commission (SEC). The European Commission is expected to publish a draft of the plan in December.
Under the existing Markets in Crypto-Assets Regulation (MiCA), which came into effect for crypto asset service providers in July 2024, companies authorized in one EU member state can "passports" their licenses to operate across the 27-nation bloc. However, critics argue that granting control to ESMA risks slowing down innovation, particularly among crypto and financial technology (fintech) companies.
Industry Warns Against Innovation Slowdown
Faustine Fleuret, head of public affairs at decentralized lending protocol Morpho, expressed concerns about the potential impact on innovation. "Centralizing authorization and supervision entirely within ESMA would demand vast human and financial resources," she said. "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 advocated for a more balanced approach that involves giving ESMA stronger oversight powers over national regulators. This could include the ability to suspend or revoke licenses, rather than centralizing all decision-making in Brussels. "A more effective way to address risks would be to grant ESMA the power to oversee national regulators and ensure they are implementing MiCA correctly," she added.
What does this mean for the crypto industry?
The proposed expansion of ESMA’s authority is just one part of a broader regulatory landscape that is changing the way cryptocurrencies operate. While some policymakers see it as a step forward in promoting investor protection, others worry about its potential consequences on innovation and competition.
Related Developments
In September, France’s securities regulator threatened to ban the "passporting" of crypto licenses under the MiCA regime, raising concerns about enforcement gaps in the EU-wide regulatory framework. "The EU passport is the cornerstone of EU financial regulations, including MiCA; jeopardising it means depriving crypto market players of the only competitive advantage that Europe currently offers them," said Fleuret.
Support for Balanced Supervision
However, not all experts share this view. Dea Markova, director of policy at digital asset custody platform Fireblocks, sees the expanding jurisdiction of ESMA as a promising sign for crypto regulatory maturity in the EU. "Centralizing control and standards across EU member states could help address the most pressing concerns related to MiCA, including licensing, cybersecurity and custodial risks," she said.
Markova called for more standard-setting and guidance to address risks stemming from operational resilience of the custody function. "We believe that more convergence among national regulators would benefit the crypto industry as a whole," she added.
