EU plan strengthens ESMA’s powers over cryptocurrencies and capital markets

Table of Contents

The European Commission has proposed expanding the powers of the European Securities and Markets Authority (ESMA) over cryptocurrencies and broader financial markets in a bid to close the competitive gap with the United States.

The package, announced on Thursday, will transfer “direct supervisory powers” over key parts of market infrastructure, including crypto asset service providers (CASPs), trading venues and central counterparties, to ESMA and strengthen its coordinating role in the asset management sector.

The proposal still needs approval from the European Parliament and the European Council and is currently under negotiation.

If adopted, ESMA’s role in overseeing EU capital markets would become more similar to the US Securities and Exchange Commission’s centralized framework.

The EU’s proposals aim to streamline the market and strengthen ESMA’s powers. Source: Finance.ec.europa.eu

In September, France joined securities regulators in Austria and Italy to become the third country in Europe to ask Paris-based ESMA to take over oversight of large crypto companies.

The move follows mounting criticism of Malta’s cryptocurrency licensing regime. In July, ESMA published a peer review of the Malta Financial Services Authority’s licensing of crypto service providers, saying the regulator had only “partially met expectations”.

France has also threatened to block the “passporting” of European licenses obtained from member states due to concerns over looser regulations in some jurisdictions, widening the enforcement gap around the European Cryptoassets Market Regulation (MiCA).

The three EU countries also supported revisions to MiCA, including stricter rules for cryptocurrency activity outside the EU, increased cybersecurity oversight, and a review of how new token offerings are regulated.

EU policy-making schedule: Source: Finance.ec.europa.eu

Related: Ethereum government bond trading shrinks by 80% as a few whales dominate buying

ECB President Lagarde first proposed a “European SEC” in 2023

As previously reported by Cointelegraph, the European Union began considering whether to give ESMA direct supervisory powers over crypto companies in early November.

The EU’s current framework consists of multiple national and regional regulatory bodies, hindering cross-border trade and startup innovation.

European Central Bank (ECB) President Christine Lagarde first proposed the idea of creating a European SEC in 2023.

“A solution could be to create a European SEC, for example by expanding the powers of ESMA. Broader powers, including direct supervision, will be needed to reduce the systemic risks posed by large cross-border companies,” Lagarde said at the European Banking Conference in November 2023.

Related: Grayscale Chainlink ETF collects $41 million in debut, but not a ‘blockbuster’

ESMA leadership raises concerns about crypto, fintech startup development in EU

Industry watchers previously told Cointelegraph that ESMA’s block-wide oversight could slow innovation, especially for smaller cryptocurrency and financial technology (fintech) companies that rely on close coordination with national regulators.

“Fully centralizing authorization and oversight within ESMA would require significant human and financial resources,” Faustine Fleuret, head of communications at decentralized lending protocol Morpho, told Cointelegraph. “It would slow down decision-making and innovation, especially for new entrants.”

Statistics on the segmentation of EU capital markets. Source: Finance.ec.europa.eu

The broader package aims to boost wealth creation for EU nationals by making the EU’s capital markets more competitive.

According to a report by the European Commission, the market capitalization of stock exchanges in 2024 accounted for only 73% of the EU’s GDP, compared to 270% in the US.