Extending ESMA jurisdiction to include financial markets threatens to slow innovation for crypto and fintech companies, but some policy experts see a silver lining.
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The European Commission’s plan to expand the authority of the European Securities and Markets Authority (ESMA) over cryptocurrency and capital markets has sparked debate across Europe, with critics warning it could stifle innovation and slow decision-making.
The giving the ESMA direct supervisory powers over stock exchanges and crypto service providers, potentially creating a centralized regulatory framework similar to the ). The European Commission is expected to publish a draft of the plan in December.
Under the existing Markets in Crypto-Assets Regulation (MiCA), which took effect for crypto asset service providers in December 2024, companies authorized in one EU member state can “passport” their licenses to operate across the 27-nation bloc.
Industry warns against innovation slowdown
However, granting control to the ESMA risks slowing down innovation, particularly among crypto and financial technology (fintech) companies, according to Faustine Fleuret, head of public affairs at decentralized lending protocol Morpho.
“Centralizing authorization and supervision entirely within ESMA would demand vast human and financial resources, she told Cointelegraph.
“[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 said a more balanced approach would involve giving ESMA stronger oversight powers over national regulators, such as the ability to suspend or revoke licenses, rather than centralizing all decision-making in Brussels.
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In September, 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.
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Experts call for balanced supervision
Other policy experts see the Paris-based ESMA’s expanding jurisdiction as a promising sign for crypto regulatory maturity in the EU.
Centralizing control and standards across EU member states could help with the most pressing concerns related to MiCA, including licensing, cybersecurity and custodial risks, according to Dea Markova, director of policy at digital asset custody platform Fireblocks.
“At a principal level, we believe that more standard-setting and guidance is needed to address risks stemming from operational resilience of the custody function,” Markova told Cointelegraph. “We can extrapolate from this specific risk that other areas of MiCA and DORA [Digital Operational Resilience Act] can benefit from supervisory convergence, be it through more guidance or through creating a single EU supervisor.”
Markova cautioned that the success of centralized supervision will depend on how the plan is implemented and resourced.
The idea of creating a single supervisory body, similar to the SEC, was also backed by European Central Bank (ECB) President Christine Lagarde, who voiced support for the concept during the European Banking Congress in November 2023.
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