EU Plans Major Overhaul: ESMA to Lead Crypto and Market Oversight

Under the planned reforms, certain entities now regulated by national authorities would instead report directly to ESMA, according to a report by the Financial Times. The shift is being positioned as a way to unify oversight practices, reduce regulatory arbitrage, and strengthen the EU’s competitiveness in global capital markets.

Since the adoption of the EU’s Markets in Crypto-Assets regulation, national competent authorities have held primary licensing and supervisory authority over crypto-asset service providers and exchanges. However, differences in interpretation and enforcement across Member States have created legal uncertainty and inefficiency, leading to uneven compliance standards and confusion for cross-border operators.

ESMA officials argue that requiring all 27 national regulators to develop deep crypto-expertise is redundant, and that some level of consolidation would bring greater consistency and efficiency. Several major financial jurisdictions support granting ESMA direct powers over what are deemed “significant” cross-border or systemically relevant crypto operators. Under current discussions, ESMA’s remit could also expand to institutions providing consolidated market data and ESG ratings, further aligning crypto oversight with broader capital markets regulation.

Not all EU states support the shift. Smaller jurisdictions, including Malta and Luxembourg, have voiced concerns that granting ESMA greater authority could undermine local regulatory autonomy and competitiveness. These countries argue that national authorities are better positioned to understand domestic market dynamics and fear that centralization might introduce additional bureaucracy and slow decision-making processes.

Malta’s financial regulator has publicly opposed the idea of transferring direct crypto supervision to ESMA. While it supports stronger coordination and alignment among national regulators, it cautions that centralization “at this stage” could create unnecessary complexity and reduce flexibility. In parallel, some regulators have questioned the “passporting” model under MiCA — the framework that allows firms licensed in one Member State to operate across the EU. France, in particular, has warned it may block licenses issued elsewhere if it believes oversight standards are inconsistent.

French regulators have escalated tensions within the EU by threatening to reject crypto licences granted by other Member States under MiCA’s passporting framework. The move reflects France’s growing frustration over what it views as uneven enforcement standards across Europe. Paris argues that some jurisdictions have applied looser vetting to attract crypto businesses, creating a two-tier system that undermines investor protection and market integrity.

The French Financial Markets Authority has warned that unless supervision is harmonized and strengthened at the EU level, it may block access for firms licensed elsewhere in the bloc. This stance underscores the urgency of ESMA’s proposed central oversight role, as national divergences increasingly risk eroding MiCA’s credibility and cohesion.

Advocates of central supervision argue that ESMA could deliver more coherent enforcement, reduce duplication of effort, and curb regulatory arbitrage across Member States. A single European-level supervisor, they say, would simplify compliance for firms operating in multiple jurisdictions and bring greater consistency to oversight, particularly in the fast-evolving digital finance sector.

Critics, however, warn of the potential risks that come with concentrated oversight. If ESMA lacks sufficient resources or technical capacity, mistakes or delays could have systemic repercussions. Another challenge lies in defining which entities are “significant” enough to fall under ESMA’s direct supervision and which should remain under national regulators. Beyond operational hurdles, the transition would require a complex reallocation of powers, adjustments to ESMA’s governance, and strong political agreement among Member States. Some policymakers suggest a phased approach, starting with large incumbents or high-risk actors before expanding to the wider market.

In the coming months, the European Commission is expected to put forward legislative proposals that formalize the shift in supervisory authority. The progress of these reforms will depend heavily on negotiation among Member States, as well as input from the crypto industry, financial regulators, and capital markets stakeholders. If adopted, the shift toward central oversight could reshape how crypto markets function in Europe, promoting greater uniformity but also triggering significant adjustments for firms accustomed to national supervision.