EU Wants ESMA to Oversee Crypto Like the SEC Does in US

The European Commission formally proposed transferring direct supervision of all crypto asset service providers to the European Securities and Markets Authority.

This supervision was previously placed under the Markets in Crypto-Assets framework, with the licensing authority working with national regulators.

The legislative package aims to eliminate regulatory fragmentation across 27 member states by granting ESMA powers comparable to those of the U.S. Securities and Exchange Commission over U.S. markets.

The proposal arrives just nine months after its announcement in the Savings and Investments Union strategy.

The strategy highlighted the political urgency behind capital markets integration as Europe confronts competitive pressures from U.S. financial markets.

Centralized Powers Target Cross-Border Efficiency

ESMA would gain authority to directly authorize crypto firms seeking to operate across the bloc, replacing the passporting system, where companies secure approval in one jurisdiction before expanding throughout the EU.

The regulator would also assume oversight of significant trading venues, central counterparties, and central securities depositories alongside its expanded crypto mandate.

The Commission’s framework introduces “Pan-European Market Operator” status to streamline corporate structures into a single licensing format while enhancing ESMA’s coordination role in asset management.

Officials positioned the changes as essential for responding to emerging risks and addressing inconsistencies from fragmented national approaches.

The package simultaneously addresses barriers to distributed ledger technology by amending the DLT Pilot Regulation to increase proportionality and provide legal certainty for blockchain adoption.

Member states will see directives converted into regulations to reduce national discretions that enable regulatory gold-plating.

Member States Split Over Sovereignty Concerns

France backed the centralization push after Bank of France Governor François Villeroy de Galhau warned that the current passporting model creates regulatory loopholes due to uneven oversight.

“This framework would benefit from much stricter regulation of the multi-issuance of the same stablecoin within and outside the European Union, to reduce arbitrage risks in times of stress,” he said in October.

Germany also recently signaled openness to expanded ESMA powers following years of opposition, while ECB President Christine Lagarde endorsed centralized supervision as essential for European competitiveness against the United States.

Just last month, ESMA Chair Verena Ross highlighted the inefficiency of national regulators building 27 separate crypto frameworks when centralized resources could achieve better alignment.

While others seem to be geared toward the idea, Luxembourg Finance Minister Gilles Roth rejected the shift, stating that his country prefers “supervisory convergence rather than creating a costly and ineffective centralized model.“

In fact, Malta’s Financial Services Authority warned that centralization would introduce bureaucratic layers that would hinder competitiveness, at a time when the EU is striving to enhance its global position.

Industry groups raised concerns about disrupting MiCA’s rollout before it is fully implemented.

“Reopening MiCA at this stage would introduce legal uncertainty, risk delaying the authorization process, and divert attention and resources from the practical task of consistent implementation,” said Robert Kopitsch, secretary general of Blockchain for Europe.

Implementation Timeline Faces Political Hurdles

The European Parliament and Council must approve the proposals through negotiations, where maintaining package unity remains crucial for establishing a genuine single market across the investment chain.

Officials expect Parliament to adopt a legislative framework position by May 2026, while member states aim for general agreement by year-end.

ESMA will begin overseeing equity and bond price consolidation, alongside ESG ratings, from 2026 onward, with oversight of cryptocurrency extending the regulator’s authority as Europe pursues tighter market integration.

The Commission emphasized that the reforms address fragmentation that raises costs for cross-border trades, a significant obstacle for startups scaling in Europe rather than the U.S.

The initiative forms part of broader efforts to complete the EU’s capital markets union, after data-sharing rules published on November 26 established strict requirements for how crypto firms must collect, store, and report user information to tax authorities, starting January 2026.

The Transfer of Funds Regulation, which extends the travel rule to crypto, takes effect on December 30 and requires exchanges to identify transaction participants, including self-hosted wallet interactions.