European Commission advances push to centralize crypto regulation

The European Commission is pushing for extended oversight powers for the European Securities and Markets Authority (ESMA). Draft plans have shown a proposal to make ESMA a direct supervisor for all crypto service providers in the EU. 

EU officials have drafted plans to tighten crypto oversight, with more power in the hands of ESMA. Currently, crypto firms in the EU rely on registration within a single jurisdiction, choosing countries with lenient crypto rules. 

Under the active Markets in Cryptoassets (MiCA) rules, exchanges or other service providers can be registered in one country and provide services across the entire European Union. After that, national regulators have a say in the operations of crypto service providers and regulating the local market, reported Bloomberg. 

The concentration of regulatory power in the hands of ESMA may break down the already intricate national crypto regulations, leaving the market disoriented once again. 

European Commission may delegate power to national regulators

The proposals for increased ESMA oversight are still preliminary. ESMA may also decide to delegate regulations back to national authorities in some cases. The draft is waiting approval from the European Parliament and the council of member states. 

“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, an industry lobby group.

The introduction of MiCA caused limited effects on the Euro area crypto trading. Most notably, exchanges and brokerages increased their usage of USDC, while phasing out USDT trading pairs. 

Kopitsch added that national regulators had a closer engagement with firms, more detailed compared to ESMA’s cross-border oversight. Other analysts noted that after the implementation of MiCA, another shift in goal posts may hurt the crypto industry in the EU. Additionally, ESMA would have to rebuild its expertise for tracking crypto service providers. 

The proposal to give more instruments to ESMA mostly came from France and the EU institutions, putting a new layer of compliance for crypto companies. Other supporters included Austria and Italy, calling for ESMA oversight for major crypto companies, while leaving smaller businesses under national jurisdiction. 

Centralized regulation calls come amid hacking, money laundering risks

Earlier reports linked the ESMA proposal to the 2025 hack of Bybit. The hacked funds went through OKX, an exchange that has secured a full MiCA license and is a major player on the EU market. 

The chief concern of French market regulators is the foothold of market operators from outside the Euro Area, who also have a substantial global business. Most major crypto centralized exchanges have re-entered the market with a full MiCA license, but continue to be exposed to global risks and coordinate with their global branches. 

ESMA may intervene when those arrangements pose risks to investors and may hurt European market participants. However, in most cases, the European branches of big exchanges are isolated, which includes user accounts and wallets without access to the global market.

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