EU Moves to Create Single Crypto Regulator Across All Member States

The European Commission wants to give much more power to a single authority called ESMA (European Securities and Markets Authority) instead of having each country handle crypto regulation separately.

This plan would make ESMA work more like America’s Securities and Exchange Commission (SEC), which oversees financial markets from one central location. The proposal was officially published by the European Commission on December 5, 2024 as part of a bigger package to improve EU financial markets.

Why the EU Wants This Change

Right now, crypto companies can get a license in one EU country and use it to operate in all 27 countries. This system, called “passporting,” lets companies pick the country with the easiest rules. Many have chosen places like Malta, Cyprus, or Lithuania because they have been more relaxed about approvals.

But this has created problems. Different countries have different standards, and some have been too easy on crypto companies. In July 2024, ESMA criticized Malta’s process for approving crypto companies, saying it only “partially met expectations.”

The current system also makes it hard for the EU to compete with the United States. In 2024, EU stock markets were worth only 73% of the region’s total economic output, while US markets were worth 270% of America’s economy. European leaders think having one strong regulator could help close this gap.

What Would Change

Under the new plan, ESMA would directly oversee:

• Major cryptocurrency exchanges and trading platforms

• Crypto-asset service providers under the MiCA regulation

• Stock exchanges and trading venues

• Companies that clear and settle trades

The idea isn’t completely new. Christine Lagarde, who leads the European Central Bank, first suggested creating a “European SEC” in November 2023. She said a stronger ESMA could better handle risks from large companies that operate across multiple countries.

France, Italy, and Austria have been the strongest supporters of giving ESMA more power. They pushed for this change after seeing problems with how some countries were handling crypto regulation.

Industry Pushback

Many in the crypto industry are worried about this plan. They think having one central regulator could slow down innovation and make it harder for new companies to get started.

Faustine Fleuret from the decentralized lending protocol Morpho explained that centralizing everything at ESMA would need “vast human and financial resources” and could “slow down decision-making and innovation, particularly for newer players.”

Some countries are also fighting the change. Malta, Luxembourg, and Ireland don’t want to give up their control over financial regulation. Malta’s financial regulator said centralization would just add “additional layer of bureaucracy” that could hurt efficiency.

Claude Marx, who leads Luxembourg’s financial regulator, went further and warned that giving all power to ESMA could create a regulatory “monster.”

Current Status and Timeline

The proposal still needs approval from the European Parliament and the Council of the EU. This process could take time because many countries and industry groups oppose the changes.

If approved, the new system could take several years to implement. However, the strong opposition from several member states means the proposal faces significant political hurdles.

Meanwhile, Europe’s main crypto regulation called MiCA became fully effective in December 2024. This created uniform rules for crypto companies across Europe, but each country still issues licenses and supervises firms independently.

The enforcement of MiCA has already shown the challenges of having 27 different regulators. In France, extensive anti-money laundering checks are being conducted on crypto exchanges, with only four companies out of more than 100 registered platforms receiving full authorization as of late 2024.

What This Means for Crypto Companies

For crypto companies, the changes could bring both benefits and drawbacks. A single regulator might mean more consistent rules across all EU countries and easier compliance for companies that want to operate everywhere in Europe.

But it could also mean stricter oversight and higher costs, especially for smaller firms. Companies would no longer be able to shop around for the most friendly regulator – they would all have to meet the same high standards set by ESMA.

The proposal would also end the current system where companies can choose which country to get licensed in. Instead, ESMA would directly supervise the most important crypto exchanges and service providers.

The Path Forward

Given the strong opposition from countries like Luxembourg, Ireland, and Malta, along with concerns from industry groups, the proposal faces significant challenges. These countries have built successful financial services sectors and don’t want to lose their competitive advantages.

The debate shows a basic tension in European crypto regulation: should oversight be centralized for consistency, or should countries keep autonomy to compete and innovate?

For crypto companies operating in Europe, the outcome of this debate will determine whether they face a single tough regulator or continue dealing with a patchwork of 27 different national authorities.