The European Commission’s initiative to enhance the authority of the European Securities and Markets Authority (ESMA) is sparking concerns over the centralization of the bloc’s licensing system, even as it hints at greater institutional ambitions for its capital markets framework.
On Thursday, the Commission unveiled a proposal to grant “direct supervisory powers” over key market infrastructure, including crypto-asset service providers (CASPs), trading venues, and central counterparties to ESMA, as reported by Cointelegraph.
Worryingly, ESMA’s jurisdiction would cover both the oversight and licensing of all European crypto and fintech companies, which could result in slower licensing processes and hinder the growth of startups, according to Faustine Fleuret, head of public affairs at the decentralized lending protocol Morpho.
“My concerns are heightened by the fact that the proposal assigns ESMA the responsibility for both authorizing and supervising CASPs, rather than just supervision,” she stated to Cointelegraph.
The proposal still awaits approval from the European Parliament and the Council, which are in the negotiation phase.
If enacted, ESMA’s role in managing EU capital markets could closely resemble the centralized system of the US Securities and Exchange Commission, a notion first suggested by European Central Bank (ECB) President Christine Lagarde in 2023.
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Concerns over crypto and fintech slowdown prompted by EU’s centralization plans for licensing under ESMA
Efforts to “centralize” this oversight under one regulatory entity aim to streamline the inconsistencies in national supervisory practices and uneven licensing processes, but this may impede the overall development of the crypto sector, according to Elisenda Fabrega, general counsel at the asset tokenization platform Brickken, who spoke to Cointelegraph.
“Lacking sufficient resources, this mandate might become overwhelming, leading to delays or overly cautious evaluations that could disproportionately impact smaller or innovative firms.”
“Ultimately, the success of this reform will rely less on its legal framework and more on its institutional implementation,” including ESMA’s operational capability, independence, and collaborative “channels” with member states, she added.
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The broader proposal seeks to enhance wealth creation for EU citizens by making the bloc’s capital markets more competitive with those of the US.
The US stock market is valued at around $62 trillion, representing 48% of the global equity market, whereas the EU’s stock market has a cumulative worth of about $11 trillion, constituting 9% of the global share, according to data from Visual Capitalist.
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