Introduction
The European Commission has unveiled a controversial proposal aimed at enhancing the authority of the European Securities and Markets Authority (ESMA), which has sparked debate over the potential centralization of the European Union’s licensing system. This move is seen as a step towards greater institutional integration in capital markets within the EU.
Details of the Proposal
On Thursday, details emerged regarding a new regulatory framework that would entrust ESMA with direct supervisory powers over vital market components—including cryptocurrency service providers (CASPs), trading platforms, and central counterparties, as reported by Cointelegraph.
Industry Concerns
Industry experts have expressed worries that this shift could result in prolonged licensing processes, possibly stifling innovation among startups. Faustine Fleuret, who leads public affairs at the decentralized lending platform Morpho, voiced her concerns, stating:
“The dual responsibility of ESMA for both licensing and supervision of CASPs raises red flags about potential delays in the authorisation process.”
Regulatory Approval and Comparisons
The proposed framework is still subject to approval by the European Parliament and the Council, which are now in negotiations. If ratified, ESMA’s supervisory role would become more comparable to that of the US Securities and Exchange Commission (SEC), a concept previously suggested by Christine Lagarde, President of the European Central Bank, earlier this year.
Potential Impacts on the Crypto Sector
While this regulatory consolidation aims to harmonize the existing inconsistencies in national supervisory practices and licensing modalities, it is feared that it could impede the growth of the crypto sector. Elisenda Fabrega, general counsel for the asset tokenization firm Brickken, cautioned that:
The effectiveness of such reforms hinges not just on the legal structure but also on how well they are implemented, including factors such as ESMA’s resource allocation and its ability to collaborate with EU member states.
Conclusion
The overarching goal of this regulatory package is to enhance the competitiveness of EU capital markets, in hopes of creating significant wealth opportunities for European citizens, particularly in contrast to the massive $62 trillion US stock market, which commands nearly half (48%) of the global equity market. In contrast, the entire EU stock market holds approximately $11 trillion, making up only 9% of the global share, as per data from Visual Capitalist.
