European Commission Seeks to Consolidate Digital Asset Supervision via ESMA
The European Commission has formally proposed transferring direct oversight of all digital asset service providers to the European Securities and Markets Authority (ESMA). Previously, oversight was managed through collaboration between licensing authorities and national regulators within the digital asset markets framework.
The new legislative package seeks to eliminate regulatory fragmentation across the 27 EU member states by granting ESMA powers similar to those held by the U.S. Securities and Exchange Commission (SEC). This proposal comes just nine months after the Savings and Investment Union (SUIU) strategy highlighted the urgent need for capital market integration, as Europe faces increasing competitive pressure from U.S. financial markets.
Under the proposal, ESMA would have the authority to directly license cryptocurrency companies operating across the EU, replacing the current passporting system, which required approval in one jurisdiction before expansion to other member states. The regulator would also oversee key trading venues, central counterparties, and central securities depositories, alongside its expanded mandate for digital operations.
The Commission’s framework introduces a “European Single Market Operator” (ESMO) model to streamline corporate structures under a single license while reinforcing ESMA’s coordinating role in asset management. Officials described these changes as essential for addressing emerging risks and resolving inconsistencies arising from fragmented national approaches. The package also tackles obstacles to distributed ledger technology by amending the pilot regulation to ensure proportionality and provide legal certainty for blockchain adoption.
Existing directives would be converted into member state regulations to limit national discretion that could allow regulatory loopholes. France has supported these reforms after Bank of France Governor François Villeroy de Galhau warned that the current passport model creates gaps due to asymmetric oversight. He stated in October: “This framework will benefit from stricter regulation of multiple issuances of the same stablecoin within and outside the EU, to reduce arbitrage risks during times of stress.”
Germany has recently signaled openness to expanding ESMA’s powers after years of resistance, while European Central Bank President Christine Lagarde emphasized that centralized supervision is essential for European competitiveness against the United States. Last month, ESMA Chairwoman Verena Roth criticized the inefficiency of national regulators, who have established 27 separate frameworks for digital currencies, suggesting that centralization could achieve greater consistency.
In contrast, Luxembourg Finance Minister Gilles Roth rejected the proposal, preferring “supervisory convergence to creating a costly and inefficient centralized model.” Malta’s Financial Services Authority also warned that centralization could introduce bureaucratic hurdles, undermining competitiveness as the EU seeks to strengthen its global position. Industry groups have expressed concerns about delaying the rollout of the MICA initiative, with Robert Kubic, Secretary-General of the Blockchain Initiative for Europe, stating: “Reopening the MECA market at this stage would create legal uncertainty, delay the licensing process, and divert attention and resources from consistent implementation.”
The proposals must be approved by the European Parliament and Council through negotiations, as maintaining the unity of the package is crucial to establishing a truly unified market across the investment chain. Officials expect Parliament to adopt a legislative position by May 2026, while member states aim for a general agreement by year-end.
From 2026 onward, ESMA is expected to supervise the standardization of stock and bond prices, as well as environmental, social, and governance (ESG) ratings, while expanding oversight to include digital currencies. The Commission emphasized that these reforms address market fragmentation, which increases cross-border transaction costs and hinders startups seeking to expand in Europe rather than the United States.
This initiative is part of the broader Capital Markets Union effort. Recent measures, such as the data exchange rules published on November 26, set strict requirements for how cryptocurrency companies collect, store, and report user information to tax authorities, effective January 2026. Additionally, the money transfer regulation, extending the travel rule to cryptocurrencies, comes into force on December 30, requiring trading platforms to identify transaction participants, including interactions with self-hosted wallets.
