The EU plans to transform ESMA into a "European SEC," posing risks to the crypto industry

Legal experts are expressing serious concern over the European Commission's proposal to transform the European Securities and Markets Authority (ESMA) into a "European SEC." This change could significantly complicate the licensing process for crypto and fintech companies in the region, which in turn could negatively impact the development of these sectors.

Expanding ESMA's Powers

On Thursday, the European Commission unveiled a package of proposals granting ESMA new direct supervisory powers over key elements of market infrastructure. These include crypto-asset service providers (CASPs), trading venues, and central counterparties. This expanded power is aimed at deepening the institutional structure of capital markets in the European Union.

Concerns about centralization

One of the main concerns is that ESMA's jurisdiction could encompass both the supervision and licensing of all European crypto and fintech companies. Faustina Fleuret, head of communications for the decentralized lending protocol Morpho, noted that this could slow down licensing procedures and hinder the development of startups.

>>>"I am even more concerned that the proposal places responsibility on ESMA not only for supervision but also for the authorization of CASPs," she emphasized. <<<<

Approval Process and Next Steps

The proposal currently requires the approval of the European Parliament and the Council of the EU, and active negotiations are currently underway. If the initiative is adopted, ESMA's role in regulating EU capital markets will move closer to the centralized model of the US Securities and Exchange Commission (SEC). This concept was first proposed by European Central Bank (ECB) President Christine Lagarde in 2023.

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Risks for the Crypto Industry and Fintech

The EU's plan to centralize licensing under ESMA carries the risk of slowing down the crypto and fintech industries. The initiative aims to eliminate differences in national supervisory practices and heterogeneity in licensing regimes, but this could lead to a more restrictive environment for new and existing companies in these sectors.

In Conclusion

The transformation of ESMA into a "European SEC" could be a significant step toward centralizing financial market regulation in Europe. However, as expert opinions indicate, this could also create additional barriers for crypto and fintech companies, which could ultimately slow innovation and development in these dynamic industries. It is important to monitor further steps in this process and assess its impact on the market.