EU Plans SEC-Style Oversight for Crypto Exchanges

European Commission Proposes Centralized Crypto Regulation

The European Commission is developing plans to establish centralized supervision of stock and cryptocurrency exchanges, marking a significant shift in the region's regulatory approach. This proposal aims to enhance the competitiveness of EU capital markets and create a more favorable environment for startup development.

ESMA to Gain Expanded Powers Over Crypto Markets

The upcoming proposal would significantly expand the European Securities and Markets Authority's jurisdiction. ESMA would gain oversight authority over stock exchanges, cryptocurrency exchanges, crypto asset service providers, and other critical trading infrastructure across the European Union.

This regulatory consolidation represents a major departure from the current fragmented system, where multiple national and regional agencies oversee different aspects of financial markets. The European Commission is expected to publish a draft proposal in December.

Addressing Fragmentation in European Financial Markets

The European Union currently operates under a complex regulatory framework involving numerous national and regional regulatory bodies. This fragmentation significantly increases the cost of cross-border trading and creates substantial barriers for startups attempting to scale operations across member states.

By consolidating supervision under a single authority similar to the United States Securities and Exchange Commission, the EU aims to streamline regulatory compliance and reduce operational costs for businesses operating across multiple jurisdictions.

ECB President Supports European SEC Model

Christine Lagarde, President of the European Central Bank, has publicly endorsed the creation of a European SEC-style supervisory body. Speaking at the European Banking Congress in November 2023, Lagarde emphasized the need for expanded ESMA powers to effectively manage systemic risks.

Lagarde stated that creating a European SEC by extending ESMA's powers could provide the answer to current regulatory challenges. She advocated for a broad mandate that includes direct supervision capabilities to effectively mitigate systemic risks posed by large cross-border financial firms.

ESMA to Resolve Asset Manager Disputes

Under the proposed framework, ESMA would gain additional authority to resolve disputes between asset managers operating across different EU member states. The regulatory body would issue binding decisions in these disputes without requiring direct supervision of the involved parties.

This enhanced dispute resolution mechanism aims to create greater regulatory certainty and reduce conflicts arising from divergent interpretations of financial regulations across member states.

France Raises MiCA Passporting Concerns

The push for centralized supervision comes amid growing concerns about regulatory arbitrage under the Markets in Crypto-Assets Regulation framework. In September, France's securities regulator threatened to block crypto license passporting, highlighting potential enforcement gaps in the EU-wide regulatory system.

Under MiCA, which became effective for crypto asset service providers in December 2024, companies authorized in one EU member state can use that license as a passport to operate throughout all 27 member nations. However, concerns have emerged that some companies may seek licenses in jurisdictions with more lenient regulatory standards.

Multiple Countries Support ESMA Crypto Oversight

France has joined Austria and Italy in calling for ESMA to assume direct supervision of major cryptocurrency companies. This growing coalition reflects broader concerns about the effectiveness of the current decentralized regulatory approach for managing crypto markets.

The push for centralized oversight stems from recognition that cryptocurrency markets operate across borders and require consistent regulatory standards to prevent regulatory arbitrage and ensure adequate consumer protection.

Moving Toward a Capital Markets Union

Verena Ross, Chair of ESMA, confirmed in October that the European Commission plans to transfer significant financial sector oversight responsibilities from national regulators to ESMA. Ross indicated that this proposal directly addresses continued market fragmentation and represents a crucial step toward achieving a unified capital market across Europe.

The capital markets union initiative has been a long-standing goal of European policymakers seeking to create deeper, more integrated financial markets that can compete effectively with those in the United States and Asia.

Implications for Crypto Service Providers

The proposed centralized supervision model could significantly impact how crypto service providers operate within the European Union. Companies would face a single regulatory authority with consistent standards, potentially simplifying compliance requirements while ensuring more rigorous oversight.

However, the transition to centralized supervision may also create challenges for companies that have structured their operations around current national regulatory frameworks. The industry will need to adapt to new supervisory expectations and potentially more stringent enforcement mechanisms.

Impact on European Startup Ecosystem

One of the primary objectives of the proposed regulatory reform is to bolster the European startup landscape by reducing regulatory barriers to cross-border operations. The current fragmented system creates significant compliance costs that disproportionately impact smaller companies and startups.

By establishing a single supervisory framework, the EU hopes to level the playing field and enable startups to scale more efficiently across member states. This could make Europe a more attractive destination for crypto and fintech innovation.

Timeline and Next Steps

The European Commission is preparing to release a draft proposal in December, which will provide detailed information about the scope of ESMA's expanded powers and the implementation timeline. Following the draft release, the proposal will undergo review and potential amendments before final adoption.

Stakeholders across the financial services and cryptocurrency industries will have opportunities to provide input during the consultation process. The final regulatory framework will reflect negotiations between EU institutions, member states, and industry participants.

Conclusion

The European Union's move toward SEC-style centralized supervision of cryptocurrency and stock exchanges represents a pivotal moment in the evolution of European financial regulation. By consolidating oversight under ESMA, the EU aims to create more competitive capital markets, reduce regulatory fragmentation, and provide a more supportive environment for startup growth. As the proposal moves forward, its implementation will have far-reaching implications for cryptocurrency markets, traditional financial institutions, and the broader European economy.

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