European Regulator to Expand Crypto Oversight — ESMA’s New Role in EU

08/10/2025

European Regulator to Expand Crypto Oversight: What You Need to Know

The European Union is preparing a major shift in how it regulates crypto and capital markets. Under new proposals, the European Securities and Markets Authority (ESMA) could assume direct oversight over cryptocurrency exchanges, custodians, and clearing houses—moving regulatory responsibilities away from individual member states. This change aims to tackle fragmented supervision and strengthen the EU's capital markets.

Background: MiCA and the Fragmented Landscape

With the implementation of the Markets in Crypto-Assets (MiCA) regulation, which became fully applicable in December 2024, the EU created a uniform framework for crypto-asset service providers.

However, MiCA still delegates licensing and supervision to national regulators. That means each country issues crypto licenses under its "national competent authority," and companies often "passport" those licenses to operate across the EU.

This setup has revealed key challenges:

Inconsistent enforcement of rules across states
Redundant efforts as each regulator builds its own compliance and technical capacity
Regulatory arbitrage, where crypto firms gravitate toward countries with the lightest oversight

ESMA leadership and EU policymakers argue the next step is to shift more direct regulatory powers into the central body.

What Proposal Means: ESMA as the Central Supervisor

Shift of Supervision

Under the new plan, ESMA would take over responsibilities currently held by national regulators for key infrastructure and crypto players—such as exchanges, custodians, and clearing houses.

Targeting Fragmentation

The primary motivation is to reduce market fragmentation. ESMA says that having 27 separate authorities, each applying slightly different rules or standards, weakens the EU's ability to act as a unified capital market.

Expanded Scope

Beyond crypto firms, ESMA's oversight remit may expand to include consolidated data providers, ESG rating agencies, and cross-border financial entities.

National Pushback

Some smaller EU states—especially those with significant financial services sectors such as Luxembourg and Malta—are pushing back. They fear erosion of national authority, additional bureaucracy, and the loss of competitive edge in attracting fintech business.

Why It Matters

More Consistency Across the EU

A centralized supervisor could mean uniform rules, fewer discrepancies, and stronger compliance enforcement across all member states.

Stronger Investor Protection

Misalignment among national authorities can leave gaps in oversight, increasing risk for investors. ESMA supervision could help close those gaps.

Boost for Europe's Capital Markets

A more integrated market may enhance Europe's global competitiveness by reducing friction in cross-border capital flows.

Risks and Tensions

National regulators may resist losing power.
ESMA will need more resources, talent, and infrastructure to scale.
Large states may push for dominance, sidelining smaller countries.

What's Next & What to Watch

European Commission Proposal: Formal legislative draft expected soon to transfer supervisory powers to ESMA.
Member State Reactions: Countries like Malta have already voiced objections. Reuters+1
Rule Refinement: Defining thresholds (which firms are "significant" enough for ESMA oversight), reporting standards, and transition periods.
Capacity Building: ESMA must scale internal operations, recruit crypto and financial markets expertise, and build monitoring systems.