A landmark proposal recently emerged at a financial roundtable in Brussels and Frankfurt: to directly transfer regulatory authority over EU stock and cryptocurrency exchanges to the European Securities and Markets Authority (ESMA), creating a European version of the SEC. This move aims to break down the long-standing fragmented regulatory landscape, broaden fundraising channels for startups, and address loopholes in the Crypto Asset Markets Regulation (MiCA) regarding cross-border licensing.
Centralized regulatory power: Correcting fragmentation
Currently, each of the 28 member states sets its own regulatory standards, requiring repeated permit applications for cross-border transactions and increasing capital costs. The European Commission plans to propose a draft in December 2024 authorizing ESMA to directly enforce regulations on stock and crypto exchage, eliminating regulatory differences and improving the blueprint for a capital markets union. European Central Bank President Christine Lagarde publicly called for this as early as November 2023.
"We need a European SEC with full authority to directly regulate the market."
ESMA President Verena Ross followed up in October 2024, emphasizing that centralized regulation could "solve the problem of persistent market fragmentation." If legislation progresses smoothly, negotiations could extend to 2026, providing market participants with a clear timeline.
Filling the gap in MiCA's "license passport"
Since its launch in December 2024, MiCA has allowed crypto service providers to operate across borders by obtaining licenses in any member country, essentially a "license passport." However, inconsistent regulatory thresholds have created arbitrage opportunities, allowing companies to obtain licenses in jurisdictions with lower requirements before entering large markets like France and Germany. France, Austria, and Italy have warned Brussels, requesting ESMA to directly regulate large suppliers to ensure consistent rules. If ESMA's expanded authority is successful, it will not only improve transparency but also prevent regulatory loopholes from eroding market trust.
The gains and losses of startups
With centralized regulation, the administrative and compliance costs for multinational entities are expected to decrease by an average of about 15%, and the listing and fundraising processes will be simplified, which can boost investor confidence and attract more venture capital. This aligns with the goals of the EU's "European Innovation Act." However, stricter and more uniform standards may also increase the compliance threshold for early-stage startups, and some operators are concerned that "diseconomies of scale" will force them to migrate to jurisdictions with more lenient regulatory environments, creating a risk of innovation outflow. Some countries are also worried about the erosion of their regulatory autonomy, indicating that policy coordination still needs time.
Subsequent timeline and key observations
Following the publication of the European Commission's draft, the Council and the European Parliament will begin negotiations, with the agenda potentially extending to 2026. The market will focus on three key areas: first, whether ESMA can secure sufficient funding and manpower to support cross-market enforcement; second, the degree of compromise by member states regarding regulatory sovereignty; and third, whether startups and investors will truly benefit from lower costs and greater transparency after MiCA is combined with ESMA's expanded powers. If the EU can find a balance between efficiency and innovation, the long-term goal of unified regulation will bring stronger international competitiveness to regional financial markets and provide a reference model for global regulatory reform.
Overall, granting ESMA SEC-like powers is a significant step for the EU in improving its capital markets and crypto environment. This reform, balancing efficiency, investor protection, and maintaining innovation, relies on Brussels' political coordination and regulatory wisdom. The world is watching closely, awaiting the EU's next legislative phase to chart a clear course.
