EU eyes expanding ESMA’s powers in crypto and stock exchange oversight

Brussels is eyeing a Wall Street-style playbook as it pushes for a single regulator to oversee crypto exchanges and trading platforms across the EU.

According to a Financial Times report, the European Commission wants to propose expanding the role of the European Securities and Markets Authority, giving it direct oversight of major cross-border entities, including stock exchanges, crypto firms, and clearing houses.

A draft proposal outlining the plans to unify capital markets and reduce the regulatory patchwork across member states is expected to be published in December, as part of a larger “Market Integration Package.”

Once the proposal moves forward, the ESMA will have the authority to step in on cross-border disputes, issue binding decisions, and potentially supervise some of the bloc’s most systemically important crypto and trading firms.

Such an overhaul, modeled after the US Securities and Exchange Commission, would mark one of the EU’s most ambitious attempts yet to centralize financial supervision and tackle long-standing market fragmentation, the report said.

At the moment, the commission is “still exploring the potential of EU level supervision” across critical financial infrastructure, including trading venues, central securities depositories, and central counterparties, as well as large cross-border firms such as asset managers.

“We are considering different models for single supervision . . . from the perspective of balancing the EU interest with local expertise,” it added.

European Central Bank (ECB) President Christine Lagarde has been a vocal advocate for completing the “capital markets union,” and has argued that a unified regulator with real enforcement power is essential to reduce systemic risks and ensure proper oversight of cross-border firms. 

During her appearance at the 2023 European Banking Congress, Lagarde called for the creation of a “European SEC” capable of directly supervising large financial actors.

“Creating a European SEC, for example, by extending the powers of ESMA, could be the answer. It would need a broad mandate, including direct supervision, to mitigate systemic risks posed by large cross-border firms and market infrastructures such as EU central counterparties,” Lagarde said at the event.

However, not all regulators are in support of the Commission’s direction, with some warning that a centralized supervisor may not act in the best interests of smaller nations with financial hubs.

Officials in Luxembourg and Dublin have pushed back against the idea, arguing that it could unfairly disadvantage their local sectors and shift too much influence to larger member states.

“We would like to have [supervisory] convergence rather than creating a costly and ineffective centralised model,” Luxembourg’s finance minister, Gilles Roth, was quoted as saying.

Similarly, crypto industry participants have also raised doubts. Marin Capelle, a policy adviser at Efama, the European fund industry lobby, has warned that expanding ESMA’s role would come with higher compliance costs and “mean higher fees paid by the industry.”.

As previously reported by crypto.news, the Banque de France has already thrown its weight behind the idea of putting the ESMA in charge of crypto market supervision across the bloc.

According to Banque de France Governor François Villeroy de Galhau, centralizing oversight under ESMA would strengthen enforcement and help guard against regulatory arbitrage, especially in the case of stablecoins issued both within and outside the EU.

Other jurisdictions like Austria and Italy have also supported the idea of handing more direct oversight to ESMA.