Recent financial roundtables in Brussels and Frankfurt have surfaced a landmark proposal: directly assigning regulatory authority over stock and cryptocurrency exchanges within the EU to the European Securities and Markets Authority (ESMA), creating a European version of the SEC. This move aims to break the long-standing fragmented regulatory landscape, broaden fundraising channels for startups, and address loopholes in cross-border licensing under the Markets in Crypto-Assets Regulation (MiCA).

Proposed Expansion of ESMA Powers to Directly Regulate Stock and Crypto Exchanges, Correcting Fragmentation

According to reports, the European Commission is preparing to release a draft in December this year, planning to centralize regulatory authority over financial institutions such as stock and crypto exchanges under ESMA. Currently, EU regulation remains dispersed among national authorities, leading to high cross-border transaction costs and cumbersome procedures. The draft is expected to include:

Expanding ESMA's regulatory scope to cover stock markets and crypto exchanges.

Incorporating Crypto-Asset Service Providers (CASPs) and other trading infrastructure.

Allowing ESMA to make binding decisions in asset management disputes.

European Central Bank (ECB) President Christine Lagarde publicly called for a European SEC with comprehensive powers capable of directly regulating markets at the European Banking Congress in 2023.

ESMA Chair Verena Ross followed up in October 2024, emphasizing that centralized regulation could address ongoing market fragmentation issues. If legislative progress is smooth, negotiations could extend to 2026, providing market participants with a clear timeline.

French Regulator Warns of Loopholes in MiCA Passport System

The EU's current crypto regulatory framework, MiCA, took effect in December 2024, allowing a company to operate across all 27 EU countries once licensed in one member state, known as the passport system.

However, in September, France's financial regulator warned that some operators might deliberately choose countries with laxer regulations for registration to engage in regulatory arbitrage, and threatened to block the passport system. France is the third country, following Austria and Italy, to publicly call for direct supervision of major crypto operators by ESMA, based in Paris.

Subsequent Timeline and Key Observations

After the European Commission releases the draft, the Council and European Parliament will begin negotiations, with the agenda potentially extending to 2026. The market will focus on three key issues:

Whether ESMA can secure sufficient funding and manpower to support cross-market enforcement.

The extent to which member states are willing to compromise on regulatory sovereignty.

Whether startups and investors can truly benefit from lower costs and higher transparency after MiCA is paired with ESMA's expanded powers.

As long as the EU can find a balance between efficiency and innovation, the long-term goal of unified regulation will bring stronger international competitiveness to the regional financial market and provide a reference model for global regulatory reforms.

Overall, granting SEC-like powers to ESMA is an important step for the EU to improve its capital markets and crypto environment. This reform must strike a balance between enhancing efficiency, protecting investors, and maintaining innovative vitality, relying on political coordination and regulatory wisdom in Brussels. The world is watching closely, awaiting the EU's giant ship to chart a clear course in the next phase of its legislative journey.

Disclaimer: None of the information contained here constitutes an offer (or solicitation of an offer) to buy or sell any currency, product or financial instrument, to make any investment, or to participate in any particular trading strategy.