EU’s ESMA Expansion Could Slow Crypto Licensing, Experts Warn

The European Commission’s recent legislative package marks a significant shift toward centralizing financial market oversight within the European Union. The proposal seeks to grant the European Securities and Markets Authority (ESMA) “direct supervisory competences” for critical market infrastructure. This includes crypto-asset service providers (CASPs), trading venues, and central counterparties. The move is widely interpreted as an institutional ambition to create a more unified capital markets structure, with ESMA evolving into a European counterpart to the powerful U.S. Securities and Exchange Commission (SEC).

This expansion of authority represents a departure from the current model, where national competent authorities in member states play a primary role in licensing and supervision. By consolidating these powers at the EU level, the Commission aims to create a more harmonized regulatory landscape. However, this centralization is the very source of mounting concern among industry participants and legal experts, who fear it may introduce new inefficiencies and stifle the dynamic fintech and crypto sectors.

The core criticism of the proposal centers on its potential operational impact. Faustine Fleuret, head of public affairs at the decentralized lending protocol Morpho, has voiced explicit concerns. She warns that extending ESMA’s jurisdiction to cover both the supervision and licensing of all European crypto and fintech firms could lead to significantly slower licensing regimes. For fast-moving startups operating in the digital asset space, protracted approval processes can be fatal, delaying market entry and consuming scarce capital.

The concern is that a single, centralized authority may struggle with the volume and technical specificity of applications from innovative firms like CASPs. A bottleneck at ESMA could inadvertently hinder the development of the very sectors the EU seeks to regulate and foster. This creates a tension between the goal of robust oversight and the need for a regulatory environment that enables, rather than obstructs, technological innovation and economic growth.

The proposal to empower ESMA is not an isolated measure but part of a broader strategy to deepen and strengthen the EU’s capital markets. A more centralized supervisor is seen by proponents as a way to ensure consistent application of rules like the Markets in Crypto-Assets (MiCA) regulation, reduce regulatory arbitrage between member states, and present a unified front in global finance. The ambition is to build a more resilient and integrated financial system.

However, critics argue that the potential downsides could undermine these goals. If the new licensing regime proves cumbersome, it could drive innovative crypto and fintech startups to seek more agile jurisdictions outside the EU, damaging the bloc’s competitiveness. The challenge for policymakers will be to balance the undeniable need for clear, strong supervision with the flexibility required to nurture a cutting-edge financial technology ecosystem. The final shape of ESMA’s expanded powers will be a critical determinant of whether the EU becomes a leader or a laggard in the future of finance.