The European Union (EU) is weighing a major regulatory overhaul that could reshape how digital assets and capital markets are governed across the bloc. According to reports, the European Commission is preparing a proposal that would grant the European Securities and Markets Authority (ESMA) direct supervisory powers over both traditional stock exchanges and cryptocurrency service providers.

The draft legislation, expected in December 2025, marks the EU’s latest step toward a more unified regulatory framework for financial markets. If approved, the plan would bring ESMA’s role closer to that of the US Securities and Exchange Commission (SEC), creating a centralised authority for market oversight within the EU.

Under current rules set by the Markets in Crypto-Assets Regulation (MiCA), which came into force for crypto service providers in December 2024, firms licensed in one EU member state can “passport” their approval to operate across all 27 countries. This system was designed to foster innovation and streamline cross-border operations. However, ESMA’s potential new powers have sparked concerns that centralisation could choke the very innovation MiCA aimed to encourage.

Industry Fears Bureaucratic Bottlenecks

Many crypto and fintech leaders warn that extending ESMA’s jurisdiction could create a cumbersome approval process and slow regulatory decision-making.

“Centralising authorisation and supervision entirely within ESMA would demand vast human and financial resources,” said Faustine Fleuret, head of public affairs at decentralised lending protocol Morpho, in comments to Cointelegraph.

Fleuret cautioned that transferring all licensing and oversight powers to Brussels risks alienating smaller firms that depend on agile collaboration with national regulators. “It would likely slow down decision-making and innovation, particularly for newer players in crypto and fintech,” she added.

Instead, Fleuret advocated a “balanced model”, in which ESMA strengthens its oversight of national regulators without taking full control. Such an approach could allow ESMA to suspend or revoke licences where necessary while preserving the flexibility of national supervision.

Passporting at Risk Amid Regulatory Tensions

The debate also comes amid tensions within the EU over the passporting mechanism, the hallmark of Europe’s single market approach. In September 2025, France’s securities regulator hinted it might ban passporting of crypto licences under MiCA, citing enforcement challenges and potential loopholes.

Fleuret warned that undermining the system would erode one of Europe’s strongest competitive advantages in digital finance. “The EU passport is the cornerstone of EU financial regulations, including MiCA; jeopardising it means depriving crypto market players of the only competitive advantage that Europe currently offers them,” she said.

Industry observers fear that without passporting, startups could face fragmented licensing requirements and uneven regulatory enforcement, contradicting MiCA’s goal of fostering a harmonised crypto market.

Experts See Promise in Stronger Supervision

While critics highlight the risk of regulatory overreach, some policy experts view the proposal as a necessary evolution for Europe’s maturing crypto market.

According to Dea Markova, director of policy at digital asset custody platform Fireblocks, centralised oversight could enhance regulatory clarity and operational resilience across the EU.

“At a principal level, we believe that more standard-setting and guidance is needed to address risks stemming from operational resilience of the custody function,” Markova said. She added that supervisory convergence could benefit multiple areas of MiCA and the Digital Operational Resilience Act (DORA), especially regarding cybersecurity and custodial standards.

Markova stressed that success will depend heavily on how the centralised model is implemented and resourced. If the Commission equips ESMA with adequate funding and expertise, the transition could strengthen Europe’s regulatory credibility and investor confidence in digital assets.

ECB and Policymakers Align on a Unified Vision

The idea of a single European supervisory body for financial markets has long had high-level support. European Central Bank (ECB) President Christine Lagarde voiced her backing during the European Banking Congress in November 2023, describing centralised oversight as essential for consistency and investor protection across the bloc.

Lagarde’s stance aligns with growing calls from EU policymakers for a unified approach to market regulation, particularly as digital assets blur traditional financial boundaries. By placing crypto supervision under ESMA’s roof, Brussels hopes to curb regulatory arbitrage, where companies exploit discrepancies between national frameworks.

However, the push for uniformity faces a delicate balancing act: too much centralisation could alienate innovative startups and drive them outside the EU, while too little may fail to address systemic risks.

Balancing Oversight and Innovation

As the European Commission prepares its December 2025 draft, the debate over ESMA’s expanded powers underscores a broader dilemma: how to regulate crypto without stifling its innovative potential.

For now, the industry remains divided. Supporters see the move as a milestone in Europe’s journey toward a credible and coordinated digital-asset market, while critics warn of a bureaucratic slowdown that could sap the region’s competitive edge.

Whether ESMA becomes Europe’s version of the SEC or merely a stronger coordinator among national watchdogs will likely define the next chapter of the EU’s crypto experiment.