‘European SEC’ proposal sparks licensing concerns, institutional ambitions

The European Commission's recent proposal to enhance the authority of the European Securities and Markets Authority (ESMA) has sparked concerns over the potential centralization of the EU's licensing regime. Despite these concerns, the initiative hints at broader ambitions to reshape the bloc’s capital markets structure. On Thursday, the Commission introduced a package that suggests granting ESMA "direct supervisory competences" over crucial market infrastructures, such as crypto-asset service providers (CASPs), trading platforms, and central counterparties, as reported by Cointelegraph. A key aspect of this proposal is the expansion of ESMA's jurisdiction, which would encompass both the supervision and licensing of all European crypto and fintech firms. This could result in slower licensing processes and impede startup growth, noted Faustine Fleuret, head of public affairs at the decentralized lending protocol Morpho. Fleuret expressed particular concern over ESMA's potential dual role in both authorizing and supervising CASPs, not just overseeing them. This proposal requires approval from the European Parliament and the Council, with negotiations currently underway. Should it be adopted, ESMA's oversight of EU capital markets would align more closely with the centralized approach of the US Securities and Exchange Commission, a model first advocated by European Central Bank President Christine Lagarde in 2023. The suggestion to centralize oversight within a single regulatory entity is intended to harmonize national supervisory practices and standardize licensing regimes, yet it risks stalling the crypto industry's progress. Elisenda Fabrega, general counsel at the Brickken asset tokenization platform, emphasized that without sufficient resources, ESMA's new mandate might become overwhelming, leading to delays or overly cautious evaluations that could disproportionately affect smaller or innovative enterprises. She highlighted that the success of this reform hinges more on its institutional implementation than its legal framework, particularly ESMA's operational capacity and its collaborative efforts with member states. The broader legislative package aims to enhance wealth creation for EU citizens by making the bloc's capital markets more competitive with the US. Currently, the US stock market holds a value of approximately $62 trillion, accounting for 48% of the global equity market. In contrast, the cumulative value of the EU stock market is around $11 trillion, representing just 9% of the global share, according to Visual Capitalist data.