Crypto regulation mega-centralization! The European Central Bank supports having “crypto service providers” directly regulated by the EU ESMA under unified supervision

According to a Reuters report, the European Central Bank (ECB) officially released a position paper on Friday, backing the European Commission’s plan to centralize financial supervisory powers within the EU. In the future, cross-border financial market participants—including large crypto-asset service providers—are expected to be unified under the supervision of the European Securities and Markets Authority (ESMA). This reform, led by France and Germany, aims to strengthen the EU’s competitiveness in order to respond to challenges from the United States and China.
(Backgrounder: Is EU crypto regulation going to be centralized? A new proposal would give ESMA full authority to supervise the European crypto industry)
(Additional background: The EU plans to transform ESMA into a “European SEC,” unifying oversight of crypto and traditional markets)

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• Bringing crypto-asset service providers under unified EU supervision
• France and Germany teaming up to push it forward, countering competitive pressure from China and the U.S.
• ECB sets conditions: ensuring ESMA resources and a smooth transition

To break through in intense global financial competition, the EU is preparing to undergo major changes to its financial supervisory framework. According to a Reuters report on April 10, the European Central Bank (ECB) has officially stated its strong support for the “centralized financial supervision” plan proposed by the European Commission.

Bring crypto-asset service providers under unified EU supervision

The core of this draft is that regulatory responsibilities for cross-border financial market participants of systemic importance will be transferred from the various “national-level supervisory authorities” to the European Securities and Markets Authority (ESMA), headquartered in Paris.

In its official position paper, the ECB explicitly states that it fully agrees with stronger, more robust EU-level supervision for large cross-border financial market participants. Notably, the ECB specifically names that the scope of this supervision should include large trading venues, central counterparties, central securities depositories, and “crypto-asset service providers.” This means that in the future, large cross-border cryptocurrency exchanges will face unified EU-level supervision that is higher than that of a single country’s financial sector.

France and Germany work together to push it, countering competitive pressure from China and the U.S.

This push is mainly led by France and Germany, driving a move to concentrate financial market participants under EU-level supervision. Its strategic goal is to integrate the EU’s capital markets, improve the competitiveness of the overall group, and respond to current sluggish economic growth while standing up to major powers such as the United States and China.

Because this plan would weaken the supervisory powers of member states, some smaller EU countries—such as Ireland and Luxembourg—had originally shown little interest. Now, with the ECB’s public endorsement, it is expected to send a strong confidence signal to the market and these governments that have been more cautious.

ECB sets conditions: ensure ESMA resources and a smooth transition

Although the ECB describes this proposal as a “bold step toward deepening capital market integration and financial market supervision,” it also puts forward specific recommendations and caveats:

• Expansion of resources and staffing: The ECB emphasizes that ESMA must be given sufficient resources and headcount to effectively shoulder these enormous additional supervisory responsibilities.
• Reduce market disruption: The handover of supervision from the national level to the EU level should be carried out step by step, minimizing disruption to the market.
• Increase ECB involvement: The European Central Bank requires a “non-voting” seat on the ESMA board and expects that its expertise should not only be applied to supervisory decision-making, but also be incorporated into the drafting of technical standards, guidance, and recommendations.

While this position paper is a necessary part of the EU legislative process, it does not impose binding constraints on legislators. Next, the European Commission’s proposal will enter a period of intense negotiations between the governments of EU member countries and the European Parliament. Several more months are expected to be needed before this legislation—one that will fundamentally change Europe’s landscape of crypto and traditional financial supervision—can formally become law.