EU’s Crypto Oversight Shift Could Bring ‘Legal Uncertainty’

While the European Union (EU) authorities are pushing to shift oversight of key financial markets, including crypto, to a centralized supervisory authority, some industry players have shared multiple concerns about the proposal.

EU’s Plan For Crypto Oversight Shift Raises Concerns

On Friday, Bloomberg affirmed that the European Commission (EC) is pressing to advance its proposal to transfer regulatory supervision of the crypto businesses from national authorities to the bloc’s market watchdog, the European Securities and Markets Authority (ESMA).

As reported by Bitcoinist, ESMA’s Chair, Verena Ross, stated last month that the EU’s executive arm was preparing rules to give new powers to the regional watchdog to push for a “more integrated and globally competitive” capital market in Europe.

Ross argued that “while we are doing a lot of work to try to make sure the implementation of MiCA is aligned, it clearly takes a lot of effort from us and the national supervisors to achieve that.”

“It also means that people had to build up specific new resources and expertise 27 times in different national supervisors, which could have been done more efficiently once at a European level,” she continued.

According to the Friday report, draft plans circulated by EU officials propose that the bloc’s market watchdog be responsible for authorizing new businesses and the main supervisor for all Crypto Asset Service Providers (CASP). This was initially suggested during the development of the Markets in Crypto-Assets Regulation (MiCA).

Nonetheless, some consider that the move could overturn the work that national watchdogs and businesses have done over the past few years to regulate the industry and implement the bloc’s comprehensive framework for digital assets.

Robert Kopitsch, secretary general of Blockchain for Europe, an organization that represents international Blockchain industry players in the EU, told Bloomberg that “reopening MiCA at this stage would introduce legal uncertainty, risk delaying the authorization process, and divert attention and resources from the practical task of consistent implementation.”

Kopitsch affirmed that a shift to a more centralized supervisory model should happen in the future, based on “concrete experience and evidence gathered from MiCA’s first years of implementation,” noting that local regulators have had closer day-to-day engagement with firms.

Meanwhile, Andrew Whitworth, founder of Global Policy Ltd., a consulting firm that works with crypto companies and regulators, believes that digital assets could be a good test for ESMA’s ability to take on more responsibilities. However, it would require additional resources to handle the workload currently managed by local regulators.

He emphasized that the change would be difficult at the time, “given where we’re at with implementation for the goalposts to change.”

‘Institutional Standoff’ To Undermine MiCA?

Notably, smaller EU nations, including Luxembourg, Ireland, and Malta, have also questioned the proposal and ESMA’s ability to oversee the rapidly growing crypto market, claiming it could weaken their financial sectors.

Recently, Judith Arnal, associate senior research fellow at the Centre for European Credit Research Institute (ECRI) and board member at the Bank of Spain, affirmed that the ongoing “institutional standoff has created regulatory paralysis with far-reaching consequences.”

Arnal has argued that the recent attempts to already amend the bloc’s crypto rules, particularly in the stablecoins sector, risk “undermining MiCA’s credibility as a coherent and globally influential regulatory framework.”

Earlier this week, the European Banking Authority (EBA) addressed the European Central Bank (ECB) and the European Systemic Risk Board (ESRB)’s concerns about financial instability risk related to stablecoins.

The ECB has recently been calling for stricter regulations, including a ban on multi-issuance stablecoins in the bloc and other jurisdictions. However, the region’s banking supervisor defended the framework, arguing that MiCA already has safeguards against risks posed by stablecoins.

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