On 4 December 2025, the European Commission proposed a major change to how crypto-asset service providers (CASPs) are supervised across the European Union.

As part of its Market Integration and Supervision Package, the Commission proposed transferring direct supervision of CASPs from national competent authorities to the European Securities and Markets Authority (ESMA).

The stated objective is to reduce regulatory fragmentation, improve enforcement consistency and make Europe’s financial markets more integrated.

I understand the argument for consistent supervision. What I question is the assumption that centralising regulatory power is necessarily the best way to achieve it.

Will giving ESMA more supervisory authority make EU crypto regulation more effective, or will it create a different set of problems?

Let’s look at what is being proposed, what has changed since the original announcement, and why the details matter for crypto businesses operating in Europe.

What is ESMA’s proposed role in EU crypto supervision?

ESMA is the European Securities and Markets Authority, an EU authority responsible for strengthening investor protection, promoting stable and orderly financial markets, and supporting supervisory convergence across the Union.

Under the Markets in Crypto-Assets Regulation (MiCA), national competent authorities currently play the central role in authorising and supervising CASPs.

The Commission’s December 2025 proposal would significantly change that arrangement by giving ESMA direct supervisory responsibilities for crypto-asset service providers.

The proposed powers include authorisation, ongoing supervision, inspections and enforcement. The package also proposes changes to ESMA’s governance, resources and supervisory tools to support its expanded responsibilities.

The Commission argues that a central supervisor could reduce inconsistent national practices, improve oversight of cross-border firms and make it easier for crypto businesses to operate within the single market.

That is the official rationale. Whether the proposed model will deliver those results is a separate question.

Has the EU approved the transfer of crypto supervision to ESMA?

No. The Commission’s original proposal is not the final legislation.

On 9 October 2026, the Council of the European Union agreed on key elements of its negotiating position on the wider Market Integration and Supervision Package.

Importantly, the Council’s position would limit immediate direct ESMA supervision to the most significant cross-border CASPs, rather than applying the Commission’s original blanket approach.

The Council also envisages a transition involving ESMA-led teams of EU and national experts, followed by ongoing cooperation arrangements that preserve national expertise.

The European Parliament still needs to establish its position before negotiations between the co-legislators can proceed.

For crypto businesses, this means the scope and practical operation of any new supervisory regime remain subject to the legislative process.

Source: European Commission’s legislative proposal and Council update of 9 October 2026.

1. Does ESMA have the resources to supervise crypto businesses at scale?

My first concern is operational.

Supervising crypto businesses across the EU requires more than a centralised reporting structure. It requires specialist knowledge, experienced investigators, technical expertise, reliable data, sufficient funding and the ability to make timely supervisory decisions.

CASPs are not a uniform group. Their business models, customer bases, geographic reach and risk profiles vary considerably.

A large cross-border trading platform presents different supervisory challenges from a small provider serving customers in one country.

ESMA is not starting from scratch. It already has experience in financial markets supervision, and it has welcomed the Commission’s proposal, stating that it stands ready to take on the additional responsibilities.

However, readiness to expand is not the same as demonstrating that the necessary operational capacity is already in place.

Several questions deserve answers:

• How many additional supervisory staff and technical specialists will be required?
• How will the new responsibilities be funded, and how will supervisory fees be calculated?
• How will ESMA retain experienced staff in a competitive financial and technology labour market?
• How will knowledge currently held by national regulators be transferred?
• What safeguards will prevent the transition from delaying authorisations, investigations or enforcement?

The transition also has financial implications.

If national authorities must continue maintaining expertise while ESMA builds its own teams, the EU needs to demonstrate that the new arrangement will produce better supervisory outcomes rather than simply redistribute costs.

A central supervisor may eventually deliver efficiencies. Those efficiencies should be demonstrated, not assumed.

2. Will centralised supervision eliminate regulatory fragmentation?

This is where I believe the debate needs more precision.

MiCA established a common regulatory framework for crypto-asset markets across the EU. Yet a common regulation does not automatically eliminate differences in national implementation, supervisory interpretation or the treatment of related activities.

Consider anti-money laundering obligations, staking, decentralised finance and non-fungible tokens. Depending on the activity, these areas may involve legal requirements extending beyond MiCA and beyond the direct supervisory responsibilities envisaged for ESMA.

Transferring CASP supervision to ESMA could reduce differences in how MiCA is interpreted and enforced. It would not automatically harmonise every related rule.

If differences remain in the wider legal framework, some of the fragmentation the reform seeks to address may persist.

I would therefore like to see a more detailed explanation of which inconsistencies the transfer is expected to resolve, which will remain, and how the remaining gaps will be addressed.

A single supervisor cannot make an inconsistent legal framework coherent simply by enforcing it from one place.

That does not mean centralisation has no value. It means the EU needs to distinguish between problems caused by inconsistent supervision and problems caused by different rules.

They are not the same thing.

3. What happens to national regulators under the new model?

For several EU Member States, financial technology and crypto have offered opportunities to attract investment, develop specialist expertise and create employment.

Countries including Lithuania, Luxembourg, Malta, Ireland and the Netherlands have developed financial services ecosystems in which regulatory expertise is part of the broader business environment.

National regulators also build knowledge of domestic markets, local business practices and the firms they supervise. That knowledge can be valuable when assessing risks and communicating with businesses.

Centralising supervision could reduce duplication and improve consistency for cross-border firms. It could also change the role national authorities play in a sector in which they have invested significant time and resources.

The practical question is how much meaningful involvement they would retain.

Will national regulators contribute directly to supervisory decisions? Will their expertise be incorporated into joint teams? How will disagreements between ESMA and national authorities be resolved?

The Council’s negotiating position recognises the importance of cooperation between ESMA and national competent authorities. It envisages joint work during the transition and continued arrangements for national expertise afterwards.

That is a useful starting point.

However, cooperation needs to be meaningful in practice. If the objective is better supervision, the system should preserve the expertise that already exists rather than treat it as an obstacle to centralisation.

4. Is the proposal legally proportionate?

The Commission’s proposal would amend existing EU legislation, including MiCA and ESMA’s founding regulation, to establish the legal basis for expanded supervisory powers.

This is not simply a proposal to transfer authority without a legislative framework. The relevant question is whether the proposed powers are appropriately designed, proportionate and accountable.

Two principles are particularly relevant: subsidiarity and proportionality.

Subsidiarity concerns whether action at EU level is justified when the objectives cannot be sufficiently achieved by Member States acting independently.

Proportionality concerns whether the proposed measures go further than necessary to achieve their objectives.

There is a credible argument for EU-level supervision of crypto businesses with significant cross-border activities. A firm operating throughout the single market can create risks that extend beyond the jurisdiction of its home regulator.

But that does not automatically establish that every CASP, regardless of size, risk or geographic reach, should be supervised centrally.

The Council’s move towards a significance-based approach is therefore important. It recognises that the scope of direct supervision should be calibrated to the firms and activities that justify it.

Legal accountability also matters.

Businesses need clear procedures for challenging supervisory decisions, and the legislation must establish how those decisions can be reviewed. The division of responsibilities between ESMA and national authorities must be sufficiently clear to avoid uncertainty.

A new supervisory structure should make accountability easier to understand, not harder.

5. Could centralisation make Europe less competitive?

This is one of the most important questions for the EU’s broader financial services strategy.

The Savings and Investments Union aims to improve how European savings are channelled into productive investment, strengthen capital markets and improve the competitiveness of the EU economy.

A more consistent regulatory environment could benefit crypto businesses operating across multiple Member States. Firms may find it easier to understand supervisory expectations, plan cross-border expansion and avoid duplicated interactions with different authorities.

Those are legitimate potential benefits.

However, the effects on smaller providers and new entrants deserve equal attention.

If centralised supervision increases costs, lengthens decision-making or makes regulatory engagement less accessible, smaller firms could face additional barriers. If it reduces duplicated compliance work and provides clearer expectations, those firms could benefit instead.

The outcome will depend on how the model is designed and implemented.

How will fees be structured? How quickly will decisions be made? Will businesses have access to clear guidance? Will smaller providers receive supervision proportionate to their risks?

These are not minor operational details. They will determine whether the reform supports a competitive market or creates unnecessary barriers to entry.

The EU should not pursue integration at the expense of the innovation and competition it also wants to encourage.

6. Is centralisation the only solution to inconsistent crypto regulation?

I do not believe the choice should be framed as complete national autonomy versus complete centralisation.

There are other approaches worth considering.

The EU could strengthen supervisory convergence, improve common guidance and make more effective use of existing coordination mechanisms.

It could use joint supervisory teams to combine ESMA’s cross-border perspective with national regulators’ local knowledge.

It could also concentrate direct ESMA supervision on firms that meet transparent criteria based on their size, cross-border significance and risk profile,