EU Proposes Direct ESMA Oversight for Major Crypto Exchanges in Landmark Reform

The European Union is set to present a plan in December 2025 that would expand the mandate of the European Securities and Markets Authority (ESMA) to directly supervise major stock exchanges, cryptocurrency platforms, and critical post-trading organizations across member states. This initiative, part of the EU's broader strategy to create a competitive market and complete the Capital Markets Union, aims to surpass rivals like the US and UK by reducing fragmentation and bureaucracy.

Currently, each EU member state has its own regulator overseeing these entities, but the new proposal would centralize supervision for large, cross-border firms. ESMA Chair Verena Ross stated that centralized supervision will help eliminate inconsistencies and strengthen market trust, addressing long-standing weaknesses in the patchwork of national regulators. The reform is expected to harmonize standards, lower administrative expenses, and prevent regulatory arbitrage, where companies exploit lenient regulations in certain states.

For cryptocurrency service providers, the change is significant. Under the existing Markets in Crypto-Assets (MiCA) framework, firms obtain national licenses and use passporting to operate Europe-wide, but the biggest and most systemically relevant crypto firms would now face immediate ESMA oversight. This could enhance investor protection, transparency, and enforcement against market manipulation, while closing oversight gaps. However, local authorities will still supervise smaller firms, ensuring a balanced approach.

Support for the proposal varies among member states. France firmly endorses it to prevent regulatory arbitrage, and Germany, under Friedrich Merz's government, has shifted its stance to back the plan. However, countries like Luxembourg, Ireland, and Malta resist, arguing it could weaken their financial sectors and remove local expertise. Industry groups, including fund associations and exchange operators, express concerns about higher compliance costs and bureaucratic hurdles from a one-size-fits-all approach.

The European Commission will unveil the full legislative proposal in December 2025, with discussions likely at the EU leaders' summit. If adopted, this reform could reshape European finance, marking a decisive shift toward a unified regulatory regime for both traditional and digital markets.