The EU plans to expand the powers of ESMA, and cryptocurrency exchanges may face unified regulation similar to the SEC.

The European Commission is drafting a proposal aimed at expanding the European Securities and Markets Authority (ESMA)'s central regulatory powers to cover key financial market infrastructures such as stock exchanges, encryption asset service providers, and clearing houses. This move is an important step in building a “Capital Market Union,” aimed at eliminating market fragmentation and enhancing the EU's competitiveness with the United States. The proposal is scheduled to be presented in December, and if approved, ESMA will implement unified regulation over the most cross-border significant entities and make binding decisions in case of disputes between national regulatory authorities.

Unified Regulation on the Agenda: ESMA's Power Expansion Aims at Fragmented Markets

The European Commission's current round of regulatory reform for financial market infrastructure aims to address the high cross-border trading costs and market fragmentation issues caused by the coexistence of regulatory authorities in dozens of countries and regions.

• Unified Regulatory Model: The European Union plans to establish a single regulatory agency modeled after the U.S. Securities and Exchange Commission (SEC), which is seen as a key step toward completing the “Capital Market Alliance.”
• Expand ESMA's Powers: The most controversial core idea is to expand the existing powers of ESMA to cover “entities of most cross-border significance,” including stock exchanges, encryption asset service providers, as well as post-trade infrastructures such as central clearing counterparties and central securities depositories.
• Resolve Disputes: According to insiders, the ESMA will also be granted the power to make binding decisions when disputes arise between large asset management firms and national regulators, thus avoiding regulatory arbitrage and inefficiencies.

Political Games and Resistance: Member States' Doubts about Central Regulation

Despite the support for central regulation from heavyweight figures like European Central Bank (ECB) President Christine Lagarde, the proposal still faces significant political resistance and cost concerns among member states.

• Germany's Shift in Attitude: Berlin, which has long opposed central regulation, has recently sent out signals of openness under the leadership of Chancellor Friedrich Merz, exploring options together with strong supporter France. However, previous reports indicated that the German government is only considering ESMA regulation for the asset management industry, rather than for exchanges.
• Concerns of Small Financial Centers: Other financial centers such as Luxembourg and Dublin remain resistant to transferring regulatory authority to the ESMA based in Paris, fearing that such a move may be detrimental to their national financial sectors and doubting whether EU institutions can truly consider the interests of small countries.
• Industry Cost Considerations: The European Exchange Group expressed concerns about the transfer of regulation of encryption asset service providers to ESMA, fearing rising compliance costs and excessive intervention by ESMA. Marin Capelle, a policy advisor for the fund industry lobby group Efama, pointed out that expanding ESMA's responsibilities means the industry will incur higher fees.

The EU's Ambition: Enhancing Competitiveness and Year-End Proposal Plans

The European Commission views this round of reforms as a key strategy to enhance the overall competitiveness of Europe, especially in competition with the United States.

• Competitiveness Considerations: The aim is to ensure that European companies can more easily access funding and scale up through unified regulation, avoiding the need to look across the Atlantic for a better development environment.
• Year-End Proposal Timeline: The European Commission has stated that they are still exploring the potential for EU-level regulation of critical infrastructure and large cross-border entities, and will consider various models that balance EU interests with local expertise. The Commission plans to present a “Market Integration Proposal” in December.
• Subsequent Legislative Process: Once the proposal is submitted in December, the legislative procedure with the European Parliament and Council will be initiated, including amendments and trilateral negotiations, which may extend to 2026.

Conclusion

The European Commission's proposal for central regulation holds profound milestone significance for the entire European encryption industry as well as the traditional Capital Market. If ESMA's powers are successfully expanded to include encryption exchanges, it will mean a unified and mature regulatory environment in the region, helping to reduce cross-border costs and attract institutional funds. Despite facing resistance from member states and the industry, the ultimate implementation of unified regulation will be an inevitable choice for Europe to complete the “Capital Market Union” and enhance global financial competitiveness.