European Crypto Regulation Faces Internal Conflict Over Passporting Rights
A dispute between European regulators threatens to undermine the harmonized framework for crypto-asset regulation established by the Markets in Crypto-Assets (MiCA) regulation, potentially hindering innovation and capital markets integration.
The conflict centers on a potential veto by the French Autorité des Marchés Financiers (AMF) of passporting rights for a crypto-asset service provider recently approved by Maltese regulators under MiCA. A source close to a European Commission policy advisor described the move as “a tantrum. And an illegal one.” This disagreement highlights a broader tension between national regulators seeking to prevent fragmentation and the original intent of MiCA to create a unified regulatory approach. A joint paper released in September by the AMF, Austria’s Financial Market Authority, and Italy’s Commissione Nazionale per le Società e la Borsa warned of the risks of national divergence leading to regulatory arbitrage and investor harm.
MiCA was designed to harmonize rules while allowing member states to supervise their own markets, with a built-in mechanism for addressing egregious infractions through complaints to the European Commission. However, some observers believe the European Securities and Markets Authority (ESMA) is attempting to establish itself as a pan-European supervisor for MiCA, a move resisted by smaller member states. ESMA, based in Paris, would require significant investment – potentially up to €90 million annually and 500 new civil servants – to oversee the expected number of significant CASPs. This comes at a time when the United States is rapidly advancing its own crypto regulations, such as the potential passage of the Genius Act, which some European policymakers view as a challenge to European financial sovereignty. The debate over MiCA’s implementation is particularly crucial as digital assets become increasingly integrated into the global financial system; learn more about digital currencies and central bank digital currencies from the Bank for International Settlements.
The core of the issue revolves around balancing uniformity and intra-market competition with national preferences, a challenge exacerbated by the nature of blockchain technology and its borderless design. European officials have warned that over-zealous supervision could drive innovation elsewhere, potentially leaving Europe at a disadvantage. As former European Central Bank president Mario Draghi urged this summer, Europe needs to translate skepticism into action to foster investment and innovation, rather than succumbing to bureaucracy.
Officials expect ongoing discussions regarding the balance of power between national regulators and ESMA, with the potential for member states to cede some control over CASP regulation as a gesture towards Capital Markets Union.
