European Union Prepares Sweeping Financial Reform to Grant ESMA SEC-Like Powers Over Crypto and Traditional Markets

BRUSSELS – The European Union is preparing a comprehensive reform package that could fundamentally transform how financial markets are regulated across the 27-member bloc. According to sources familiar with the matter, the European Securities and Markets Authority (ESMA) could soon receive authority comparable to that wielded by the United States Securities and Exchange Commission (SEC), marking one of the most significant shifts in European financial oversight since the 2008 global financial crisis.

The ambitious proposal, which the European Commission is expected to unveil in December 2025, would grant ESMA direct supervisory powers over cryptocurrency platforms, stock exchanges, and other critical trading infrastructure throughout the European Union. If approved, this reform could reshape not only how traditional and digital finance operate across Europe but also fundamentally alter the competitive landscape for startups and financial services firms seeking to scale operations across European borders.

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The Driving Force Behind Reform: Lagarde’s Vision for a European SEC

The momentum for this transformative change gained significant traction following a landmark speech by Christine Lagarde, President of the European Central Bank, at the 2023 European Banking Congress in Frankfurt. Lagarde articulated a compelling vision for creating a unified European capital market capable of financing the enormous investments required to address what she termed the triple challenges of “deglobalisation, demographics and decarbonisation.”

“Creating a European SEC, for example by extending the powers of ESMA, could be the answer,” Lagarde stated in her November 2023 speech. “It would need a broad mandate, including direct supervision, to mitigate systemic risks posed by large cross-border firms and market infrastructures such as EU central counterparties.”

Lagarde’s comparison of Europe’s current investment needs to the financing challenges faced by the United States during the construction of transcontinental railroads in the 19th century resonated powerfully with policymakers. She emphasized that heavily indebted European governments cannot alone provide the massive capital required for digital transformation, green transition, and supply chain restructuring necessitated by the fragmentation of global trade networks.

The ECB President noted that Europe’s fragmented capital markets cost the region dearly, preventing small and medium-sized enterprises from accessing sufficient financing and limiting banks’ ability to fund riskier but potentially transformative loans. According to Lagarde, creating a truly unified European capital market could facilitate the creation of an additional 4,800 startups raising approximately €535 billion annually – a statistic that has captured the attention of innovation-focused policymakers across the continent.

Current Fragmentation: The Problem ESMA Expansion Aims to Solve

Today’s European financial regulatory landscape remains stubbornly fragmented despite decades of integration efforts. Financial and cryptocurrency regulations are currently managed by numerous national regulators, each with varying approaches, enforcement priorities, and interpretations of EU-wide directives. This patchwork system creates significant obstacles for companies attempting to operate across borders, effectively turning the European “single market” into twenty-seven separate regulatory jurisdictions for many practical purposes.

The consequences of this fragmentation are substantial and multifaceted. Companies face multiplied compliance costs as they navigate different national requirements, interpretations, and enforcement styles. Cross-border transactions become more expensive and complex, creating barriers that particularly disadvantage smaller firms without extensive legal and compliance resources. Investor confidence suffers when regulatory protection varies dramatically depending on which member state granted a company’s authorization.

For the rapidly evolving cryptocurrency and digital asset sector, these challenges have proven especially acute. While the Markets in Crypto-Assets Regulation (MiCA) came into full effect on December 30, 2024, establishing harmonized rules for crypto-asset service providers across the EU, implementation has highlighted significant enforcement disparities between member states.

The MiCA Experience: A Cautionary Tale Driving ESMA Reform

The experience with MiCA’s implementation provides crucial context for understanding why policymakers are now pushing for expanded ESMA authority. MiCA was designed to create a single authorization regime for crypto-asset service providers (CASPs), with a “passporting” mechanism allowing companies licensed in one EU member state to operate throughout the entire bloc.

However, significant tensions emerged almost immediately after MiCA’s full implementation. France, joined by Austria and Italy, raised alarms that some crypto companies were engaging in “regulatory shopping” – seeking licenses in member states with lighter oversight and then using passporting rights to operate in jurisdictions with more stringent consumer protection standards.

In September 2025, France’s securities regulator, the Autorité des Marchés Financiers (AMF), threatened to take the extraordinary step of blocking license “passporting” for cryptocurrency companies, describing such action as an “atomic weapon” for the market. The French position, supported by Austrian and Italian regulators, argued that allowing firms to exploit jurisdictions with lenient enforcement creates unfair competition, undermines investor protection, and defeats MiCA’s purpose of creating genuine harmonization.

These three countries have called for ESMA to assume direct oversight of major crypto companies operating across the EU, arguing that centralized supervision is essential to prevent regulatory arbitrage and ensure consistent application of European rules. According to their joint position paper, current arrangements permit companies to obtain authorization under relatively permissive national regimes while selling services throughout Europe, including in markets with much stricter standards.

Marina Markezic, executive director of the European Crypto Initiative, noted that while blocking passporting may be technically possible under certain interpretations of EU law, it would introduce massive legal complexity and could fundamentally undermine the promise of a single European market. “MiCA was designed to create one harmonised framework and give firms access to a single regulated market across the EU,” Markezic explained. “That promise is now under pressure.”

What the December 2025 Proposal Contains

According to sources familiar with the draft regulation reported by the Financial Times, the European Commission’s December proposal will significantly expand ESMA’s mandate and powers in several critical areas:

Direct Supervisory Authority: ESMA would gain the power to directly supervise major cryptocurrency exchanges, stock trading platforms, crypto-asset service providers, and other market infrastructure deemed systemically important or operating on a pan-European scale. This represents a fundamental shift from ESMA’s current role, which focuses primarily on coordination, standard-setting, and limited direct supervision of specific entities like credit rating agencies and trade repositories.

Binding Enforcement Powers: The proposal would grant ESMA authority to issue legally binding decisions and impose sanctions on non-compliant firms, moving beyond its current advisory and coordination functions. This enforcement capability is essential for creating genuine regulatory teeth behind European rules.

Dispute Resolution Authority: ESMA would receive power to settle disputes between asset managers and between national regulators, reducing the delays and jurisdictional conflicts that currently plague cross-border financial operations. This function mirrors capabilities exercised by the SEC in the United States when conflicts arise between different stakeholders in American capital markets.

Consolidated Oversight of Crypto and Traditional Finance: Perhaps most significantly, the proposal treats cryptocurrency platforms and traditional stock exchanges as part of an integrated financial ecosystem requiring consistent oversight approaches. This integrated perspective reflects growing recognition that the lines between traditional and digital finance are increasingly blurred.

ESMA Chair Verena Ross has publicly supported the initiative, stating that the proposal aims to address “continued fragmentation” in European markets and facilitate movement toward a genuine capital markets union. Ross confirmed last month that the Commission plans to transfer substantial oversight responsibilities from national regulators to ESMA, though she acknowledged that such a transfer would require careful calibration to respect member state sovereignty while ensuring effective supervision.

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France’s Push for Centralized Crypto Oversight

France has emerged as the most vocal advocate for strengthened central oversight of cryptocurrency markets, driven both by concerns about financial stability and determination to prevent regulatory arbitrage. The French position reflects broader anxieties about whether Europe can effectively regulate innovative financial technologies while maintaining high consumer protection standards in a system that preserves significant national regulatory autonomy.

The AMF’s threatened ban on license passporting represents an escalation that could force fundamental changes to how MiCA operates. France argues that without centralized ESMA supervision of major players, the regulation creates a race to the bottom where jurisdictions compete to attract crypto companies by offering lighter oversight, ultimately disadvantaging those member states that take consumer protection seriously.

Beyond passporting concerns, France, Austria, and Italy have jointly called for revisions to MiCA that would include:

• Enhanced oversight of cybersecurity and operational resilience requirements for crypto platforms, ensuring that firms meet robust technical standards regardless of where they obtain authorization
• Greater transparency regarding crypto firms’ activities outside the EU and their cross-border fund flows, addressing concerns that companies might use EU authorization as a stamp of legitimacy while conducting problematic operations in third countries
• More rigorous review procedures for new token offerings, with stricter disclosure requirements and clearer gatekeeping to prevent securities-like products from entering the market through crypto-specific pathways

France’s position has generated controversy, with some legal experts questioning whether national regulators possess legal authority to block passporting under MiCA’s framework. Edwin Mata, CEO of asset tokenization platform Brickken, argues that “MiCA is a regulation, not a directive, which means it applies directly and uniformly across all Member States,” suggesting that unilateral French restrictions might violate EU law.

Building a True Capital Markets Union: Beyond Regulatory Structure

The push to enhance ESMA’s powers represents just one component of broader efforts to create a genuine European Capital Markets Union – a project that has remained perpetually “in progress” since its formal launch in 2015. Despite years of initiatives, European capital markets remain significantly less integrated than their American counterparts, creating persistent disadvantages for European companies and investors.

The scale of Europe’s integration challenge becomes clear when comparing key metrics with the United States. According to data cited by Lagarde, American banks have access to a securitization market three times the size of Europe’s, allowing them to shift risk to investors, free up capital, and extend more credit to innovative but potentially risky ventures. This asymmetry particularly disadvantages young, disruptive firms that drive innovation but require patient capital and tolerance for uncertainty.

The consequences extend beyond finance to affect Europe’s broader economic competitiveness. The European Commission estimates that achieving the green transition alone will require additional investment of approximately $672 billion annually through 2030, with another $136 billion per year needed for digital transformation. Mobilizing such enormous sums through fragmented national capital markets operating under inconsistent regulatory frameworks appears increasingly implausible.

A strengthened ESMA with broad supervisory authority represents a key pillar for achieving genuine capital markets integration. By ensuring consistent regulation and supervision across all member states, an empowered ESMA could reduce compliance costs, enhance investor confidence, facilitate cross-border capital flows, and ultimately help create the deep, liquid capital markets that European economic transformation requires.

Comparative Perspective: Learning from the American SEC Model

The explicit framing of this proposal as creating a “European SEC” invites comparison with the United States Securities and Exchange Commission, one of the world’s most powerful and influential financial regulators. The SEC, established in 1934 in response to the stock market crash of 1929, possesses broad authority to regulate securities markets, enforce federal securities laws, and supervise key market participants.

Several characteristics of the SEC model prove particularly relevant to European policymakers:

Centralized Authority: The SEC provides unified oversight across all American states, ensuring that companies face consistent requirements regardless of where they operate within the United States. This contrasts sharply with Europe’s current model where national regulators maintain significant independence.

Comprehensive Scope: The SEC’s mandate encompasses traditional securities markets, emerging asset classes, and market infrastructure, allowing it to adapt to financial innovation without requiring constant restructuring of regulatory architecture.

Enforcement Capability: The SEC possesses robust investigatory and enforcement powers, including the ability to impose substantial fines, ban individuals from serving in executive roles, and pursue criminal referrals for serious violations.

Flexibility and Expertise: A centralized regulator can develop specialized expertise in emerging areas like cryptocurrency and digital assets more efficiently than 27 separate national authorities, each with limited resources and potentially competing priorities.

However, the American model also reveals potential challenges. The SEC has faced persistent criticism for alleged regulatory overreach, particularly in its aggressive enforcement approach to cryptocurrency markets. Under different presidential administrations, the SEC’s stance toward digital assets has varied dramatically, creating uncertainty that some argue stifles innovation.

European policymakers must navigate careful balance: creating an ESMA with sufficient authority to ensure effective supervision while maintaining mechanisms for accountability, respecting member state sovereignty, and preserving space for regulatory innovation that serves Europe’s specific needs and values.

Industry Response: Innovation Concerns and Competitive Implications

The proposal for expanded ESMA powers has generated mixed responses from industry participants, reflecting genuine tensions between regulatory harmonization and operational flexibility. Cryptocurrency exchanges and fintech companies have expressed particular concern about potential bureaucratic centralization.

Supporters of decentralized oversight argue that regulatory competition between member states can drive innovation, allowing different approaches to emerge and evolve. Under this view, companies benefit from being able to choose jurisdictions whose regulatory philosophy aligns with their business model, while regulators compete to attract innovative firms by developing proportionate, effective oversight frameworks.

Marina Markezic of the European Crypto Initiative emphasized challenges facing smaller firms: “It is very intense to be compliant in a very short amount of time. For the biggest ones, having one single access to the whole European Union market is really positive.” The implication is that while major players benefit from harmonization, smaller innovators may struggle under centralized requirements that fail to account for the diversity of business models and risk profiles across the crypto ecosystem.

Some industry voices warn that excessive centralization could drive crypto innovation outside Europe entirely, with companies relocating to jurisdictions like Singapore, Dubai, or potentially even the United States if it adopts more favorable policies under new leadership. Given the mobile nature of digital asset businesses, regulatory competitiveness remains a genuine concern.

However, other market participants welcome stronger oversight, recognizing that regulatory clarity and robust consumer protection can enhance long-term industry legitimacy and growth. Major crypto exchanges and financial institutions already operating under stringent regulatory requirements may view centralized ESMA oversight as creating a level playing field that prevents less scrupulous competitors from undermining market integrity.

Implementation Timeline and Political Challenges

If the European Commission publishes its proposal as expected in December 2025, the path to implementation will require navigating complex political dynamics. The proposal must secure approval from both the European Parliament and the Council of the European Union, representing member states’ governments.

Several factors will influence the political calculus:

Member State Sovereignty: Countries with well-developed financial sectors and strong national regulators may resist ceding authority to ESMA. France’s support for the proposal reflects its confidence that centralization would enhance rather than diminish French influence, given ESMA’s Paris headquarters and France’s expertise in financial regulation.

Market Size and Regulatory Capacity: Smaller member states with limited regulatory resources might welcome ESMA assuming direct oversight of major cross-border firms, relieving pressure on national authorities. However, some may fear losing the ability to attract financial services companies through proportionate, risk-based regulation.

Crypto Industry Considerations: The explosive growth of cryptocurrency markets and recurring scandals involving major platforms have created political momentum for stronger oversight. However, European leaders also recognize the strategic importance of maintaining Europe’s attractiveness as a destination for digital innovation.

Broader Economic Context: Europe’s economic competitiveness challenges, including sluggish growth relative to the United States and China, create urgency around capital markets union. Policymakers understand that European companies’ difficulties accessing growth capital place them at systematic disadvantage in global competition.

If approved, ESMA’s expanded authority could become operational by late 2026, though implementation will likely occur in phases as ESMA builds necessary capacity and expertise. The transition period will prove critical, requiring careful coordination between ESMA and national authorities to avoid gaps in oversight while new systems are established.

Implications for Global Financial Regulation

The European Union’s move toward SEC-style centralized financial oversight carries implications extending far beyond Europe’s borders. As one of the world’s largest economic blocs, European regulatory choices influence global standards and competitive dynamics across the financial services industry.

For cryptocurrency markets specifically, Europe’s approach contrasts markedly with evolving American policy. The United States has experienced significant regulatory uncertainty, with the SEC and Commodity Futures Trading Commission (CFTC) competing for jurisdiction over digital assets and enforcement approaches varying dramatically between presidential administrations. If Europe successfully implements coherent, centralized cryptocurrency oversight, it could establish itself as the preferred jurisdiction for legitimate crypto businesses seeking regulatory clarity.

The proposal also reflects broader patterns in financial globalization. Rather than a worldwide race to the bottom in regulatory standards, major economic blocs are increasingly competing to establish their regulatory frameworks as global standards. The EU’s approach – combining comprehensive regulation with efforts to preserve innovation – represents a distinct model from both the United States’ more fragmented approach and Asia’s diverse regulatory experiments.

For traditional financial firms, enhanced ESMA authority could reduce the compliance complexity associated with European operations, potentially making the region more attractive for global financial services companies. However, firms must also prepare for potentially more rigorous oversight and enforcement compared to some current national regulatory approaches.

Conclusion: A Defining Moment for European Financial Integration

The European Union’s proposal to grant ESMA SEC-like powers represents one of the most significant steps toward genuine capital markets integration since the creation of the euro. By centralizing oversight of both traditional stock exchanges and emerging cryptocurrency platforms, European policymakers are attempting to create the regulatory infrastructure necessary for mobilizing the massive capital required to address climate change, digital transformation, and economic competitiveness challenges.

Success will require navigating formidable political and practical obstacles. Member states must balance legitimate sovereignty concerns against the collective benefits of integrated oversight. ESMA must develop the institutional capacity to effectively supervise diverse market participants across 27 countries. And policymakers must calibrate regulatory rigor carefully to protect consumers and maintain market integrity while preserving Europe’s attractiveness for financial innovation.

The stakes extend beyond regulatory architecture to fundamental questions about Europe’s economic future. Can the continent mobilize sufficient capital to finance the green and digital transitions? Will Europe’s startups access the growth capital they need to compete globally? Can European financial markets provide the depth and liquidity that pension funds and long-term investors require?

As ESMA Chair Verena Ross acknowledged, creating a genuinely unified European capital market requires not just regulatory harmonization but consistent supervision. The December 2025 proposal represents a critical test of whether Europe’s twenty-seven member states can subordinate national regulatory prerogatives to collective economic interests – a question whose answer will shape European prosperity for decades to come.

For market participants, policymakers, and observers worldwide, the coming months will reveal whether Europe can transform its vision of an integrated financial market into operational reality. The outcome will influence not only European financial services but also global approaches to regulating the increasingly complex and interconnected world of traditional and digital finance.

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By: Montel Kamau

Serrari Financial Analyst

4th November, 2025