TLDR
- Bank of France calls for ESMA to oversee EU crypto assets under MiCA.
- ESMA’s role could prevent regulatory gaps and safeguard EU financial security.
- Bank of France criticizes dollar-backed stablecoins under MiCA’s multi-issuance.
- MiCA passporting raises enforcement concerns in EU crypto regulations.
The Bank of France has called for enhanced supervision of the crypto market within the European Union. François Villeroy de Galhau, the Governor of the Bank of France, is advocating for the European Securities and Markets Authority (ESMA), based in Paris, to take direct supervisory control over major crypto-asset issuers. This proposal comes under the Markets in Crypto-Assets (MiCA) framework, aiming to strengthen oversight and improve consistency across the EU.
Centralized Supervision for EU Financial Security
Villeroy de Galhau has argued that assigning direct regulatory powers to ESMA would ensure consistent rule enforcement throughout the European Union. This move aims to prevent regulatory arbitrage, where firms might take advantage of differing national rules, which can undermine financial stability.
According to the Governor, fragmented national oversight of crypto assets poses a risk to the EU’s financial sovereignty. A unified supervision model is seen as essential to protect the integrity of the region’s financial system from potential vulnerabilities posed by the rapidly growing crypto sector.
ESMA’s central role could help streamline regulations and enforce uniformity across all member states. Villeroy de Galhau has emphasized that having a central body overseeing the entire market would prevent discrepancies in how crypto assets are regulated in different countries. This would also contribute to a safer environment for businesses and consumers alike, especially as the EU looks to enhance its regulatory framework for digital assets under MiCA.
Concerns Over Dollar-Backed Stablecoins
A major concern raised by the Bank of France focuses on the regulation of dollar-backed stablecoins. Under the MiCA framework, tokens can be issued both inside and outside the EU with only partial reserves, a practice that the Bank of France and other institutions see as weakening the euro and increasing reliance on non-European entities.
Villeroy de Galhau has criticized MiCA’s allowance for multi-issuance, warning that such practices could exacerbate the EU’s dependence on foreign currencies, particularly the US dollar.
This criticism is echoed by the Bank of Italy and the European Systemic Risk Board (ESRB), which have also raised alarms about the potential risks posed by multi-issuance. They argue that this method of issuing stablecoins may leave investors exposed to significant risks, as it allows for tokens to circulate with insufficient backing. As a result, these institutions have recommended that the practice be prohibited, urging a more cautious approach in managing the issuance of stablecoins within the EU.
Issues with MiCA’s Passporting Feature
The MiCA framework includes a “passporting” feature that allows licensed firms in one EU member state to operate across the entire region. While this has been seen as a way to facilitate market access, recent developments have highlighted challenges in ensuring proper enforcement and oversight.
The European Securities and Markets Authority (ESMA) has raised concerns about Malta’s licensing process, while France’s financial regulator, the Autorité des Marchés Financiers (AMF), has flagged enforcement gaps in national supervision.
These issues suggest that weak national oversight could create systemic risks across the EU, particularly if firms are able to operate in multiple jurisdictions without strong, centralized supervision. The Bank of France has stressed the need for stronger oversight mechanisms to prevent such risks, urging that the EU adopt a more robust and cohesive regulatory approach to crypto assets under ESMA’s leadership.
EU’s Path Forward on Crypto Regulation
The proposal from the Bank of France reflects growing concerns within the EU regarding the rapid expansion of the crypto market. As digital assets continue to gain popularity, regulators face the challenge of ensuring that these assets are appropriately managed while maintaining financial stability.
With ESMA potentially taking on a greater role, the EU seeks to create a regulatory environment that can keep pace with the evolving crypto market while protecting its economic interests.
The continued dialogue surrounding MiCA and ESMA’s role will likely shape the future of EU crypto regulation. As member states discuss potential reforms, the emphasis remains on achieving consistent and effective oversight across the region. With cryptocurrencies and digital assets becoming an integral part of the financial landscape, the EU’s regulatory approach will be crucial in maintaining the stability and security of its financial system.
