When the European Union adopted the Markets in Crypto-Assets Regulation (MiCA), it achieved something regulators around the world had struggled to do for years: create a comprehensive framework for the regulation of crypto-assets across an entire economic bloc. The regulation established a common rulebook for virtual digital asset (VDA) service providers, issuers, and market participants while introducing a passporting regime that allowed firms licensed in one member state to operate across the European Union.
Despite all its ambition, MiCA was built upon a careful compromise. Europe would have one crypto rulebook, one market, and one passport; what it would not have was one supervisor. Instead, supervisory authority remained largely in the hands of national competent authorities (NCAs), while the European Securities and Markets Authority (ESMA) was tasked with promoting consistency, coordination, and supervisory convergence across the Union. This solution sought to balance member-state autonomy with market integration. The compromise at its core is what is currently being questioned.
In a recent opinion supporting the European Commission’s broader efforts to deepen capital market integration, the European Central Bank (ECB) endorsed proposals that would strengthen ESMA’s role in supervising financial markets. While the proposals apply across financial markets, digital asset markets in particular are emerging as one of the clearest proxy sites in which this tension is playing out. Central to it is a deceptively simple question: can an inherently borderless and global crypto market be effectively supervised by national regulators?
The Deliberate Compromise Behind MiCA
The supervisory architecture embedded within MiCA was not an accident. It reflected a longstanding European philosophy of financial regulation in which common rules coexist with decentralised enforcement. For decades, the European Union has relied upon a model whereby regulations are harmonised at the European level while supervision remains primarily national. Whether under MiFID (Markets in Financial Instruments Directive) and UCITS (Undertakings for Collective Investment in Transferable Securities), or other cornerstone financial frameworks, member states retained responsibility for licensing, oversight, and enforcement within their jurisdictions. European institutions coordinated and guided those efforts, but rarely displaced them.
MiCA followed the same formula. Under the framework, national competent authorities remain responsible for authorising and supervising crypto-asset service providers. ESMA’s role is largely one of coordination: issuing guidance, promoting supervisory convergence, and ensuring consistent implementation across the Union.
The arrangement reflected both practical and political realities. National regulators possess local expertise, established supervisory relationships, and a deeper understanding of their domestic markets. Equally important, member states were unlikely to support the creation of a powerful supranational crypto regulator at a time when the sector itself remained relatively immature. The result: a compromise that allowed Europe to build a single crypto market without requiring member states to surrender direct supervisory control.
Why the ECB Wants More ESMA
While that compromise initially appeared both pragmatic and politically sustainable, the ECB’s support for a stronger ESMA reflects growing concerns that the existing supervisory model may struggle to keep pace with an increasingly integrated market.
Crypto firms rarely operate within neat geographical boundaries. A service provider may obtain authorisation in one member state, maintain operations across several others, custody assets in yet another jurisdiction, and serve customers throughout the Union under a single passport. From a business perspective, crypto firms increasingly operate as if Europe is one market. From a regulatory perspective, they are still overseen by different national authorities.
This creates concerns that are familiar to financial regulators. Different national authorities may interpret the same rules differently. Some regulators may develop deep expertise in crypto markets, while others may possess fewer resources or less experience. Supervisory priorities may vary across jurisdictions. Over time, these differences can create opportunities for regulatory arbitrage, where firms gravitate towards jurisdictions perceived to be more accommodating while continuing to access the broader European market.
The ECB’s implicit argument is that market integration eventually requires supervisory integration. If firms increasingly operate across borders, and if regulatory outcomes vary depending on which authority supervises them, then a common rulebook alone may be insufficient to ensure consistent oversight. From this perspective, stronger ESMA powers are not simply about administrative efficiency. They are about preserving the integrity of the single market itself.
The Case for Having Multiple Cooks in the Kitchen
Not everyone is accepting the ECB’s conclusion. Critics view the proposal as a premature and disproportionate response to a sector that remains relatively young and continues to evolve rapidly. They argue that greater centralisation risks undermining one of Europe’s most valuable regulatory features: the ability of member states to develop specialised expertise and compete to attract emerging industries.
Few countries illustrate this tension more clearly than Malta. Long before MiCA entered into force, Malta had positioned itself as one of Europe’s most crypto-friendly jurisdictions. Through the Virtual Financial Assets Act and related reforms, it invested heavily in building regulatory expertise, institutional capacity, and industry knowledge. For countries like Malta, greater ESMA involvement raises difficult questions.
If supervisory authority gradually migrates to the European level, what becomes of the advantages that regulatory pioneers spent years developing? Local startups would lose the agility and proximity of their knowledgeable national regulator, facing instead an untenable and bureaucratic “supervisory square” where oversight is fractured across multiple national and supranational bodies. Ultimately, this premature, “one-size-fits-all” centralisation threatens a pioneering jurisdiction’s innovation-friendly ecosystem, replacing it with excessive bureaucracy that stifles the nascent industry. It is because of this possibility that Malta has stressed repeatedly: why should smaller member states continue investing in specialised expertise if the most consequential supervisory decisions are ultimately made elsewhere?
The concern extends beyond economic incentives. It touches upon a broader principle embedded within the European project itself: subsidiarity. The idea that decisions should be taken as closely as possible to those affected by them has long shaped European governance. Critics argue that crypto supervision should not be treated differently without compelling justification. There are also practical considerations: centralised supervision would require ESMA to rapidly build substantial supervisory capacity within a highly technical and fast-moving industry. What appears efficient on paper could prove far more complex in practice.
Moreover, observers also question whether centralisation would sit comfortably alongside other regulatory frameworks. The Digital Operational Resilience Act (DORA), for example, relies heavily on national proximity, local intelligence, and direct engagement with supervised entities when assessing operational resilience and ICT risks. A highly centralised crypto supervisory model could create tensions with these existing structures. The result is a debate about whether Europe still believes regulatory competition among member states has value in emerging sectors such as digital assets.
The Competing Regulatory Philosophies at Play
Beneath the institutional debate lies a deeper disagreement about how crypto markets should be governed.
One vision prioritises regulatory competition. Under this approach, jurisdictions compete to attract firms, develop expertise, and experiment with new supervisory approaches. Proponents argue that competition fosters innovation and allows regulators to adapt more quickly to technological change. Critics counter that it encourages forum shopping and may create incentives for regulators to lower standards in order to attract business.
A second vision emphasises supervisory convergence. This was arguably MiCA’s original philosophy. National authorities remain responsible for supervision, but greater coordination, common guidance, peer reviews, and information-sharing mechanisms help ensure consistent outcomes across the Union. The objective is not to eliminate national supervision, but to make it function more coherently.
A third vision favours centralised supervision. Here, consistency is achieved not through coordination but through concentration of authority. A stronger ESMA would reduce the scope for divergent supervisory practices and provide a single point of accountability for market oversight. Supporters view this as the logical endpoint of an integrated market. Critics see it as an unnecessary transfer of power that risks weakening local expertise and creating bureaucratic rigidity.
Does Centralisation Actually Solve the Efficiency Problem?
Notably, the ECB’s recent position suggests that European institutions may increasingly be moving from the second regulatory vision towards the third. Still, even if one accepts the case for greater consistency, it remains unclear whether centralisation is necessarily the most effective route to achieving it.
The strongest argument against concentrating supervisory powers within ESMA is that it may change the form of fragmentation rather than eliminate it altogether. Crypto firms already operate within a complex regulatory environment. MiCA exists alongside DORA, anti-money laundering obligations, securities regulations, consumer protection frameworks, and a growing body of digital finance legislation. Even if ESMA assumes a larger supervisory role, firms will continue interacting with multiple regulatory regimes and authorities.
If the objective is to ensure consistent supervisory outcomes, there may be alternative approaches available. Enhanced supervisory convergence, stronger information sharing, joint supervisory teams, and more rigorous peer review mechanisms could potentially address many of the concerns identified by proponents of centralisation without fundamentally altering MiCA’s institutional balance.
The question policymakers must answer is whether the problem lies in fragmented supervision itself, or in inconsistent supervisory outcomes. While the distinction appears subtle, it carries profound implications for the future direction of European crypto regulation.
Why This Matters Beyond Europe
Although the debate is unfolding within the European Union, its significance extends far beyond European borders. MiCA is widely regarded as the most comprehensive crypto regulatory framework currently in force. Policymakers around the world are closely watching its implementation and assessing which aspects of the framework may be worth replicating within their own jurisdictions.
Crypto is inherently global. Digital asset firms operate across jurisdictions, users move capital across borders with relative ease, and market risks often emerge simultaneously in multiple countries. While, for decades, financial regulation has largely remained rooted in national institutions. Crypto increasingly raises the possibility that certain markets may become so integrated that national supervision alone struggles to deliver consistent outcomes. If Europe ultimately concludes that an integrated crypto market requires more integrated supervision, regulators elsewhere may begin asking similar questions.
Is Europe Already Laying the Groundwork for MiCA 2.0?
The debate around ESMA matters because it may offer an early indication of the questions that will define a future MiCA 2.0. The conversation is about more than what the rules should be. It is about who should enforce them and where regulatory authority should ultimately reside. If MiCA 1.0 was about creating a single market for crypto-assets, MiCA 2.0 may be about deciding whether that market ultimately requires a single supervisor. The answer will shape not only the future of crypto regulation in Europe, but also the broader question of how digital asset markets are governed in an increasingly interconnected world.
References
- European Central Bank. (2026). Opinion of the European Central Bank of 3 April 2026 on proposals amending the framework for financial supervision and market integration (CON/2026/13) https://eur-lex.europa.eu/eli/C/2026/2837/oj/eng
- Regulation (EU) 2023/1114 on Markets in Crypto-assets (MiCA). https://eur-lex.europa.eu/eli/reg/2023/1114/oj/eng
- European Securities and Markets Authority (ESMA). (2025) Guidelines on supervisory practices for competent authorities to prevent and detect market abuse under the Markets in Crypto Assets Regulation (MiCA) https://www.esma.europa.eu/sites/default/files/2025-04/ESMA75-453128700-1408_Final_Report_MiCA_Guidelines_on_prevention_and_detection_of_market_abuse.pdf
- Regulation (EU) 2022/2554 on Digital Operational Resilience for the Financial Sector (DORA).https://eur-lex.europa.eu/eli/reg/2022/2554/oj/eng
- Buttigieg, E., & Gauci, J.P. MiCA and the Flawed Premise of Centralised Supervision: Operational Burden vs. Supervisory Consistency. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=6108466
- Abrams, Z. (2026, April 11). ECB backs EU plan to centralize crypto supervision under Paris-based ESMA watchdog: Reuters. https://www.theblock.co/post/397121/ecb-backs-eu-plan-to-centralize-crypto-supervision-under-paris-based-esma-watchdog-reuters
- Buttigieg, C., (2025, June 18). ESMA-led Collaboration: An Alternative to Centralised Supervision of Cryptoassets https://blogs.law.ox.ac.uk/oblb/blog-post/2025/06/esma-led-collaboration-alternative-centralised-supervision-cryptoassets
- Lagarde, C. (2025, September 1). Building European autonomy: Cooperation and the rule of law [Speech]. European Central Bank. https://www.ecb.europa.eu/press/key/date/2025/html/ecb.sp250901~54fdcd1e20.en.html
- Cilia, S. (2024, May 13). Is Malta the domicile of choice for crypto-millionaires? https://www.ibanet.org/article/A26900FC-B3DE-41FE-AC6B-A55CCC2B364A