The European Securities and Markets Authority (ESMA) has publicly called for stronger enforcement powers over Europe's crypto regulation, warning that its current mandate leaves the EU-level watchdog dependent on national authorities to police the sector.

The appeal, reported by Global Banking & Finance Review, puts the spotlight on a structural gap at the heart of the Markets in Crypto-Assets Regulation (MiCA), the EU's flagship crypto framework that became fully applicable for crypto-asset service providers on December 30, 2024.

What is ESMA asking for?

ESMA, the Paris-based EU securities regulator, does not directly supervise most crypto firms. Under MiCA, day-to-day authorization and supervision of crypto-asset service providers falls to national competent authorities in each member state, such as Germany's BaFin, France's AMF and Italy's Consob.

ESMA's role is largely coordinating: it drafts technical standards, monitors convergence across jurisdictions and can issue opinions. It has now signaled that this arrangement is not sufficient to enforce a single market rulebook for a borderless asset class, and that it needs a stronger enforcement mandate to make MiCA effective in practice.

Why does the enforcement gap matter?

The concern is operational. Crypto services are delivered cross-border by design, while supervision remains national. A firm authorized in one member state can passport its services across the EU, meaning a weak link in one jurisdiction can become a point of leverage for the entire market.

For licensed exchanges, custodians and stablecoin issuers, a stronger ESMA would mean a more predictable but also more demanding supervisory environment. Non-compliant operators would face a lower probability of exploiting jurisdictional arbitrage within the bloc, while compliant firms could benefit from a more level competitive playing field.

The timing is significant. MiCA's stablecoin provisions took effect in June 2024, with the full services regime following at the end of that year, and member states are still building out supervisory capacity. Several national regulators have flagged staffing and technical-resource constraints as they absorb an entirely new authorization pipeline.

What happens next?

Any expansion of ESMA's powers would require legislative change. The European Commission, Parliament and Council would need to amend the MiCA framework itself or adopt separate measures, a process that typically takes months if not years of negotiation.

In the interim, ESMA has been using its existing tools: it has issued guidance on MiCA's implementation, including on marketing communications, sustainability indicators and the qualification of crypto-assets as financial instruments, and it has pressed national authorities to apply the rulebook consistently.

The question for market participants is whether Brussels moves to close the enforcement gap before divergent national practice takes root. With MiCA now live across all 27 member states and authorization applications moving through national regulators, the window in which supervisory precedent gets set is effectively already open.

Market participants should watch the Commission's legislative agenda and ESMA's annual work programme for signs that a formal proposal to strengthen the EU-level mandate is in preparation.