The European Securities and Markets Authority (ESMA) is pushing for tougher and faster enforcement of the European Union’s Markets in Crypto-Assets Regulation (MiCA), arguing that regulators need stronger tools to respond to risks in the rapidly moving digital-asset market.
In a statement published last month, ESMA called for changes to MiCA as part of the European Commission’s ongoing review of the framework.
The proposals are aimed at strengthening investor protection, addressing online fraud and improving coordination between regulators across EU member states.
Register for the next Tekedia Mini-MBA.
Register for Tekedia AI in Business Masterclass.
Join Tekedia Capital Syndicate and co-invest in great global startups.
One of the most significant proposals would enable European regulators greater ability to freeze crypto assets when there are reasonable grounds to suspect links to criminal activity, market abuse or terrorist financing.
The concern is that conventional regulatory procedures can struggle to keep pace with crypto markets. Digital assets can be transferred across wallets and platforms within seconds, potentially allowing suspicious funds to move before authorities can complete the necessary procedures.
ESMA therefore wants regulators to have more direct intervention powers, allowing them to act before potentially illicit assets are transferred beyond their reach.
The proposal according to report, would allow authorities to instruct crypto companies to freeze assets suspected of being connected to crime.
The proposal would represent a significant strengthening of the enforcement architecture around MiCA. Under the existing framework, national competent authorities already have broad powers, including the ability to suspend crypto services, prohibit certain activities and require the removal or restriction of access to unlawful online interfaces.
ESMA is also seeking stronger tools to deal with crypto scams operating online. The regulator wants European authorities to have greater capacity to detect, block and deactivate fraudulent websites, particularly those used to solicit investors through unauthorized or deceptive crypto services.
Marketing is another area targeted by the proposals. ESMA wants stricter rules around the promotion of crypto assets, particularly when influencers and third parties are involved.
This would build on existing MiCA requirements, which already require crypto marketing communications to be clearly identifiable and fair, clear and not misleading.
The proposed changes would therefore place greater emphasis on how crypto products are presented to retail investors, rather than focusing only on the underlying asset or the company offering it.
The regulator is seeking reinforced supervisory powers to address third-country firms soliciting European investors without being authorized under the EU framework.
This is particularly important because the borderless nature of crypto allows an exchange or service provider to operate from one jurisdiction while marketing directly to consumers in another.
Stronger enforcement could therefore make it more difficult for offshore platforms to access European customers while avoiding the regulatory obligations imposed on EU-authorized firms.
The regulator is calling for greater transparency around the costs associated with crypto products and services. It wants investors to receive clearer information about fees and other costs before making investment decisions.
ESMA is similarly proposing additional disclosure requirements for areas such as staking, crypto lending and borrowing, including information about risks, rewards, collateral arrangements and potential losses.
Also, it is calling for clearer rules around emerging areas such as decentralized finance (DeFi), staking, lending and borrowing. It has proposed clearer criteria for determining whether a project is genuinely decentralized and suggested creating a regulated crypto-asset service for firms that provide access to DeFi protocols.
The regulator also wants greater consistency in how crypto assets are classified across the EU, including newer products such as hybrid tokens. It has suggested that ESMA should be able to issue binding opinions on token classification to prevent similar products from being treated differently in different member states.
If adopted, the measures could give European regulators a more immediate response to suspicious crypto activity while simultaneously increasing the compliance and disclosure responsibilities facing crypto companies operating in the EU.