Malta Pushes Back: Regulator Rejects Centralised Crypto Oversight Under ESMA

MFSA warns EU plan for central supervision could introduce red tape and erode regulatory agility

Malta’s financial services authority has formally opposed proposals by France, Italy, and Austria to centralise supervision of major cryptocurrency firms under the European Securities and Markets Authority (ESMA), arguing that such a move could damage efficiency and harm the EU’s competitiveness just as crypto regulation under MiCA enters its implementation phase.

The Debate Over ESMA’s Role

Under growing concern that new EU crypto rules (MiCA) are being interpreted inconsistently across member states, France, Italy, and Austria have pushed for ESMA to take direct oversight responsibility for large crypto-asset service providers (CASPs). They claim that “regulatory arbitrage”, firms shopping for lenient licensing regimes, is undermining investor protection.

Malta Financial Services Authority (MFSA) acknowledges the need for supervisory convergence, i.e. aligning practices across national regulators, but rejects full centralisation. According to MFSA, giving ESMA sweeping powers now would create an extra bureaucratic layer, reduce regulatory flexibility, and risk slowing down licensing and oversight just when speed is essential for innovation.

Implications for Crypto Markets & Regulation

• Licensing Uncertainty: Crypto firms seeking licenses under MiCA may face uncertainty if ESMA’s authority is expanded. License-holders in “friendly” jurisdictions (with faster, less stringent oversight) may see their status challenged or re-evaluated.
• Regulatory Fragmentation Risk: A lack of central oversight could perpetuate fragmentation across the EU in how CASPs are regulated, which might lead to inconsistent enforcement, risk exposure, and investor confusion. Some firms prefer Malta for its more established crypto regulatory regime.
• Market Volatility & Investor Confidence: Investors may demand a risk premium for operating in jurisdictions viewed as weaker regulators. Alternatively, firms might cluster in jurisdictions with perceived lax oversight, raising reputational risk and possibly triggering regulatory backlash.
• Cost and Efficiency Trade-Offs: Centralisation could drive up compliance costs, slow decision-making, and reduce innovation speed, especially for smaller crypto firms. On the other hand, uniform supervision could reduce cross-border risk and enhance trust.

What to Watch

• Whether proposals for central supervision gain traction in EU legislative bodies.
• How ESMA chooses to exercise its powers under MiCA in practice, especially in peer reviews and oversight of high-risk crypto firms.
• Any legal challenges by member states resisting central oversight or changes to licensing/power structure.
• Impact on crypto asset prices or investments (e.g. exchanges, token issuers) with exposure in jurisdictions with looser regulation.

In summary, Malta’s opposition highlights a key tension within the EU: balancing regulatory efficiency and flexibility against the need for coherent, uniform oversight in the crypto sector. The core theme: as crypto regulation deepens, EU regulators are divided on whether centralisation under ESMA is the cure, or the risk, for the next stage of the market’s evolution.