‘A tantrum. And an illegal one.’ Such was the description offered by a source close to a key European Commission policy adviser to the suggestion that the French regulator, Autorité des Marchés Financiers, would veto the passporting rights of a crypto-asset service provider newly approved by the Maltese regulator under Europe’s Markets in Crypto-Assets Regulation. At stake according to the source – despite the arcane-sounding nature of the dispute – is not just a supervisory land-grab, but the fundamental ability of Europe to innovate.
The move comes in the context of wider efforts by national regulators which aim to prevent fragmentation and support desperately needed capital markets integration, but instead directly jeopardise the original intended mechanisms of MiCA. The recent tripartite position of three European regulators, France’s Autorité des marchés financiers, Austria’s Financial Market Authority and Italy’s Commissione Nazionale per le Società e la Borsa shows how fine the balancing act has become. Their joint September 2025 paper warns that national divergences risk leaving gaps for regulatory arbitrage and investor harm. They propose tighter oversight of third-country platforms, clearer authorisation processes and a single filing point for token offerings.
However, MiCA was specifically designed to harmonise rules while giving member states a role in supervising their own markets. The team who steered the legislation onto the statute books for the Commission specifically left room for a variety of regulatory attitudes within fixed and agreed rules. The arrangement in lieu of a single official supervisor requires that member states guard one another against egregious infractions by taking complaints to the Commission. They are disincentivised from trivial or protectionist grievances by the risk of sponsoring the same against them. But there is room for local preference, which might support innovation. Historians might even suggest that this European idiosyncrasy drove its success.
‘Crypto-negative’ mindset
European Securities and Markets Authority, meanwhile, is rumoured to be appointing itself the pan-European supervisor of MiCA, with support in the Council of the European Union from ‘bullying’ larger member states and resistance from the smaller ones. ESMA had volunteered a didactic fast-track verdict to the Maltese regulators, who unsurprisingly eschewed their offer of direct supervision. Nevertheless, an informed observer in Brussels expects that member states might be willing to give up CASP regulation as a gesture to Capital Markets Union, since as a new field, it wouldn’t involve surrendering long-standing local vested interests.
Like the European Banking Authority, ESMA is based in Paris. The EU authority would need to hire approximately 500 new civil servants costing in total up to €90m a year to oversee the several dozen expected significant CASPs, and would start, an observer thought, with a ‘crypto-negative’ mindset. MiCA itself would probably need to be re-ratified at a time when the US moves at speed with the authorisation of systemic stablecoins via the Genius Act – which transparently supports the dollar’s extraterritorial use and which European policy-makers typically understand as a challenge to European financial sovereignty. In short, a move which intuitively might look like a good European move could well be the opposite.
Europe is faced with a familiar trilemma. It must find a balance between the benefits of uniformity and intra-market competition on the one hand, and the different preferences of nations within a construct lacking national critical mass on the other, within a mutually accepted governance process. The logic of distributed ledger technology makes this process especially difficult. As value moves faster and more natively in code – on-chain finance, borderless by design – is colliding with the hard edges of national jurisdiction, turning market architecture into a contest between open networks and sovereign control.
Against this backdrop, Europe is once again confronting the conundrum of how much it can close itself off without undermining its own ambition.
Emerging US ‘oligopoly’
Bank-like oversight of CASP’s is a case in point. It is safe, but risks driving tokenised finance elsewhere, potentially leaving Europe behind in a financial revolution, and ultimately a supplicant of an emerging US ‘oligopoly’, as the EU Council calls it. A regulatory battle won, but an economic sovereignty war lost.
ESMA’s June question and answer on shared order book restrictions highlights the same problem that a unified book spanning EU and non-EU platforms is non-compliant unless every operator is MiCA-authorised, and the AMF-FMA-Consob paper presses further by urging intermediaries to execute only on platforms subject to MiCA or demonstrably equivalent rules. This creates an uneasy pull between execution quality and formal perimeter control. The practical risk is that brokers are pushed to choose compliance orthodoxy over price and fill probability, even when clients would be better served by wider venue access.
Europe has seen the sad spectacle of a Single Market initiative in finance undermining itself in this way before. The Markets in Financial Instruments Directive and MiFID II, designed to aid CMU, unfolded into a jumble of gold-plated national rules, divergent conduct standards and persistent barriers. The risk is that MiCA, meant to create a seamless framework for digital assets, ends up as a patchwork.
On Europe’s doorstep, financial history might be about to repeat itself. US Treasury Secretary Scott Bessent and UK Chancellor of the Exchequer Rachel Reeves have discussed reciprocity in digital asset markets. Proponents in London speculate that a digital equivalent to the evolution of the eurodollar could incubate there. This invention in the 1960s, specifically outside national regulatory control but developed to the mutual benefit by market participants, went on to become today’s global bond market. The late Susan Strange suggested that it owed its power precisely to its location beyond US jurisdiction. Europe risks repeating that lesson in reverse if it builds a fortress others can simply route around.
The Brussels effect
There is also a cautionary tale in banking. Berlin has repeatedly opposed UniCredit’s approach to Commerzbank. The government has signalled no sale of its stake and labelled the overture unfriendly. Commerzbank’s leadership has done the same. One can debate the industrial logic, but the irony is hard to miss. Europe calls for deeper capital markets and cross-border integration, then recoils when the integration cuts against national preference.
In the same vein, Mario Draghi, former Italian prime minister and European Central Bank president, has warned repeatedly that Europe’s competitiveness is eroding. Only around 11% of his recommendations have been implemented – an astonishingly low figure for a region facing intensifying global competition. In Rimini this summer, Draghi urged Europe to turn skepticism into action and create a cycle in which investment feeds innovation rather than bureaucracy feeding inertia. His words apply as much to financial supervision as they do to energy policy or industrial reform.
Europe still has advantages it can wield. Its institutional capital, its reputation for consumer protection and the power of what scholars call the ‘Brussels effect’ give it the ability to shape global standards. But those advantages are meaningful only if they are used to keep Europe connected to the flow of global finance, not to cut it off. Over-zealous supervision will not bring innovation home. It will be sent elsewhere.
MiCA offers Europe the chance to do the opposite – empower its member states, restore confidence in its markets and make the Brussels effect felt worldwide.
John Orchard is chairman of the Digital Monetary Institute at OMFIF and Erwin Voloder is Head of Policy at the European Blockchain Association.
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