Bank of France Pushes ESMA Oversight to Curb Crypto Regulatory Arbitrage

The Bank of France has called for the European Securities and Markets Authority (ESMA) to assume direct oversight of major cryptocurrency firms operating within the European Union, arguing that fragmented national regulation threatens financial stability and investor protection. In a speech delivered at the ACPR-AMF Fintech Forum in Paris, Governor François Villeroy de Galhau emphasized the urgency of transferring supervisory powers to ESMA under the EU's Markets in Crypto-Assets (MiCA) framework. He warned that allowing national regulators to apply MiCA rules independently risks creating uneven enforcement and enabling regulatory arbitrage, where crypto firms exploit jurisdictional loopholes to avoid compliance. De Galhau proposed that ESMA's centralized oversight would ensure consistent application of standards across the bloc, reducing risks for investors and maintaining a level playing fieldBank of France Urges Direct EU Oversight of Crypto Firms^[1].

A key concern highlighted by the Bank of France is the regulatory weakness in MiCA's treatment of stablecoins. De Galhau criticized the framework's allowance for multi-issuance stablecoins-tokens issued both within and outside the EU with only partial reserves-as a threat to monetary sovereignty. He argued that dollar-backed stablecoins, in particular, could undermine the euro by fostering unregulated private settlement systems and increasing dependence on non-European entities. This aligns with broader EU concerns, as the European Systemic Risk Board (ESRB) recently recommended prohibiting multi-issuance stablecoins to mitigate systemic risksBank of France wants EU crypto regulation under Paris-based ESMA^[2]. The Bank of France joined the Bank of Italy in calling for stricter rules to address these vulnerabilities, with Verena Ross, ESMA's chair, supporting the move to centralize oversightBank of France Urges Direct EU Oversight of Crypto Firms^[1].

The Bank of France's advocacy comes amid growing calls for reform under MiCA, which permits crypto firms to obtain a "passport" license in one EU member state to operate across the bloc. While the passporting system aims to create a single market, de Galhau noted that weak enforcement by national regulators could lead to gaps in supervision. For example, ESMA recently criticized Malta's licensing process for a crypto firm, citing insufficient risk assessments. France's securities regulator, the Autorité des Marchés Financiers (AMF), has also raised concerns about the validity of passporting and may refuse to recognize licenses issued in less stringent jurisdictionsBank of France wants EU crypto regulation under Paris-based ESMA^[2]. The Bank of France argued that ESMA's direct supervision would eliminate these inconsistencies and prevent crypto firms from circumventing regulatory requirementsBank of France Urges Direct EU Oversight of Crypto Firms^[1].

The push for centralized oversight reflects broader efforts to strengthen the EU's financial sovereignty in the face of rapid crypto industry expansion. De Galhau emphasized that a unified regulatory approach under ESMA would not only protect investors but also reinforce the EU's role in shaping global financial standards. This aligns with the European Commission's ongoing reforms to shift oversight of financial sectors-including crypto-from national regulators to ESMA. The proposed changes aim to create a more integrated and competitive financial landscape, with de Galhau stating that stricter regulation of cross-border stablecoin issuance would reduce arbitrage risks during periods of stressBank of France wants EU crypto regulation under Paris-based ESMA^[2].

The Bank of France's stance has significant implications for the EU's crypto market. By advocating for ESMA to take a more active role, it signals a shift toward harmonized regulation that could deter firms from exploiting jurisdictional differences. This approach may also influence the implementation of MiCA, which is currently being enforced across the bloc. However, challenges remain, as some EU member states prefer maintaining national control over crypto regulation. The outcome of this debate will shape the EU's ability to balance innovation with financial stability, particularly as stablecoins and other digital assets gain prominence in cross-border transactionsBank of France wants EU crypto regulation under Paris-based ESMA^[2].