EU Centralizes Markets to Match US Efficiency, Curb Regulatory Arbitrage

The European Commission is poised to propose a regulatory overhaul that would centralize oversight of stock and cryptocurrency markets under a single authority akin to the U.S. Securities and Exchange Commission (SEC). The plan, expected to be unveiled in December, aims to address fragmentation in the EU's capital markets and streamline cross-border operations for financial firms, particularly startups, according to a Cointelegraph report. The initiative, supported by European Central Bank (ECB) President Christine Lagarde, seeks to expand the European Securities and Markets Authority's (ESMA) jurisdiction to include stock exchanges, crypto platforms, and related infrastructure, The Block reported.

The current system, characterized by a patchwork of national and regional regulators, has created high compliance costs and hindered innovation. By consolidating oversight under ESMA, the EU hopes to foster a more competitive capital markets union (CMU), mirroring the efficiency of U.S. markets, Cointelegraph also noted. Lagarde has long advocated for such a shift, arguing that a unified regulator would mitigate systemic risks from large cross-border firms and reduce enforcement gaps, The Block added. ESMA Chair Verena Ross has similarly emphasized the need to "address continued fragmentation in markets" and accelerate progress toward a cohesive CMU, Cointelegraph reported.

A key driver of the proposal is the Markets in Crypto-Assets Regulation (MiCA), which took effect in December 2024. MiCA allows crypto service providers licensed in one EU member state to operate across the bloc using a "passport" system. However, this framework has drawn criticism, particularly from France, which has threatened to block the passporting process for firms it deems noncompliant, the MK reported. French regulators fear that crypto firms could exploit laxer standards in countries like Malta or Cyprus to gain a cross-border foothold in major markets such as Germany and France, the MK warned. Austria and Italy have echoed France's concerns, urging ESMA to assume direct supervision of major crypto entities, The Block reported.

The proposed reforms would grant ESMA binding authority to resolve disputes between asset managers and enforce rules without requiring direct oversight. This includes the power to issue binding decisions on trading venues and post-trade infrastructure, a TradingView article said. The draft, which will undergo legislative scrutiny in 2026, also seeks to address risks posed by "regulated shopping"—where firms seek licenses in jurisdictions with the least stringent rules, the MK noted.

While the plan faces resistance from smaller EU financial hubs like Luxembourg and Dublin, which worry about losing influence, it aligns with broader efforts to centralize crypto regulation. The EU has already taken steps to standardize stablecoins and tokenized real-world assets, with Lagarde and finance ministers recently finalizing a roadmap for a digital euro central bank digital currency (CBDC), The Block reported.

The proposal's success hinges on balancing innovation with oversight. By reducing bureaucratic hurdles for startups while tightening controls on systemic risks, the EU aims to create a regulatory environment that rivals the U.S. in both competitiveness and stability, TradingView analysts added.