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PARIS – The French government has issued a warning that it may block certain cryptocurrency firms licensed in other EU countries from operating within its borders. This move is part of a broader effort to transfer oversight to the European Securities and Markets Authority (ESMA), the head of France’s financial watchdog told Reuters.
According to Marie-Anne Barbat-Layani, president of the Autorité des Marchés Financiers (AMF), France’s securities watchdog, there is concern that under the EU’s new regulatory regime, cryptocurrency companies are seeking out jurisdictions with more lenient licensing standards.
MiCA, a landmark set of digital asset rules that came into force this year, allows cryptocurrency companies to apply for licenses from individual EU member states, which can then be used as a “passport” to operate throughout the 27-nation bloc.
The legislation has already exposed inconsistencies in how national regulators apply the rules, raising questions about whether some licenses are being granted too quickly and whether cross-border firms are being adequately supervised.
At stake is oversight of the multi-trillion-dollar cryptocurrency industry, which regulators globally have long warned could destabilize markets and harm investors if not properly supervised.
On Monday, France joined Italy and Austria in calling for the European Securities and Markets Authority (ESMA), based in Paris, to take over supervision of major cryptocurrency firms, according to a position paper seen by Reuters.
In its strongest warning yet, the AMF told Reuters that France would not rule out the possibility of using the “atomic weapon” of challenging the “passporting” of a license granted by a different member state.
A hallmark of the EU’s single market for financial services, “passporting” allows companies authorized by one member state to operate across the bloc. The AMF did not give details about which companies’ licenses it could consider challenging, or on what basis.
“We do not exclude the possibility of refusing the EU passport,” Barbat-Layani said. “It’s very complex legally and not a very good signal for the single market – it’s a bit like the ‘atomic weapon’ … but it’s still a possibility we hold in reserve.”
Cryptocurrency platforms “are doing their regulatory shopping all over Europe, trying to find a weak link that will give them a license with fewer requirements than the others,” she added, without providing specific examples.
In Monday’s paper, France’s AMF, Italy’s Consob, and Austria’s FMA called on European lawmakers to introduce a mechanism to transfer powers to ESMA.
“The first few months of the application of the Regulation have revealed major differences in how crypto-markets are being supervised by national authorities,” the three regulators said.
Direct European supervision would better protect investors, they said.
Malta’s financial regulator faced scrutiny over its license-granting process earlier this year. An ESMA review found that Malta did not do enough to assess the risk when granting a license to one particular unnamed cryptocurrency company. Malta said it was proud of its role as an “early adopter” of digital asset regulation.
The French, Italian, and Austrian regulators did not give examples of where regulators had interpreted the rules differently.
Cryptocurrency companies are in the process of applying for MiCA licenses during a transition period. Luxembourg granted a license to U.S.-listed exchange Coinbase and Malta gave a license to the Winklevoss-founded exchange Gemini.
France, Italy, and Austria also called for MiCA revisions, including stricter rules for cryptocurrency companies’ activities outside of the EU, better cybersecurity supervision, and a review of how authorities manage new cryptocurrency token offerings.
France has long been pushing for ESMA to be given greater power. ESMA head Verena Ross has said she would welcome the move, but it faces resistance from some EU members.
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