The European Union's markets watchdog, ESMA, is moving to centralize regulation of cryptocurrency companies, clearing houses, and stock exchanges, aiming to replace the current decentralized system managed by 27 national authorities.

ESMA President Verena Ross emphasizes that unifying supervision under a single European authority would streamline efforts, enhance market efficiency, and support the broader Capital Markets Union initiative.

This shift is designed to address market fragmentation across the EU, improve regulatory responsiveness, and foster innovation while maintaining high standards of security and transparency.

The move follows ongoing debates about ESMA's capacity to regulate effectively, especially after criticisms of national licensing processes, such as Malta's, which ESMA deemed insufficient for risk assessment.

While some member states like France, Italy, and Austria support the centralization, others including Luxembourg, Malta, and Ireland express concerns about potential overreach and losing control over their financial sectors.

Ireland's regulatory head, Claude Marx, warned that excessive centralization could create a 'monster' within the EU, highlighting fears of overconcentration of power.

The initiative is part of the EU's broader strategy to adapt its financial regulation to the rapid growth of digital assets, with proposals to transfer oversight of major cross-border entities, including crypto firms, to ESMA.

This effort is supported by recent calls from national regulators like France, Italy, and Austria, advocating for ESMA to oversee significant crypto firms and systemic entities.

The European Commission is preparing legislation to formalize the transfer of supervisory powers, which would involve changes in governance within ESMA and is aligned with the EU's strategy to strengthen oversight of emerging financial sectors.

Critics have raised concerns about ESMA's capacity to regulate effectively, citing examples like Malta's licensing process, which was criticized for inadequate risk assessment.

In addition to crypto regulation, the European Systemic Risk Board has recommended stricter rules for multi-issuer stablecoins, which are issued both within the EU and outside jurisdictions, due to potential vulnerabilities.

The initiative aims to address market fragmentation and improve regulatory efficiency, especially in the crypto sector, which currently involves complex coordination among multiple national authorities.