8 months ago
47 ARTICLE AD
EU’s securities watchdog ESMA struggles to keep pace with crypto regulations as ESMA confronts resource constraints.
Establishing a robust regulatory framework for cryptocurrencies remains a significant objective for the European Union (EU). However, the European Securities and Markets Authority (ESMA) confronts a substantial impediment due to resource constraints. As a result, the EU risks falling behind other markets in embracing cryptocurrencies and blockchain technology.
Overseeing Europe’s complex financial landscape is a primary endeavor for ESMA, the Union’s premier regulatory authority. Verena Ross, the esteemed chairperson, acknowledges this challenge, highlighting the several additional responsibilities and warrants assigned to the agency in recent years.
“Resources is an issue for ESMA generally because we have had a large number of additional responsibilities and mandates given to us over the last few years, and not always necessarily with a lot of additional resources, […] That has certainly created some challenges for us”, Ross said in a recent interview.
One such consequence is the delay of the European Commission’s October 2023 deadline for assessing the potential inclusion of crypto assets within Ucits funds – a widely favored investment vehicle among European retail investors. However, as acknowledged by the Chair, Verena Ross, resource constraints have required a significant delay, potentially deferring the timeline to the end of 2024 or even early 2025.
EU Struggles with Crypto Regulation Challenges
The European Union lags behind when it comes to crypto oversight. Meanwhile, America embraces digital assets with open arms. Bitcoin ETFs soared stateside, netting $11 billion since January 2024. This regulatory agility allows US investors easy entry into the crypto world – a stark contrast to Europe’s glacial pace and rigid regulations. Capital flight looms as funds seek greener, pro-innovation pastures overseas.
Furthermore, the lack of harmonization regulations within the European Union poses significant challenges. Jupiter Fund Management’s experience serves as a prime example. While their Irish Ucits fund was forced to abandon a planned crypto investment due to harsh Irish regulations, Spain permits exposure to such assets through exchange-traded products.
The Urgency for Action
The growing convergence of traditional finance and cryptocurrencies underlines the pressing need for a transparent and cohesive regulatory framework within the European Union. The emergence of US-based ETFs and the UK’s receptiveness to comparable offerings accentuate this development. ESMA acknowledges this interconnectedness and stresses the importance of getting the Ucits review right.
“What we’re seeing happen is just an increased interconnectedness between crypto assets and the traditional financial sector and various products,” Ross said
With merely 300 staff and a €75.2 million budget unchanged from last year, ESMA is forced to prioritize tasks rigorously. This may involve strategic staff allocation potentially retraining existing employees to specialise in crypto regulation. Additionally, a phased rollout of MiCA could ease the implementation burden for both ESMA and member states.
The EU needs to address ESMA’s resource constraints to ensure effective crypto regulation. A well-funded and empowered watchdog is crucial for fostering innovation, protecting investors, and ensuring the EU remains competitive in the global digital asset landscape.
