Bank of France Advocates ESMA Oversight of EU Digital Asset Regulations

Advocating Centralized Oversight for EU Digital Assets

The Bank of France has called on the European Union (EU) to centralize its regulatory authority over digital assets under the European Securities and Markets Authority (ESMA). François Villeroy de Galhau, Governor of the French central bank, stressed this position during the ACPR-AMF Fintech Forum in Paris on October 9.

Villeroy de Galhau warned that allowing national regulatory frameworks to dominate could produce enforcement inconsistencies that jeopardize the EU’s financial sovereignty. He argued that ESMA should directly supervise digital asset issuers, ensuring regulatory uniformity and mitigating systemic risks.

As digital asset firms increasingly gain traction across Europe, the governor highlighted the potential pitfalls of fragmented national-level oversight, emphasizing the necessity of centralized governance to foster effective and balanced regulation.

Risks from USD-Backed Stablecoins and Multi-Issuance Challenges

A key concern raised by the Bank of France governor was the structural risks posed by USD-backed stablecoins to Europe’s financial independence. While the EU’s Markets in Crypto-Assets (MiCA) framework represents significant progress, Villeroy de Galhau underscored the need for a harmonized regulatory strategy to enhance investor protections.

One glaring issue within the MiCA framework is the “multi-issuance” of stablecoins—a practice whereby identical tokens can be issued both within and outside the EU while maintaining only partial reserves. This loophole, he noted, could destabilize the euro, bolster private payment systems, and increase the EU’s dependency on non-European entities operating without adequate oversight.

These concerns have gained traction across the region. For instance, Chiara Scotti, Deputy Governor of the Bank of Italy, highlighted in September that while multi-issuance may improve liquidity and scalability, it also introduces considerable legal, operational, and systemic financial risks. Echoing this stance, the European Systemic Risk Board (ESRB) recommended on October 1 that the multi-issuance of stablecoins be outright banned to safeguard financial stability.

Strengthening Oversight to Close Regulatory Loopholes

To address these risks, Villeroy de Galhau highlighted the urgent need to prohibit the issuance of duplicate stablecoins inside and outside the EU. Doing so, he argued, would reduce arbitrage risks—critical during periods of financial turmoil—and serve as the next step in completing the EU’s financial regulatory framework.

The European Commission is already evaluating proposals to bring broader financial supervision under ESMA’s purview, consolidating powers that are currently distributed among individual member states. Verena Ross, Chair of ESMA, has signaled that centralizing authority could better integrate and enhance the competitiveness of the EU’s financial sector on the global stage.

Challenges with the Passporting Mechanism

The EU’s MiCA framework includes a “passporting” provision, enabling digital asset firms authorized in one member state to operate freely across all EU countries. However, this mechanism has sparked criticism over its potential to encourage regulatory arbitrage due to uneven enforcement standards across jurisdictions.

For example, in July, ESMA criticized Malta’s financial regulator for falling short in its approach to licensing digital asset firms, warning that weak oversight in one country could undermine regulatory efforts across the entire EU. Similarly, on September 15, France’s Financial Markets Authority (AMF) raised concerns about the uneven application of MiCA rules, even suggesting it might deny passporting rights in certain cases to counteract these inconsistencies.

A Balancing Act in Europe’s Evolving Digital Asset Landscape

Villeroy de Galhau’s statements underscore two pressing priorities for the EU: consolidating supervisory authority under ESMA and tightening regulations on stablecoins to close systemic gaps. These measures are essential as the region braces for full MiCA implementation and seeks to address challenges tied to innovation and financial stability.

The push to centralize oversight reflects the EU’s broader agenda of fostering a cohesive regulatory environment. By ensuring effective and consistent governance, the region aims to strike the critical balance between nurturing innovation and safeguarding the resilience of its financial ecosystem.