[Digital Today reporter Yoonseo Lee] European Union finance ministers agreed to move oversight of major crypto companies from national regulators to the European Securities and Markets Authority (ESMA).

Cryptoslate, a blockchain media outlet, reported on Oct. 12 that the EU Council agreed on Oct. 9 on a negotiating proposal under which ESMA would directly supervise major crypto-asset service providers. The legislation is not yet final. The Council must first finalise its formal negotiating position and then reach a final agreement with the European Parliament.

The overhaul focuses on reducing supervisory gaps arising from the 'passporting' system under MiCA, the EU's crypto regulation. Under this system, once a company is authorised in one member state, it can provide approved services across the EU's 27 countries without establishing a separate legal entity or physical base in other member states. The system reduces the burden of duplicate licensing, but concerns have been raised that oversight by the initial authorising country alone becomes difficult as business scale and customer assets grow.

ESMA has previously questioned how authorisations were granted when key issues had not been resolved. It judged there was insufficient basis to say governance, conflicts of interest, technical infrastructure, custody arrangements and some anti-money laundering risks had been adequately examined.

ESMA did not, however, assess all authorisations in Malta as flawed. It recognised the Maltese authorities' sector expertise and supervisory resources and recommended improvements to authorisation procedures. Malta said it would implement the recommendations, but in September of the same year it opposed transferring supervisory powers to ESMA from the start of MiCA's rollout, calling it premature. It cited concerns that centralising supervision could increase bureaucracy and weaken competitiveness.

The compromise narrows the scope compared with a full transfer originally proposed by the European Commission. Of about 360 operators, an estimated 10 to 15 would fall under ESMA's direct supervision. Most operators would continue to be supervised by national regulators.

A draft set direct supervision for operators with at least 15,000,000 active users in the EU. Even if they fall short of that threshold, an operator could be included if it meets 3 of 5 materiality criteria, including customer base, assets under custody, transaction volume and links to the financial system. Detailed criteria include more than 1,000,000 active users, more than 1.5 trillion won in crypto assets under custody, and more than 6.0 trillion won in annual customer transaction volume.

Under the overhaul, ESMA would be able to demand submissions from firms under its direct supervision, carry out on-site inspections and breach investigations, and impose financial penalties. If regulatory requirements are not met, it could also restrict services or revoke authorisation. For operators supervised by national authorities, it plans to reduce differences in national enforcement through guidelines, peer reviews, joint investigations and some intervention powers.

ESMA is also moving to reorganise its internal structure. One proposal is to set up a full-time executive board made up of the chair and 5 independent members to take charge of firm-level supervision and operational decisions. National regulators would continue to participate in overall policy coordination and supervisory cooperation.

A 2-year transition period for the transfer of supervisory powers has been proposed. During this period, joint teams would shift relevant information, practical responsibilities and expertise to ESMA. Even if designated for direct supervision, existing MiCA authorisations would remain valid and companies would not need to be reauthorised solely because the supervising authority changes.

In future talks, issues are expected to include detailed criteria for direct supervision, ESMA's supervisory capacity, and how to classify operators near the thresholds. Once the European Parliament sets its position and enters negotiations with the Council, the final scope of covered firms and the implementation schedule are expected to be specified.