The European Securities and Markets Authority (ESMA), the EU's financial markets regulator and supervisor, has published its response to the European Commission's public consultation on the review of the Markets in Crypto-Assets Regulation (MiCA). The recommendations aim to simplify the framework. They also address gaps in investor protection and set clearer regulatory treatment for business models such as decentralised finance (DeFi), staking, lending, and borrowing.
The response covers five areas: investor protection, supervisory powers, DeFi and crypto-asset classification, simplification, and the longer-term development of tokenised capital markets in Europe.
Investor protection and disclosure
ESMA has identified areas where investors face risks that the current framework does not fully address. It proposes stricter rules on the marketing of crypto-assets, particularly where influencers and other third parties promote them, as well as greater transparency on costs. For staking, lending, and borrowing, the regulator recommends proportionate requirements, including disclosure obligations.
According to ESMA, these measures would give investors clearer information on costs, risks, rewards, collateral arrangements, and potential losses before they make investment decisions.
ESMA calls for stronger supervisory powers to deal with unauthorised services, online fraud, and stablecoins that do not comply with MiCA. It proposes expanding the EU's capacity to detect, block, and deactivate fraudulent websites. It also proposes powers to freeze crypto-assets where market abuse or terrorist financing is suspected.
The regulator also seeks reinforced powers over third-country firms that solicit EU investors without MiCA authorisation. It further recommends explicit rules that would prevent regulated crypto firms from offering services linked to non-compliant stablecoins. In addition, ESMA states that these changes would support faster and more consistent supervisory action across the EU and reduce opportunities for regulatory arbitrage.
DeFi and token classification
Activity around DeFi and stablecoins is growing, and ESMA advocates clearer criteria for determining which activities can be considered genuinely decentralised. It also proposes a new regulated crypto-asset service for firms that give users access to DeFi protocols. This would place such access providers in a defined regulatory category.
To reduce uncertainty and support harmonised supervision, ESMA suggests adopting rules on how crypto-assets should be classified, including newer products such as hybrid tokens. It also proposes that it be given the ability to issue binding opinions on token classification, so that the same products are treated consistently across the EU market.
Simplification and tokenised markets
In line with the EU's simplification and burden reduction agenda, ESMA proposes streamlining parts of the existing rules. The proposals include simplifying white-paper notification procedures for crypto-assets, reducing duplicative authorisation requirements for some regulated firms, and improving the consistency of prudential requirements.
Looking beyond the immediate MiCA review, the regulator highlights the need for a framework for tokenised securities and on-chain settlement. ESMA states that such a framework could support the development of an integrated European tokenised capital market and facilitate cross-border activity.
What the proposals signal
Taken together, the recommendations pursue two objectives. They would lower administrative burden for authorised firms while tightening oversight of activities and actors operating at the edges of the current regime. For crypto-asset service providers, the proposals on stablecoin-linked services, third-country solicitation, and marketing practices would bear directly on compliance obligations. The classification measures, including binding ESMA opinions, are intended to reduce legal uncertainty around how individual tokens are treated across the EU.
