Exclusive-France threatens to block crypto licence ’passporting’ in EU regulatory fight

France, supported by Italy and Austria, is challenging the EU's MiCA crypto licensing "passporting" system, with its financial watchdog (AMF) threatening to block licenses granted by other member states if deemed too lenient. This initiative aims to counter "regulatory shopping" by crypto firms and address inconsistent supervision across the bloc, advocating for the European Securities and Markets Authority (ESMA) to assume direct oversight of major crypto entities. The strong stance underscores significant regulatory fragmentation within the EU's single market for digital assets, potentially impacting firms relying on cross-border operational flexibility.

Analysis

The European Union's new Markets in Crypto-Assets (MiCA) regulation is facing significant implementation friction, creating a climate of regulatory uncertainty for digital asset firms. France, along with Italy and Austria, is actively challenging the framework's "passporting" system, which allows a crypto company licensed in one member state to operate across the entire bloc. The French financial watchdog (AMF) has explicitly threatened to block licenses from other EU countries it deems too lenient, a move described as an "atomic weapon" against the single market principle. This stance is driven by concerns over "regulatory shopping," where firms may seek licensure in jurisdictions with less stringent oversight, potentially undermining investor protection. The call to centralize supervision of major crypto firms under the European Securities and Markets Authority (ESMA) signals a push for a more harmonized and rigorous approach. This development directly impacts companies like Coinbase, which secured a MiCA license in Luxembourg, and Gemini, licensed in Malta, highlighting a potential divergence in regulatory risk based on a firm's chosen jurisdiction within the EU.

Key Decisions for Investors

• Investors should closely monitor developments regarding the MiCA passporting system and the potential expansion of ESMA's authority, as this regulatory fragmentation could materially impact the European operating models and market access of crypto-related companies.
• It is prudent to assess the jurisdictional risk of portfolio companies with EU crypto operations; firms licensed in major financial centers like Luxembourg, such as Coinbase, may be better insulated from regulatory challenges than those based in jurisdictions perceived as more lenient.
• Expect increased compliance costs and operational hurdles for crypto firms in the EU, which could pressure profit margins and create a more challenging competitive landscape.