The Bank of France has urged the EU to direct its markets regulator towards overseeing major cryptocurrency companies, warning that fragmented supervision could jeopardize the bloc’s financial independence.

At the ACPR-AMF Fintech Forum held in Paris on Thursday, Governor François Villeroy de Galhau stated that the European Securities and Markets Authority (ESMA) should be empowered to supervise crypto-asset issuers under the EU’s Markets in Crypto-Assets (MiCA) legislation.

“I also advocate, along with the president of the AMF, for European supervision of crypto-asset issuers, carried out by ESMA,” he remarked, emphasizing that such measures could ensure consistent rule enforcement and mitigate risks.

Villeroy de Galhau noted that depending solely on national regulators could result in inconsistent regulation as crypto businesses expand in the area.

Bank of France Warns of Stablecoins’ Threat to EU’s Monetary Sovereignty

He emphasized that ESMA’s direct oversight would safeguard against regulatory arbitrage and ensure equality among leading players, regardless of their location.

“The implementation of MiCA is a decisive step forward,” he claimed. “However, its effectiveness demands a more unified approach to shield European investors and uphold fair competition.”

In his address, Villeroy de Galhau highlighted concerns about the mounting threat posed by dollar-backed stablecoins, stating that the current MiCA framework’s multi-issuance allowance represents a regulatory vulnerability.

Consequently, he explained that certain companies can issue identical tokens inside and outside the EU while only maintaining partial reserves.

He warned that stablecoins might undermine the euro and foster an uncoordinated increase in private settlement options, which would amplify the region’s reliance on unregulated and non-European entities.

Other officials have also raised alarms over the multi-issuance of stablecoins. On September 19, Deputy Governor Chiara Scotti of the Bank of Italy cautioned that this model could undermine financial stability and should be limited. She acknowledged that, despite enhancing liquidity and scalability, multi-issuance structures introduced significant legal, operational, and stability challenges, especially when the issuers are based outside the EU.

The European Systemic Risk Board (ESRB), tasked with monitoring systemic risks, has also criticized multi-issuance stablecoins.

On October 1, the ESRB recommended prohibiting this practice both within the EU and in other jurisdictions. Although this recommendation is not legally binding, it intensifies the pressure on EU policymakers to tighten regulations surrounding stablecoin operations.

Stricter Regulations Might Lessen Arbitrage Risks

Villeroy de Galhau asserted that the path forward lies in finalizing the European regulatory framework:

“This framework would benefit from much stricter regulation of the multi-issuance of the same stablecoin from inside and outside the European Union, to reduce arbitrage risks in times of stress.”

His comments arrived as the European Commission is developing plans to transfer oversight of financial sectors, including cryptocurrency, from national regulators to ESMA.

On Monday, ESMA’s chair, Verena Ross, stated that the reform aims to create a more integrated and globally competitive environment for the EU.

Passporting Issues Prompt Demand for Unified Regulation

Within the EU’s MiCA framework, licensed crypto firms can leverage a feature known as passporting, which allows them to secure authorization in one EU member state and maintain license validity across all member states. This mechanism is intended to establish a single market for crypto service providers, reducing entry barriers and avoiding redundant applications.

However, in reality, this system poses risks if national regulators fail to fulfill their responsibilities. In July, ESMA criticized Malta’s licensing process after discovering that the financial authority of the country only partially satisfied the expectations for authorizing a crypto firm. This raised worries that lax regulation in a single country could cause widespread ramifications throughout the EU.

On September 15, the Autorité des Marchés Financiers (AMF) of France also voiced concerns about regulatory enforcement gaps related to the MiCA framework, indicating that it might contemplate invalidating the passporting feature.