ESMA Calls for Stronger MiCA Rules on DeFi, Stablecoins & Crypto Marketing

Key Takeaways

• MiCA Review Takes Shape. ESMA is urging the European Commission to strengthen and simplify parts of the EU’s crypto regulatory framework.
• Investor Safeguards Would Expand. Proposals include tighter crypto marketing rules, greater cost transparency and disclosure requirements for staking, lending and borrowing.
• Supervisory Powers Could Grow. ESMA wants stronger tools to address fraudulent websites, unauthorized third-country firms and services involving non-compliant stablecoins.
• DeFi Gets Closer Scrutiny. ESMA is seeking clearer criteria for genuine decentralization and a new regulated service covering firms that provide access to DeFi protocols.
• Token Classification Needs Consistency. ESMA wants rules covering products such as hybrid tokens and the power to issue binding opinions on classification across the EU.

Deep Dive

In recommendations submitted to the European Commission as part of its review of the Markets in Crypto-Assets Regulation, ESMA called for tougher rules on crypto marketing, greater transparency over costs and new requirements for staking, lending and borrowing. It also wants stronger powers to confront unauthorized firms, fraudulent websites and services tied to stablecoins that do not comply with MiCA.

There is simplification in the package, too. ESMA wants to remove some duplicative authorization requirements and make white-paper notifications less cumbersome. But the larger concern running through its response is harder to reduce to paperwork: crypto markets have kept developing since MiCA was written, and some of that activity now sits awkwardly against the boundaries of the regulation.

DeFi is the clearest example. ESMA wants the EU to establish clearer criteria for deciding when an activity is genuinely decentralized, a question with consequences because decentralization can determine whether an identifiable intermediary falls within the regulatory perimeter at all. The authority is also proposing a new regulated crypto-asset service for firms that give users access to DeFi protocols.

That proposal goes after one of the practical difficulties regulators encounter with decentralized markets. A protocol may be decentralized, or claim to be, while a business still stands between it and the customer. ESMA's recommendation would give regulators a more explicit way to deal with firms occupying that position.

The same concern appears elsewhere in the response, particularly where investors can put money at risk without receiving the kind of information regulators believe they need beforehand.

For staking, lending and borrowing, ESMA is recommending proportionate requirements that include disclosure obligations. Investors should receive clearer information about costs, risks and rewards, as well as collateral arrangements and the losses they could face. The authority separately wants tighter rules for crypto marketing, with particular attention to promotions carried out by influencers and other third parties, and greater transparency around costs.

The influencer point is worth noticing because it moves the regulatory question beyond the product itself. How crypto reaches an investor, and who is doing the persuading, matters alongside what is ultimately being sold.

Giving Supervisors More Reach

Disclosure can only do so much when the firm providing a service is not supposed to be doing business with EU investors in the first place. ESMA wants stronger supervisory powers to address unauthorized services, online fraud and non-compliant stablecoins. Among its recommendations is greater EU capacity to detect, block and deactivate fraudulent websites and to freeze crypto-assets where market abuse or terrorist financing is suspected.

The authority is also seeking reinforced powers for dealing with third-country firms that solicit EU investors without authorization under MiCA. Regulated crypto firms, meanwhile, would face explicit rules preventing them from offering services connected to stablecoins that fail to comply with MiCA requirements. ESMA argues that the changes would allow faster and more consistent action across the EU while reducing opportunities for regulatory arbitrage.

Consistency is an unglamorous word until two regulators look at the same asset and decide it is two different things. ESMA wants rules governing how crypto-assets should be classified across the bloc, including newer products such as hybrid tokens. More significantly, it wants the power to issue binding opinions on token classification, giving ESMA a mechanism to ensure that the same products receive consistent treatment across the EU market.

The proposal speaks to a basic problem created by financial products that borrow characteristics from several familiar categories at once. Regulation depends heavily on classification. A token that refuses to sit neatly inside one box does not make that need disappear; it makes disagreements over the box considerably more important.

ESMA's answer is to give the EU a firmer method for settling them.

Cutting Rules Where They Duplicate

Not every recommendation would add another obligation. Alongside the investor-protection and supervisory measures, ESMA is asking the Commission to streamline parts of MiCA as part of the EU's broader simplification and burden-reduction agenda. It wants simpler crypto-asset white-paper notification procedures, fewer duplicative authorization requirements for some firms that are already regulated and greater consistency in prudential requirements.

That combination matters. ESMA is not arguing that the answer to every weakness exposed by the developing crypto market is another layer of process. Its recommendations separate places where the authority believes supervision needs more reach from places where the existing machinery can be made lighter.

Beyond the immediate MiCA review lies a larger question. ESMA said the EU will need a framework for tokenized securities and on-chain settlement capable of supporting an integrated European tokenized capital market and facilitating cross-border activity. That proposal belongs to a longer horizon than the changes to crypto marketing or staking disclosures, but its inclusion is telling.

MiCA was built to bring a common regulatory structure to a market that had developed faster than the rules around it. ESMA's September 30 recommendations do not rewrite that framework themselves; they form part of the Commission's review of it. What they do is identify where the regulator believes the next questions have accumulated.

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