France has threatened to block the EU “passport” that lets crypto firms licensed in one member state operate across the bloc, escalating a political fight over who should police digital-asset platforms and why. Paris argues that uneven licensing under the new Markets in Crypto-Assets framework has created opportunities for regulatory shopping that imperil investor protection, cybersecurity and the integrity of Europe’s financial system.
The dispute centres on whether supervision of the largest, most systemically relevant crypto firms should remain primarily a national responsibility or be transferred to the European Securities and Markets Authority (ESMA). French regulators say licence-hopping — firms seeking out the quickest or most permissive national approvals and then using the EU passport to scale across 27 countries — risks exporting weak oversight throughout the single market. In response, France has threatened to withhold recognition of selected passported licences unless Brussels agrees to a stronger, centralised supervisory model.
Regulatory shopping and the passport problem
MiCA was designed to harmonise rules for crypto providers and create a single-entry licensing route. In practice, the rollout has revealed stark differences in how national authorities apply the same rulebook: some regulators have moved rapidly to approve major platforms, while others have taken a more cautious, case-by-case approach. For France, that divergence is not a technicality but a material risk. A licence issued quickly in one jurisdiction can, through passporting, grant immediate operational reach into major markets where scrutiny would have been more rigorous.
That imbalance, French officials argue, incentivises firms to target the path of least resistance rather than meet a uniform standard. The result is a patchwork where safeguards on custody, cyber resilience, governance and anti-money-laundering checks vary by member state. Paris views this as a recipe for contagion: a failing or compromised platform authorised in a permissive jurisdiction can cause cross-border damage that national regulators — acting alone — may be ill-equipped to contain.
Investor protection and systemic risk
At the heart of France’s case is investor protection. Crypto markets have shown episodes of abrupt failures, hacks and poor consumer safeguards that translated into investor losses. Allowing passported operations to operate under lower national thresholds creates a scenario where retail and institutional clients in stricter jurisdictions inadvertently rely on protections they do not have. For France, the mismatch undermines public confidence and risks reputational fallout for the EU’s broader financial system.
Beyond individual harm, Paris frames the passporting problem as a systemic concern. Large, cross-border crypto platforms can concentrate risk across multiple markets; fragmented supervision makes it harder to detect risk concentrations and coordinate crisis responses. France argues that ESMA, with a pan-European mandate and greater capacity for cross-border oversight, is better placed to identify emerging threats, mount coordinated checks and apply consistent enforcement to the biggest players.
France’s push for ESMA supervision stems from a belief that a single, specialised authority would reduce regulatory arbitrage and raise the floor of oversight across the EU. ESMA can draw on integrated data, issue uniform guidance and act as a central hub for investigations that span national borders. For Paris, that centralized model offers a technical fix: it would ensure that licences conferred on major systemic actors meet common, non-negotiable standards before they can deploy passport rights.
There is also a political rationale. Giving ESMA a stronger role would limit the ability of smaller, crypto-friendly jurisdictions to attract business chiefly by offering speedier or looser approvals. France contends that short-term gains for a handful of member states — fee revenue, registrations, temporary jobs — come at the cost of long-term market credibility and investor trust. Uniform supervision, Paris argues, would ultimately favour sustainable fintech growth over ephemeral jurisdiction-hopping.
Economic incentives and member-state resistance
The controversy reflects a deeper tension between national economic incentives and EU-wide regulatory coherence. Several smaller countries have actively courted crypto firms, seeing light-touch licensing as a way to capture fintech investment and related services. Those jurisdictions are understandably reluctant to cede authority that can deliver immediate economic benefits.
Opponents of centralisation caution that transferring power to ESMA risks bureaucratic overreach, stifling innovation and imposing one-size-fits-all rules that may not suit diverse national markets. They also argue national regulators have vital on-the-ground knowledge and should retain primary responsibility for enforcement. The political arithmetic in Brussels therefore rests on reconciling competitive national interests with collective stability objectives.
The “atomic weapon” and political leverage
French regulators have signalled they could deploy what they call an “atomic weapon”: selectively refusing to recognise passported licences originating from jurisdictions they deem insufficiently rigorous. That threat is legally complex and would be politically provocative, but Paris views it as leverage to force negotiations over ESMA’s remit. By creating the prospect of market fragmentation — where firms could be blocked from operating in France despite holding EU-wide licences — France aims to raise the cost of leaving supervisory arrangements as they are.
Such tactics carry risk. Using national instruments to block passporting would provoke legal challenges and could strain the single market’s principles. But the threat has succeeded in focusing attention: member states and EU institutions face a choice between tolerating patchwork outcomes or negotiating a revised governance structure that addresses the most pressing cross-border risks.
If France follows through, the immediate practical consequence would be uncertainty for firms that relied on passporting to scale. Some exchanges and custodians could face restricted access to one of Europe’s largest markets, prompting them to seek additional national licences or restructure operations. The move could accelerate talks about which entities fall under ESMA’s direct supervision and the criteria for such designation.
Key signals to monitor include whether other large member states back Paris’s call for central supervision, any formal proposals from the European Commission to extend ESMA’s remit, and the response of high-profile crypto platforms to reputational and regulatory pressure. How the European Parliament and technical committees weigh the trade-offs between market openness and investor protection will ultimately determine whether France’s push leads to structural change — or remains a bargaining posture in an ongoing debate over the EU’s capacity to regulate fast-moving digital markets.
(Source:www.globalbankingandfinance.com)
The dispute centres on whether supervision of the largest, most systemically relevant crypto firms should remain primarily a national responsibility or be transferred to the European Securities and Markets Authority (ESMA). French regulators say licence-hopping — firms seeking out the quickest or most permissive national approvals and then using the EU passport to scale across 27 countries — risks exporting weak oversight throughout the single market. In response, France has threatened to withhold recognition of selected passported licences unless Brussels agrees to a stronger, centralised supervisory model.
Regulatory shopping and the passport problem
MiCA was designed to harmonise rules for crypto providers and create a single-entry licensing route. In practice, the rollout has revealed stark differences in how national authorities apply the same rulebook: some regulators have moved rapidly to approve major platforms, while others have taken a more cautious, case-by-case approach. For France, that divergence is not a technicality but a material risk. A licence issued quickly in one jurisdiction can, through passporting, grant immediate operational reach into major markets where scrutiny would have been more rigorous.
That imbalance, French officials argue, incentivises firms to target the path of least resistance rather than meet a uniform standard. The result is a patchwork where safeguards on custody, cyber resilience, governance and anti-money-laundering checks vary by member state. Paris views this as a recipe for contagion: a failing or compromised platform authorised in a permissive jurisdiction can cause cross-border damage that national regulators — acting alone — may be ill-equipped to contain.
Investor protection and systemic risk
At the heart of France’s case is investor protection. Crypto markets have shown episodes of abrupt failures, hacks and poor consumer safeguards that translated into investor losses. Allowing passported operations to operate under lower national thresholds creates a scenario where retail and institutional clients in stricter jurisdictions inadvertently rely on protections they do not have. For France, the mismatch undermines public confidence and risks reputational fallout for the EU’s broader financial system.
Beyond individual harm, Paris frames the passporting problem as a systemic concern. Large, cross-border crypto platforms can concentrate risk across multiple markets; fragmented supervision makes it harder to detect risk concentrations and coordinate crisis responses. France argues that ESMA, with a pan-European mandate and greater capacity for cross-border oversight, is better placed to identify emerging threats, mount coordinated checks and apply consistent enforcement to the biggest players.
France’s push for ESMA supervision stems from a belief that a single, specialised authority would reduce regulatory arbitrage and raise the floor of oversight across the EU. ESMA can draw on integrated data, issue uniform guidance and act as a central hub for investigations that span national borders. For Paris, that centralized model offers a technical fix: it would ensure that licences conferred on major systemic actors meet common, non-negotiable standards before they can deploy passport rights.
There is also a political rationale. Giving ESMA a stronger role would limit the ability of smaller, crypto-friendly jurisdictions to attract business chiefly by offering speedier or looser approvals. France contends that short-term gains for a handful of member states — fee revenue, registrations, temporary jobs — come at the cost of long-term market credibility and investor trust. Uniform supervision, Paris argues, would ultimately favour sustainable fintech growth over ephemeral jurisdiction-hopping.
Economic incentives and member-state resistance
The controversy reflects a deeper tension between national economic incentives and EU-wide regulatory coherence. Several smaller countries have actively courted crypto firms, seeing light-touch licensing as a way to capture fintech investment and related services. Those jurisdictions are understandably reluctant to cede authority that can deliver immediate economic benefits.
Opponents of centralisation caution that transferring power to ESMA risks bureaucratic overreach, stifling innovation and imposing one-size-fits-all rules that may not suit diverse national markets. They also argue national regulators have vital on-the-ground knowledge and should retain primary responsibility for enforcement. The political arithmetic in Brussels therefore rests on reconciling competitive national interests with collective stability objectives.
The “atomic weapon” and political leverage
French regulators have signalled they could deploy what they call an “atomic weapon”: selectively refusing to recognise passported licences originating from jurisdictions they deem insufficiently rigorous. That threat is legally complex and would be politically provocative, but Paris views it as leverage to force negotiations over ESMA’s remit. By creating the prospect of market fragmentation — where firms could be blocked from operating in France despite holding EU-wide licences — France aims to raise the cost of leaving supervisory arrangements as they are.
Such tactics carry risk. Using national instruments to block passporting would provoke legal challenges and could strain the single market’s principles. But the threat has succeeded in focusing attention: member states and EU institutions face a choice between tolerating patchwork outcomes or negotiating a revised governance structure that addresses the most pressing cross-border risks.
If France follows through, the immediate practical consequence would be uncertainty for firms that relied on passporting to scale. Some exchanges and custodians could face restricted access to one of Europe’s largest markets, prompting them to seek additional national licences or restructure operations. The move could accelerate talks about which entities fall under ESMA’s direct supervision and the criteria for such designation.
Key signals to monitor include whether other large member states back Paris’s call for central supervision, any formal proposals from the European Commission to extend ESMA’s remit, and the response of high-profile crypto platforms to reputational and regulatory pressure. How the European Parliament and technical committees weigh the trade-offs between market openness and investor protection will ultimately determine whether France’s push leads to structural change — or remains a bargaining posture in an ongoing debate over the EU’s capacity to regulate fast-moving digital markets.
(Source:www.globalbankingandfinance.com)
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