Crypto Frontline

Introduction

France has made a stark warning: it may refuse to recognise crypto licences issued by other European Union member states under the new MiCA regulation (Markets in Crypto-Assets). Doing so would be tantamount to blocking what is widely referred to as “passporting” — the ability of firms authorised in one EU country to operate across the entire bloc. This has triggered a broader debate over regulatory consistency, oversight, investor protection, and the proper role of EU-level authorities. Through its financial supervisor AMF (Autorité des Marchés Financiers), France is pushing for greater centralised oversight via the European Securities and Markets Authority (ESMA), having observed what it perceives to be worrying discrepancies in how different national regulators are implementing MiCA.

What Is MiCA And What Does Passporting Mean?

MiCA (Markets in Crypto-Assets), the landmark regulation on digital assets that recently came into force, was intended to harmonise the regulatory framework for crypto across the European Union. Under MiCA, a licence granted by one member state allows the licence holder to offer services in other EU member states without obtaining separate licences in each one. This is the “passport” mechanism, a foundational feature of the EU’s single market for financial services.

The logic of passporting under MiCA is to facilitate cross-border operations, reduce duplication, enable regulatory predictability for firms operating EU-wide, and foster innovation while safeguarding consumers. But it also depends heavily on consistent application and supervision by national regulators, as well as trust in the robustness of those oversight bodies.

France’s Concerns: Regulatory Shopping And Oversight Gaps

Regulatory Shopping

From France’s perspective, one of the primary problems is that crypto firms are engaging in what is being termed “regulatory shopping.” That is, they are applying for licences in member states with comparatively lighter regulatory burdens, more permissive requirements, or more lenient supervision. Once granted, these licences allow them to use the passporting mechanism to offer services throughout the EU, including in France, regardless of whether French regulators believe those licences should have been granted under stricter scrutiny.

France’s regulator, represented by its president Marie-Anne Barbat-Layani, has raised concerns that some jurisdictions are issuing licences too rapidly, perhaps without sufficiently rigorous assessments of risk, compliance, or supervisory capability. These concerns touch on financial stability, investor protection, and the integrity of oversight.

Oversight Gaps and Inconsistencies

Since MiCA came into force, France (along with Italy and Austria) has observed “major differences” in how national regulators are supervising crypto-market participants under the new regime. These differences include how applications are assessed, the depth of due diligence, how cybersecurity and token offerings are regulated, and how activities outside the EU are handled.

Specific examples given include licences granted by Malta and Luxembourg. Luxembourg granted a licence to Coinbase, while Malta granted one to Gemini. ESMA has already flagged that Malta did not sufficiently assess risk in at least one case when granting a licence. Such episodes bolster France’s case that some member state regulators are potentially weaker links that may undermine the integrity of the passporting system.

Call For Centralised Supervision: Role Of ESMA

France, Italy, and Austria have together pushed for changes that would shift oversight of major crypto firms from national regulators to the European Securities and Markets Authority (ESMA). Their argument is that direct European supervision would ensure consistency, higher standards, and better protection of investors across the EU. Some core demands include:

A mechanism to transfer certain powers from national regulators to ESMA.

Tighter rules for crypto firms operating outside the EU.

Enhanced cybersecurity supervision.

Stronger oversight of crypto token offerings (ICOs, etc.).

ESMA has expressed willingness to consider enhanced powers and has in earlier reports encouraged lawmakers to explore pan-EU supervision for the crypto sector. However, some member states resist giving up too much control over regulation of entities licensed in their jurisdictions, fearing loss of sovereignty, competitive disadvantages, or regulatory burden.

France’s “Atomic Weapon”: Blocking Passporting

In its strongest language yet, the AMF has held in reserve the “atomic weapon” of refusing recognition of passported licences — i.e., refusing to allow an EU-wide licence (issued elsewhere) to be valid in France. This would be highly controversial, as it challenges a core principle of financial services integration in the EU. That authorisation in one member state should allow free provision of services in others.

Using this measure would signal serious dissatisfaction with the status quo, and would likely provoke legal, political, and commercial backlash. It raises immediate questions:

On what legal basis would France refuse recognition of a licence that is valid under EU law?

Which companies or sectors would be targeted, or would the move be more general?

What would be the criteria used to assess whether a licence is deficient?

French authorities have not provided specific names or licence cases they may challenge, nor precise conditions under which they will use this power. But the fact that refusal is being considered at all underlines the urgency felt in Paris regarding regulatory risks they perceive.

Responses, Resistance, And Landscape Of Member States

While France, Italy, and Austria are aligned in their drive for stricter oversight and more centralised supervision, not all EU member states share their concerns, or agree with giving ESMA greater supervisory powers. Some smaller states — or those with more liberal or fintech-friendly regulatory regimes — may see advantage in attracting licences, businesses, or investment. They may fear that increased obligations, slower licence approval, or higher regulatory costs could harm their competitiveness.

Malta’s regulator, for example, has defended its early adoption role in digital asset regulation, though ESMA’s review found at least one shortcoming in its risk assessment. Some member states will resist changes that might reduce their regulatory autonomy, or impose higher regulatory costs, especially for firms embedded in their jurisdictions.

Implications For Crypto Firms And Investors

If France (or other member states) begins to refuse passporting in practice, crypto firms would face a more fragmented regulatory landscape within the EU. Firms licensed in one country may need to seek separate approvals or face legal uncertainty about whether they can serve customers in other member states.

For investors and consumers, inconsistent standards may reduce protection. Weak oversight in some jurisdictions could lead to mis-priced risk or poor consumer outcomes. On the other hand, stronger, more consistent supervision could increase trust in crypto markets, reduce risk of fraud, systemic failures, or loss events, and potentially foster more stable investment in digital assets.

Crypto firms operating or planning to operate across the EU will need to carefully assess where they get licensed, how robust that regulator is, and whether there might be legal or practical risk from regulatory arbitrage or regulatory backlash.

Legal And Institutional Challenges

Legal Basis and EU Single Market Principles

Blocking passporting runs up against the EU’s legal framework. Passporting is foundational to the internal market for financial services: a licence valid in one member state is recognised throughout the bloc. Any refusal by another member state to accept that licence could be challenged under EU law, unless specific exceptions or mechanisms are introduced.

Potential justifications could include:

A licence holder having failed to meet obligations under MiCA in practice;

Serious concerns about risk or oversight inadequacies in the issuing state; or

Invoking public interest grounds, regulatory non-compliance, consumer protection, or financial stability.

But any move to block passported licences would likely lead to legal disputes, require clearer rules, and possibly amendments to MiCA or supplementary EU legislation.

Institutional Resistance And Political Dynamics

The move to hand more regulatory power to ESMA is politically sensitive. Some member states may fear loss of influence, regulatory sovereignty, or competitive edge (e.g., in attracting crypto businesses). Others may agree in principle, particularly if their regulators are well-resourced and have strict standards.

Thus, achieving consensus for any changes will involve negotiation among the European Commission, Parliament, the member states, and ESMA itself. There may also be resistance from industry, especially firms benefiting from more permissive licensing regimes.

What France, Italy And Austria Are Proposing?

Based on the position paper seen by Reuters, the regulators from the three countries are pushing for the following:

• Transfer of powers to ESMA for direct supervision of major crypto firms.

• Tighter regulatory framework for crypto activities outside the EU (i.e. ensuring that cross-border operations beyond the bloc still adhere to high standards).

• Stronger cybersecurity requirements for crypto operators.

• Review and perhaps stricter rules for new token offerings (including initial token offerings, new tokens being listed, etc.).

Additionally, they call for more consistency in how national authorities oversee these firms, to avoid loopholes or weak links undermining the collective regulatory framework.

Potential Scenarios

Here are a few possible paths this conflict could follow, depending on how various stakeholders respond:

Status quo: MiCA enforcement continues as is, with national discrepancies, periodic criticism, but without major legal changes. Some member states may tighten oversight informally or through supplementary guidance.

Incremental reforms: EU institutions could negotiate amendments or clarifications to MiCA or to member-state supervisory frameworks, perhaps giving ESMA more explicit powers, maybe through delegated acts, or via supplementary regulation.

France invokes passporting block: If in some cases France deems a licence issued elsewhere as deficient, it may challenge it and refuse recognition in France. This would likely trigger legal disputes, potentially brought to the European Court of Justice.

Full central supervision: ESMA obtains explicit mandate to supervise large or high-risk crypto firms EU-wide. This may involve institutional reform and reallocation of resources and responsibilities.

Pushback and fragmentation: Member states resisting such centralisation may form blocs to preserve licence issuance autonomy, leading to a more fragmented regime than MiCA intended, or back-sliding.

Broader Significance

Investor Protection and Market Stability

One of the motivations for France’s position is ensuring that investors are not exposed to undue risk arising from firms operating under lax supervision. Discrepancies in oversight could lead to abuses, poor cyber-security practices, loss of funds, or even systemic risk in a market that is rapid, volatile, and increasingly interconnected.

Legitimacy and Trust in Crypto Regulation

For digital assets to gain wider adoption and for markets to mature, regulatory consistency is crucial. If some licences are perceived as weak or risky, public trust may suffer. Centralised supervision (or at least harmonised high standards) may lend greater legitimacy to the sector.

EU’s Regulatory Role on Innovation vs. Control

The tension lies between enabling innovation (fintech, crypto) and imposing regulation to prevent harm. The ability to innovate depends partly on regulatory certainty. However, if regulatory arbitrage is allowed, risk may accumulate. EU regulators must balance these competing goals.

Challenges And Risks For France And Allies

Legal and diplomatic pushback from other EU states or licence-holders threatened by such refusals.

Potential trade or legal challenges under EU law if France systematically rejects passported licences.

Risk of chilling investment in crypto firms either by increasing regulatory cost or creating uncertainty about which licences are safe.

Possible slowing of the crypto sector’s growth if regulatory requirements become too onerous or unpredictable.

Need for ESMA and national regulators to build capacity, expertise, and consistency so that any increased central oversight is credible, enforceable, and fair.

Conclusion

France’s warning to possibly block passporting under MiCA marks a turning point in the EU’s regulatory landscape for crypto assets. By pushing for greater oversight by ESMA, raising alarms about regulatory shopping, and hinting at unorthodox legal action, it is pressing for more robust and harmonised regulation. The outcome of this struggle between national vs. EU-level control, between free movement and protection, could shape how crypto is regulated for years to come.

If the EU adapts by giving ESMA more direct supervisory power, it may make the regulatory environment more predictable and safer for investors. If not, France’s move may lead to legal conflicts, fragmentation, and possibly weaken one of MiCA’s core promises: uniformity of regulation across the single market.