Encroachments on sovereignty rarely announce themselves with trumpets. They come quietly, dressed as practicality, clothed in technical phrases, wrapped in the language of efficiency. And because they come in this way, they pass unnoticed until the substance of power has shifted.
This is the real meaning of the recent proposals by the French AMF, the Austrian FMA and Italy’s Consob. They have asked that the supervision of crypto-asset service providers be lifted from the hands of national regulators and entrusted to ESMA in Paris. To the casual eye it looks benign. Who could be against greater consistency or better investor protection? But beneath the surface lies a different reality.
This is an attempt to recast MiCAR into something it was never designed to be, to use the pretext of globalisation and cybersecurity to re-engineer its constitutional foundations.
We have been here before. When the Eurozone crisis was at its height, the Single Supervisory Mechanism was assembled, not after long reflection but in the urgency of collapse. It worked in the narrow mission it was given, but it was a constitutional anomaly, never meant to become a model for all times and all sectors.
Yet once such a structure exists it becomes tempting to repeat it. If it worked for banks, why not for crypto, why not for anything else that seems messy or fragmented. The truth is that CASPs are not banks. They do not pose systemic risk. They are not institutions on which sovereign balance sheets depend. To pretend otherwise is not caution, it is distortion.
MiCAR itself was drafted on the opposite premise. Its Recital 76 makes clear that national authorities are to grant or refuse authorisations, and that such authorisations carry Union-wide effect. This was deliberate. It was a recognition that national regulators are close to their markets, understand their operators, and can respond to innovation with more agility than a remote authority.
Malta’s 2018 Virtual Financial Assets Act created a licensing regime requiring audited white papers, fit and proper tests, and technology audits well before MiCAR existed. France’s 2019 PACTE law gave the AMF power to license initial coin offerings and digital asset providers, attracting major players while embedding investor safeguards. These are not abstract points. They are evidence that Member States have shown imagination and competence when given the chance.
Yet despite these successes, the centralisers persist. They speak as if fragmentation is proof of weakness and as if uniform enforcement is the only way to apply harmonised rules. It is a sleight of hand. Harmonisation does not demand centralisation. Convergence can be achieved without stripping powers away.
I have already made this point in print. In my Sunday Times article earlier this year and in my Oxford Business Law Blog piece, “The SSM is Not a Panacea”, I argued that the Single Supervisory Mechanism, created in crisis, should never be mistaken for a constitutional model to be transplanted elsewhere. It was an exception, not an archetype.
In a paper I co-authored with Professor Christopher Buttigieg, “Preserving National Supervision of CASPs under MiCAR” (ERA Forum, 2025), we set out precisely this point. The EU already possesses a path to supervisory convergence that does not require the hollowing out of Member State authority. Knowledge sharing, benchmarking and cooperative federalism are better suited to the nature of crypto markets.
In practice this means ESMA leading peer reviews of national practices, setting common supervisory priorities, convening colleges of supervisors for the largest firms, and building a genuine culture of cross-border learning. There is also the human dimension that is so easily forgotten in these papers. Regulators are not abstractions. They are people, rooted in their own legal cultures, speaking to their own markets. That kind of dialogue cannot be replicated under ESMA’s authority, where processes are inevitably more distant and abstract.
A regulator in Malta or anywhere in Europe is not a lesser figure than one in Paris under ESMA’s control. Sovereignty is not a nuisance to be bypassed but a foundation of legitimacy. And this is the deeper point. The EU was built on restraint. It was built on the principle of conferral, of subsidiarity, of proportionality.
These are not academic ornaments. They are the very checks that prevent the Union from becoming a centralising empire. Every time necessity is invoked as a reason to override them, the Union drifts further from its foundations. Aristotle warned that constitutions are not destroyed in one blow but eroded through small encroachments, each defended as reasonable. What the AMF, FMA and Consob propose is precisely such an encroachment.
The proposals by the French, Austrian and Italian authorities should be recognised for what they are: institutional opportunism, not investor protection. They are not about fixing failure, for there has been no such failure. They are about centralising power because centralisation is convenient for those who wield it. Sovereignty will not be lost by coup or conquest but by technical notes and consultation papers. That is how values are dismantled, silently, under the guise of progress.
Article by Dr Ian Gauci
This article was first published in the Malta Business Weekly of the 18 September 2025.