EU regulator proposes bold rules for crypto influencers and DeFi platforms

The European Securities and Markets Authority (ESMA), the EU’s financial markets regulator, has urged the European Commission to overhaul the bloc’s crypto regulations to tackle market fraud and restrict misleading promotions by online influencers. ESMA’s recommendations aim to simplify the framework while improving investor protection and addressing innovative business models, such as decentralised finance (DeFi), staking, lending, and borrowing. The regulator is proposing new safeguards in areas where investors face risks that are not fully covered under the current framework. These include stricter rules for the marketing of crypto-assets, particularly when they are promoted by influencers and third parties. The watchdog is also demanding greater transparency in costs across the sector. Furthermore, it wants proportionate requirements for staking, lending, and borrowing, including through detailed disclosure obligations. These measures would provide clearer information on costs, risks, rewards, collateral arrangements, and potential losses before investment decisions are made. To reinforce supervision, ESMA recommends strengthening supervisory powers to address the risks arising from unauthorised services, online fraud, and non-compliant stablecoins. This involves enhancing the EU’s capacity to detect, block, and deactivate fraudulent websites and freeze crypto assets in cases of suspicion of market abuse or terrorist financing. The authority is also seeking reinforced supervisory powers to deal with third-country firms which solicit EU investors without being authorised under MiCA. Additionally, ESMA is pushing for explicit rules to prevent regulated crypto firms from offering services linked to stablecoins that do not comply with MiCA requirements. These measures would support faster and more consistent supervisory action across the EU, better protecting investors, and reducing opportunities for regulatory arbitrage. As crypto markets evolve and activity around decentralised finance and stablecoins grow, ESMA advocates for the introduction of clearer criteria for determining which activities can be considered genuinely decentralised. It also recommends creating a new regulated crypto asset service for firms that provide users with access to DeFi protocols. To reduce uncertainty and support harmonised supervision across the EU, ESMA suggests adopting rules on how crypto-assets should be classified, including new products such as hybrid tokens. This includes granting ESMA the ability to issue binding opinions on token classification to ensure the same products are treated consistently within the EU market. In line with the EU’s simplification and burden reduction agenda, ESMA proposes to streamline parts of the existing rules. This involves simplifying crypto-asset white-paper notification procedures, reducing duplicative authorisation requirements for some regulated firms, and improving the consistency of prudential requirements. Finally, and looking beyond the immediate MiCA review, ESMA highlights the need for a framework for tokenised securities and on-chain settlement. The authority believes this can support the development of an integrated European tokenised capital market and facilitate cross-border activity in the future.