France Threatens Regulatory ‘Atomic Weapon’ to Stop EU Forum Shopping by Crypto Firms

France’s Autorité des Marchés Financiers (AMF) told Reuters it is concerned that inconsistent enforcement of the EU’s  Markets in Crypto-Assets Regulation (MiCA) is allowing crypto companies to play regulatory arbitrage to gain license to operate throughout the 27-member bloc.

Passed in 2023 and fully in effect as of December 2024, MiCA stands as a landmark as the first comprehensive crypto regulatory scheme in any major jurisdiction. But as with other broad EU regulations, it is administered and enforced by individual national authorities.

Under the EU’s single-market rules, authorization to operate in one country serves as a “passport” to gain access to other EU territories. On Monday, France’s AMF joined with Italy’s Consob and Austria’s Financial Markets Authority in calling for the Paris-based European Securities and Markets Authority (ESMA) to take over supervision of major crypto firms, according to a position paper seen by Reuters.

AMF president Marie-Anne Barbat-Layani, told Reuters France cannot rule out taking the dramatic step of refusing to honor EU passports for crypto companies.

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“We do not exclude the possibility of refusing the EU passport,” Barbat-Layani said. “It’s very complex legally and not a very good signal for the single market – it’s a bit like the ‘atomic weapon’ … but it’s still a possibility we hold in reserve.”

According to the three regulators’ position paper, “The first few months of the application of the Regulation have revealed major differences in how crypto-markets are being supervised by national authorities.” Direct supervision at the EU level, they said, would better protect investors.

The paper did not cite specific examples of inconsistencies in enforcement. Per Reuters, however, Malta’s financial regulator faced scrutiny earlier this year over its license-granting program. A review by ESMA concluded Malta had not done enough to assess the risk when granting a license to one particular crypto company that it did not name.

Crypto firms are currently applying for MiCA licenses under a transition period. According to Barbat-Layani, however, companies “are doing their regulatory shopping all over Europe, trying to find a weak link that will give them a license with fewer requirements than the others.”

Luxembourg has so far granted a license to U.S.-based exchange Coinbase, while Malta has approved a license for Gemini, an exchange founded by the Winklevoss brothers.

ESMA head Verena Ross told Reuters she would welcome the transfer of oversight to her agencies but noted it faces resistance from some EU countries.

The row in Europe comes as the push for comprehensive crypto regulation in the U.S. has hit a snag in the Senate. Last week, a key member of the Senate Banking Committee John Kennedy (R-LA) said he was not on board with his GOP colleagues’ plan to advance a crypto market-structure measure by the end of September, telling reporters, “I don’t think we’re ready. People I talk to still have a lot of questions. I know I still have a lot of questions.”

Democrats on the committee also called for tapping the brakes on advance the bill to allow more time for debate.