ESMA Seeks Authority to Freeze Illicit Crypto Assets and Shut Down Scam Sites in MiCA Review

The European Securities and Markets Authority (ESMA) on September 30 submitted its response to the European Commission's consultation on revising the Markets in CryptoAssets Regulation (MiCA), urging the EU to grant supervisors stronger tools to freeze crypto assets tied to criminal activity and to block fraudulent websites. ESMA said its proposals are designed to streamline the MiCA framework while bolstering investor protection and capturing fast-evolving market practices such as decentralised finance (DeFi), staking, and crypto lending and borrowing. The recommendations come as Brussels assesses whether MiCA remains fit for purpose after the rules began applying in full earlier this year. Investor protection and disclosures ESMA called for tighter standards around the marketing of cryptoassets, with a focus on promotions carried out by influencers and other third parties, and urged improved transparency on fees and charges. It also supported proportionate requirements for staking, lending and borrowing, including disclosure obligations so investors can assess costs, risks, expected rewards, collateral terms and potential losses before committing funds. The stance aligns with a separate European Banking Authority recommendation in the same MiCA review process to bring crypto lending more squarely within the regulatory perimeter. Expanded enforcement and supervisory powers To address unauthorised services, online fraud and noncompliant stablecoins, ESMA recommended reinforcing the EU's capacity to detect, block and deactivate scam websites, and to freeze crypto assets where market abuse or terrorist financing is suspected. ESMA warned that current procedures can take so long that freeze requests often arrive after funds have already been moved out of reach. It also sought stronger powers to tackle third-country firms that solicit EU investors without MiCA authorisation, and clearer rules preventing regulated crypto firms from offering services linked to stablecoins that fail to meet MiCA requirements. The proposals respond to concerns from some national regulators about uneven enforcement and growing regulatory divergence across the bloc. DeFi, token classification and tokenised markets ESMA advocated clearer criteria for determining when activity is genuinely decentralised, and proposed creating a new regulated cryptoasset service for firms that provide users with access to DeFi protocols. It also recommended a more robust classification regime for cryptoassets, including hybrid tokens, and supported giving ESMA authority to issue binding opinions on token classification. Beyond MiCA, ESMA urged development of a framework for tokenised securities and onchain settlement to help build an integrated European tokenised capital market. The submission builds on ESMA's earlier coordinated review of crypto custody under MiCA.