ESMA Proposes Crypto Asset Freeze Powers and Decentralised Finance Regulation

The European Securities and Markets Authority (ESMA) has proposed new powers to freeze crypto assets linked to crime and block fraudulent websites as part of its review of the Markets in Crypto-Assets Regulation (MiCA). The proposals aim to simplify the framework while strengthening investor protection and addressing emerging models such as decentralised finance (DeFi), staking, lending, and borrowing.

ESMA also proposed stricter rules for crypto-asset marketing, especially when products are promoted by influencers and third parties, and called for greater transparency on costs. It backed proportionate requirements for staking, lending, and borrowing, including disclosure obligations so investors receive clearer information on costs, risks, rewards, collateral arrangements, and potential losses before committing funds.

ESMA advocated clearer criteria for deciding when activities are genuinely decentralised and proposed a new regulated crypto-asset service for firms that give users access to DeFi protocols. It recommended rules for classifying crypto-assets, including hybrid tokens, and backed granting ESMA the power to issue binding opinions on token classification.