Firms with digital business models deliberately set up where EU supervision is weakest, then expand across the bloc, Germany’s markets regulator said today (Wednesday). Thorsten Pötzsch of the Federal Financial Supervisory Authority (BaFin) said the practice has to be stopped.
Pötzsch, chief executive director for securities supervision, was speaking at a capital markets conference in Frankfurt hosted by the bwf banking association and ICMA.
For brokers and crypto firms, that is a description of passporting itself: authorization in one member state, services in all 27. Pötzsch named no company and no sector.
He did put the regulator of the EU’s largest economy behind a European Commission plan, debated since last November, to hand the European Securities and Markets Authority (ESMA) direct supervision of crypto and stock markets, a proposal that has already split the industry.
What the Race to the Bottom Looks Like
The fragmentation he is describing is measurable. A firm working across the EU can meet up to 27 supervisory approaches to one rulebook.
George Theocharides, chairman of the Cyprus Securities and Exchange Commission (CySEC), has backed the same centralization push, arguing a single market has to run on a level playing field. Germany’s own footprint complicates the picture.
FM Intelligence data shows German entities hold 22.0% of authorized crypto-asset service providers but only 7.2% of declared host-state links. The country licenses heavily and passports out lightly.
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Financial centers should not “engage in a race to the bottom to attract financial firms,” Pötzsch said. Firms that exploit the gaps between them should not be able to scale that arbitrage across the single market.
Two Corners Where the Gap Is Already Open
“We cannot let that happen,” Pötzsch said of firms shopping for the lightest supervisor. He named no sector. Two are visible without much looking.
Prediction markets are the first. ESMA said in July that event contracts can fall under the EU’s retail ban on binary options, and no major platform runs a licensed European service.
Spain opened proceedings against Kalshi and Polymarket in May, and nine national regulators issued a joint warning in June. Malta has read the vacuum as an opening.
The island is drafting dedicated prediction-market rules, the same first-mover play it made with crypto in 2018, before EU harmonization folded that regime into the Markets in Crypto-Assets Regulation (MiCA).
Retail proprietary trading is the second, and that gap sits at ESMA’s own door. Theocharides said in June that the authority is not engaged in any substantive discussions on retail prop trading, citing the sector’s limited size.
US firms are moving the other way, registering as introducing brokers with the Commodity Futures Trading Commission (CFTC).
The One Model He Did Name
On stablecoins, Pötzsch was specific. Multi-issuer arrangements, where the same token is issued by an EU entity and a third-country entity, carry risks for issuers, holders, banks and the wider market. “We therefore firmly oppose these models,” he said.
That puts BaFin alongside the European Central Bank (ECB) and the European Systemic Risk Board (ESRB), which warned through 2025 that such schemes let non-EU holders redeem against the EU issuer’s reserves in a run.
The ESRB recommended in September 2025 that the structures be restricted or ruled out. MiCA does not address joint issuance at all.
That is why the question has landed in the review the Commission opened after roughly 80% of registered crypto firms dropped out under the compliance cull.
Less Rulebook, More Central Supervision
Pötzsch is not arguing from hype. He cited IOSCO figures of about $10 billion in tokenized bonds issued over the past decade and $16 million in tokenized listed shares in March 2025, against roughly $115 trillion in global equity market value.
He wants centralization and a shorter rulebook at the same time, and said the MiCA review “must not become an exercise in deregulation” while warning against rules nobody needs.
His example of excess was not crypto. The second Markets in Financial Instruments Directive (MiFID II) rests on “263 additional legal acts” at Levels 2 and 3, he said, and he questioned whether investor protection requires that much detail.
ESMA reached a similar conclusion in March, when its year-long consultation found that between 1% and 10% of clients open the key information documents firms are required to produce.
BaFin has already cut its own clock. Share prospectus approvals now take six to eight weeks under a faster procedure, down from about ten to twelve, and authorizations for asset managers moving from registration to full permission previously ran eight to twelve months.
This article was written by Damian Chmiel at www.financemagnates.com.
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