Germany’s financial watchdog BaFin has publicly challenged firms using regulatory arbitrage across the European Union, warning that digital businesses deliberately seek authorization in jurisdictions with the weakest supervision before expanding bloc-wide through passporting rights. Thorsten Pötzsch, BaFin’s securities supervision chief, stated Wednesday at a Frankfurt conference that this practice must end, backing European Commission proposals to centralize oversight under ESMA for crypto and stock markets.
The fragmentation is evident in the data. Firms operating EU-wide face up to 27 different supervisory approaches despite unified rulebooks. Germany itself licenses heavily but issues few host-state links, holding 22 percent of authorized crypto service providers but only 7.2 percent of cross-border passporting activity. Prediction markets represent the clearest current example, with Malta now drafting bespoke rules to attract platforms after ESMA effectively banned event contracts under existing binary options restrictions.
FXnCO Insight
Expect heightened regulatory scrutiny on cross-border fintech operations as centralization momentum builds, with firms in lighter-touch jurisdictions facing potential authorization challenges.
Source: Finance Magnates