EU COUNCIL BACKS BROADER BLOCKCHAIN TESTING AND MORE TARGETED CRYPTO SUPERVISION

In brief: 

₿- The largest cross-border crypto-asset service providers would initially face direct supervision by ESMA under the Council’s revised approach.

₿- The proposed expansion of the DLT Pilot Regime would increase the volume of financial activity eligible for testing within the EU’s regulatory framework.

The Council of the European Union has agreed on key elements of a capital markets reform package that could affect blockchain-based financial services while reshaping the supervision of major crypto businesses. The measures form part of the EU’s Savings and Investments Union (SIU), which aims to mobilize household savings for productive investment.

Announced on 9 October 2026, the Market Integration and Supervision Package (MISP) seeks to reduce fragmentation between national financial markets. Although the reforms target the broader financial sector, provisions concerning crypto-asset service providers (CASPs) and distributed ledger technology (DLT) are particularly relevant to the digital asset industry.

EU narrows proposed direct supervision of crypto providers

Under the Council’s negotiating position, only the most significant cross-border CASPs would initially fall under the direct supervision of the European Securities and Markets Authority (ESMA). This differs from the European Commission’s original proposal, which envisaged direct ESMA supervision for all providers within the relevant category.

The revised approach introduces a more selective supervisory framework, potentially allowing smaller providers to remain under national supervision rather than automatically transferring all such firms to the EU level. The implications for individual businesses will depend on the final criteria defining which providers qualify for direct ESMA oversight.

At the same time, the package would transfer responsibility for supervising the EU’s most significant cross-border trading venues and post-trading entities to ESMA. The authority would also receive a new executive board to manage operations and make decisions concerning entities under its direct supervision.

Expanded DLT pilot regime

The package also proposes expanding the EU’s Distributed Ledger Technology Pilot Regime, which enables market participants to test blockchain-based financial market infrastructure within a controlled regulatory environment.

The Council’s position would allow a greater volume of financial activity to be conducted through the regime. This could create additional opportunities to develop and test digital asset trading and settlement systems, potentially improving efficiency and reducing operational costs.

For blockchain businesses, broader access to the pilot framework could facilitate experimentation with tokenized financial instruments and other applications of distributed ledger technology. However, the regime is not a general exemption from existing financial or crypto regulations.

EU seeks to unlock private investment

Beyond digital assets, MISP aims to simplify cross-border operations for asset managers and reduce compliance costs across European capital markets. The reforms also include an optional depositary passport, allowing investment funds to appoint depositaries in other EU member states.

The package forms part of the EU’s wider Savings and Investments Union strategy, which seeks to channel more household savings into businesses and the economy. The Council estimates that approximately €10 trillion in household savings remains in low-yield bank deposits across the bloc.

The Council will finalize its negotiating position before formal adoption. Negotiations with the European Parliament can begin once Parliament adopts its own position.

For the crypto sector, the proposed reforms bring both opportunities and regulatory changes. Expanding the DLT Pilot Regime could give blockchain-based financial infrastructure more room to operate, while the proposed transfer of major cross-border crypto providers to direct ESMA supervision would strengthen EU-level oversight. Whether the changes benefit crypto businesses will depend on the scope of the final rules, the compliance obligations they impose, and the flexibility available to firms operating across European markets.