EU Watchdog Slams Malta’s ‘Lightning-Fast’ Crypto Licensing—Regulatory Red Flags or Progress?

Malta’s turbocharged crypto licensing system just got a side-eye from EU regulators. The ‘Blockchain Island’ might be moving too fast—and breaking too many things.

Behind the glitz of Malta’s crypto-friendly policies, watchdogs spot cracks in compliance. Speed or recklessness? The market’s betting on the former (as usual).

One regulator’s ‘efficiency’ is another’s loophole—and in crypto, that gap smells like opportunity. Just ask the 300+ firms that sprinted through Malta’s process since 2021.

Closing thought: When due diligence gets outrun by FOMO, even ‘regulation’ starts looking like a speculative asset.

The European Securities and Markets Authority (ESMA) published a review today that questions whether Malta approved a crypto firm too quickly, despite unresolved risk issues.

The review marks the first major test of the Markets in Crypto-Assets Regulation (MiCA), which became fully effective across the EU in December 2024. MiCA entered into force in June 2023 and includes substantial Level 2 and Level 3 measures that must be developed before the entry into application of the new regime.

What ESMA Found in Malta

ESMA’s peer review examined how Malta’s Financial Services Authority (MFSA) handled the approval of an unnamed crypto asset service provider (CASP). The evaluation found that the MFSA granted a green light to the CASP while several “material issues” were yet to be resolved, including outstanding remediation from previous enforcement cases and pending supervisory matters.

The review identified three key areas where Malta’s approach fell short:

Governance Problems: Issues with conflicts of interest and internal company arrangements remained unaddressed when the license was granted.

Anti-Money Laundering Concerns: ESMA found gaps in how the company WOULD prevent money laundering and terrorist financing.

Technology Risks: Problems with digital security, data storage, and Web3 integrations were not fully resolved before approval.

While ESMA praised Malta for having enough staff and resources to oversee crypto companies, the regulator said the country only “partially met expectations” in its licensing process.

Malta Defends Its Record

Malta’s financial regulator pushed back against the criticism. The MFSA welcomed the peer review, saying it confirms that overall, the MFSA is largely meeting expectations with respect to the practical implementation of MiCA.

The island nation has positioned itself as a crypto-friendly jurisdiction since 2018, when it became one of the first EU countries to create specific rules for digital assets. Malta argues this early experience gives it an advantage in understanding the crypto industry.

MFSA CEO Kenneth Farrugia said the authority is “proud of its role as an early adopter of regulation of digital assets in Europe” and that the review “gives further confidence” in Malta’s approach.

The OKX Case Raises Questions

The timing of ESMA’s review coincides with a notable enforcement action against one of Malta’s licensed crypto companies. Malta’s FIAU fined crypto exchange OKX $1.2 million for AML violations from 2023 despite recent improvements and MiCA licensing.

OKX’s European subsidiary, Okcoin Europe, received its MiCA license in January 2025 but was fined in April for anti-money laundering failures that occurred in 2023. The company was expected to assess the nature of risks prevalent in the services it was offering, the Financial Intelligence Analysis Unit said in a notice.

This case highlights the challenge regulators face in balancing quick approvals with thorough oversight. Malta has licensed four major crypto companies under MiCA so far: OKX, Crypto.com, Bitpanda, and ZBX.

What This Means for EU Crypto Rules

ESMA urges stricter oversight for CASPs across all EU member states, with concerns raised over governance, IT, and cross-border operations. The review may signal tighter standards coming for crypto companies seeking licenses across Europe.

Industry experts worry that the review may delay crypto licenses as EU regulators tighten standards. Other EU countries preparing to license crypto firms may now take a more cautious approach to avoid similar scrutiny.

The review reflects broader tensions about how strictly to regulate the crypto industry. Some see Malta’s speed as innovation-friendly, while others view it as potentially risky for investors and the financial system.

What Happens Next

ESMA’s review highlights the growing pains of implementing Europe’s new cryptocurrency rules. While Malta maintains it largely meets regulatory expectations, the findings suggest EU authorities want more rigorous oversight before approving crypto companies. This tension between innovation and regulation will likely shape how crypto firms operate across Europe in the coming years.