ESMA proposes ending EU custody and transfer services for non-compliant stablecoins

The European Securities and Markets Authority (ESMA) has proposed a strict expansion of EU Markets in Crypto-Assets (MiCA) rules, urging regulators to require crypto firms to exit non-compliant stablecoin exposure by January 8, 2027. The proposal targets professional services, seeking to prohibit licensed entities from providing custody, transfers, trading, and investment advice for non-compliant tokens. This marks a significant shift from ESMA's January 2025 stance, which permitted continued custody and transfers after trading delistings, raising legal questions about how firms will return assets to existing holders.

ESMA's proposal to extend MiCA restrictions

• ▪The European Securities and Markets Authority submitted its proposal to end custody and transfers for non-compliant stablecoins to the European Commission on September 30, 2026, as part of a review of the European Union's Markets in Crypto-Assets regulation
• ▪The European Securities and Markets Authority proposed extending Markets in Crypto-Assets regulation restrictions, urging European Union regulators to require crypto firms to exit non-compliant stablecoin exposure, covering trading, custody, transfers, and investment advice, by January 8, 2027

Proposed restrictions on custody and wind-down services

• ▪The European Securities and Markets Authority's September 30, 2026 proposal would remove the option for investors to leave stablecoins non-compliant with MiCA with a licensed custodian after their trading pairs are delisted
• ▪Under the European Securities and Markets Authority's proposed September 30, 2026 rules, crypto service providers may offer limited wind-down services under regulatory supervision, including liquidation, closing trades, and withdrawals, to facilitate the exit from non-compliant stablecoins
• ▪The European Securities and Markets Authority's September 30, 2026 policy submission responding to the EU's MiCA review does not specify an implementation date, withdrawal exception, or wind-down mechanism for returning assets controlled by custody providers
• ▪The European Securities and Markets Authority's September 30, 2026 proposed custody restrictions represent a shift from its January 17, 2025 guidance, which stated that custody and transfer services for non-compliant stablecoins should remain possible

MiCA definitions of custody and transfers

• ▪Under the Markets in Crypto-Assets regulation, Article 59 requires crypto-asset service providers to obtain authorization, while Article 3 defines custody as safekeeping or controlling clients' crypto-assets or private keys
• ▪Under the Markets in Crypto-Assets regulation, Article 3 defines transfers as moving assets on a client's behalf from one ledger address to another, with Article 82 setting client-agreement requirements for these transfers

Findings of the July 2026 paper

• ▪Nicola Borri and Kirill Shakhnov's July 2026 paper estimated that around April 1, 2025, USDT trading volume fell about 20% on regulated-facing exchanges relative to global venues, while USDC's share of combined USDT and USDC trading rose six percentage points
• ▪Nicola Borri and Kirill Shakhnov's July 2026 paper found that aggregate USDC-to-USDT trading-volume ratios across the 14 sampled exchanges remained nearly flat around April 1, 2025

Debatable claims

• ▪The proposed January 2027 deadline gives crypto firms sufficient time to exit non-compliant stablecoins
• ▪The EU should ban custody and transfer services for non-compliant stablecoins