ESMA proposes barring EU custodians from non-MiCA stablecoins

The European Securities and Markets Authority asked the European Commission on Sept. 30, 2026, to prohibit licensed EU crypto firms from providing custody and transfer services for stablecoins that do not meet Markets in Crypto-Assets (MiCA) requirements. The proposal would cover custodial safekeeping and moving tokens on behalf of clients across ledger addresses or accounts within the European Economic Area.

Under MiCA, custody means safekeeping or control of clients’ crypto-assets or the means to access them, such as private keys. Transfers refer to moving assets for a client between ledger addresses or accounts. ESMA’s submission would apply an asset-compliance test rather than treating services case by case, replacing the earlier approach that distinguished trading from simple custody.

The proposal would affect both existing holders and prospective buyers. ESMA’s earlier guidance from Jan. 17, 2025, had expected platforms to stop offering non-compliant stablecoins for trading while still allowing custodial safekeeping and transfers so clients could withdraw or convert balances. The new submission removes that allowance for licensed providers, noting that a provider’s authorization does not by itself permit servicing a stablecoin that fails MiCA’s rules.

The submission does not set an implementation date, carve out existing balances, or provide a wind-down mechanism. That gap raises questions about how providers would return assets they already control if custody and transfer services are prohibited. Current MiCA rules require providers to return clients’ crypto-assets or their means of access as soon as possible and to segregate client assets from the provider’s own holdings.

A Feb. 18, 2026 communication from the European Commission, routed via ESMA, states that returned assets must be the same type the client held at withdrawal. Conversion into fiat or another crypto-asset is allowed only if the client requests it at withdrawal and the provider is authorized to offer conversion services.

ESMA’s proposal does not ban personal ownership of non-compliant stablecoins, order freezes or require compulsory conversions. The request targets regulated services: licensed custodians and transfer providers would be restricted from holding or moving non-compliant tokens, while individuals could continue to hold tokens outside licensed service providers.

A July 2026 academic paper by Nicola Borri and Kirill Shakhnov examined USDT and USDC trading across a sample of centralized exchanges. The study found that around regulatory events USDT trading volume fell by about 20% on exchanges with larger regulated-facing audiences relative to globally oriented venues, and USDC gained share mainly because USDT declined in those venues. The paper covers exchange turnover and does not measure custodial balances that a custody prohibition would directly affect.

The next formal step is a legislative amendment following the Commission’s review. Lawmakers will need to decide the scope and effective date of any ban and how to treat existing customer balances so that providers can meet their obligations to return assets.