ESMA Proposes Restrictions on EU Custody and Transfer Services for Non-Compliant Stablecoins

The European Securities and Markets Authority (ESMA) is advocating for a significant shift in the regulation of stablecoins within the European Union. In a recent proposal, ESMA aims to extend existing restrictions on non-compliant stablecoins beyond trading to include essential services such as custody and transfers.

If adopted, this proposal would eliminate the option for holders of non-compliant stablecoins to leave their assets with licensed custodians after their trading pairs are removed. This marks a notable departure from ESMA's previous stance, which allowed for custody and transfer services to continue even after trading ceased.

In its response to the review of the EU’s Markets in Crypto-Assets regulation (MiCA), ESMA has requested that the European Commission prohibit all licensable crypto-asset services involving stablecoins that do not meet regulatory requirements. This would affect not only current holders who have ceased trading but also those looking to acquire such tokens.

Previously, ESMA's January 2025 approach indicated that while trading of non-compliant tokens would be halted, custody and transfer services could remain available. However, the new proposal shifts to a broader compliance test, which could disadvantage non-compliant issuers and lead to regulatory arbitrage.

Under the proposed changes, the definitions of custody and transfer under MiCA would be strictly enforced. Custody refers to the safekeeping of clients’ crypto-assets, while transfers involve moving assets on behalf of clients. Both services would be subject to compliance with MiCA's requirements, which could complicate the landscape for existing stablecoin holders.

ESMA's proposal is currently a policy submission and has not yet been enacted into law. The European Commission's consultation process has a deadline of September 30, and any resulting legislative proposals will be closely monitored by industry stakeholders. The absence of a clear implementation date or exceptions for existing holders raises questions about how the transition will be managed.