ESMA Proposes Stricter Limits on Non-Compliant Stablecoins in Europe

The European Securities and Markets Authority (ESMA) is pushing to broaden the scope of European stablecoin restrictions. In a September 30, 2026 response regarding the Markets in Crypto-Assets (MiCA) regulation, the regulator proposed that services involving non-compliant stablecoins should be prohibited entirely, including custody and transfer services.

This proposal marks a shift from the regulator's stance in January 2025, which previously allowed for the custody and transfer of such tokens even after they were removed from trading pairs. If adopted, the new rules would apply to all licensable crypto-asset services, potentially affecting existing holders who are no longer actively trading.

The proposal aims to address regulatory disparities between compliant and non-compliant issuers. Under MiCA, custody involves the safekeeping or control of client assets, while transfers cover the movement of assets between accounts. Because these are defined as regulated services, the proposed ban would prevent licensed providers from offering these functions for stablecoins that do not meet MiCA requirements.

The submission does not include an implementation date, a wind-down mechanism, or an exception for existing holdings. This creates uncertainty regarding how providers would handle the return of assets to clients if the prohibition on transfer and custody services is enacted. Current regulations require providers to return assets to clients, but it remains unclear how a blanket service restriction would interact with these existing obligations.

While the proposal targets professional services, it does not explicitly ban personal ownership or mandate the freezing of assets. However, it could significantly limit the ability of European users to rely on licensed custodians for non-compliant stablecoins.

Research by Nicola Borri and Kirill Shakhnov, published in July 2026, analyzed trading volume data from January 1, 2024, through December 7, 2025, across 14 centralized exchanges. The study noted a shift in trading patterns around April 1, 2025, with USDT trading volume falling on regulated-facing exchanges relative to global venues. The authors noted that their findings reflect exchange turnover rather than total EU custodial balances or global demand.

The ESMA submission is currently a policy proposal rather than an enacted amendment. The European Commission may use the report to inform future legislative changes, and market participants are waiting to see if any forthcoming amendments will clarify the treatment of existing balances and the logistics of asset returns.