ESMA Proposes Ban on Non-Compliant Stablecoin Custody in Europe

The European Securities and Markets Authority (ESMA) has called on the European Commission to ban custody services for non-compliant stablecoins under the Markets in Crypto-Assets regulation (MiCA). In its submission to the Commission’s MiCA review consultation dated 30 September 2026, ESMA argues that prohibiting such services would eliminate regulatory arbitrage and level the playing field between compliant and non-compliant stablecoin issuers.

Market data suggests that the shift away from non-compliant stablecoins is already underway. A study by Nicola Borri and Kirill Shakhnov, covering 14 exchanges from January 2024 to December 2025, found that Tether (USDT) trading volume dropped by around 20% on European-facing venues after MiCA’s compliance deadline on 1 April 2025. Meanwhile, USD Coin (USDC) gained roughly six percentage points of combined USDT/USDC trading share on these exchanges.

The proposed custody ban would extend enforcement beyond trading restrictions, impacting holders who have stopped trading. This marks a reversal of ESMA’s earlier stance, which allowed holding or transferring non-compliant stablecoins. The submission does not address how a blanket service restriction would align with EU obligations to return clients’ assets in their original form.

The Commission’s consultation closed on 30 September 2026, and a review report may lead to legislative proposals. Traders should note that Europe’s stablecoin market has already shifted toward USDC on key regulated venues, and a custody ban would further limit access to USDT.