ESMA Orders Crypto Firms to Exit Non-Compliant Stablecoins Within Three Months

The European Securities and Markets Authority (ESMA) has set a deadline of three months for EU regulators to clean up the last remnants of exposure at authorised crypto companies to stablecoins failing to comply with Markets in Crypto Assets (MiCA) standards. In an announcement made on October 8, ESMA stated that crypto-asset service providers authorised under MiCA “should cease providing services related to non-MiCA-compliant stablecoins.” The guidance applies to asset-referenced tokens and e-money tokens whose issuance or admission to trading does not conform to MiCA.

National Regulators Can Allow Limited Services for Existing Holders

This deadline does not necessarily imply that all these services will be available for an additional period of three months. ESMA directed national regulators to resolve the issue of residual exposures as quickly as possible, and three months can be regarded as the maximum time period left for those legacy positions which have to be unwound. The October 8 opinion is broader than the previous ESMA opinion concerning services that may lead to issuing stablecoins to the public.

Under the revised model, national regulators need to assess all the services regulated by MiCA that might allow for such non-compliant stablecoins to be used to acquire, trade, hold, and amplify exposure for EU clients. ESMA particularly mentions operating a trading platform, exchange of crypto-to-fiat or crypto-to-crypto, order execution, reception and transmission of orders, token placement, investment advice, and portfolio management.

There are some allowances for services that would have an impact on closing down immediately. Nationally designated authorities can permit businesses to go through the liquidation process, convert, withdraw, transfer, and provide custodial services related to those clients holding the affected stablecoins. However, the services offered cannot attract any new customers.

Purchase, trade, promotion, and distribution must be halted. According to ESMA, any residual service must be temporary, well-supervised, and restricted to those actions that will assist existing customers to exit their positions.

However, warnings will not be sufficient from ESMA's perspective. As per ESMA's opinion, the regulator argued that there cannot be disclosure or user acknowledgement in lieu of protections for issuers under MiCA because users would remain at risk from assets not complying with regulations. The opinion targets mainly the national competent authorities that oversee the authorised firms within their jurisdiction. ESMA stated that it will cooperate with the relevant regulators to see if the opinion is implemented on time. 

It does not represent a blanket ban on such coins across the entire EU by virtue of their non-MiCA designation. This document discusses the services provided by MiCA-licensed crypto firms and how these can be regulated by the authorities.