Just 12 per cent of crypto companies that have been operating in the EU are approved to continue doing so from Wednesday under tough new rules that are shrinking the industry and forcing many of them to wind down their businesses.
Only 244 digital asset groups are allowed to serve EU customers from July 1, according to a list published by the bloc’s markets watchdog, the European Securities and Markets Authority, that was last updated on June 26.
In contrast, as of June 30 there were 1,738 companies that would have to “cease operations” from Wednesday because they do not hold a bloc-wide licence, according to the head of data provider VASPnet.
From July 1, all crypto companies serving the EU must have a licence under the bloc’s Markets in Crypto-Assets Regulation or risk being penalised. The regulations came into force in late 2024 and companies had 18 months to fully transition to the correct licences as EU officials impose the new regulatory framework on the industry.
Big names including exchanges Coinbase, Kraken and OKX have received licences, while Binance, the world’s biggest digital asset trading venue, is the most high-profile group that has failed to become EU regulated by the deadline.
The imposition of the new rules is expected to trigger a wave of consolidation in Europe’s crypto market, as hundreds of companies without an EU licence are bought by, merge with or do deals to transfer customers and assets to larger, regulated rivals. The comparatively small number of regulated groups highlights the EU’s stringent approach to the industry, as it seeks to protect consumers.
In a sign of how the new regulations may be hitting the industry, 3,389 companies were serving EU customers as of May last year, according to VASPnet, under the previous patchwork of national licensing and registration rules that have now come to an end, although the crypto market has also been in a prolonged downturn over the past year, with the price of bitcoin nearly halving.
Lukas Enzersdorfer-Konrad, chief executive of Bitpanda, said the Vienna-based crypto exchange had done some “referral deals” with unlicensed companies “where they informed their customers ‘we’re shutting down our business but you can go to Bitpanda’”.
“Many other smaller or medium-sized exchanges have reached out to me and my team to take them over, their clients, their assets, their infrastructure,” said Erald Ghoos, chief executive of crypto exchange OKX’s Europe business, adding that one unlicensed rival was in talks to sell everything to OKX including its sponsorship deals.
Last week, Binance told EU customers it would stop providing services to them and told them how to withdraw their money.
Rival firms are trying to pounce on the last-minute opportunity to gain more customers. Brian Armstrong, chief executive of Coinbase, said the exchange was “offering a 5 per cent transfer bonus” for crypto traders who move their funds to his venue before July 13, referring to FT reporting that Binance would stop serving EU clients.
Ghoos said the companies that had approached OKX Europe about taking over their EU customers ranged from “super small competitors with a few thousand users to medium-sized competitors with tens of thousands of EU clients”.
Beata Sivak, head of Emea policy at Kraken, said the exchange was “definitely ready to take on [new] customers and take them through a proper onboarding”.
Esma last week warned unauthorised companies “to take immediate steps to wind down their EU activities in an orderly manner”, urging them to “immediately stop onboarding new EU clients” and to only allow customers to sell or transfer their crypto assets.
Lawyers said there was uncertainty over what regulators would do about unlicensed companies that continue to have EU clients after the July 1 deadline has passed.
EU customers of unlicensed crypto companies are likely to find their accounts are restricted, preventing them from doing much other than withdrawing their funds or transferring them to a licensed provider or a self-hosted wallet.
Diego Ballon Ossio, a fintech lawyer at Clifford Chance advising several crypto exchanges, said unlicensed companies could find it hard to persuade customers to close their accounts or transfer them to another provider.
“Many retail users are unresponsive, they are notoriously difficult to move,” said Ballon Ossio. “Some may move and some may not respond, there is no real answer for what happens.”
He said that while transferring users to a company with an EU licence was the preferred option of regulators, this could prove unpopular with some customers.
“You are forcing a different entity on to your users, potentially in a different location without them having a say,” he said. “It will be a different risk profile for them.”
The EU crypto licensing process has so far been handled by national regulators in each of the 27 member states. But the European Commission has announced plans to centralise these powers at Esma as part of a push to harmonise financial markets supervision.
This reflects concerns among some officials that the current system allows crypto companies to cherry-pick the most favourable national regulator and then passport their services across the bloc.
Last year, Esma criticised Malta’s process for approving pan-EU licences for crypto companies, saying “some risk areas were not adequately assessed during the authorisation process” for one unnamed company.
