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EU proposal for pilot regime for market infrastructures based on DLT adopted

The European Parliament adopted the European Commission’s proposal for a Regulation on a pilot regime for market infrastructures based on Distributed Ledger Technology (“DLT”) (2020/0267(COD) at first reading on 24 March 2022.

The European Commission had already adopted the proposed Regulation in September 2020 as part of its Digital Finance Strategy. One of the aims of the pilot regime was to acquaint the European Union’s financial services legislation (particularly with the upcoming inception of MICA) with DLT and crypto-assets (“Crypto”) .

The DLT Pilot will have a life span of 6 years and aims to future-proof the economy whilst paving the way for additional innovative technologies by promoting such transformative technology within the financial sector.

To efficiently test the implantation, the proposal adopts the ‘sandbox’ approach with ESMA, the European Securities and Markets Authority, receiving feedback from stakeholders and assess whether or not regulatory technical standards need to be amended in line with the proposal. Such an approach, according to the Parliament, avoids regulatory arbitrage and loopholes. The DLT Pilot regime defines the conditions that apply to the grant of permission to operate a DLT market infrastructure, and also provides clarity regarding which DLT financial instruments may be traded going forward.

In addition to the financial segment, the proposal will also aim to address other factors within the realm of crypto. Such factors include the reduction of the environmental impact, namely the large amounts of energy consumed by the DLT sector. from crypto mining and proof of work / stake within DLTs.

The resolution also proposed amendments to the Markets in Financial Instruments Regulations (No. 600/2014 & 2014/65/EU) and the Securities Settlement / Central Securities Depositories Directive (No. 909/2014). These amendments will better streamline the process and further integrate such technologies.

This article was written by Dr Ian Gauci and Legal Trainee J.J. Galea.

For more information on digital services, information society and related areas please contact Dr Ian Gauci.

Disclaimer: This article is not intended to impart legal advice and readers are asked to seek verification of statements made before acting on them.