EU ambassadors have endorsed the provisional political agreement, which was reached on 24 November, between the Council Presidency and the European Parliament’s negotiators on a pilot regime for market infrastructures based on distributed ledger technology. The pilot regime provides for the conditions for acquiring permission to operate a DLT market infrastructure, defines which DLT financial instruments can be traded and sets out the cooperation between the operators of DLT market infrastructures, national competent authorities and ESMA.
The DLT pilot regime aims to test the development of the European infrastructure for trading, clearing and settlement of DLT-based financial instruments. Crypto-assets are one of the main DLT applications for finance. As SCL readers will know, a distributed ledger, broadly defined, is a consensually shared database through which a transaction is validated.
A provisional agreement between the Council and the Parliament was reached on the following main issues discussed during the negotiations:
- definition of the DLT market infrastructure;
- thresholds for admission to trading or recording on a distributed ledger;
- supervision: national competent authorities will remain in charge for the authorisation while the ESMA can issue an opinion on the application. The opinion would be non-public and non-binding but an explanation would be needed in case the national competent authorities decide to significantly deviate from it; and
- consumer protection: DLT operators will have mechanisms for handling clients’ complaints and appropriate compensation.
This pilot regime will be in place for three years, after which the European Commission, based on advice from ESMA, should report to the Council and the Parliament on the costs and benefits of extending, modifying or ending it.
The Commission proposed the DLT regulation in September 2020, alongside the proposals on markets in crypto-assets (MiCA), digital operational resilience (DORA) and a complementing amending directive. The digital finance package aims to bridge a gap in existing EU legislation, to ensure it does not pose obstacles to the use of new financial instruments. The package also aims to support innovation and uptake of new financial technologies while providing for an appropriate level of consumer and investor protection.
The provisional political agreement on the DLT Regulation will now be formally adopted by the Council and the Parliament. It will then be published in the Official Journal of the European Union and enter into force.
