The European Parliament has started work on the proposal for a regulation on a pilot regime for market infrastructures based on Distributed Ledger Technology (DLT). The draft report, prepared by Johan Van Overtveldt (ECR, Belgium), was published on Thursday 11 March.
Proposed for issuers that already fall within the scope of existing EU legislation, the pilot regime is aimed at market infrastructures that want to attempt trading and settling transactions in the form of Crypto-assets (see EUROPE 12567/2).
It would be designed as a regulatory ‘sandbox’ that would allow temporary exemptions from existing rules so that regulators can gain experience in using DLT (the technology behind Crypto-assets) while ensuring that they can address risks to investor protection, market integrity and financial stability.
According to the rapporteur, DLT offers a range of potential benefits for financial services, including reduced complexity and improved speed of transaction processing. For these reasons, he considers it essential that the EU adopts an “ambitious” approach to this issue.
The 100-page draft report, which has not yet been presented to the European Parliament’s Committee on Economic and Monetary Affairs (ECON), broadly endorses the Commission’s objectives, but proposes a number of changes, particularly with regard to the scope.
The rapporteur furthermore considers that there is no reason to prohibit sovereign bonds to be admitted to trading or to be listed on DLT market infrastructures.
Finance ministries should be able to decide which issuance mechanism they prefer and the proposed regime should not have the effect of shifting investment from sovereign to corporate bond markets, as this could create a disadvantage for sovereign issuers, he explains.
The rapporteur also stresses the need to ensure a level playing field both between the entities allowed to participate in the pilot regime and with regard to regulatory oversight in the Member States.
In terms of supervision, he proposes that the European Securities and Markets Authority (ESMA) should issue a recommendation, instead of a non-binding opinion as proposed by the Commission, before a national competent authority can grant authorisation to a future DLT market infrastructure under this regime.
An early assessment of the pilot regime
The Commission’s proposal foresees a five-year duration for the pilot regime, after which, on the basis of recommendations from ESMA, it would be required to carry out an assessment of the costs and benefits of prolonging the regime for a further period, extending it to new types of financial instruments, continuing it with or without modifications, or abolishing it.
However, according to the rapporteur, this period is too long and risks leaving market players without regulatory certainty for too long. He therefore proposes that the Commission should already submit to the European Parliament and to the EU Council, after three years, an early assessment report on a possible adjustment or abandonment of the pilot regime.
See the draft report: https://bit.ly/3l7AOa7 (Original version in French by Marion Fontana)