The ambassadors of the EU Member States (Coreper) gave their green light, on Monday 28 June, to the Portuguese Presidency of the EU Council’s compromise on a proposal for a regulation on a pilot regime for market infrastructures based on distributed ledger technology (DLT).
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) all while ensuring that they can address risks to investor protection, market integrity and financial stability.
The compromise in question, of which EUROPE received a copy, states that EU financial services legislation should be neutral as regards the use of one particular technology over another and therefore the reference to a specific type of DLT is avoided.
The Member States also want the pilot regime not to be limited to traditional operators, but to be open to new entrants as well. As regards the thresholds for participation, Member States favour a threshold of €500 million for shares, €1 billion for certain types of bonds and €500 million for units in certain collective investment undertakings.
In particular, they state that when members of the European System of Central Banks, national bodies of Member States performing similar functions, or other public bodies charged with or intervening in the management of public debt in the EU, operate a DLT settlement system, they should not be required to seek permissions from a competent authority to benefit from the exemptions of this Regulation.
Member States also wish to use this Regulation to amend Regulation 600/2014 to extend by two years the open access regime for trading venues and CCPs offering trading and clearing services related to listed derivatives, which had already been extended until 3 July 2021 due to the Covid-19 pandemic.
The fact that the pandemic is still ongoing and that the UK’s withdrawal from the EU has had a significant economic impact on financial markets makes it necessary, according to the text, to postpone the end of the regime until 3 July 2023.
It should be noted that the text states that it is important to further encourage the development of and investments in low or zero emission DLTs, including by integrating this technology in the sustainable finance taxonomy.
In terms of supervision, the text maintains the provision that the European Securities and Markets Authority (ESMA) must issue a non-binding opinion before a national competent authority can grant authorisation to a future DLT market infrastructure under this regime.
The text also maintains the five-year duration of the pilot regime proposed by the Commission at the end of which the Commission, on the basis of advice from ESMA, would be required to assess the costs and benefits of a prolongation of the regime for a further period, extending it to new types of financial instruments, continuing it with or without modifications, or abolishing it.
Other proposals in the digital finance package
This proposal was presented as part of a broader package on digital finance, which also includes a proposal for a regulation on Markets in Crypto-assets or MiCA, a proposal for a Digital Operational Resilience Act or DORA as well as a directive that introduces various changes in European legislations.
Coreper also gave the green light, on Monday, to the parts of the amending Directive that concern the DLT pilot regime. These include provisions amending the Markets in Financial Instruments Directive (MiFID II) to clarify the definition of financial instruments and to temporarily exempt market infrastructures that use distributed ledger technology from certain provisions of the ‘MiFID II’ Directive in order to allow them to develop solutions for trading crypto-assets that would qualify as financial instruments.
Despite the Portuguese Presidency’s efforts to reach agreement on the entire digital finance package, “important political questions” remain open on the DORA and MiCA proposals, according to one source. The work will therefore be taken forward by Slovenia, which will take over the EU Council Presidency from Portugal on 1 July.
See the text on the DLT regime: https://bit.ly/3ji6lHv
See the one on the amending Directive: https://bit.ly/3x4LNGl (Original version in French by Marion Fontana)