On June 2, 2022, Regulation (EU) 2022/858 on a pilot regime for market infrastructure based on distributed ledger technology (the Regulation) was published in the Official Journal of the European Union. The regulation aims to remove regulatory barriers to the issuance, trading and post-trade financial instruments in the form of crypto assets, and ensure that EU regulators gain experience in multilateral trading facilities and distributed ledger technology (DLT) applications, settlement systems. This is the first implementation of three legislative initiatives announced in the digital finance package adopted by the European Commission on 24 September 2020.
European Institutions Perspectives on Fintech and Distributed Ledger Technology
The regulation emphasizes that the EU has a policy interest in promoting the adoption of transformative technologies in the financial sector. In this regard, the preamble to the regulation makes it clear that while many cryptoassets may not fall within the scope of current EU financial services legislation, many others do qualify as financial instruments under EU law. As a result, a full suite of EU financial services legislation now applies to issuers and companies conducting activities related to such cryptoassets.
To facilitate its development, and DLT in general, while maintaining a high level of protection for investors, market integrity, financial stability, and transparency, European institutions have adopted the Regulation to establish a pilot regime for DLT-based market infrastructure.
Market Infrastructure Pilot System Based on Distributed Ledger Technology
The regulation establishes an experimental legal framework for the trading and settlement of crypto-asset transactions that qualify as financial instruments. Here, it differentiates:
(1): DLT multilateral trading facility: a multilateral trading facility that only allows trading of DLT financial instruments;
(2): DLT settlement system: a settlement system that conducts transactions with DLT financial instruments and settles by payment or delivery;
(3): DLT Trading and Settlement System: DLT market infrastructure that combines the services provided by the above two infrastructures (see Article 2, Regulation).
Under such premise, the Regulation imposes requirements on DLT multilateral trading facilities and settlement systems and their operators, involving:
l grant specific authorizations and exemptions for the operation of the DLT market infrastructure;
l Management and supervision of DLT market infrastructure;
l Cooperation between DLT market infrastructure operators, competent authorities and the European Securities and Markets Authority ESMA.
The pilot regime designed by the regulation will come into full effect on 23 March 2023, while ESMA will work on drafting the required guidelines.
Other EU legislative initiatives in the digital finance package
The regulation is just part of a broader legislative move that the EU announced in 2020 in its digital finance package affecting crypto-assets-related activities.
The European legislature is currently discussing two different regulatory proposals that could be approved by 2023:
- Market Regulation of Crypto Assets (sc MiCA) proposal to regulate crypto assets that do not qualify as financial instruments under EU law;
- Proposal for the Financial Sector Digital Operations Resilience Regulation (sc DORA), which would impose uniform requirements on the security of the networks and information systems of financial sector operating entities and key third parties providing ICT-related services.
European institutions have taken steps to create an innovative regulatory framework that takes into account technological developments such as DLT and crypto-assets to improve the EU’s competitiveness in the financial and technological sectors.
The EU’s implementation of the digital finance package is part of a broader attempt to revive its role in multiple areas by creating a digital single market that enables European businesses and citizens to take full advantage of technological innovation.
The European Commission’s communication on shaping Europe’s digital future and proposals on the EU’s AI regulatory framework further demonstrate the EU’s focus on creating a legal framework that keeps pace with technological innovation. This also applies to DLT and crypto assets.
In 2026, the European Commission will be asked to assess the effectiveness of the pilot system, which may be extended, modified or made permanent.
If this effort bears fruit, firms in the financial sector may be able to invest in DLT R&D and use these efforts for a clearer regulatory environment.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/eu-adopts-distributed-ledger-technology-based-market-infrastructure-pilot-system/
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