On 24 September 2020, the Commission adopted a proposal for a regulation on a pilot regime for market infrastructure based on distributed ledger technology (DLT). The proposal ‘establishes operating conditions for DLT market infrastructures, permissions to make use of them and the supervision and cooperation of competent authorities and ESMA’. Furthermore, it sets out the limitations in terms of DLT transferable securities that can be admitted to trading on, or recorded by, DLT market infrastructures. This proposal is part of a package of measures – the Digital Finance package, which includes a new strategy on digital finance for the EU financial sector – with the aim of ensuring that EU financial services legislation is fit for 
the digital age, while mitigating associated potential risks. The package also includes a proposal on crypto-asset markets, a proposal for digital operational resilience, as well as a proposal to clarify or amend certain related EU financial services rules (see associated wagons).

On 2 March 2021, the European Economic and Social Committee published its opinion on the file.

On 23 April 2021, the European Data Protection Supervisor published its opinion on the Commission's proposal. 

On 28 April 2021, the European Central Bank published its opinion on the Commission's proposal.

On 15 October 2020, the Parliament's Committee for Economic and monetary affairs (ECON) appointed Johan Van Overtveldt (ECR/Belgium) as the rapporteur for this file. He presented his draft report on 11 March 2021. ECON Committee voted its report on 5 August 2021.

The Parliament amendments would limit the financial instruments admitted to trading on, or settled by, a DLT market infrastructure, mainly in terms of market capitalisation (shares), issuance size (bonds) or issuance volume (exchange-traded funds, ETFs). To allow for competition, new entrants should also be able to access the pilot regime. Furthermore, 
DLT market infrastructure operators should establish a clear and detailed business plan describing how they intend to offer their services and conduct their business. The European Securities and Markets Authority (ESMA) should have a direct supervisory mandate and should publish annual interim reports as well as an early stocktaking report no later than three years from the date the Regulation enters into force. 
By introducing a common EU pilot regime, DLT market infrastructures should be temporarily exempted from some specific requirements under EU financial services legislation that could otherwise prevent them from developing solutions for the trading and settlement of transactions in crypto-assets that qualify as financial instruments. Firms within the EU would be able to exploit the full potential of the existing framework, allowing supervisors and legislators to identify obstacles in the regulation, while regulators and firms themselves gain valuable knowledge about the application of DLT. This could facilitate a more reliable and safe secondary market for crypto-assets qualifying as financial instruments. 

The Council's Working Party on Financial Services started examining the proposal also in October 2020. It reached a negotiating mandate on 28 June 2021.

Inter-institutional negotiations (trilogue) started on 29 September 2021. A provisional agreement between the two institutions was reached on 24 November 2021. On 22 December 2021, Coreper sent to Parliament the letter confirming the final agreement. While the Parliament’s amendments set lower thresholds for financial instruments admitted to trading on,
or settlement by, a DLT market infrastructure, the limits set in the provisional political agreement reached between the Council and Parliament on 24 November 2021 are more munificent. For instance, the proposal stipulates higher thresholds forshares (market capitalisation of less than €500 million), bonds (issuance size of less than €1 billion) and total market value of DLT transferable securities recorded (shall not exceed €6 billion). 

Parliament voted on the final agreement on 24 March 2022.

On 30 May the final act was signed. It was published in the official journal on 2 June 2022.

References: 

• European Parliament Legislative Observatory (OEIL) - Pilot regime for market infrastructures based on distributed ledger technology, 2020/0267(COD)  
• European Commission Consultation Financial services – EU regulatory framework for crypto-assets
• European Commission Proposal for a Regulation on a pilot regime for market infrastructures based on distributed ledger technology, COM(2020) 594
• European Data Protection Supervisor, opinion on the Proposal for a Pilot Regime for Market Infrastructures based on Distributed Ledger Technology (DLT)
• European Central Bank, opinion on a proposal for a regulation of the European Parliament and of the Council on a pilot regime for market infrastructures based on distributed ledger technology 

Further reading:

• EPRS, Financial technology (FinTech): Prospects and challenges for the EU, Briefing, March 2017
• EPRS, Fintech (financial technology) and the European Union: State of play and outlook, Briefing, February 2019

Author:  Angelos Delivorias, Members' Research Service, legislative-train@europarl.europa.eu