European Papers (Sep 2022)
Decentralized Finance and EU Law: The Regulation on a Pilot Regime for Market Infrastructures Based on Distributed Ledger Technology
Abstract
(Series Information) European Papers - A Journal on Law and Integration, 2022 7(2), 601-613 | European Forum Insight of 24 September 2022 | (Table of Contents) I. The digital finance package of the European Commission. - II. The Regulation on DLT Market infrastructures: a rule-based pilot regime. - II.1. Types of DLT market infrastructures. - II.2. Financial instruments admitted under the pilot. - II.3. Amendments to the EU legal framework on financial services. - III. Obligations for DLT market infrastructures. - III.1. Obligations for DLT multilateral trading facilities. - III.2. Obligations for DLT SSs. - III.3. Obligations for DLT TSSs. - III.4. Horizontal additional requirements for DLT market infrastructures. - IV. The role of ESMA and national competent authorities. - V. Conclusions. | (Abstract) The decentralized issuance of financial instruments is presently problematic under EU law. This situation will change with the entry into force of the Regulation on a pilot regime for market infrastructures based on distributed ledger technology. The Regulation provides for a regulatory sandbox - the pilot regime - that market operators can use to test distributed ledger technologies in the financial market industry in a way compatible with EU law. While this will improve legal certainty and increase protection for consumers, it will also introduce a completely new paradigm in financial market legislation: the decentralization of financial instruments. Moreover, the Regulation imposes considerable obligations on market operators, while also granting to the European Securities and Markets Authority and national competent authorities a relevant but difficult role in overseeing and monitoring the pilot regime's development. This Insight aims to provide an overview of the novel features introduced by the Regulation and reflect on whether the legislation will favour or frustrate innovation at EU level.
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