Publication of the pilot scheme for European regulation

The European Regulation on a pilot scheme for market infrastructures based on distributed ledger technology was published in the Official Journal of the European Union on 2 June 2022. The text will enter into force on 23 March 2023.

Develop a secondary market for security tokens

This pilot scheme, which has an initial period of three years, which can be extended to six years, raises certain requirements of the existing regulatory framework, temporarily, in order to allow market infrastructure operators and new entrants to use blockchain technology. To operate a Multilateral Trading System (SMN) and/or Settlement Delivery System (SRL) system on tokenized financial instruments (or “security tokens”).

As a result of a proposal by the European Commission as part of a series of measures related to digital finance in Europe, the pilot scheme differs from other measures in that it proposes targeted regulatory exemptions to the MiFID 2 Directive and Purpose, as well as Central Securities Depository Regulation (CSDR) in order to test blockchain technology in the context of activities market or post trade. This system will allow players as well as national and European regulators to gain significant experience in the use of blockchain technology in the context of market activities.

The creation of this system is innovative because, for the first time, a European text of direct application authorizes some market players to move from certain requirements of regular law regulations, under certain conditions.

DLT Market Infrastructures

The regulation defines a new class of players: market infrastructures using distributed ledger technology (DLT). This category refers to three distinct players who are licensed by the national authorities of a member state of the European Union to register under this system:

– Multilateral DLT Trading System or “MTF DLT”, a multilateral trading system for tokenized securities that allows only trading of DLT financial instruments;
– DLT settlement system or “SR DLT”, a coded securities settlement system that settles transactions on DLT financial instruments;
– And a new player, not previously provided for by financial regulations, offering the services of MTF DLT and SR DLT, the DLT trading and settlement system or “SNR DLT”, which will allow a single entity to combine trading and settlement – the delivery of tokenized securities.

The regulation defines the scope of this trial area with some financial instruments whose market value will be determined.

next steps

Before the regulation goes into effect, several steps still need to be completed. The European Securities and Markets Authority (ESMA) should amend the regulatory technical standards of the MIFIR and CSDR regulations to adapt them to the pilot regime and publish different guidance.

EU member states must designate the competent national authority responsible for granting the regulatory approvals and exemptions that may be granted under the pilot scheme. In France, this competence can be shared between the Arab Monetary Fund, the Authority for Prudential Supervision and Resolution (ACPR) and the Bank of France. In order to simplify the certification process for players, the “single window” principle is envisaged, which allows the player not to interact with many authorities.

Finally, amendments to national regulations are expected in terms of securities law, which remain national competencies not harmonized with European law. In France, based on a report by the High Commission for Finance in Paris (HCJP) published on November 27, 2020, the draft regulation for a pilot scheme has led to a relaunch of the work of the High Council of Justice and Justice on this topic. Legislative and regulatory changes to the DLT Securities Act are planned in the coming months to enable deployment of this system. Draft legislative and regulatory texts should be submitted to a wide consultation of financial actors in the Paris market.

Discuss with AMF

Fully committed to the development of a European digital financing strategy, the Arab Monetary Fund, which regularly discusses with players with innovative projects, invites potential candidates to read the text and contact the regulator to anticipate entry into the implementation of regulations using the form made available to you at the following link: Contact Innovation & Finance Digitale

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