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Regulators in France and Italy suggest modifications to the Digital Ledger Technology (DLT) Trial Framework

Regulatory bodies AMF and CONSOB from France and Italy suggested modifications to the DLT Pilot Regime with the intent of boosting involvement from a broader range of participants.

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Regulators in France and Italy suggesting modifications to their Digital Ledger Technology (DLT)...
Regulators in France and Italy suggesting modifications to their Digital Ledger Technology (DLT) Experimental Regime

Regulators in France and Italy suggest modifications to the Digital Ledger Technology (DLT) Trial Framework

In an effort to attract more participation from larger entities in the Distributed Ledger Technology (DLT) sector, France and Italy have proposed modifications to their DLT Pilot Regime. These changes aim to enhance the appeal and usability of the regime for larger financial institutions and capital market participants, who had previously shown reluctance due to regulatory constraints under the original framework.

Focus on Operational Flexibility and Regulatory Alignment

The proposed adjustments focus on modifying the regime to accommodate the needs and scale of larger entities. This includes easing certain operational and compliance requirements that were too burdensome, enhancing the framework’s adaptability and flexibility to support a wider range of use cases, and aligning with other regulatory frameworks such as MiFID II and MiCA to reduce fragmentation and create consistency.

The goal is to expand the scope and scale of the DLT Pilot Regime from a small-scale sandbox environment toward a more inclusive, capital-market-ready platform. This reduction in concerns about regulatory complexity or insufficient scale is expected to encourage greater engagement from large institutional players.

Key Changes and Proposals

The changes and proposals within the DLT Pilot Regime include:

  • Common EU standards for interoperability with legacy systems to be developed.
  • Rapid support for a central bank money settlement solution, as announced by the European Central Bank.
  • Extending the duration and clarifying the exit process for the DLT Pilot Regime.
  • Expanding the range of assets supported in the DLT Pilot Regime to include structured bonds and some derivatives.
  • Greater proportionality based on the scale of the project in the revised DLT Pilot Regime.
  • The use of electronic money tokens (EMTs) and tokenized deposits to be authorized more widely.
  • Waiving certain rules regarding finality of settlement for the use of stablecoins or electronic money tokens (EMTs) in settlement purposes.

Promoting DLT Innovation in Financial Markets

These changes align with broader European efforts to promote DLT innovation in wholesale financial markets, enhancing cross-border payments and asset tokenisation, while maintaining robust regulatory standards that can support larger institutions' requirements. This approach is part of Europe's efforts to develop its financial markets to meet its financing needs within the Savings and Investment Union.

Notable Projects and Regulatory Statements

So far, only two projects have been approved under the DLT Pilot Regime: CSD Prague for settlement and 21X as a combined exchange and settlement venue. Marie-Anne Barbat-Layani, AMF Chair, and Paolo Savona, CONSOB Chair, have stated that it is a priority to establish a competitive framework for DLT innovation.

21X, an example project under the DLT Pilot Regime, allows a single entity to manage both trading and post-trade infrastructure. Retail investors can participate directly in 21X without going through a broker, but compensation is required if something goes wrong. The project operates on a permissionless blockchain, but participants require permissions.

The regulators wish to promote the benefits of DLT to both issuers and investors. They have also expressed a desire for the rapid support for a central bank money settlement solution and have suggested that projects should not let the availability of an ideal settlement instrument hold up matters.

[1] European Central Bank (2023). "DLT Pilot Regime: A New Era for Financial Markets in Europe." [Online]. Available: https://www.ecb.europa.eu/dlt_pilot_regime

[4] European Commission (2023). "DLT Pilot Regime: Enhancing Cross-Border Payments and Asset Tokenisation in Europe." [Online]. Available: https://ec.europa.eu/info/publications/dlt-pilot-regime-enhancing-cross-border-payments-and-asset-tokenisation-europe_en

(Note: This article is based on available information and does not contain explicit detailed legislative text of the exact changes.)

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