Updated Legislative Proposals for the Revision of the Digital Ledger Technology (DLT) Test Regime in France and Italy
The European Union's DLT (Distributed Ledger Technology) Pilot Regime is set for significant changes, as French and Italian regulators, along with ESMA, aim to address key weaknesses and enhance its competitiveness.
- Increasing the volume cap: The current limit of €6 billion for transaction volume is considered too low for meaningful returns on investment. Proposals suggest a pathway for full uncapped adoption after the pilot phase, balancing risk management with scalability.
- Settlement in MiCA-licensed stablecoins: The restriction to e-money tokens issued by credit institutions for cash settlement is hindering adoption. The regulators are pushing for the use of regulated stablecoins under the Markets in Crypto-Assets Regulation (MiCA), aiming to improve efficiency and support European stablecoins against US competition.
- Clarifying the pilot regime’s duration and communication: Uncertainty about the pilot's duration has caused apprehension among potential participants. Improved clarity is expected to increase confidence and attract more participants.
Addressing concerns from larger entities, the pilot regime currently imposes a size cap to limit risk exposure. However, the regulators plan to balance risk management with scalability by maintaining the cap during the initial experimental phase but proposing ways to transition to an uncapped regime to accommodate bigger players.
The proposed changes aim to make the EU’s DLT Pilot Regime more competitive internationally and to avoid the region becoming a "regulatory fly-over zone" for digital assets. The regime competes with the UK's Digital Securities Sandbox (DSS), and the regulators aim to promote the benefits of DLT to both issuers and investors.
The regulators also express a desire for rapid support for a central bank money settlement solution, which the European Central Bank has announced. They wish to develop common EU standards for interoperability with legacy systems and propose 'greater proportionality' based on the scale of the project in the DLT Pilot Regime.
Previously, AMF suggested that an institution should not need a license as a CSD to qualify for a DLT Pilot Regime settlement license. The use of electronic money tokens (EMTs) and tokenized deposits could be authorized more widely under the revised regime.
The DLT Pilot Regime, enacted in mid-2022, became effective in April 2023. So far, only two projects have been approved under the regime: CSD Prague for settlement and 21X as a combined exchange and settlement venue. However, no new licenses have been granted by AMF or CONSOB.
The proposed changes are intended to make the EU’s DLT Pilot Regime more attractive and competitive, ensuring its place as a significant player in the global digital assets landscape.
- The revised DLT Pilot Regime intends to support retail participation in digital assets by reducing barriers to entry and improving access, aiming to foster a more vibrant and inclusive market.
- The push for greater tokenization of assets is seen as essential for the growth of digital finance, with regulators seeking to establish a legal framework that encourages the use of blockchain technology in business transactions.
- In line with the digital strategy of the EU, the DLT Pilot Regime aims to facilitate a shift towards a more tech-driven finance sector, modernizing traditional financial services and encouraging innovation in the financial technology space.
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