- ESMA suggests major changes to the EU’s DLT Pilot Regime to support digital securities.
- Regulators want to make the program permanent and lift limits to attract more platforms.
- Just three institutions have been authorized since the program’s launch, with more applications pending.
- Lack of compatibility with existing systems and strict rules are slowing adoption.
- Possible new rules include higher limits, more asset types, and stricter safeguards for riskier payment options.
The European Securities and Markets Authority (ESMA) has recommended changes to the European Union’s DLT Pilot Regime, aiming to make it more welcoming for digital securities platforms and to address industry concerns. The regulator’s proposals follow similar calls for reform from French and Italian authorities earlier this year.
The current pilot lets approved platforms bypass some traditional financial rules when handling digital assets. ESMA may remove the six-year time limit that requires these platforms to shut down after operating, and could increase or remove limits on the amount of assets traded and issued. Presently, there is a cap of $6.5 billion for platform issuance and $540 million for the market value of equity issuers. These changes would let larger and more flexible projects take part, according to ESMA.
Since the pilot started, only three organizations have received authorization: CSD Prague for settlement, 21X for both trading and settlement, and 360X for trading. Of these, only the first two are operational, both with limited activity. ESMA noted growing interest, pointing to ten new applications being processed, including projects from Axiology in Lithuania, Securitize in Spain, and LISE/Kriptown in France. ESMA highlighted that lack of interoperability, or the ability to work with existing financial infrastructure, remains a top challenge.
In its short-term proposals, ESMA said it wants to make the regime more attractive and viable. The authority suggested giving national regulators more flexibility to adjust limits for specific participants, based on their risk profiles and experience levels. It cited the UK’s approach as an example of a more flexible framework. Expanding the scope of allowed assets—beyond regular stocks, bonds, and funds—to include private equity and alternative investment funds is also under consideration, provided investor safeguards remain.
For payment and settlement, ESMA prefers the continued use of central bank money but recognizes that some platforms may use stablecoins or electronic money tokens. It recommends stricter rules for these other payment methods due to extra risk. Looking to the future, ESMA suggests successful platforms that manage risks well should be allowed to operate with higher or even no thresholds, instead of being required to close after a set period.
The proposals follow feedback from industry and lessons from the recent European Central Bank DLT experiments. ESMA’s vision is to update the broader regulatory system so digital ledger technology can be more widely used in Europe’s financial sector.
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