Distributed ledger technology and financial market infrastructures: an EU pilot regulatory regime

Abstract

The article analyses the European Commission's proposed pilot regime for DLT (distributed ledger technology) market infrastructures. The legislation is important in terms of its implications for the regulation of technologies in securities trading and post-trading. DLT is a particularly appropriate case example as it is a technology which possesses the potential to significantly enhance market efficiencies. The article appraises the broader impact of a pilot regime for the future course of regulatory initiatives in relation to FinTech, especially as EU regulation is increasingly orienting towards a sandbox model. The article acknowledges the doubts as to whether the DLT pilot regime envisioned in the proposed Regulation could completely fulfil the kinds of objectives usually attributed to sandboxes. The article describes the nature of the regime by reference to specific provisions of the Regulation proposal. The eligibility conditions for admission and the scope of the regime are explained. The procedures for granting specific permissions and exemptions also reveal how the powers of national competent authorities in EU Member States are envisaged to overlap with ESMA's coordinating role. The article discusses the transformative effects that DLT could have for securities trading and settlement. However, there are perennial legal dilemmas associated with DLT. The article emphasizes how these risks must be recognized as motives for a specialized EU-wide regulatory regime for DLT market infrastructures.