DLT Pilot Regime: After one year (out of three) four applications have been submitted, none has been authorised yet.
The European Securities and Markets Authority (ESMA) reports a lower-than-expected adoption rate for the DLT Pilot Regime, a program exploring blockchain technology in financial markets.
While applications have been submitted, none have been successful so far. Therefore, ESMA is skipping its planned annual interim reports expected for end of March 2024.
While four applications have been submitted, none have been authorized yet: One DLT TSS and one DLT MTF in Germany, one DLT SS in the Czech Republic, and one DLT TSS in the Netherlands
Around eight other potential applications from France, Germany, Lithuania, Poland and Spain may be submitted during the course of this year.
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The following key Challenges – beside the already well known scope and threshold limitations on one hand and the uncertainty of the regime duration on the other hand – were highlighted:
While the mismatch in timing with MiCAR and the CBDC initiative of the EBC now becomes obvious, the time for the DLT Pilot Regime is ticking down. The DLT Pilot is set to run for a period of at least 3 years, with the possibility to be extended by the European Commission.
One key finding however so far is, that there is still a lot of regulatory uncertainty and therefore very lengthy approval processes. This handicaps all FinTechs and Start-Ups with limited funding, while favouring established market infrastructure with deep pockets.
There is a risk that the expected innovation and potential new competition will not materialize, while established player get an opportunity to reduce their operational complexity and technology costs with no material change to the competitive landscape in favour of issuers and investors.
Many thanks to our team of experts: BLOCKSIZE , Michael Wellenbeck Christian Labetzsch , Christoph Impekoven , Michael Wutzke , Markus Honvehlmann , Dr. Axel U. J. Lode, Johann Focke
Its worth taking a look at the four key challenges highlighted in this article: Cash Settlement, Custody Uncertainties, Interoperability Issues and Investor Protection. Just commenting on a couple of these: - Cash Settlement: the cash leg of a security settlement really needs to made in central-bank money. Fnality and others are building wholesale CBDC solutions, but it will take time to integrate these with securities settlement leg to provide settlement finality through DvP. - Interoperability: the ISSA Working Group on ISO 20022 has suggested a more standardised approach to APIs utilising ISO 20022, something that would go a long way to facilitating the interaction between DLT and traditional market infrastructures.