Without much time to think about the Markets in Crypto Assets (MiCA) proposal voted Monday (March 14) by the European Parliament’s (EP) Committee on Economic and Monetary Affairs, the EP will debate next week, in plenary, another important proposal on blockchain technology.
The parliament will discuss a regulation to develop a pilot regime for market infrastructures based on distributed ledger technology (DLT). “The DLT Pilot” aims at developing the trading and settlement of “tokenized” securities. According to the European Securities and Markets Authority (ESMA), the DLT Pilot will “enable market participants as well as EU regulators to gain experience on new opportunities and issues raised by DLT while ensuring financial stability, investor protection and market integrity.”
The DLT Pilot introduces three categories of DLT market infrastructures (DLT MI): DLT Multilateral Trading Facilities (DLT MTF), DLT Trading and Settlement Systems (DLT TSS) and DLT Settlement Systems (DLT SS). The permission to operate a DLT MI may come in addition to an authorization as a Central Securities Depositary or as an investment firm (or regulated market) or can be granted to new entrants that will have to meet the relevant Markets in Financial Instruments (MiFID II) requirements.
The reason to launch this DLT pilot and the new regulation is because, despite crypto assets being one of the major applications of blockchain technology in finance, the existing provisions in EU legislation may prevent the use of DLT. This initiative will facilitate the creation of an EU framework that will enable markets in crypto assets and the wider use of DLT in financial services.
The European Parliament and the Council reached an agreement in November 2021, and legislators are expected to sign off the proposal during the first half of 2022, but according to the agenda of the European Parliament for the next week, the regulation won’t be subject to a vote yet. The DLT Pilot would start applying nine months after the publication of the regulation, which means the program may not effectively start until 2023.
In parallel to this legislative proposal, ESMA is also working on the regulatory technical standards (RTS) concerning pre- and post-trade transparency and data reporting requirements for this pilot regime. ESMA launched a consultation on Jan. 4 seeking feedback from stakeholders. The consultation closed on March 4, but the EU authority hasn’t published the results yet. According to ESMA, if changes to the RTS for transparency and data requirements are needed, it will publish a proposal that will also be subject to public consultation before submitting the final draft to the European Commission.
Read more: EU Crypto Regulation Still Faces Long Legislative Road Despite Vote
On Monday, the EP’s Committee on Economic and Monetary Affairs adopted its negotiating position regarding MiCA. The committee also voted to start negotiation with EU governments. The vote on this last point was 33-25, showing that there were some disagreements and the parliament, in plenary session, could review this decision to start the interinstitutional negotiations, though it’s unlikely.
The discussions in the committee, and the media attention, focused mostly on the environmental impact of mining and whether some provisions on the law could effectively ban the use of certain cryptocurrency.
But there was another point that may be relevant for stablecoin issuers: The EP wants the ESMA to supervise the issuance of asset-referenced tokens (i.e. stablecoins), whereas the European Banking Authority (EBA) will be in charge of supervising electronic money tokens. This is important because in the draft proposal most of the supervision was jointly shared between ESMA and EBA, but this declaration seeks to allocate separate responsibilities between the two institutions.
Unlike in the U.S., in Europe, the debate about what type of asset is a money token, an investment token or a cryptocurrency, and which institution should be in charge of its supervision is not so advanced, and this declaration could shed light on this classification.
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