DLT Pilot Regime: Regulatory sandbox in the EU capital market
The DLT Pilot Regime represents an important step in the financial industry and is – along with DORA (Digital Operational Resilience Act) and MiCA (Regulation on Markets in Crypto Assets) – the outcome of the European Union’s efforts to promote the digitalization of the financial market as a part of the Digital Finance Package.
On June 02, 2022, Regulation 2022/858 was published with the purpose of piloting DLT financial market infrastructures. The aim of this is to encourage innovation and the adoption of new financial technologies by lowering regulatory barriers, while taking into account risks to consumers and institutions and market stability.
Since March 23, 2023, the DLT Pilot Regime is valid for three years, including an extension option for additional three years.
What is Distributed Ledger Technology (DLT)?
Distributed ledger technology is a decentralized database that provides each user with the same information by containing a chronological sequence of data blocks. The data blocks are chained together and contain records of digital transactions. The best-known application form of distributed ledger technology is the blockchain.
DLT market infrastructures as a regulatory sandbox
DLT market infrastructures play a crucial role in the DLT Pilot Regime. The trading and settlement of DLT-based securities is now to be regulated uniformly in the EU by the DLT Pilot Regime.
The DLT market infrastructures represent a “regulatory sandbox”, which enables a trial of trading in tokenized financial instruments based on distributed ledger technology for a specific customer base and time period on the secondary market. For this purpose, all regulations for banking and financial services do not necessarily have to be fulfilled, which is why it thus also offers young companies the opportunity to participate in the market in addition to established market participants. The aim is to promote innovation and inventiveness by reducing barriers to market entry. At the same time, it offers regulators the opportunity to address the associated challenges of new technologies.
Register for free and get the full DLT Pilot Regime whitepaper as a download.
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