Expanding The Scope And Scale Of The EU's DLT Market Infrastructure

A new article in ERA Forum, co-authored by Christopher P. Buttigieg, Chief Officer responsible for Supervision at the Malta Financial Services Authority, and Andrea Gentilini, Head of the Financial Market Infrastructures division at Luxembourg's Commission de Surveillance du Secteur Financier (CSSF), examines the European Union's regulatory approach to Distributed Ledger Technology (DLT) in financial markets. The piece covers the EU's original DLT Pilot Regime, introduced in 2022, to the European Commission's proposed Market Integration and Supervision Package (MISP).

The co-authors set out where the initial pilot fell short, pointing to a "ceiling on success" created by restrictive market value thresholds - €500 million for equities and €1 billion for bonds - and the absence of a DLT cash leg, which left settlement dependent on off-chain commercial bank money. It weighs successful DLT implementations, including Singapore's Project Guardian and Franklin Templeton's Benji platform, against the collapse of the Australian Securities Exchange's CHESS replacement project, to show what tends to make or break these systems in practice.

The authors then go on to look at how the MISP would raise standard aggregate market value thresholds to €100 billion, remove the current product-specific caps, and unbundle traditional central securities depository functions through new DLT Notary and Account Keeper roles, opening these functions to a broader range of entities including CASPs and investment firms. A new Simplified Regime is also proposed for smaller infrastructures operating under a €10 billion cap.

Buttigieg and Gentilini, argue that supervision should remain anchored at the national level, coordinated by ESMA through common standards, rather than shifting to centralised oversight before the technology has reached institutional maturity - while stressing that Europe maintains control over the underlying infrastructure, as it is key to the framework's long-term success.

The full article is available here.