Key takeaways
- Last week, ESMA has published a report on the DLT pilot regime, a regime which has seen very little interest from market participants.
- In ESMA’s view, the continuation of the regime is important since, DLT and smart contracts can provide significant operational efficiencies, lower transaction costs over time, reduce dependency on fragmented legacy systems.
- Therefore, ESMA recommends amendments to make the regime more attractive to market participants, to make it more flexible, and to allow it to scale up. Key measures include making the regime permanent, making regulatory thresholds flexible, and extending the scope of eligible assets (including complex and illiquid assets).
Introduction
On 25 June, the European Securities and Markets Authority (ESMA) published a report on the functioning and review of the Distributed Ledger Technology (DLT) pilot regime under Regulation (EU) 2022/858 of 30 May 2022 on a pilot regime for market infrastructures based on distributed ledger technology (the Regulation).
Under Article 14 of the Regulation, ESMA is required to present a report to the European Commission (EC) by 24 March 2026 on a range of market aspects, such as the functioning of DLT market infrastructures throughout the European Union, the number and value of DLT financial instruments and transactions on those market infrastructures, the costs and benefits of the regime and a recommendation whether, and under which conditions, to continue the regime.
Within three months of receipt of that report, the EC must present a report to the European Parliament (EP) and to the Council. That report must contain a cost-benefit analysis on whether the pilot regime must be (1) extended (for a period of up to three years, or to other types of financial instruments), (2) amended, (3) made permanent through appropriate amendments of the relevant Union financial services legislation, or (4) terminated.
Limited market interest
ESMA is positive about the regime, despite the limited uptake of the DLT Pilot Regime, with only three authorised infrastructures and minimal live trading activity since it entered in force on 23 June 2022.
The limited market interest has been a structural problem of the regime. In April 2024, ESMA sent a letter to the EC stating that it decided to not to publish an annual interim report on the functioning regime as required under Article 15, since no market infrastructures had been authorised and only four official applications had been submitted until then. Supervisory authorities in France and Italy also published a position paper in April 2025 proposing a number of improvements to enhance the competitiveness of the pilot regime.
ESMA observes that the regime is now seeing growing interest from potential applicants, which would confirm the relevance of continued efforts to enhance the regime’s attractiveness and functionality.
The entry into force of...
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