French and Italian regulators have joined forces to propose amendments to the Distributed Ledger Technology (DLT) Pilot Regime. Their aim is to make some of its provisions more competitive and effective. The latest round of changes seek to improve the framework and to spur innovation while fostering European financial markets.

The DLT Pilot Regime as enacted in mid-2022, and entry into force in April 2023. Its goal is to learn how blockchain technology can be used across financial markets. It puts it in the running against efforts such as the UK’s Digital Securities Sandbox (DSS). To date, the DLT Pilot Regime has only approved two live projects. These are CSD Prague for settlement and 21X, which doubles as both an exchange and a settlement venue.

The DLT Pilot Regime has not granted a single license yet. Both the Autorité des Marchés Financiers (AMF) and the Commissione Nazionale per le Società e la Borsa (CONSOB) are still pending to issue them.

The first and one of the most important suggestions was to change the licensing requirements. The AMF previously suggested that a DLT Pilot Regime should not require a license as a Central Securities Depository (CSD) to qualify for a settlement license. This change is meant to make the application process easier and increase participation from a more diverse array of folks.

Perhaps the most important part of the entire proposal lays in the spotlight it shines on alternative settlement solutions. That's why regulators are calling for quick approval of a central bank money settlement solution. This call is in response to the European Central Bank’s recent announcement on the initiative.

The Chairs of AMF, Marie-Anne Barbat-Layani, and of CONSOB, Paolo Savona, introduce a bold proposal. They argue that the European Securities and Markets Authority (ESMA) needs to be endowed with the competence to amend the thresholds of the DLT Pilot Regime.

At a time when Europe wishes to develop its financial markets to meet its financing needs with the Savings and Investment Union, it is clearly a priority that Europe puts in place a competitive framework to encourage innovation, and market testing of distributed ledger technology, in order to better measure the potential benefits. - Marie-Anne Barbat-Layani, AMF Chair and Paolo Savona, CONSOB Chair

We agree to the regulators’ call for more proportionality according to the size of the project. This concept is similar to the UK’s Digital Securities Sandbox (DSS) relating to trading caps. This would create opportunities for a more flexible, risk-based approach to regulation, scaling the required regulatory review based on the size and complexity of the project.