ESMA Eyes Permanent Status and Threshold Revisions for DLT Pilot Regime

The European Securities and Markets Authority (ESMA) is already very much considering making its Digital Ledger Technology (DLT) Pilot Regime a permanent mainstay. They aim to renegotiate the strict thresholds that have prevented its timely adoption. The regulator is closely examining the UK’s Digital Securities Sandbox. This creative and original approach provides for larger institutions to function at higher limits and raises thresholds according to their track record. These suggestions are timely, as ESMA is admitting to an increasing interest in the DLT Pilot Regime, though starting out slowly.

Since the Sandbox opened, only three institutions—CSD Prague, 21X and 360X—have been granted authorization to operate within the Digital Securities Sandbox. Today, only the first two are running, and only very sporadically. The regulator further suggests removing the existing six-year cap on DLT venues. This level of requirement is forcing these portals to actually close their doors in the long run.

Beyond this, ESMA is placing an emphasis on re-examining restrictive thresholds. The current €6 billion platform issuance cap and the €500 million market capitalization limit for equity issuers are viewed as potential barriers to wider participation. The regulator is already looking at the UK’s Digital Securities Sandbox iteration, which uses a more flexible approach.

"despite an initially limited uptake, (it) is now seeing growing interest from potential applicants" - ESMA

As you may have heard, there are a number of firms that will be using the Digital Securities Sandbox. Axiology in Lithuania, Securitize in Spain and LISE/Kriptown in France are creating trading and settlement systems that will operate on the public framework. As of this writing, there are nine applications in the pipeline for the Digital Securities Sandbox.

In April, French and Italian regulators recommended strengthening the DLT pilot regime. This step marks a continuing commitment to further clarify and strengthen the framework. The UK’s Digital Securities Sandbox is unique in that it raises the limits for big players. Further, it raises thresholds commensurately with their years of experience. We argue that this approach provides a more scalable and adaptable alternative model for the EU to pursue.