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    ECB Issues Opinion on Proposal for Market Infrastructures Based on DLT

    April 29, 2021

    ECB published an opinion on the proposal for a regulation on the pilot regime for market infrastructures based on distributed ledger technology. ECB published its opinion in response to requests from the Council and the European Parliament, respectively, for an opinion on the proposed regulation. ECB welcomes the proposed regulation, which aims to enable investment firms, market operators, and central securities depositories (CSDs) to operate market infrastructures based on distributed ledger technology (DLT), either as a DLT multilateral trading facility or a DLT securities settlement system.

    In its opinion, ECB sets out the recommendations on the following financial stability and prudential supervisory aspects of the proposal:

    • Settlement of payments in central bank money. ECB considers that settlement in central bank money should be the default requirement for DLT market infrastructures, and therefore an exemption from this requirement should be possible only in cases where the relevant DLT market infrastructure operator proves that this settlement method is not available and practicable.
    • Risk management requirements applicable to banking-type ancillary services. ECB notes that the proposed regulation allows for the possibility that a central securities depository (CSD) that is licensed as a credit institution and operates a DLT securities settlement system, or which relies on a credit institution for the provision of banking-type ancillary services, is exempt from the requirements of Article 40 of the CSD Regulation. ECB proposes that the EU legislative bodies should specify in more detail the scope of the exemptions to Article 40 of the CSD Regulation and the conditions to be met for receiving such exemptions.
    • Exit strategy for operators of DLT market infrastructures and removal of DLT transferable securities from trading. The proposed regulation refers to an exit strategy that operators of DLT market infrastructures must have in place in the event that the permission or some of the exemptions granted have to be withdrawn or otherwise discontinued, or in the event of any voluntary or involuntary cessation of the business. ECB proposes that the EU legislative bodies should provide greater detail on the specific content of the exit strategy and the timeline for its implementation. In addition, the proposed regulation should be supplemented with specific procedures that would be applicable in the case of removal of DLT transferable securities from trading on a DLT multilateral trading facility, as well as in the case of a breach of the EUR 200 million market capitalization limit for the admission to trading on a DLT multilateral trading facility. ECB also suggests that there should be specific arrangements in place for the conversion of such DLT transferable securities into "non-DLT" transferable securities registered in a CSD. 
    • Interplay with the proposed Markets in Crypto-assets regulation. There is a potential mismatch between the proposed regulation and the scope of application of the proposed Markets in Crypto-assets regulation. ECB believes that further consideration should be given to the interaction between the proposed regulation, the proposed Markets in Crypto-assets regulation, and the EU financial services and banking legislation.
    • Prudential supervisory aspects. ECB notes that the approach with regard to the authorization process fosters equal treatment for credit institutions and non-credit institution operators alike and represents a step forward toward risk-based supervision, taking account of the activities performed by a given entity. However, ECB suggests that the proposed regulation should include an obligation on the national competent authority to notify the prudential supervisor, including ECB for significant credit institutions, about whether or not permissions and exceptions are granted as well as where corrective measures are imposed. The proposed regulation should also include the applicable prudential supervisor among the recipients of the regular reporting by the operators of a DLT market infrastructure.


    Related Link: Opinion (PDF)


    Keywords: Europe, EU, Banking, Securities, Distributed Ledger Technology, Opinion, CSD, Crypto Assets, European Parliament, European Council, ECB

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