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Jonathan McCarthy, Distributed ledger technology and financial market infrastructures: an EU pilot regulatory regime, Capital Markets Law Journal, Volume 17, Issue 3, July 2022, Pages 288–306, https://doi.org/10.1093/cmlj/kmac009
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1. Introduction
The release of the European Commission’s Digital Finance Strategy in September 20201 was a notable progression from previous initiatives for the regulation of FinTech within the European Union. Rather than persisting solely with a monitoring stance towards technological innovations in finance, the package published by the Commission evinces a more proactive approach through legislative intervention. As an indication of the scale of the Strategy, the package consists of three Regulation proposals. The proposed Regulation on a pilot regime for financial market infrastructures (FMIs), based on distributed ledger technology (DLT),2 is of particular significance for its implications for securities trading and post-trading. At the time of publication, the final text of the Regulation has been adopted by the European Parliament at first reading.
Aside from its importance as a measure that will imminently affect European capital markets, the legislation warrants analysis as an especially suitable case example of a certain type of technology. Much is expected of DLT in its capacity to enhance market efficiencies, but it is a technology which remains laden with legal ambiguities. As relatively brief as the legislation is, the framework envisaged through the proposal serves as a lesson in the complexities involved when determining the extent of a pilot regime and the allocation of supervisory responsibilities. It raises questions as to the very purposes of the pilot regime in stimulating innovation, while ensuring sufficiently robust regulation. There is certainly more than meets the eye to the little sibling of the other Regulations within the Strategy.
