Europe: Pilot on Tokenization and Digital Securities Regulation Released by EU Parliament

The European Parliament has posted regulations pertaining to tokenization and digital securities leveraging blockchain or distributed ledger technology. The DLT pilot plan aims to enable innovators to advance their platforms while providing a safe environment for users.

To quote the document:

It is important to ensure that Union financial services legislation is fit for the digital age and contributes to a future-proof economy that works for citizens, including by enabling the use of innovative technologies. The Union has a policy interest in exploring, developing, and promoting the uptake of transformative technologies in the financial sector, including the uptake of distributed ledger technology (DLT). Crypto-assets are one of the main applications of distributed ledger technology in the financial sector.

While noting that certain crypto-assets do not fall under current regulations certain of these assets do align with existing securities rules. While digital securities may be the future of all securities, the regulation states that “regulatory gaps exist” and there is a lack of authorized providers for these digital securities. The document states that digital securities could bring benefits such as improved efficiency as well as added transparency.

Under the pilot regime, providers may receive temporary exemptions to provide services while cooperating with governmental agencies.

Three years after the pilot commences the European Securities and Markets Authority (ESMA) is expected to produce a report on the experiment while recommending if the pilot should be continued further.

“If the pilot regime is successful, it could be made permanent by amending relevant Union financial services legislation to establish a single coherent framework.”

The European Union is also working on regulation for non-securities crypto called Markets in Crypto-assets or MiCa.

The pilot is expected to commence in March 2023.

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