Explanatory Memorandum to COM(2020)594 - Pilot regime for market infrastructures based on distributed ledger technology - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2020)594 - Pilot regime for market infrastructures based on distributed ledger technology. |
|---|---|
| source | COM(2020)594  |
| date | 24-09-2020 |
1. CONTEXTOFTHE PROPOSAL
• Reasons for and objectives of the proposal
This proposal is part of a package of measures to further enable and support the potential of digital finance in terms of innovation and competition while mitigating the risks. It is in line with the Commission priorities to make Europe fit for the digital age and to build a future-ready economy that works for the people. The digital finance package includes a new Strategy on digital finance for the EU financial sector1 with the aim to ensure that the EU embraces the digital revolution and drives it with innovative European firms in the lead, making the benefits of digital finance available to European consumers and businesses. In addition to this proposal, the package also includes a proposal for a regulation to build markets in crypto-assets2, a proposal for digital operational resilience3, and a proposal to clarify or amend certain related EU financial services rules4.
One of the strategy’s identified priority areas is ensuring that the EU financial services regulatory framework is innovation-friendly and does not pose obstacles to the application of new technologies. This proposal, together with the proposal for a bespoke regime for crypto-assets, represents the first concrete actions within this area, seeking to provide appropriate levels of consumer and investor protection, legal certainty for crypto-assets, enable innovative firms to make use of blockchain, distributed ledger technology (‘DLT’) and crypto-assets and ensure financial stability.
Crypto-assets are one of the major applications of blockchain technology in finance. Since the publication of the Commission’s FinTech Action plan5, in March 2018, the Commission has been examining the opportunities and challenges raised by crypto-assets. In the 2018 FinTech Action plan, the Commission mandated the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) to assess the applicability and suitability of the existing financial services regulatory framework to crypto-assets. The advice6, issued in January 2019, argued that while some crypto-assets could fall within the scope of EU legislation, effectively applying it to these assets is not always straightforward. Moreover, the advice noted that provisions in existing EU legislation may inhibit the use of DLT. At the same time, the EBA and ESMA underlined that – beyond EU legislation aimed at combating money laundering and terrorism financing – most crypto-assets fall outside the scope of EU
Communication from the Commission to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions on a Digital Finance Strategy for the EU COM(2020)591
Proposal for a Regulation of the European Parliament and of the Council on markets in crypto-assets, and amending Directive (EU) 2019/1937 – COM(2020)593
Proposal for a Regulation of the European Parliament and of the Council on digital operational resilience for the financial sector and amending Regulations (EC) No 1060/2009, (EU) No 648/2012, (EU) No 600/2014 and (EU) No 909/2014 - COM(2020)595
Proposal for a Directive of the European Parliament and of The Council amending Directives 2006/43/EC, 2009/65/EC, 2009/138/EU, 2011/61/EU, EU/2013/36, 2014/65/EU, (EU) 2015/2366 and EU/2016/2341 - COM(2020)596
Communication from the Commission to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions on a , FinTech Action plan, COM/2018/109 final, 08.03.2018
ESMA, Advice on ‘Initial Coin Offerings and Crypto-Assets’, 2019; EBA report with advice on crypto-assets, 2019.
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financial services legislation and therefore are not subject to provisions on consumer and investor protection and market integrity, among others, although they give rise to these risks. In addition, a number of Member States have recently legislated on issues related to crypto-assets leading to market fragmentation.
Given these developments and as part of the Commission’s broader digital agenda, President Ursula von der Leyen stressed the need for “a common approach with Member States on cryptocurrencies to ensure we understand how to make the most of the opportunities they create and address the new risks they may pose”7. While acknowledging the risks they may present, the Commission and the Council also jointly declared in December 2019 that they “are committed to put in place a framework that will harness the potential opportunities that crypto-assets may offer”8. More recently, the European Parliament is working on a report on digital finance, which has a particular focus on crypto assets.9
To respond to all of these issues and create an EU framework that both enables markets in crypto-assets as well as the tokenisation of traditional financial assets and wider use of DLT in financial services, this proposal will be accompanied by other legislative proposals. The Commission is proposing a clarification that the existing definition of ‘financial instruments’ – which defines the scope of the Markets in Financial Instruments Directive (MiFID II)10 -includes financial instruments based on DLT,11 and a bespoke regime for crypto-assets not covered by existing financial services legislation as well as e-money tokens12.
This proposal, which covers a pilot regime for DLT market infrastructures in the form of a Regulation, has four general and related objectives. The first objective is one of legal certainty. For secondary markets for crypto-assets that qualify as financial instruments to develop within the EU, we need to know exactly where the framework is no longer fit for purpose. The second objective is to support innovation. Removing obstacles to the application of new technologies in the financial sector underpins the Commission’s digital finance strategy. To promote the uptake of technology and responsible innovation, a pilot regime is necessary, to ensure that more wide-ranging changes to existing financial services legislation are evidence based. The third objective is to instil consumer and investor protection and market integrity, the fourth is to ensure financial stability. The pilot regime will put in place appropriate safeguards, for example limiting the types of financial instruments that can be traded. Moreover, provisions specifically aimed at ensuring financial stability and consumer and investor protection will not be within scope of the provisions that a DLT market infrastructure could be exempted from.
• Consistency with existing policy provisions in the policy area
This proposal is part of a broader framework on crypto-assets and distributed ledger technology (DLT), as it is accompanied by proposals seeking to ensure that existing legislations do not present obstacles to the uptake of new technologies while reaching their
Mission letter of President-elect Von der Leyen to Vice-President Dombrovskis, 10 September 2019. Joint Statement of the European Commission and Council on ‘stablecoins’, 5 December 2019. www.europarl.europa.eu/doceo/document">https://www.europarl.europa.eu/doceo/document.
financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU
Proposal for a Directive of the European Parliament and of the Council amending Directives
EU/2016/2341 - COM(2020)596
Proposal for a Regulation of the European Parliament and of the Council on markets in crypto assets
and amending Directive (EU) 2019/1937 - COM(2020)593
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objectives as well as a bespoke regime for crypto-assets not covered by existing financial services legislation and e-money tokens.
As part of the FinTech Action plan adopted in March 201813, the Commission mandated the ESAs to produce advice on the applicability and suitability of the existing EU financial services regulatory framework on crypto-assets. This proposal takes into account the advice received from EBA and ESMA.14 It is also aligned with the overarching ambition of the digital finance strategy of ensuring that the EU framework is innovation-friendly.
• Consistency with other Union policies
As stated by President von der Leyen in her Political Guidelines,15 and set out in the Communication ‘Shaping Europe’s digital future’,16 it is crucial for Europe to reap all the benefits of the digital age and to strengthen its industry and innovation capacity, within safe and ethical boundaries.
The proposal is also consistent with the Union policies aimed at creating a Capital Markets Union (CMU). It notably responds to the High-level Forum’s final report, which stressed the underused potential of crypto-assets and called on the Commission to increase legal certainty and establish clear rules for the use of crypto-assets.17
Finally, the proposal is fully in line with the recommendation in the Security Union Strategy for the development of a legislative framework in crypto-assets given the growing effect of these new technologies on how financial assets are issued, exchanged, shared and accessed.18
2. LEGALBASIS, SUBSIDIARITYAND PROPORTIONALITY
• Legal basis
The proposal is based on Article 114 TFEU, which confers to the European institutions the competence to lay down appropriate provisions for the approximation of laws of the Member States that have as their objective the establishment and functioning of the internal market. The proposal aims to allow for experimentation through derogations for the use of DLT in the trading and post-trading of crypto-assets that qualify as financial instruments, where existing legislation precludes or limits their use.
Today, there is limited use of DLT in financial services, specifically by market infrastructures (trading venues or central securities depositories). Regulatory obstacles and legal certainty are most often cited as the main reasons for the limited uptake of this potentially transformational technology in market infrastructures. The EU follows the principle of technological neutrality, but rules are still created based on market realities, and the existing financial services legislation was not designed with DLT and crypto-assets in mind. This means that there are
European Commission, FinTech Action plan, COM/2018/109 final
ESMA, Advice on ‘Initial Coin Offerings and Crypto-Assets’, 2019; EBA report with advice on crypto-assets, 2019.
President Ursula von der Leyen, Political Guidelines for the next European Commission, 2019-2024.
Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Region, Shaping Europe’s Digital Future, COM(2020) 67 final.
Recommendation 7 of the High-Level forum on the Capital Markets Union’s final report. (https://ec.europa.eu/info/sites/info/files/business_economy_euro/growth_and_investment/documents/200610-cmu-high-level-forum-final-report_en.pdf).
Communication from the Commission to the European Parliament, the European Council, the Council, the European Economic and Social Committee and the Committee of the Regions on the EU Security Union Strategy -COM(2020)605 final, 24.07.2020
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provisions in it, which sometimes restricts and even prevents the use of DLT. The absence of a DLT-based secondary market, limits the efficiency gains and the sustainable development of a primary market for financial instruments in crypto-asset form.
Through the introduction of a common EU pilot regime for the experimentation of DLT market infrastructures, firms within the EU would be able to exploit the full potential of the existing framework, allowing supervisors and legislators to identify obstacles in the regulation, while regulators and firms themselves gain valuable knowledge about the application of DLT. This could facilitate a more reliable and safe secondary market for crypto-assets qualifying as financial instruments. This would also allow EU financial services firms to retain global competitiveness as other jurisdictions have already implemented measures to allow for experimentation with DLT in financial services. Lastly, the pilot regime would allow for real use cases and help build the necessary experience and evidence on which a permanent EU regulatory regime could be inspired.
• Subsidiarity (for non-exclusive competence)
The rules governing financial services and in particular market infrastructures across the Union are largely set at EU level. That is why any derogations or exemptions from specific provisions must be done at EU level.
Additionally, action at EU level, such as the proposed Regulation, would ensure consistency and a level playing field by granting powers to ESMA to oversee and coordinate experimentations as Member States’ competent authorities submit evaluated applications from market participants.
Finally, the long-term objective of gaining experience on the application, and limits of, the existing financial services legislation to DLT market infrastructures, necessitates that this is done at EU level. Thus, the ESMA will evaluate the outcomes on a yearly basis and ESMA, together with the Commission will evaluate and report to the Council and Parliament on the pilot regime at the latest after a five-year period.
• Proportionality
Under the principle of proportionality, the content and form of EU action should not exceed what is necessary to achieve the objectives of the Treaties. The proposed rules will not go beyond what is necessary in order to achieve the objectives of the proposal. It will cover only the aspects that Member States cannot achieve on their own and where the administrative burden and costs are commensurate with the specific and general objectives to be achieved.
The proposed pilot regime will ensure proportionality by allowing adequate flexibility for supervisors to determine which provisions to disregard for a market participant’s test, to allow for different tests cases to take place. The pilot regime will enable regulators to remove regulatory constraints that can inhibit the development of DLT market infrastructures, which could enable the transition to tokenised financial instruments and DLT market infrastructures, enabling innovation and ensuring EU’s global competitiveness.
The pilot regime approach is at this stage considered the most proportionate to the objectives as there is presently not sufficient evidence to support more significant and wide-ranging permanent changes to the existing financial services framework in an effort to allow for the
use of DLT. This is also detailed in the accompanying impact assessment, for example in chapters 6 and 7.19
• Choice of the instrument
Article 114 TFEU allows the adoption of acts in the form of a Regulation or Directive. For this proposal, a Regulation was chosen in order to lay down a single set of immediately applicable rules throughout the Single Market.
The proposed Regulation establishes harmonised requirements for market participants wishing to apply for a permission to establish a DLT market infrastructure. Such DLT market infrastructures must not be subject to specific national rules. Therefore, a Regulation is more appropriate than a Directive.
3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER
Contents
- CONSULTATIONS
- 7 8 9 10
- Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in
- 2006/43/EC, 2009/65/EC, 2009/138/EU, 2011/61/EU, EU/2013/36, 2014/65/EU, (EU) 2015/2366 and
- 13 14
- 15 16
- i) The Commission carried out a dedicated open public consultation (19
- ii) The Commission consulted the public on an inception impact assessment
- iii) The Commission services consulted Member State experts in the Expert
- Impact Assessment accompanying the document Proposal for a Regulation of the European Parliament and of the Council on Markets in Crypto-assets and amending Directive (EU) 2019/1937 SWD(2020) 380
- Impact Assessment accompanying the document Proposal for a Regulation of the European Parliament
- the EU framework on financial services to crypto-assets that qualify as financial instruments and DLT
- Impact Assessment accompanying the document Proposal for a Regulation of the European Parliament and of the Council on Markets in Crypto-assets and amending Directive (EU) 2019/1937, SWD(2020) 380
- Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the
ANDIMPACTASSESSMENTS
• Stakeholder consultations
The Commission has consulted stakeholders throughout the process of preparing this proposal. In particular:
December 2019 - 19 March 2020)20
(19 December 2019 - 16 January 2020)21
Group on Banking, Payments and Insurance (EGBPI) on two occasions (18 May 2020 and 16 July 2020)22
The purpose of the public consultation was to inform the Commission on the development of a potential EU framework for crypto-assets. It included questions on crypto-assets not covered by the existing EU financial services legislation, crypto-assets covered by the existing EU financial services legislation (e.g. qualifying as transferable securities or electronic money), specific questions on so-called ‘stablecoins’ as well as more general questions on the application of DLT in financial services.
Many respondents believe that the application of DLT in financial services in general could lead to efficiency gains and that it could have an impact on current financial market infrastructures. There was also general agreement that when crypto-assets are financial instruments, existing rules governing financial instruments should apply. Lastly, there was wide recognition that the application of existing rules to crypto-assets and DLT-based business models can raise complex legal and supervisory questions.
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Impact Assessment accompanying the document Proposal for a Regulation of the European Parliament and of the Council on Markets in Crypto-assets and amending Directive (EU) 2019/1937 SWD(2020) 380
https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/documents/2019
-crypto-assets-consultation-document_en.pdf
Impact Assessment accompanying the document Proposal for a Regulation of the European Parliament
and of the Council on Markets in Crypto-assets and amending Directive (EU) 2019/1937, SWD(2020)
380
https://ec.europa.eu/info/publications/egbpi-meetings-2020_en
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Member State representatives expressed overall support for the approach chosen to create a pilot regime to allow for experimentation with the application of DLT in financial services. They highlighted it should not be too restrictive, but at the same time cannot lead to market fragmentation or undermine important existing regulatory requirements.
The proposal also integrates feedback received through meetings with stakeholders and EU authorities and institutions.
• Collection and use of expertise
In preparing this proposal, the Commission has relied on qualitative and quantitative evidence collected from recognised sources, including the reports from the EBA and ESMA.23 This has been complemented with confidential input, and publicly available reports from supervisory authorities, international standard setting bodies and leading research institutes, as well as quantitative and qualitative input from identified stakeholders across the global financial
sector.
Impact
assessment
This proposal is accompanied by an impact assessment, which was submitted to the Regulatory Scrutiny Board (RSB) on 29 April 2020 and approved on 29 May 2020.24 The RSB recommended improvements in some areas with a view to: (i) better put the initiative into context with ongoing EU and international regulatory efforts; (ii) provide more clarity as to how the initiative will mitigate the risks of fraud, hacking and market abuse and also explain the coherence with the upcoming revision of the anti-money laundering legislation; and, (iii) explain concerns of financial stability relating to ‘stablecoins’ better and also clarify how supervisory bodies will ensure investor and consumer protection. The impact assessment has been amended accordingly, also addressing the more detailed comments made by the RSB.
The Commission considered a number of policy options for crypto-assets that qualify as financial instruments under the Markets in Financial Instruments Directive (MiFID II)25, and more specifically:
– Option 1: Non-legislative measures to provide guidance on the applicability of
the EU framework on financial services to crypto-assets that qualify as financial instruments and DLT
– Option 2: Targeted amendments to the EU framework on financial services
– Option 3: Pilot regime – the creation of a DLT market infrastructure
Option 1 could provide clarification on when crypto-assets could qualify as financial instruments under MiFID II. Guidance could also support the primary market (e.g. by providing further clarification on how the prospectus regulation could apply to this type of issuances), and to some extent the secondary market (by specifying how a trading platform for crypto-assets could operate under the MiFID II/MiFIR26 framework) as well as the
ESMA, Advice on ‘Initial Coin Offerings and Crypto-Assets’, 2019; EBA report with advice on crypto-assets, 2019.
Impact Assessment accompanying the document Proposal for a Regulation of the European Parliament and of the Council on Markets in Crypto-assets and amending Directive (EU) 2019/1937, SWD(2020) 380
Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU
Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No 648/2012
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development of post-trading infrastructures for financial instruments in crypto-asset form. However, non-legislative measures under Option 1 could also have a limited effect. By nature, soft law measures are not binding and one Member State or one national competent authority (NCA) could decide not to apply the guidance. The guidance on which crypto-assets constitute ‘financial instruments’ under MiFID II could have limited effects due to the differences in the transposition of the notion of ‘financial instruments’ in national legislations.
Option 2 could provide a high degree of legal certainty for market participants and NCAs on how the EU financial services legislation applies to services related to the issuance, trading and settlement of financial instruments in crypto-asset form and the use of DLT. In principle, targeted amendments in well-defined areas (e.g. the Prospectus Regulation27, the Central Securities Depositories Regulation28 and the Settlement Finality Directive29) could be effective to enable the use of DLT by market participants. However, those targeted amendments taken in isolation could have a limited impact to support the uptake of financial instruments in crypto-asset form and DLT in the financial sector. Under Option 2, the number of amendments to existing legislation would be relatively limited. As DLT and financial instruments in crypto-asset form are in nascent stages, it is difficult to identify all regulatory obstacles that would require immediate legislative action.
Lastly, Option 3, could give existing investment firms and market players the possibility to test the use of DLT on a larger scale, by offering trading and settlement services at the same time. DLT can allow for near real-time settlement, thereby reducing the counterparty risk during the settlement process. The distributed nature of DLT could also mitigate some cyber risks that centralised market infrastructures raise, such as the single point of failure. The use of DLT could decrease costs by freeing up capital through reduced need for collateral posting and through automated processes (with the use of smart contracts) that could simplify some back office processes (e.g. reconciliation).
The three options were considered coherent with the existing legislation and the Commission’s objectives as regards a digital economy and at the same time, they were not considered mutually exclusive and are seen as complementary to a gradual regulatory approach starting with a pilot regime.
• Fundamental rights
The EU is committed to high standards of protection of fundamental rights and is signatory to a broad set of conventions on human rights. In this context, the proposal is not likely to have a direct impact on these rights, as listed in the main UN conventions on human rights, the Charter of Fundamental Rights of the European Union, which is an integral part of the EU Treaties, and the European Convention on Human Rights (ECHR).
prospectus to be published when securities are offered to the public or admitted to trading on a
regulated market, and repealing Directive 2003/71/EC
Regulation (EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on
improving securities settlement in the European Union and on central securities depositories and
amending Directives 98/26/EC and 2014/65/EU and Regulation (EU) No 236/2012
Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement
finality in payment and securities settlement systems
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4. BUDGETARYIMPLICATIONS
This proposal holds implications in terms of costs and administrative burden for NCAs and ESMA. The magnitude and distribution of these costs will depend on the precise requirements placed on DLT market infrastructures and the related supervisory and monitoring tasks.
The estimated supervisory costs for each Member State (including staff, training, IT infrastructure) can range from €150.000 to €250.000 per year per DLT market infrastructure. However, this would be partially offset by the supervisory fees that NCAs would levy on DLT market infrastructures.
For ESMA, the estimated cost in relation to review and coordination are estimated at €150.000-300.000 in total, not per DLT market infrastructure, as they will have no direct supervision. These costs will be covered by ESMA’s operating budget, which will be increased. In addition, ESMA is expected to maintain a register of DLT market infrastructures in operation, the costs related to this are considered to be covered by the costs relating to the maintenance of the register as referred to in the proposal for a Regulation on Markets in Crypto-Assets.
All budgetary implications of this proposal is detailed in the legislative financial statement attached to the proposal for a Regulation on Markets in Crypto-Assets.
5. OTHERELEMENTS
• Detailed explanation of the specific provisions of the proposal
This proposal seeks to provide legal certainty and flexibility for market participants who wish to operate a DLT market infrastructure by establishing uniform requirements for operating these. Permissions granted under this Regulation would allow market participants to operate a DLT market infrastructure and to provide their services across all Member States.
Article 1 defines the subject matter and scope. In particular, this Regulation establishes operating conditions for DLT market infrastructures, permissions to make use of them and the supervision and cooperation of competent authorities and ESMA. The Regulation applies to market participants (either investment firms, market operators or central securities depositories, CSDs) permissioned in accordance with Article 7 or Article 8. Article 2 sets out terms and definitions, among others: ‘DLT market infrastructure’, ‘DLT multilateral trading facility’ or ‘DLT MTF’, ‘DLT securities settlement system’ and ‘DLT transferable securities’. Article 3 describes the limitations in terms of DLT transferable securities that can be admitted to trading on, or recorded by, DLT market infrastructures. For shares, the market capitalisation or the tentative market capitalisation of the issuer of DLT transferable securities should be less than EUR 200 million; for public bonds other than sovereign bonds, covered bonds and corporate bonds the limit is EUR 500 million. DLT market infrastructures should not admit to trading or record sovereign bonds. In addition, the total market value of DLT transferable securities recorded by a CSD operating a DLT securities settlement system, or by a DLT MTF where allowed to record such DLT transferable securities, shall not exceed EUR 2.5 billion.
Article 4 sets the requirements for a DLT MTF, which are the same as for an MTF under Directive 2014/65/EU and specifies the exemptions possible under this Regulation. Article 5 sets the requirements for a CSD operating a securities settlement system, which are the same as for a CSD under Regulation (EU) No 909/2014 and specifies the exemptions possible under this Regulation. Article 4 and Article 5 contain a limited list of exemptions that DLT market infrastructures can request and the conditions attached to such exemptions.
Article 6 sets the additional requirements applicable to DLT market infrastructures to address the novel forms of risks raised by the use of DLT. DLT market infrastructures must provide all members, participants, clients and investors with clear and unambiguous information on how they carry out their functions, services and activities and how these are different from a traditional MTF or CSD. DLT market infrastructures must also ensure that overall IT and cyber arrangements related to the use of DLT are adequate. Where the business model of a DLT market infrastructure involves the safekeeping of clients’ funds or DLT transferable securities, or the means to access these, they must have adequate arrangements to safeguard such assets.
Article 7 and Article 8 set out the procedure for the specific permission to operate a DLT MTF and a DLT securities settlement system respectively and include details on the information that must be submitted to the competent authority.
Article 9 defines the cooperation between the DLT market infrastructure, competent authorities and ESMA. DLT market infrastructures must inform competent authorities and ESMA of, for example: proposed material changes to their business plan including critical staff, evidence of hacking, fraud or other serious malpractice, material changes in the information contained in the initial application, technical or operational difficulties in delivering activities or services covered under the permission and any risks to investor protection, market integrity or financial stability that may have arisen and were not foreseen at the time the permission was given. Where notified of such information, the competent authority may request the DLT market infrastructure to submit an application for another permission, exemption or take any corrective measure it deems appropriate. The DLT market infrastructure is obliged to provide any requested information to the competent authority which granted the permission and ESMA. The competent authority, after the consultation of ESMA, may recommend corrective measures to the DLT market infrastructure to ensure investor protection, market integrity or financial stability. The DLT market infrastructure needs to detail how these have been accommodated. In addition, the DLT market infrastructure shall produce and submit a report to the competent authority and ESMA detailing all of the information above including potential difficulties in applying EU financial services legislation. ESMA shall, on a regular basis, inform all competent authorities about the aforementioned reports produced by DLT market infrastructures and exemptions granted in accordance with Article 7 and Article 8, monitor the application of these exemptions and submit an annual report to the Commission on how they are applied in practice.
Article 10 details, that at the latest after a five-year period, ESMA will produce a detailed report on the pilot regime to the Commission. On the basis of ESMA’s assessment, the Commission will produce a report including a cost-benefit analysis on whether the pilot regime should be maintained as it is or amended, whether it should be extended to new categories of financial instruments, whether targeted amendments to EU legislation should be considered to enable a widespread use of DLT and whether the pilot regime should be terminated.
Article 11 indicates that the regulation shall enter into application 12 months after its entry into force.