DLT Securities Rules Are Here to Stay, EU Official Says

• Relaxed EU securities laws designed to encourage distributed ledger technology will likely be permanent, an official said.
• Industry concerns over a hard stop to the regime may have inhibited investment in blockchain projects.

BRUSSELS, Belgium – A new European Union pilot to allow securities trades based on distributed ledger technology (DLT) is here to stay, an official from the bloc’s executive arm said on Wednesday. The comment comes as the EU tries to alleviate industry fears that the project could be abandoned after just a few years.

The EU is among several global jurisdictions experimenting with the blockchain technology that underpins crypto, which according to one recent study could save financial markets $100 billion per year by freeing up collateral and automating back-office processes.

Starting in April, the EU relaxed its financial services rules allowing securities traders to interact with markets and let exchanges register tokens directly rather than using regulated intermediaries, such as brokers and depositories.

But the potentially short-term nature of the new regime may weaken the business case to invest in those innovative ideas – and Ivan Keller, an official at the European Commission, which initially proposed the rules, appears keen to assuage those fears.

The new legislation “is here to stay,” as, despite a review due to take place after three to six years, legally speaking the current, lighter rules will continue to apply by default, said Keller, who is at the commission’s Securities Market Unit. “It's very unlikely that the DLT pilot would be discontinued.”

Despite the effort put in to designing the new regime, just two official applications have been received, with “maybe five or six serious applications in the pipeline,” Keller said, adding that he would “personally like to see more.”

Applications were a mix of existing licensed multilateral trading facilities, and more innovative structures which combine previously separate trading and settlement functions, Keller said. There was an “implicit preference” for permissioned systems, given requirements to maintain centralized control, he added.

Across the English Channel, the EU’s rival, the U.K., is also hoping to promote innovation via its own five-year DLT securities trials – for which detailed secondary laws could be completed by the end of the year, the Bank of England’s Sasha Mills told CoinDesk at the same event.

Mills, who is the central bank’s executive director for financial market infrastructure, said that any limits on trading would be calibrated to ensure the experiment doesn’t blow up the financial system, adding that “some of the assets within the sandbox would have more of a systemic effect than others.”

Cecilia Skingsley, head of the innovation hub at the Bank for International Settlements, which groups the world’s central banks, said that major securities issuers such as governments had been wary of potential risks, but that wider adoption is “just a matter of time.”

“Typically sovereign issuers and a large corporates want to see how it works in different market sentiments, and make sure that once they get on that stage, nothing goes wrong, at least not for technological reasons,” said Skingsley, who addressed the conference via videolink following a terrorist attack in Brussels on Monday which targeted Swedish nationals.

“I think it would be helpful to demonstrate for legislators and media and society that this is not just hype – this is not just another crypto, but actually something useful for society in the long run.” Skingsley noted.