The Regulation on Markets in Crypto Assets (MiCAR) and the Regulation on a Pilot Project Regime for DLT-based Market Infrastructures (DLT Pilot Regime) form the core of the EU's Digital Finance Strategy.
On 02.06.2022, Regulation EU/2022/858 on the pilot scheme for market infrastructures based on distributed ledger technology ("DLT Regulation") was published. The regulation, which comes into force on March 23, 2023, creates an EU-wide regulatory sandbox regulation for a period of 6 years, which is intended to remove the current regulatory obstacles for DLT market infrastructures and enable the operation of DLT-based market infrastructures within a limited framework on a trial basis. This should enable the development potential of the new blockchain technology to be better exploited while at the same time complying with the requirements of transparency, investor protection and financial stability.
From 23.03.2023, existing investment firms and central securities depositories can apply to their competent regulator for inclusion in the pilot regime. New market participants can also apply for corresponding licenses as investment firms or central securities depositories with inclusion in the pilot regime.
The DLT Regulation enables the operation of DLT-based multilateral trading facilities (DLT-MTF) and settlement systems (DLT-SS) as well as combined DLT trading and settlement systems (DLT-TSS) and removes the existing obstacles of the CSDR to the extent of the Regulation. In particular, operators can apply for an exemption from the central custody obligation under the CSDR.
The DLT Regulation only covers so-called "DLT transferable securities". These are crypto-assets that are considered securities within the meaning of MiFID II and are issued, transferred and stored using distributed ledger technology (tokenized securities). Derivatives and money market instruments are not included. In contrast, MiCAR covers all crypto-assets that do not qualify as such financial instruments and were previously unregulated.
In addition, the provisions of the DLT Regulation allow the market operator to contact end users directly and admit them directly as users on a DLT MTF.
Due to the design as a sandbox regime, there are certain product-dependent thresholds that a DLT market operator may not exceed.
The DLT Regulation therefore creates the conditions long demanded by market participants for tokenized securities, which are subject to the provisions of MIFID II, to be traded and also settled on multilateral trading venues in the future.
Just like the MiCA, the DLT Regulation is another piece of legislation that is also relevant for Liechtenstein as a member of the European Economic Area (EEA) and will therefore also enter into force in Liechtenstein following a corresponding EEA endorsement decision.
The Principality of Liechtenstein has already demonstrated through the Liechtenstein Blockchain Act of January 2020 that it has a strong interest in the promotion of distributed ledger technology and regulation of crypto assets and services related to crypto assets. Accordingly, the Principality of Liechtenstein is also strongly committed to the immediate adoption of the DLT Regulation in the EEA. According to current information, it is expected that the DLT Ordinance and thus the DLT Pilot Regime will also be fully applicable in Liechtenstein by summer 2023 at the latest.
Accordingly, from summer 2023 it will also be possible for securities companies in Liechtenstein to be subject to the DLT Pilot Regime and subsequently operate a DLT-MTF, DLT-SS or even a DLT-TSS.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
