Just over a year ago, the European Commission published its Digital Finance Package which included the proposed Regulation on markets in cryptoassets (MiCA), Regulation on digital operational resilience (DORA) and the Regulation on DLT-based market infrastructures (DLT pilot regime). Our detailed briefing on the EU digital finance strategy, including summaries of each of these proposals, is here.
Since then, MiCA, DORA and the DLT pilot regime have been under the scrutiny of the Council of the EU (EC) and European Parliament (EP), both of which published updates on the status of these proposals on 24 November 2021:
- MiCA and DORA: Start of negotiations between EC and EP
EC has finalised its negotiating mandates for MiCA (Annexes), DORA and the proposed Amending Directive supporting EU Digital Finance Strategy. EC has invited the Presidency to start negotiations with EP with a view to reaching agreement at first reading.
On MiCA, it is worth noting that the EU is heading towards more traditional and extensive regulation of cryptoassets compared to the UK which has, so far, essentially transcribed the Money Laundering Directive into the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, with minimal gold-plating.
The EP’s Economic and Monetary Affairs Committee (ECON) published a draft report on MiCA in February 2021 and draft reports on DORA and the Amending Directive in March 2021. The European Central Bank published its opinion on MiCA in February 2021.
Once a provisional political agreement is reached, EC and EP will formally adopt the legislation. The time it takes for political agreement to be reached is difficult to estimate – it could range from a few months to over a year. After this, there will be a further period before the various pieces of legislation come into effect and start to apply in member states. Firms will therefore have some period of grace for implementation, but should start project planning now.
- DLT pilot scheme: Political agreement reached
The European Parliament has published a press release announcing that it has reached agreement with the Council of the EU on the DLT pilot regime. Although the agreed text is not available as yet, the press release included the following comments on the negotiations:
- To balance innovation and experimentation with the need to preserve financial stability, EC and EP have agreed that financial instruments using the DLT market should be limited and subject to value thresholds:
- Shares – 500 million euro
- Bonds – 1 billion euro
- Corporate bonds – 200 million euro
- UCITS – 500 million euro
Additionally, operators of DLT can admit new financial instruments only until their total market value reaches 6 billion euro.
- Safeguards, including defined liability to clients for losses due to operational failures, have been built into DLT trading and settlement systems which are exempt from obligations within financial services legislation.
The finalised text should be published in the next few months, with a further period before the legislation applies. It remains to be seen whether the changes to the thresholds would be sufficiently attractive to entice participation in the pilot regime and kickstart development of new DLT projects in the EU.