According to Odaily, the Association for Financial Markets in Europe (AFME) has outlined its vision and policy recommendations for distributed ledger technology (DLT) and tokenization in Europe. This initiative responds to the European Union's Capital Markets Council FISMA's call for input. The document presents several proposals aimed at addressing key issues hindering the development of tokenization within the EU.
One significant recommendation concerns the Central Securities Depositories Regulation (CSDR), which governs the operations of Central Securities Depositories (CSDs). Currently, CSDs perform essential functions such as issuing securities, acting as record keepers, and providing settlement infrastructure. DLT, however, can offer record-keeping capabilities, and smart contracts can automate functions like interest or dividend payments. Additionally, DLT supports delivery versus payment, potentially eliminating settlement risk without the need for a centralized counterparty (CCP).
AFME argues that the current CSDR framework is incompatible with tokenization due to its separation from DLT roles. The association suggests the need for a new regulatory regime, akin to the Markets in Crypto-Assets Regulation (MiCAR) for crypto assets. However, these changes are considered part of a mid-term strategy, as even if regulators begin drafting regulations now, they are unlikely to be implemented before 2029.
Furthermore, AFME believes that the requirement to register as a CSD is overly burdensome. Many banks are interested in providing DLT securities services (SS) but are reluctant to become CSDs. The DLT pilot regime currently imposes low caps on activities, which are unattractive to large entities. Therefore, AFME recommends raising these caps and hopes that securities issued under this regime will qualify as central bank collateral.
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