Tokenization regime comes into force with the ESMA Guidelines, the DLT Pilot Regime and the new Italian Decree-Law

A few days after Regulation (EU) 2022/858, known as the DLT Pilot Regime, entered into force, the Italian Council of Ministers approved a new decree-law. The decree-law implements the new European experimental regime on the operations of market infrastructures for the trading of DLT financial instruments through tokenization at national level.

On 23 March 2023, the Pilot Regime for the tokenization of DLT financial instruments finally came into force. Market infrastructures can now apply to trade financial instruments on DLT platforms under the provisions of the DLT Pilot Regime. Earlier this month, the European authority ESMA issued its latest guidelines on applications for the authorization to manage a market infrastructure based on DLT technologies.

The most recent ESMA guidelines don’t include any updates from those published in December last year. But the economic operators have highlighted some uncertainties regarding:

• the clarity of the definition between DLT permissioned and permissionless;
• the definition of the “transition strategy” provided for in Article 7(7) of the Pilot Regime; and
• the clarity of the requirements for natural persons to access market infrastructures.

According to the ESMA, a permissioned DLT prevents participants from performing any action (referring to the DLT register). In a DLT permissionless environment participants are free from read and write on the DLT.

Secondly, the ESMA says the requirements of good reputation provided by the DLT Pilot Regime and sufficient knowledge of the DLT technologies depend on:

• the possible presence of pending charges;
• warnings from regulatory authorities; and
• the assessments to be carried out by the national authorities on the technical skills of the natural person (eg previous experience in the field of tokenization, DLT projects).

The Italian Council of Ministers approved a decree-law to simplify the experimentation of techno-finance activities (fintech) but, above all, to regulate the circulation of digital financial instruments and facilitate the of tokenization of these instruments. The text introduces rules for the implementation of the Pilot Regime on DLT market infrastructures. It allows transactions in financial and digital instruments to be recorded in a shared repository between networked IT devices or applications.

With the Italian DLT decree-law entering into force, a registry for the circulation of electronic financial instruments has been established. Issuance will take place in a manner similar to how it has taken place in Germany since the enactment of the Electronic Security Act (2021). Issuing electronic financial instruments could occur through a unique responsible – as it would be using the centralized systems – and with an SS DLT or TSS DLT infrastructure under the DLT Pilot Regime.