ESMA suggests amendments to the DLT Pilot Regime to make it permanent and attractive

Key takeaways

• Last week, ESMA has published a report on the DLT pilot regime, a regime which has seen very little interest from market participants.
• In ESMA’s view, the continuation of the regime is important since, DLT and smart contracts can provide significant operational efficiencies, lower transaction costs over time, reduce dependency on fragmented legacy systems.
• Therefore, ESMA recommends amendments to make the regime more attractive to market participants, to make it more flexible, and to allow it to scale up. Key measures include making the regime permanent, making regulatory thresholds flexible, and extending the scope of eligible assets (including complex and illiquid assets).

 

Introduction

On 25 June, the European Securities and Markets Authority (ESMA) published a report on the functioning and review of the Distributed Ledger Technology (DLT) pilot regime under Regulation (EU) 2022/858 of 30 May 2022 on a pilot regime for market infrastructures based on distributed ledger technology (the Regulation).

Under Article 14 of the Regulation, ESMA is required to present a report to the European Commission (EC) by 24 March 2026 on a range of market aspects, such as the functioning of DLT market infrastructures throughout the European Union, the number and value of DLT financial instruments and transactions on those market infrastructures, the costs and benefits of the regime and a recommendation whether, and under which conditions, to continue the regime.

Within three months of receipt of that report, the EC must present a report to the European Parliament (EP) and to the Council. That report must contain a cost-benefit analysis on whether the pilot regime must be (1) extended (for a period of up to three years, or to other types of financial instruments), (2) amended, (3) made permanent through appropriate amendments of the relevant Union financial services legislation, or (4) terminated.

 

Limited market interest

ESMA is positive about the regime, despite the limited uptake of the DLT Pilot Regime, with only three authorised infrastructures and minimal live trading activity since it entered in force on 23 June 2022.

The limited market interest has been a structural problem of the regime. In April 2024, ESMA sent a letter to the EC stating that it decided to not to publish an annual interim report on the functioning regime as required under Article 15, since no market infrastructures had been authorised and only four official applications had been submitted until then. Supervisory authorities in France and Italy also published a position paper in April 2025 proposing a number of improvements to enhance the competitiveness of the pilot regime.

ESMA observes that the regime is now seeing growing interest from potential applicants, which would confirm the relevance of continued efforts to enhance the regime’s attractiveness and functionality.

The entry into force of Regulation (EU) 2023/1114 (Markets in Crypto-Assets Regulation, MiCAR) and the increase in authorisations under that framework, may contribute to this rise in interest.

 

Costs and benefits

ESMA’s positive stance is based on early evidence from authorised infrastructures and prospective applicants, which suggests that DLT and smart contracts can provide significant operational efficiencies, lower transaction costs over time, reduce dependency on fragmented legacy systems. The regime may also ease the financing constraints of small and medium enterprises, which would support the objectives of the Savings and Investment Union.

However, the regime presents substantial operational and financial challenges that impose significant set-up costs and barriers to scaling. Those challenges are both technical (e.g. interoperability) and legal, such as the legal structuring of tokenised instruments under national law, the thresholds and the scope of eligible assets.

 

ESMA’s recommendations

ESMA recommends amendments to make the regime more attractive to market participants, to make it more flexible, and to allow it to scale up. It presents a mix of short-term and long-term measures, including (1) making the regime permanent, (2) introducing tiered and adjustable general thresholds, (3) extending the scope of eligible assets (including complex and illiquid assets), (4) removing activity-based thresholds for market infrastructures, and (5) embedding DLT-specific provisions into existing sectoral frameworks.

 

Implications

The recommendations in the report demonstrate that the commitment of ESMA to promote an EU market for tokenised financial instruments. The adoption of its recommendations could make DLT markets an interesting platform for both issuers and service providers.

Please reach out to our EU Financial Services Regulatory Team to find out more about the opportunities for your business under these recommendations.