Digital finance package in the European Parliament: innovation and challenges

The report drafted by Johan Van Overtveldt on DLT suggests:

• Lowering the individual threshold to 500 million euro for both shares and bonds. This proposal didn’t meet the approval by all MEPs, such as MEP Jessica Polfjard (EPP, Sweden) who stressed that the report should be more ambitious.
• Widening the scope in term of the types of securities that should be admissible within the DLT pilot regime with deletion of prohibition of sovereign bonds and inclusion of exchange traded funds (ETF).
• Regarding the entities allowed to participate in the regime, keeping the regime restricted to market infrastructures only.
• Being more technologically neutral when it comes to DLT use.
• To avoid an unlevel playing field between DLT MTFs (Multilateral Trading Facility) and DLT SSS (Securities Settlement System), including a new type of DLT market infrastructure for performing both trading and post trading roles, which could be called DLT “Trading and Settlement Systems” (TSS). This proposal hasn’t found the consensus among the shadow rapporteurs.
• Shortening the assessment period of the pilot regime from five to three years.

Issues highlighted by shadow rapporteurs Stasys Jakeliunas (Greens, Greece) and Eva Kailli (S&D, Greece) dealt with fragmented and not harmonised EU supervision which could lead to regulatory arbitrage and market fragmentation and the need to have common definitions shared by all Member States.

• Rapporteur Stefan Berger (EPP, Germany) showed his concerns for crypto currencies’ private initiatives and the need for public supervision.
• The second decisive point for Berger is maintaining a level playing field based on same risks, same rules principle.
• Regarding the risk of money laundering and terrorist financing, Berger stressed the need for rules to face ML/TF in relation to crypto assets. A study suggests that half of the transactions in crypto assets is linked to illegal activities. Stasys Jakeliunas (Greens, Greece) believes that illicit financial activities represent a minor problem.
• A common issue of the MiCA and DLT proposal is the role and definition of crypto currencies as a whole and the definition of how assets should be treated, and whether they fall under the MiCA or DLT scope.
• Shadow rapporteurs Eero Heinalouma (S&D) and Stasys Jakeliunas (Greens, Greece) and Chris Macmanus (Left, Ireland) considered the environmental impact of crypto currencies and suggested to add the sustainability factor in the regulation.
• Finally, Antonio Rinaldi (ID, Italy) proposed to regulate crypto assets in non-EU countries to avoid having different legislations and avoid migration towards more permissive systems.

Rapporteur Billy Kelleher (Renew, Ireland) sees as the purposes of the report the proportionality between risks and regulations, preserving EU competitiveness, future proofing innovation and oversight framework for critical third country providers.

On ICT incidence reporting, shadow rapporteur Frances Fitzgerald (EPP, Ireland) said that it is important to harmonise reporting requirements to avoid having multiple reporting to different bodies.

The above-mentioned drafts by the rapporteurs will be subject to amendments from fellow MEP with deadlines in the second half of May. Then the reports will go to the plenary for consideration by the full assembly. The other co-legislator, the Council, has also been working on Commission proposals and progress allowing could come forward with its position potentially as early as the summer. Both institutions and the Commission will then need to agree on final legislative texts.

By Sofia Badari and Antoine Kremer