The European Fund and Asset Management Association (EFAMA) has published a new report urging faster regulatory reform to support the adoption of distributed ledger technology (DLT) in asset management. The report, “Tokenisation, a buyside practitioner’s guide”, warns that the operational advantages of DLT could leave latecomers at a strategic disadvantage, with early adopters likely to gain a profitability edge.
Despite the European Union’s early regulatory moves, EFAMA signals concern that the region may lose its lead to the US, Asia, and the Middle East. A quote from Peter Kerstens, adviser to the European Commission, underscores this urgency: “In the race to establish dominance in DLT, we don’t want Europe to become a flyover zone between the US and Middle East and Asia.”
Europe has so far introduced two key regulatory frameworks for digital assets: MiCAR, addressing crypto-assets including stablecoins, and the DLT Pilot Regime, focused on securities. But EFAMA sees the current regime as falling short. The DLT Pilot’s low thresholds and short-term scope have failed to attract major institutions, with only two receiving approval to date. A senior Clearstream executive compared the initiative to “adapting an aircraft carrier for a few Cessna landings.”
Reform needed
EFAMA is calling for the DLT Pilot Regime’s thresholds to be raised in order to stimulate participation and deepen secondary market liquidity. It also advocates for extending trading possibilities beyond the pilot and aligning the regime with existing financial regulation, specifically MiFID, EMIR, and CSDR. The current requirement for listed instruments to settle via a central securities depository (CSD), even under the pilot, is seen as a barrier to innovation.
Fragmented risk rules
The report also flags inconsistencies in national implementation of fund regulation, warning that fragmented rules risk undermining the efficiency gains of tokenisation. EFAMA proposes aligning UCITS and AIFMD requirements on custody and administration of fund digital assets with MiCAR. Additionally, it seeks regulatory clarity on the use of tokenised collateral for margin in derivatives and repo transactions.
