The Association for Financial Markets in Europe (AFME) has called on EU co-legislators to be more ambitious with the DLT reforms in the Market Integration and Supervision Package (MISP). It argues that greater settlement choice for users is key to integrating Europe’s fragmented capital markets.
In a position paper published in September, AFME says distributed ledger technology (DLT) offers a significant opportunity to tackle long-standing problems in European markets. Rather than replicating existing structures on-chain, it advocates a network-based architecture combining integrated infrastructure with more competition in settlement services while avoiding the risks associated with greater centralisation.
The paper warns that concentrating settlement in fewer hands would risk a post-trade monopoly, reducing user choice, keeping costs high and creating a single point of failure. It comes roughly a year after AFME criticised Europe’s CSDs over high settlement costs, and builds on its May submission on the MISP proposals.
Network and services
In line with the ECB’s Project Appia vision, AFME envisages two layers: a network layer shared and run jointly by regulated firms; a services layer sitting on top, where providers compete on notary, account maintenance and settlement services.
It argues that more providers on a shared ledger would deepen liquidity rather than fragment it.
AFME welcomes the Commission’s proposed Settlement Scheme. It would unbundle CSD services and let DLT account keepers holding central bank accounts settle with one another without a central operator.
“The EU’s proposed Settlement Scheme is an important step forward, but policymakers should be more ambitious to ensure these reforms can attract institutional participation, achieve scale and unlock the full potential of DLT for European capital markets,” said Coco Chen, director of Technology and Operations at AFME.
AFME warns the current drafting risks repeating the experience of the DLT Pilot Regime, which failed to attract significant institutions. It is calling for:
- Higher thresholds: a cap of at least €50bn per scheme, up from €10bn, adjustable by delegated act.
- Broader settlement options: commercial bank money and e-money tokens alongside central bank money, plus free-of-payment transfers.
- Streamlined authorisation and supervision: for banks and investment firms becoming DLT notaries and account keepers.
- Eligibility and passporting: DLT-based assets usable on venues, as collateral and across borders.; nationally authorised providers able to operate EU-wide.
- No participation limits: firms free to join as many Settlement Schemes as they choose.
The Settlement Scheme is separate from the MISP’s proposed hub-and-spoke model for linking CSDs.