The European Fund and Asset Management Association (EFAMA) has released a statement in response to the European Commission’s consultation on the savings and investments union (SIU). The association urges regulators to fully adopt distributed ledger technology (DLT), stating its belief that piecemeal implementation will only hinder investments.
“Many of the barriers identified in the European Commission’s SIU consultation on the integration of EU capital markets can be effectively addressed through DLT,” EFAMA writes in a press release. “This includes fragmented post-trade infrastructures, lack of competition and cross-border flows among financial market infrastructures (FMIs), and national differences in securities, taxation, and insolvency laws.”
A smoother path
The association points out that DLT is a pathway to bypass politically sensitive obstacles in Europe’s post-trade ecosystem. It observes that market participants engaging with digital assets under the DLT Pilot Regime “are calling for a seamless transition to an updated legal framework that supports scale, competition, and a more level playing field with traditional players”.
In addition, the pace of regulatory change in jurisdictions outside of the EU as well as the growing interest in digital assets indicate that the region must adapt quickly to remain competitive.
In its response, EFAMA makes recommendations targeting two areas of concern: the eligibility of stablecoins under the Markets in Crypto-Assets regulation (MiCA), and amendments to the existing regulatory frameworks.
Eye on stablecoins
Under the eligibility of stablecoins under MiCA, EFAMA “advocates for a multipolar DLT payment ecosystem in European capital markets that allows for a plurality of options for investors and market participants to settle the cash leg of any DLT-based transaction”. To leverage the full potential of DLT and enable stablecoin payments by funds, a “clarification” of the current framework will be required to allow UCITS funds to invest in and hold MiCA-compliant e-money tokens (EMTs).
The association suggests interpretative guidance on the eligibility of MiCA-regulated stablecoins in fund holdings, as well as stronger requirements on double issuance stablecoins.
Rethinking regulations
On amendments to existing regulatory frameworks, EFAMA “urges a rethink of FMI regulations and legislation on asset issuance, registration, custody, transfer, and settlement to reflect DLT capabilities and create a level playing field for new entrants”. It envisions a new market structure where more entities are allowed to provide core infrastructure functions.
It suggests that the Central Securities Depositories Regulation (CSDR) be amended to “remove restrictions requiring securities to be CSD-registered for on-venue trading and financial and central bank collateral use” and to make the DLT Pilor Regime permanent.
