The uptake of the Distributed Ledger Technology (DLT) Pilot Regime is relativity slow, says the European Securities and Market Authority (ESMA). In its update on the first year of the regime to the European Commission, the authority identifies some challenges that may be hindering progress.

As of 3 April, four official applications have been submitted, which are currently under review by the respective national competent authorities (NCAs). Eight more potential applications are expected this year.

ESMA attributes the slow uptake to the DLT Pilot Regime’s novelty. The letter to the commission also outlined specific challenges, including the absence of central bank digital currencies for cash settlement, custody issues regarding self-hosted wallets, interoperability concerns, and questions surrounding investor protection and the competitiveness of the regime compared to third-country regimes.

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ESMA emphasises the importance of clarifications from the commission to address these challenges, particularly regarding innovative cash settlement solutions, custody expectations, interoperability issues, and the extension of the regime’s duration beyond 2026. Such clarifications, the authority noted, would provide market participants with the certainty needed to make investments in DLT projects “worthwhile”.