European Financial Groups Warn EU Caps Will Stifle Tokenized Assets

The Association for the Development of Digital Assets (ADAN) and 27 partners across Europe are calling on European Union policymakers to authorize higher transaction volumes under the DLT Pilot Regime (DLTPR) within the European Commission’s Market Integration and Supervision Package (MISP), ADAN said in a Tuesday (Sept. 8) press release.

The DLT Pilot Regime provides the legal framework for trading and settlement of transactions in crypto-assets that qualify as financial instruments under MiFID II, while facilitating the establishment of new types of market infrastructures such as distributed ledger technology (DLT) multilateral trading facility, DLT settlement system and DLT trading and settlement system, according to a page devoted to the DLT Pilot Regime on the European Securities and Markets Authority’s website.

PYMNTS reported in April 2022 that the DLT Pilot Regime was created to develop the trading and settlement of tokenized securities and would provide a testing ground for the use of blockchain technology in the field of financial instruments.

The European Commission has proposed raising the ceiling from the current 6 billion euros (about $7 billion) to 100 billion euros (about $116 billion), but ADAN and the other organizations believe that is still insufficient due to rapid changes in global markets, according to the release.

The organizations are asking EU policymakers to remove the cap under the standard plan or, if quantitative thresholds are maintained, set them high enough to allow room for market growth in Europe. They are also asking that there be a flexible adjustment mechanism that allows for increases, and that there be no differentiated threshold mechanisms, per the release.

In the organizations’ letter to policymakers, which ADAN shared in its press release, the groups said that they represent both traditional finance and the emerging tokenized assets sector and that they want to see Europe act decisively to remain competitive in the race to tokenize assets.

Speaking of the thresholds, the organizations said in the letter that the commission’s proposed increase is an important step forward.

“However, given rapid market developments, especially in the U.S., it proves insufficient, considering current capital market volumes (some existing European projects already hold a volume reaching [350 billion euros (about $406 billion)] and plan for further growth),” they said in the letter. “In practice, this would unnecessarily limit European projects.”

“It is important to note that the thresholds are based on market capitalization, not trading volume,” the organizations said in the letter. “While [100 billion euros] may seem a substantial figure, it is relatively modest in the context of global equity markets. EU legislators must use this opportunity to deliver a regulatory framework that allows for significant scale within the DLTPR.”