EU Regulatory Updates

In September 2020, the EU introduced its Digital Finance Package with the objective of making the EU fit for a digital age. This package included:

  • a digital finance strategy;
  • a legislative proposal on digital resilience, known as Digital Operational Resilience Act (DORA);
  • a legislative proposal on cryptoassets, known as Markets in CrytoAssets (MICA) Regulation; and
  • a Regulation on a pilot regime for distributed ledger technology (DLT) market infrastructure (DLT Pilot Regime).


The digital finance strategy sets out four main priorities:

  • removing fragmentation in the Digital Single Market;
  • adapting the EU regulatory framework to facilitate digital innovation;
  • promoting a data-driven finance; and
  • addressing the challenges and risks with digital transformation, including enhancing the digital operational resilience of the financial system.


See below sections for the latest information on DORA, MICA and the DLT Pilot Regime.

Link: Digital finance package (

On 16 May 2023 the Council of the EU announced it had adopted the EU-level MiCA regulation which brings crypto-assets, crypto-asset issuers and crypto-asset service providers under one regulatory framework for the first time.

MiCA identifies ‘cryptoassets’ broadly as a digital representation of a value or a right that uses cryptography for security and is in the form of a coin or a token or any other digital medium which may be transferred and stored electronically, using distributed ledger technology or similar technology and captures:

  • asset-referenced tokens (ART);
  • electronic money (‘e-money’) tokens (EMT); and
  • other crypto-assets not covered by existing EU law.


MICA applies 18 months after the date it comes into force – circa January 2025 – and focus is now on the detailed rules which will be drafted by ESMA. ESMA has stated it plans to publish consultations on MiCA guidelines and technical standards in Q3 and Q4 of 2023 and in Q2 of 2024.

ESMA’s Chair, Verena Ross, gave a speech on 25 May 2023 noting that MiCA is a ‘valuable development’ but cautioning that it also has ‘certain limitations’, which include the geographic scope being limited to the EU although service providers outside the EU have a prominent role in crypto markets and that the protections for investors in MiCA are not at the level of those in MiFID (Markets in Financial Instruments Directive), nor are the market integrity rules as stringent as those in MAR (Market Abuse Regulation). Therefore, it is expected that oversight of this market will continue to evolve.

The EU DLT Pilot went live on 23 March 2023, a key milestone in the EU’s Digital Finance Package.

The aim of the DLT Pilot is to develop the trading and settlement environment for tokenised securities in a controlled environment and to enable EU regulators to draw lessons in order to identify possible proposals for a suitable regulatory framework, given the current EU legislation for financial services does not cater for DLT and crypto-assets.

The DLT Pilot Regime applies to market infrastructure, in particular Multilateral Trading Facilities (MTFs) and Central Securities Depositaries (CSDs) to operate DLT financial market infrastructure. Under the pilot regime, there are three categories of DLT market infrastructure: (1) DLT MTFs, (2) DLT settlement systems (DLT SS) and (3) DLT trading and settlement systems (DLT TSS) – a DLT specific type of market infrastructure which combines the two services of trading and settlement. The creation of a DLT TSS is innovative, in particular, given that under the current rules, the combination of these activities is not envisaged. However, the EU authorities recognise the potential benefits of DLT in combining trading and settlement.

Given this is a pilot scheme, there are limits on the instruments which can be traded on DLT market infrastructure and market value thresholds are in place. Broadly speaking, the DLT Pilot is limited to:

  • Shares of an issuer with market capitalisation of less than EUR 500million
  • Bonds with an issue size of less than EUR 1 billion
  • UCITS where market value of assets under management is less than EUR 500million


There are also thresholds in place to manage the scale of assets trading:

  • DLT financial instruments on DLT market infrastructure should not exceed EUR 6 billion at the point of admission / initial recording of a new DLT financial instrument
  • Where the aggregate market value of all DLT financial instruments on a DLT has reached EUR 9 billion, a “transition strategy” must be activated to reduce the aggregate value.


It should be noted that EU national regulators can set lower thresholds than these if they wish.

In terms of benefits, the DLT Pilot allows for some exemptions from the EU’s MiFIR/MiFID II and CSDR regimes to make it easier for market participants to trial DLT when trading and settling tokenised securities. However, if granted any exemptions from certain MiFID II/MiFIR/CSDR requirements, the DLT market infrastructure will have to comply with certain conditions, known as ‘compensatory measures’, to meet the objectives of those requirements.

ESMA recommends use of Digital Token Identifier (DTI) in DLT Pilot as a compensatory measure

ESMA recommended that DLT market infrastructure use the ISO 24165 Digital Token Identifier standard (DTI) as a compensatory measure in its report on the DLT Pilot, published on 27 September 2022 (page 54).

In its DLT Pilot Q&A, (last updated in March 2023 to include a question on how should the tentative market capitalisation of DLT shares be calculated), ESMA also recommends that trading venues, investment firms and approved publication arrangements (APAs) complement the ISIN by including the DTI when publishing post-trade information under Table 3 of Annex I of RTS 1 (equity and equity-like instruments), and Table 2 of Annex II of RTS 2 (non-equities).

Next steps:

ESMA is required to develop further guidelines relating to the DLT Pilot, expected in 2025. ESMA is also required to prepare a report in 2026 assessing the DLT Pilot Regime which will assist the EU in its proposals regarding next steps: these steps could range from extending the Pilot for another 3 years, extending the scope of DLT financial instruments under the Pilot, amending the Pilot Regime, terminating it or making it permanent.


The Digital Operational Resilience Act (DORA) aims to harmonise provisions relating to digital operational resilience across the EU financial sector with particular focus on managing Information and Communication Technology-related risks and incidents.

Relying on third-party services, including outsourcing, is not a new phenomenon in the financial sector but that technological developments and digitalisation are increasing the extent and ways by which financial entities rely on third parties within the value chain. To address potential systemic and concentration risks posed by the financial sectors’ reliance on a small number of ICT TPPs, DORA introduces an EU oversight framework for providers deemed critical. An ICT TPP that is considered critical to the stability and integrity of the Union financial system, will be designated by the ESAs (through the Joint Committee) as a CTPP and once designated as critical, TPPs will have to pay oversight fees to fund the oversight tasks.

DORA, an EU Regulation, entered into force on 16 January 2023 and applies from 17 January 2025. The European Securities Authorities (ESAs – ESMA, EBA and EIOPA)need to deliver technical standards to the European Commission (EC) in early 2024. and recently published the first joint ESA discussion paper on 26 May 2023, seeking feedback on:

  • the criteria for critical information and communication technology (ICT) third-party service providers (CTPPs) (under article 31(2) of DORA), to be considered by the ESAs when assessing the critical nature of ICT third-party service providers. In particular, the paper consults on relevant quantitative and qualitative indicators for each of the criticality criteria, along with the necessary information to construct such indicator; and
  • determining oversight fees levied on CTPPS (under article 43 of DORA) and the way in which they are to be paid, in particular the types of expenditure to be covered by fees as well as the appropriate method, basis and information for determining the applicable turnover of the CTPPs, which will form the basis of fee calculation. The ESAs are also seeking input on the fee calculation method and other practical issues regarding the payment of fees.


ESMA has stated it plans to publish consultations on DORA guidelines and technical standards in Q2 and Q4 of 2023, along with a Feasibility Study in Q4 2023.

Next steps:

The consultation is open to comment until 23 June 2023 and the ESAs must deliver their technical advice to the European Commission by 30 September 2023.


On 25 May 2023, the European Systemic Risk Board (ESRB) published a report outlining the systemic implications of crypto markets and proposing policy options to address the risks stemming from crypto-assets and decentralised finance (DeFi).

The report finds that whilst this past year has been turbulent for crypto-assets and DeFi, systemic implications have not materialised. However, given the exponential growth dynamics of crypto-assets seen in the past, the future development of these markets is uncertain and there are various instances in which crypto-assets could pose a systemic risk.

The report identifies a number of potential policy options that could enable authorities to understand better the developments and potential financial stability implications of cryptoassets:

  • Improve the EU’s capacity to monitor potential contagion channels between the cryptoasset sector and the traditional financial sector, and within the crypto-asset sector. To this end, the ESRB notes it is key to promote standardised reporting and disclosure requirements for: (i) traditional financial sector institutions such as banks that are exposed to cryptos; (ii) investment funds with crypto exposures; and (iii) entities such as stablecoin issuers or e-wallet service providers in the crypto sector.
  • Carry out assessments of risks posed by (a) crypto-asset conglomerates and (b) leverage using crypto-assets, and identify potential additional actions to mitigate observed risks.
  • Promote EU-level knowledge exchange and monitoring of market developments, focusing on (a) operational resilience, (b) DeFi, and (c) crypto-asset staking and lending.

The report also takes into account the extent to which existing policy measures, including the EU’s Regulation on Markets in Crypto-assets (MiCA), are sufficient to mitigate financial stability and macroprudential risks.

Link: Crypto-assets and decentralised finance (

UK Regulatory Updates

On 1 February 2023 HM Treasury (HMT) published a consultation and call for evidence on its plans to regulate cryptoassets used within financial services, given most cryptoasset activities are not currently subject to broader financial services regulation in the UK. Using the principle of “same risk, same regulatory outcome”, HMT intends to put in place commensurate safeguards where cryptoassets present similar risks to traditional financial instruments.

HMT is pursuing a phased approach to regulating cryptoassets. Phase 1 comprised putting in place an anti-money laundering and counter terrorist finance regime (AML/CFT) for cryptoassets which has been in place since January 2020 and proposals focused on fiat-backed stablecoins and the financial promotion of cryptoassets. This consultation sets out proposals for Phase 2: the UK government’s approach to regulating broader cryptoasset activities, such as the trading of and investment in cryptoassets.

HMT’s proposed policy approach is to bring cryptoasset activities into the UK regulatory perimeter, using the UK’s existing Financial Services and Market’s (2000) Act (FSMA) rather than create a bespoke regime, and the FCA will be given powers to write tailored rules. Proposals are centred around a number of important cryptoasset activities – including exchange activities, custody activities and lending activities.

Whilst a definition of cryptoassets is included in the Financial Services and Markets Bill, drawn broadly so as to capture all current types of cryptoasset, and very similar (although not identical), to that in MICA, HMT’s intention is that that the activities will be regulated, rather than the asset itself. Consequently, HMT plans to create a number of new regulated or designated activities tailored to the cryptoasset market. It is also worth noting that HMT proposes to capture cryptoasset activities provided in or to the UK i.e. activities provided by UK firms to persons based in the UK or overseas (natural and legal), as well as those provided by overseas firms to UK persons (natural or legal).

Etrading Software’s DTI Foundation (DTIF) welcomes the UK Government’s consultation and has responded, highlighting that the DTI ISO standard has been designed for the specific purpose to improve transparency within the cryptoassets market, assisting regulators and market participants manage some of the risks identified in the consultation. The DTI enables regulators to:

  • Understand the impact on market participants and the market in the event a blockchain suffers an operational outage or event through identification of the financial instruments at risk and individual trades at risk;     
  • Detect market abuse through the identification of market activity and irregular suspicious patterns; and
  • Detect AML activities through facilitating the tracking of bridged cryptoassets.


The consultation closed on 30 April 2023 and HMT will use responses to inform its proposals.

Link:  Future_financial_services_regulatory_regime_for_cryptoassets_vP.pdf (

Global Regulatory Updates

The Financial Stability Board (FSB) consulted on its proposed framework for the international regulation of cryptoasset activities from Oct 2022 to December 2022. In the consultation, the FSB described the key issues and challenges it sees in developing a comprehensive and consistent regulatory approach that captures all types of cryptoasset activities that could give rise to financial stability risks. It also set out the FSB’s proposed approach for establishing a comprehensive framework.

The DTI Foundation agrees with the FSB’s recommendations and responded to question 8 of the consultation: “Have the regulatory, supervisory and oversight issues and challenges as relate to financial stability been identified accurately? Are there other issues that warrant consideration at the international level?”, noting that the Digital Token Identifier (DTI) can help with the following recommendations:

  • Recommendation 1: by providing a common international tool to uniquely identify digital assets;
  • Recommendation 3: by facilitating efficient and consistent information sharing between the authorities;
  • Recommendation 6: by providing authorities with access to quality reference data on crypto assets; and
  • Recommendation 8: by providing a link between crypto assets and traditional securities through a link to ISINs and Legal Entity Identifiers (LEIs) to simplify linkage of the different identifiers by market participants and public authorities.


The FSB plans to publish the final report in July 2023.

Link: International Regulation of Crypto-asset Activities: A proposed framework

On 23 May 2023, the International Organization of Securities Commissions (IOSCO) published a consultation paper on 18 ‘principles-based and outcomes-focused’ policy recommendations with supporting guidance for crypto and digital asset markets (‘CDA’). The recommendations cover six key areas:

    1. Conflicts of interest arising from vertical integration of activities and functions,
    2. Market manipulation, insider trading and fraud,
    3. Cross-border risks and regulatory cooperation,
    4. Custody and client asset protection,
    5. Operational and technological risk, and
    6. Retail access, suitability, and distribution.


The purpose of these recommendations is to address concerns related to market integrity and investor protection arising from crypto-asset activities aimed at the activities performed by crypto-asset service providers (CASPs) setting a standard that is consistent with those required in the traditional financial market. The CDA Recommendations are addressed to relevant authorities.

Noting that the International Monetary Fund (IMF) and the Financial Stability Board (FSB) are calling for more regulation of the crypto-asset market, IOSCO’s proposed recommendations look to complement and support the work of the FSB and the sectoral initiatives of other international Standard Setting Bodies.

The consultation closes on 31 July 2023 and IOSCO plans to finalise its recommendations in Q4 2023. IOSCO will publish a further consultation with proposed recommendations on activities, products and services offered in the decentralised finance (‘DeFi’) area later this summer.

Link: CR01/2023 Policy Recommendations for Crypto and Digital Asset Markets (

On 17 May 2023, the Bank of International Settlements (BIS) published a Financial Stability Institute (FSI) Insights Paper which provides an overview of policy measures taken in 19 jurisdictions to address the risks associated with activities that incorporate cryptoassets and DLT programmability capabilities in financial services. Among other things, the paper notes that the global nature of cryptoassets poses significant challenges that require effective cooperation and coordination among national and international regulators.


On 31 May 2023 the Bank of International Settlements (BIS) published a Financial Stability Institute (FSI) Executive Summary on the Prudential Treatment of Cryptoasset Exposures.

The context to this executive summary is that in December 2022, the Basel Committee on Banking Supervision (BCBS) finalised its standard on the prudential treatment of cryptoasset exposures which outlines minimum regulatory, supervisory review and disclosure requirements of banks’ cryptoasset exposures under Pillars 1, 2 and 3 of the Basel Framework. Internationally active banks in BCBS member jurisdictions are expected to adopt the standard by 1 January 2025.


On 25 May 2023 the World Economic Forum published a White Paper, entitled Pathways to the Regulation of Crypto-Assets: A Global Approach, which sets out to understand and highlight the needs and challenges in developing a global approach to crypto-asset regulation and provides recommendations for international organizations, national/ regional authorities and industry stakeholders.


Disclaimer: The content of this Regulatory Update is for general information only and does not constitute legal or other professional advice.

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