Blog: EU Legal Framework For Crypto Assets And Financial Sector Resilience: Quick Update – Fin Tech – European Union – Mondaq

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EU Legal Framework For Crypto Assets And Financial Sector Resilience: Quick Update

17 November 2022

ELVINGER HOSS PRUSSEN, société anonyme

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The EU is working on setting out the legal framework for
Fintech. On a separate but connected note, the EU legislator also
addresses risks carried by technological evolutions. This paper
focuses on three pieces of legislation and legislation in
preparation for shaping the future of financial markets.

The Pilot Regime for market infrastructure based on distributed
Ledger Technology Regulation (the “EU DLT Pilot
Regime”)

  • The EU DLT Pilot Regime provides for a temporary testing
    environment offering derogations from existing rules, which
    provides a legal framework for the trading and settlement of
    transactions in crypto assets that qualify as financial instruments
    within the meaning of MiFID II (true digital securities or security
    tokens).
  • Through their relevant national authorities, authorised
    investment firms and market operators may apply to trading on a DLT
    Multilateral trading facility. Authorised Central securities
    depositary (CSD) can apply for specific permission to operate a DLT
    settlement system. These two groups may apply for the operation of
    a combined DLT trading and settlement system, whereas new entrants
    will have the option to apply for temporary authorisations as
    investment firms, market operators or CSD to apply for the pilot
    regime.
  • Adopted in May 2022, the EU DLT Pilot Regime will enter into
    force on 23 March 2023.
  • On 27 September 2022, a bill of law was filed aiming at
    implementing the EU DLT Pilot Regime in Luxembourg by amending the
    Law of 5 April 1993 on the financial sector, the Law of 5 August
    2005 on financial collateral arrangements and the Law of 30 May
    2018 on markets in financial instruments. The bill of law is
    currently receiving the opinions of professional chambers and
    should thereafter be discussed in Parliament.

The Market in Crypto Assets Regulation proposal
(“MiCA”)

  • MiCA is set to regulate the market of crypto-assets and set up
    obligations of registrations, authorisations, publication to the
    competent authorities, governance and compliance for the issuers of
    crypto-assets.
  • Once adopted, the Regulation will apply to all natural and
    legal persons and other undertakings that are engaged in the
    issuance, offer to the public and admission to trading of crypto
    assets or that provide services related to crypto assets in the
    Union. However, the Regulation will not apply to crypto assets
    qualifying as financial instruments under MiFID I and to UCITS
    funds.
  • The European Parliament approved the current text of MiCA on 10
    October 2022. The legislative procedure will continue through 2023.
    Formal adoption is expected in 2024-2025.

The Digital Operational Resilience for the financial sector
Regulation proposal (“DORA”)

  • DORA sets out rules for financial entities, including full
    responsibility of the management body in ICT risks, the requirement
    to set up, maintain and test resilient ICT systems and tools or the
    requirement to report to the competent authorities only deemed
    major ICT-related incidents.
  • All investment firms, managers of alternative investment funds,
    management companies and multiple other financial entities
    regulated at EU level will fall under DORA’s scope of
    application.
  • The Council of the European Union and the European Parliament
    are discussing the proposal in first reading under the ordinary
    legislative procedure. Formal adoption is expected in
    2024-2025.

What’s next?

Once adopted, the Regulations will be directly applicable across
the European Union.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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