ESMA Guidelines to apply for permission to operate a DLT market infrastructure

Regulation (EU) 2022/858 on a pilot regime for market infrastructures based on distributed ledger technology (“DLT”) provides for, inter alia, specific permissions to operate DLT market infrastructures (“DLT MI”), namely a DLT Multilateral Trading Facility, a DLT Settlement System and a DLT Trading and Settlement System (the “Permission”). 

On 8 March 2023, ESMA released its Guidelines which set out standard forms, formats and templates to apply for the Permission (the “Guidelines”) and pertain to competent authorities as well as to applicants for the Permission.

The Guidelines set forth (i) information to be provided for all applicants (such as the identification and legal status of the applicant and the identification of the application) and (ii) specific additional information depending on the applicant’s regulatory status and on the nature of its application request. 

The specific information to be provided for an application for Permission to operate a DLT MI includes: 

• the business plan of the application and the rules of the DLT MI and any legal terms defining the rights, obligations, responsibilities, and liabilities of operators of DLT MI, as well as those of the members, participants, issuers and clients using the DLT MI, 
• information regarding the functioning, services and activities of the DLT MI, 
• information on the functioning of the DLT used, 
• overall IT and cyber arrangements including (a) governance and strategy, (b) IT and information security risk management to identify and manage any IT and information security risk posed by the use of DLT and DLT financial instruments, (c) information security arrangements and controls to ensure protection, confidentiality, integrity and availability of funds, collateral and DLT financial instruments of the members, participants, issuers of clients using the DLT MI, as well as of the means of access to them on several listed areas, (d) system development life cycle, IT project and change management, (e) business continuity management, (f) third party risk management, 
• arrangements to record and protect members’, participants’, issuers’ or clients’ funds, collateral or DLT financial instruments, 
• investor protection measures describing i.a. the measures and demonstrating their transparency and adequacy, the mechanisms for handling client complaints,
• transition strategy for reducing the activity or transitioning out of or ceasing to operate a DLT MI.

Such information and further instructions must also be available on the competent authorities’ website.

Where an applicant for the Permission also intends to operate a regulated market or act as central securities depositories (“CSDs”) or as an investment firm, it/he/she has also to comply with (i) Directive (EU) 2014/65 (Market in financial instruments, “MiFID II”) and/or (ii) Regulation (EU) 909/2014 on improving securities settlement in the European Union and on CSDs (“CSDR”). 

The Guidelines apply from 23 March 2023.

Further information upon DLT Regime is available on our website (eAlert on DLT Pilot regime and eAlert on Bill of law 8055 laying down rules for the application of Regulation 2022/858). 

Should you have any questions on the above, please do not hesitate to contact one of our experts of the regulatory team.