EU Commission conducts comprehensive investigation into distributed ledger technology challenges in Capital Markets Union discussion
The European Commission has launched a targeted consultation on the integration of EU capital markets, with a significant focus on distributed ledger technology (DLT) and the Capital Markets Union (CMU). This consultation is part of a broader effort to modernize the EU's capital market framework, addressing regulatory improvements and the mobilization of savings within the EU.
The consultation recognizes the need for technical and regulatory enhancements, likely encompassing digital innovations like DLT. However, specific conclusions or policy changes regarding legal certainty, permissionless blockchains, conflict of laws, and multi DLT interoperability have yet to be published or become publicly available.
One of the key areas of consideration is the regulation of interoperability providers. The Commission is contemplating various options, including a central hub model, a technology company providing interoperability, and a regulated entity as an interoperability solution.
In terms of DLT-specific initiatives, the DLT Pilot Regime, an EU sandbox framework enabling experimentation with DLT in financial markets, has been part of EU policy discussions. So far, only two institutions have received approval under this regime: 21X and CSD Prague. The consultation explores potential changes to this regime and whether the licenses granted under it should be permanent.
The consultation also delves into the complexities of permissionless blockchains and conflict of laws within DLT contexts. It asks about the preferred connecting factor for proprietary, contractual, and system-related aspects related to transactions on a DLT system. Options for the connecting factor include the law chosen by the participants, the network participants, the legal entity operating the DLT-based system, the issuer's domestic law, the location of the relevant operating authority/administrator, and any other factor.
An important question is whether the concept of a combined DLT trading and settlement (TSS) should be enshrined in the mainstream laws, CSDR and MIFID. The Commission also poses the same question about the integration between different DLTs.
The consultation is extensive, with a five-page section dedicated to the DLT Pilot Regime and tokenization more broadly. It also raises questions about the risks of permissionless blockchains, the applicability of laws in cross-border transactions involving multiple countries and DLT systems, and the role of public policy in supporting integration between DLT and legacy systems.
The outcomes of this process could significantly shape the European digital assets landscape for years to come. The Commission aims to strike a balance between providing legal clarity and increasing the compliance burden in the European digital assets landscape. The consultation remains open or recently completed as of mid-August 2025, with concrete policy results expected to develop later.
[1] European Commission. (2025). Consultation on the Capital Markets Union. [Online]. Available: https://ec.europa.eu/info/public-consultations/11446_en [2] European Commission. (2025). Savings and Investment Union (SIU) strategy. [Online]. Available: https://ec.europa.eu/info/public-consultations/11445_en [3] European Commission. (2025). Consultation on sustainability reporting rules. [Online]. Available: https://ec.europa.eu/info/public-consultations/11442_en [4] European Commission. (2025). Consultation on streamlining financial regulations and supervisory frameworks. [Online]. Available: https://ec.europa.eu/info/public-consultations/11443_en [5] European Commission. (2025). Consultation on complex financial reporting rules. [Online]. Available: https://ec.europa.eu/info/public-consultations/11444_en
- The European Commission's consultation on the Capital Markets Union emphasizes the need for digital innovations like blockchain and distributed ledger technology (DLT), particularly in light of the DLT Pilot Regime.
- One of the key focused areas in this consultation is the regulation of interoperability providers, with the Commission exploring options like a central hub model or a technology company providing interoperability.
- The consultation delves into the complexities of permissionless blockchains and conflict of laws within the DLT context, asking about preferred connecting factors for transactions.
- The potential integration of DLT in mainstream laws, such as the CSDR (Central Securities Depositories Regulation) and MIFID (Markets in Financial Instruments Directive), is another significant topic under discussion.
- The outcomes of this consultation could have profound implications for the European digital assets landscape, as the Commission seeks to navigate the balance between providing legal clarity and minimizing compliance burdens.
