Tokenization companies in Europe call on EU to update DLT pilot laws as US pushes ahead

Tokenization companies in Europe are calling on the EU to update its rules for the blockchain market quickly, saying that the strict limits of the current DLT Pilot Regime are hindering innovation. 

The groups argue that the restrictive measures are hindering Europe’s ability to establish large-scale tokenized financial markets, while the US is advancing with clearer regulations and faster settlement systems. 

A coalition of major tokenization and financial infrastructure companies, including Securitize, 21X, Boerse Stuttgart Group, Lise, OpenBrick, STX, and Axiology, recently sent a joint letter to EU policymakers. The letter, coordinated ahead of an upcoming debate in the European Parliament, called for targeted reforms to the EU’s DLT Pilot Regime, intended as a testing framework for blockchain-based trading and settlement of securities. 

The companies cautioned that delays in improving the rules could have serious consequences. They said that while the EU’s broader Market Integration and Supervision Package might eventually help modernize financial markets, its impact may not fully come into effect until around 2030.

Tokenization firms call for targeted technical changes

The companies were explicit in saying they weren’t seeking weaker investor protections. Instead, they recommended specific technical changes to improve the functioning of the DLT Pilot Regime. Such changes include expanding the categories of assets that can be tokenized, increasing the current limits on total issuance, and abolishing the 6-year expiration period for pilot licenses. “These reforms could also be realized quickly from a focused technical update,” the group said. 

There is no need to reopen or defer the EU’s wider financial overhauls, they said. This route would help companies with tokenized systems in various countries continue to expand their European services. 

Such changes would bolster the euro’s position in global finance. Blockchain-based systems enable near-instant settlement of trades, unlike conventional systems that take days. 

Quicker settlement minimizes risk and improves efficiency, thereby enhancing the attractiveness of markets to investors. Without these improvements, the companies warned, Europe’s financial infrastructure might yet be slower and less competitive than markets that have converted to fully digital systems. 

US advances tokenized markets with clearer rules

While Europe grapples with adjustments to the new order, the US has already taken many steps to incentivize the emergence of tokenized securities within its current regulatory framework. 

It recommended regulatory requirements for broker-dealers regarding the maintenance of asset-backed securities and the holding of tokenized securities, such as stocks and bonds, while adhering to customer protection rules. This means that tokenized securities would become part of the classical financial system – not a stand-alone system. 

With the Dec. 11 issuance of a no-action letter to a subsidiary of the Depository Trust & Clearing Corporation (DTCC), the service is allowed to proceed, and real-world assets held in custody were converted into freshly made blockchain-based tokens, modernizing the old market infrastructure. The SEC made two further points on Jan. 28, clarifying the two types of tokenized securities. These assets comprise tokens issued directly by their issuers and by third-party companies. 

The clarification, put another way, teaches companies how to do business legally and, if necessary, reduces uncertainty. The country’s largest US stock exchanges are already considering tokenization, too. Nasdaq asserts that getting regulatory approvals to list tokenized stocks is among its priorities. 

The New York Stock Exchange (NYSE) is developing a blockchain-enabled trading system that could allow tokenized stocks and exchange-traded funds to move around the clock. These are quick, no-wait, no-delay solutions that help to marketize everything. The advances have also placed growing demands on EU regulators to update their systems to do the work. 

European tokenization companies think the EU is still well-positioned to take the lead on financial innovation — should it proceed rapidly. They said tokenization was poised to transform capital markets for the better, accelerating trades, increasing transaction transparency, and making transactions more efficient. 

But they warned that financial markets are evolving so quickly that global liquidity typically drifts toward the systems best suited to meet demand. 

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