Introduction

On 6 October 2023, a legislative proposal for a law concerning various financial provisions (Belgian Proposal)¹ was submitted to the Belgian Parliament, transposing Regulation (EU) 2022/858 of the European Parliament and of the Council of 30 May 2022 on a pilot regime for market infrastructures based on distributed ledger technology, and amending Regulations (EU) No 600/2014 and (EU) No 909/2014 and Directive 2014/65/EU. This legislative initiative, often referred to as the DLT Regulation, is part of the European Union’s digital financial strategy and, among other things, it provides a legal framework that facilitates the provision of financial instruments based on distributed ledger technology, commonly known as DLT financial instruments. 

The DLT-Regulation defines DLT financial instruments as: 

• A financial instrument that is issued, recorded, transferred and stored using a technology that enables the operation and use of a distributed ledger (i.e. distributed ledger technology)
  • A distributed ledger is an information repository that keeps records of transactions and is shared across, and synchronized between, a set of DLT network nodes using a consensus mechanism (i.e. rules and procedures by which an agreement is reached, among DLT network nodes, that a transaction is validated)
    • DLT network nodes are a device or process that is part of a network and that holds a complete or partial replica of the records of all transactions on a distributed ledger. These include, but are not limited to, crypto-assets qualifying under the abovementioned conditions.

Under the Belgian Proposal, Article 2 of the Law of 2 August 2002 on the supervision of the financial section and financial services would be amended to incorporate the applicable definition of DLT financial instruments as used in the DLT Regulation.

The DLT Regulation foresees a trial period of maximum six years which will be implemented accordingly for Belgium.

Pilot DLT program in brief

The DLT Regulation introduces a pilot program: Investment firms and market operators licensed to operate multilateral trade facilities (MTFs) and central securities depositories (CSDs) are given the opportunity to secure specialized authorization to run what is referred to as, respectively a Distributed Ledger Technology Multilateral Trading Facility (DLT MTF) and a Distributed Ledger Technology Settlement System (DLT SS) for a maximum of six years. Furthermore, the adoption of DLT can potentially facilitate both the trading and settlement of DLT financial instruments within a unified platform, rather than separate ones. Consequently, the DLT Regulation also permits MTFs and CSDs to request specific authorization for the operation of a so-called Trading and Settlement System (DLT TSS), which integrates the trading and settlement of DLT financial instruments. 

Belgian implementation under the so-called twin-peaks supervisory model

The DLT-Regulation is directly applicable in the Belgian legal order, requiring no further transposition through national legislation. Even so, the Belgian Proposal sets out additional measures to implement the regulation: (a) a (further) division of powers between the Financial Services and Markets Authority (FSMA) and the National Bank of Belgium (NBB) on the one hand, and on the other (b) a change in the definition of financial instruments, as defined in Article 2 of the Law of 2 August 2002 on the supervision of the financial section and financial services. The latter restates the amendments made by the DLT-Regulation, emphasizing that the definition covers any instrument falling within the categories of financial instruments and issued through DLT. 

The Belgian Proposal suggests the following division of powers — yet another result of the so-called twin-peaks supervisory model:

(a) the NBB is the competent authority for prudential control of credit institutions, among other things, and payment institutions in Belgium, and

(b) the FSMA is competent for the financial markets (including MTFs), listed companies, financial products, services and intermediaries and the relevant rules of conduct in relation thereto, The division between both regulators is as follows:

• The FSMA maintains exclusive authority for granting licenses and exercising its supervisory and sanction powers for DLT MTFs.
• The NBB is competent to provide licenses for DLT SSs but must seek prior (non-binding) advice from the FSMA on matters where the FSMA has joint competence. Both the FSMA and the NBB can wield their specific supervisory and sanctioning powers, each in their respective areas of competence.
• For DLT TSSs, the FSMA is competent to issue licenses for MTFs and the NBB for CSDs. The authority taking a decision must first seek the opinion of the other authority; the opinion is binding where it relates to matters for which that authority has exclusive jurisdiction, and is non-binding when it relates to matters for which both authorities have jurisdiction. Once permission is granted, both the NBB and the FSMA can independently utilize their respective supervisory and sanctioning powers, each in their respective areas of competence. 

Non-compliance with the DLT-Regulation under the Belgian Proposal

The Belgian Proposal currently provides for the NBB and the FSMA to have individual competence to impose sanctions in relation to their DLT supervisory functions (in addition to the already existing punitive powers), such as, but not limited, imposing the following fines: (i) penalties per calendar day of maximum €50 thousand (and in total maximum €2,5 millions) and (ii) administrative fines between €2,5 thousand and €2,5 millions per offence / set of offences. Where the offence has provided the offender with a pecuniary benefit, the maximum amount is increased to twice the amount of the benefit and, in the event of repeat offense, to three times this amount.

In view of the above, the ESMA has already published the following documents:

• Report on the DLT Pilot Regime - Study on extraction of transaction data
• Guidelines on standard forms, formats and templates to apply for permission to operate a DLT Market Infrastructure

¹ Wetsontwerp houdende diverse financiële bepalingen, Parl.St. Kamer 2022-23, nr. 3561/001.