EU's Market Integration Package – DLT need to know

(estimated 4 minute read)

Key takeaways:

• Market Integration Package (MIP) proposes major changes to EU financial services legislation.
• There are significant proposals impacting the distributed ledger technology (DLT) ecosystem:
  • key upgrades to the EU DLT Pilot Regime;
  • a single EU regulator for cryptoasset service providers (CASPs);
  • revisions to Central Securities Depositaries (CSD) rules to allow provision of CSD services using DLT;
  • settlement finality rules to cover DLT.
• MIP now enters the EU legislative process. Given the enormous scale of legislation to be amended, substantial changes to the proposals are possible.
• Implementation is not imminent, with estimates ranging from 2027 to 2029. Even then, some aspects would have long transition periods.

What's happened?

The European Commission's Market Integration Package proposes significant simplifications to the EU's financial services regulatory framework. Affecting 18 pieces of EU legislation, it is a central component of the EU's previously announced Savings and Investments Union (SIU).

MIP would be enacted by a Master Regulation and a Master Directive, which amend a raft of EU financial services regulations and directives. There would also be a Settlement Finality Regulation (SFR), to replace the existing Settlement Finality Directive and amend the Financial Collateral Directive.

In this update we overview the MIP proposals impacting the DLT ecosystem.

If you need a general refresher on DLT (or more generally on Digital Assets), see Ashurst's Digital Assets 101.

DLT Pilot Regime

The EU DLT Pilot Regime commenced in March 2023, and enabled authorisation of financial services firms to experiment with DLT. It permits the issuance, trading and settlement of in-scope digital assets within the scale limits. (See Ashurst's previous EU DLT Pilot Regime update).

The EU DLT Pilot Regime is not seen as a success. There have been few entrants, and the activities within it have been very limited. MIP proposes to expand its scope and scale and to make it more flexible and proportionate. The European Commission has therefore conducted an early review. The proposed amendments aim to increase EU DLT Pilot Regime take up and therefore innovation.

All financial instruments would be eligible (currently only shares, bonds and UCITS units qualify). Existing asset-specific caps would be removed, and the aggregate value of all DLT financial instruments admitted to trading (or recorded) on a DLT market infrastructure would become €100 billion (from €6 billion). Current permission time limits (of up to six years) would be removed.

Smaller DLT infrastructures (servicing up to €10 billion market value of recorded DLT financial instruments) would be able to operate under a simplified regime.

CASPs authorised to operate a cryptoasset trading platform would become eligible to operate a DLT trading venue (DLT TV) and a DLT trading and settlement system (DLT TSS) (joining investment firms and CSDs).

Operators of DLT market infrastructures would be able to apply for, under strict conditions, exemptions from a wide range of EU regulatory provisions under the Markets in Financial Instruments Directive II (MiFID II), Markets in Financial Instruments Regulation (MiFIR) and the Central Securities Depositories Regulation (CSDR) where these have been found to be 'incompatible or highly disproportionate with the use of DLT'.

A wider set of firms would be able to provide DLT notary and central maintenance services (currently reserved to CSDs). DLT account keepers with access to central bank money and part of a settlement scheme would be able to settle DLT financial instruments. Finally, entities active in the post-trading value chain are required to establish technical standards that support interoperability between DLT market infrastructures.

Single CASP EU Regulator

Recognising that cryptoassets are innately cross-border, CASPs would become authorised, monitored and supervised directly by the European Securities and Markets Authority (ESMA) (replacing individual Member State's regulators). This proposal goes beyond the joint position paper of 15 September 2025 from the AMF, the FMA and CONSOB calling for a direct supervision of significant CASPs by ESMA (see Ashurst's previous MiCA and crypto regulation update).

Some firms that do not currently require CASP authorisation would continue to be supervised by individual Member State's regulators. If cryptoasset services became their main activity, these firms (except for banks) would be treated as CASPs and their supervision would be transferred to ESMA.

Central Securities Depositaries

CSDR aims to harmonise the settlement of securities transactions. To enhance legal and operational certainty, it establishes uniform requirements for the authorisation and supervision of CSDs.

MIP integrates DLT into the CSD regulatory framework. It makes definitions technology neutral - the existing definitions of ‘book-entry’, ‘cash’ and ‘securities accounts’ are amended and definitions of ‘distributed ledger technology’ and ‘e-money token’ are added. It also enables certain e-money tokens authorised under MiCA to settle the cash leg of a securities transaction. These amendments aim to create a regulatory environment that allows, and facilitates, the adoption of DLT in CSD services.

Settlement Finality

The SFR would define the moment of 'settlement finality' as the moment when the discharge of the respective obligations of the parties to a transaction are completed in an unconditional and irrevocable manner. For example, when a transaction cannot be revoked, and cannot be impacted by a party's intervening insolvency. Settlement finality applies to in-scope financial systems and is crucial for certainty within financial markets.

Existing rules (the Settlement Finality Directive and the Financial Collateral Directive) are not technology neutral. The Directives were drafted based on traditional finance, and their provisions do not always easily fit with DLT-based activities and financial instruments. The SFR aims to remedy this. The amendments would change definitions and concepts to make them DLT-compatible. Implementation by an EU Regulation, rather than a Directive, also ensures that implementation is consistent between EU Member States.

Each DLT system uses a consensus mechanism. As the name suggests, consensus is the process for determining the status of the blockchain and any changes. Some blockchain protocols use probabilistic finality. This means that a transaction's finality cannot be absolutely guaranteed due to the probabilistic nature of certain DLT consensus algorithms.

Under SFR, settlement finality would be "determined by the common rules and standardised procedures of each designated system" and in particular a DLT system "shall implement mechanisms guaranteeing deterministic and legally enforceable finality moments." In addition, each system operator shall ensure, to the extent possible, that the rules of all interoperable systems concerned are coordinated.

EU regulatory authorities would be able to issue regulatory technical standards (RTSs) to determine the moment of settlement finality in DLT-based systems. For example, when a DLT's technical protocol consensus is final and the record cannot be reversed. And how finality could be defined for probabilistic or layered finality models. In other words, much technical heavy lifting remains to define DLT settlement finality.

Why MIP matters

The EU Single Market, established in 1993, is described as one of the EU's greatest achievements. However, the International Monetary Fund (IMF) estimates that internal barriers to the Single Market are equivalent to a 110% tariff on services. An astonishing statistic.

The development of a real Single Market for financial services is primarily held back by persistent fragmentation. At the same time, the international pace of change in the Digital Asset ecosystem is exponential. As EU Commissioner Albuquerque recently noted, "Decentralisation and DeFi do not wait for policymakers. They move fast, break boundaries, and challenge the assumptions of last century's financial systems."

The Market Integration Package aims to meet all these challenges. The package supports Europe's goal to be more competitive and create a more business-friendly environment. And also to attract global investment and innovation through new technologies such as DLT.

MIP lands in an extremely crowded and competitive international regulatory arena. Many international financial centres aim to be the Digital Assets jurisdiction of choice. Although the EU was early to market with MiCA and the EU DLT Pilot Regime, it has to some extent suffered from first mover disadvantage. MIP is an ambitious proposal to redress the EU's position.

The challenges are not solely international. MIP is large and ambitious, and the EU's legislative process is notoriously slow and complex. All constituents, including Members States, financial services firms, and end users, will have their own contrasting views. For example, both large and small Member States – for different reasons – may not all be in favour of a single EU regulator. And, last but not least, the devil is in the detail of the extensive wording.

What's next?

Implementation is not imminent, with estimates ranging from 2027 to 2029. Even then, some aspects would have long transition periods.

To keep up to date on MIP, and for other Digital Assets thought leadership, visit www.ashurst.com/digitalassets.