De Nederlandsche Bank (DNB) and the Authority for the Financial Markets (AFM) have published a paper saying Dutch law needs to change to accommodate natively digital securities, which are not currently supported. Tokenization is possible, just not digitally native issuance. For the longer term they point to a possible EU level fix via the 28th regime, the optional pan-European corporate framework the European Commission proposed in March. That framework is relevant to corporate securities issuance. The regulators are cautious about it, warning it could simply add another legal layer on top of national laws unless it is comprehensive.
The EU DLT Pilot Regime doesn’t solve the problem. It offers exemptions from market infrastructure rules, but national law still decides the legal status of a token. As a result, a Dutch DLT venue that wants to issue natively digital securities has to do so under another member state’s law, using the EU’s passporting rules for securities depositories.
Several countries have already made the change. Germany, Luxembourg and France have amended their laws so that a distributed ledger can be a legally recognized record of securities ownership. The UK took a different route, recognizing digital assets as property and running its Digital Securities Sandbox for experimentation. We’d add Italy to the list, although it is not mentioned in the paper. The authors note that EU and national frameworks are “in principle formulated in a technology-neutral way but implicitly assume a traditional design of the financial market infrastructure.”
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