The pilot regime sets out the conditions for acquiring permission to operate a DLT market infrastructure, defines which DLT financial instruments can be traded and details the cooperation between the operators of DLT market infrastructures, national competent authorities and ESMA.

A provisional agreement between the Council of the EU and the European Parliament was reached on the following key issues:

• definition of the DLT market infrastructure;
• thresholds for admission to trading or recording on a distributed ledger;
• supervision: national competent authorities will remain in charge for the authorisation while the ESMA can issue an opinion on the application. The opinion would be non-public and non-binding but an explanation would be needed in case the national competent authorities decide to significantly deviate from it;
• consumer protection: DLT operators will have mechanisms for handling clients’ complaints and their compensation

This pilot regime will be in place for three years. The European Commission, based on advice from ESMA, will then report to the Council of the EU and the European Parliament on the costs and benefits of extending, modifying or ending it.

In its opinion, which was published in January but had been adopted in plenary at the end of October 2019, the consultative body to the European Union said that blockchain can have "positive transformative force across many sectors", and bring trust, transparency, democracy and security, and ultimately reinvent socioeconomic models.

According to the opinion, other potential benefits of blockchain include empowering citizens, boosting entrepreneurship and innovation, improving mobility and cross-border opportunities for businesses while enhancing transparency for consumers, including through smart contracts or digital identities.

Blockchain can also reduce tax evasion/avoidance and corruption, develop private and public services and transform concepts such as competition and governance, mitigate data breaches or generate new funding models.

However, challenges remain, in particular the "urgent" matter of addressing the current legal uncertainty and protecting privacy.

On the first point, the EESC said that although there are some regulatory solutions for cryptocurrencies and initial coin offerings, the legislative framework is still unclear in respect of system design and in areas where blockchain is applied, "resulting in a fragmented approach" at Member State level.

"Without a joint EU initiative for legal certainty and clarity across the EU, cross-border opportunities will be limited," the opinion said, adding that use cases and regulatory sandboxes could be helpful.

On privacy, the opinion noted that when the GDPR was introduced blockchain was mostly unknown. The potential tensions between the GDPR and blockchain therefore need to be reviewed.

"The EESC calls on the [European Commission] to examine the GDPR, and propose revisions and further guidance on the relationship between the GDPR and [blockchain]," the opinion said.

Another challenge concerns the legal distinction between anonymised and pseudonymised data, which still allows for some form of re-identification.

"While in permissioned [blockchain], pseudonymisation is considered as a solution for the relations facilitated by [blockchain] technology, anonymisation is still a regulatory barrier for wider use of permissionless [blockchain], which can be resolved through digital identity solutions embedded into the regulatory restrictions," the EESC said.

Other challenges include:

• the high energy consumption of the proof-of-work consensus mechanism;
• the interoperability with different blockchain platforms, which may not be compatible due to the risk for parties that exchange data;
• transactions costs are often prohibitive;
• it is key to fully understand and review how blockchain affects consumer protections and rights; and
• analyse the potential effects on jobs, working conditions, workers' rights and protection.

The EESC therefore called for a common EU approach to be adopted and for the Commission to launch a comprehensive blockchain initiative setting out a common approach and vision. This should be complemented by an action plan for Europe to become the reference point for blockchain worldwide.

In addition, the European Blockchain Partnership and Blockchain Observatory and Forum should be reinforced with the creation of an EU blockchain stakeholder platform, which would bring together representatives from the EU institutions, industry consumers, Member States, academics and others to create a space for joint learning and capacity building, "a network of networks and sharing good practices".

According to the statement, stablecoins may present opportunities in terms of cheap and fast payments, especially cross-border ones.

However, they also pose multifaceted challenges and risks in respect of consumer protection, taxation, privacy, cybersecurity and operational resilience, money laundering, terrorism financing, market integrity, governance and legal certainty.

Concerns are also amplified are stablecoins that could have a global potential and "new potential risks to monetary sovereignty, monetary policy, the safety and efficiency of payment systems, financial stability, and fair competition can arise".

Global stablecoins projects and arrangements should therefore not "begin operation in the European Union until the legal, regulatory and oversight challenges and risks have been adequately identified and addressed".

The Commission and Council also said that they would "tackle the challenges raised by these initiatives" based on an EU common understanding and co-ordinated approach.

"These initiatives should not undermine [the] existing financial and monetary order as well as monetary sovereignty in the European Union," the two bodies said.

The statement also called for legal clarity about the status of stablecoins and invited entities that intend to issue them in the EU to give "full and adequate information urgently" to allow for a proper assessment against the applicable rules.

"Tackling the challenges raised by 'global stablecoins' requires a co-ordinated global response. The risks raised by 'stablecoin' arrangements should be subject to clear and proportionate regulatory and oversight frameworks," the statement said.

As noted by the European Central Bank (ECB) recently, the Commission and the Council also commented that the emergence of stablecoins shows that payment arrangements need to evolve to meet market and consumer demand for fast, convenient, efficient and inexpensive payments, especially cross-border ones.

The two bodies also welcomed the move by the ECB and other central banks and national competent authorities to explore further the ongoing digital transformation of the payment system and the consequences of initiatives such as stablecoins.

"We welcome that central banks in cooperation with other relevant authorities continue to assess the costs and benefits of central bank digital currencies as well as engage with European payment actors regarding the role of the private sector in meeting expectations for efficient, fast and inexpensive cross-border payments," the Commission and the Council concluded.