Decentralised Finance and Capital Markets Regulation

Decentralised finance has been fuelled by post-crisis distrust of traditional finance and financial intermediaries. This has led to the creation of systems based on distributed ledger technology and new forms of distributed governance. Nevertheless, distributed ledger technology systems have recently been examined for conventional markets, market infrastructures, payment systems, and even central bank digital currencies. Several factors (such as sub-sector, business model, and adequate power distribution) affect the level of decentralisation. Still, this phenomenon can have a relevant impact on European financial regulation, supervision, and relative principles. The conception of national and European financial regulations has been geared towards traditional intermediaries and centralised/hierarchical structures, which means they are not always compatible with distributed and non-proprietary systems. The European Union’s financial regulation might need to be adapted, as well as rethinking and further harmonising some underlying legal concepts and frameworks, such as for financial intermediation and business organisations. This chapter explores the main legal issues raised by financial disintermediation/decentralisation. The aim is to focus on their compatibility with European Union financial regulation, suggesting some possible links with central bank digital currencies discussions after providing a brief conceptual framework and a description of the recent distributed ledger technology ecosystems.