DLT in Financial Market Infrastructure: What Accounting Firms and CFOs Must Act On Now

Regulators across the EU, UK, Switzerland and Australia are no longer just studying distributed ledger technology for financial market infrastructure; they are building the legal frameworks to let permissioned networks run live, albeit under controlled conditions. For accounting firms, auditors and CFOs, that shift from research to regulated pilots carries concrete compliance obligations, record-keeping demands, and balance-sheet consequences that need attention right now, not once the sandboxes are fully operational.

Why Permissioned DLT Is the Only Path for FMIs

DLT comes in two broad forms: permissionless networks, where anyone can participate and validate, and permissioned networks, where access is controlled by a governing body. For mainstream financial market infrastructures (FMIs), the research consensus firmly points to permissioned architectures. Central securities depositories (CSDs), multilateral trading facilities (MTFs), clearing houses and exchanges operate under licensing regimes that are fundamentally incompatible with open, anonymous validation.

The practical appeal is real. A permissioned ledger shared across trading, clearing and settlement could compress settlement cycles toward real-time, reduce reconciliation failures, and potentially allow activities currently performed by separate FMIs to run on a single system. That last point is the most structurally significant: if a single DLT operator can legally combine the functions of an MTF and a CSD, the intermediary map changes in ways that touch custody accounting, principal versus agent revenue recognition, and counterparty risk disclosure.

What changes at the ledger level

From a bookkeeping standpoint, a shared ledger means that the authoritative record of a transaction is no longer held by one institution and reconciled against a counterparty's record. Settlement finality becomes an event on the ledger itself rather than a bilateral confirmation process. That rewrites the timing of when a firm can derecognise a financial asset or liability under both IFRS 9 and equivalent standards, and it affects when a trade date versus settlement date accounting policy election actually matters in practice.

The EU DLT Pilot Regime: What the Framework Requires

The EU moved first. The DLT Pilot Regime for market infrastructures, which ESMA has referred to as the DLTR, establishes a legal basis for trading and settling transactions in crypto-assets that qualify as financial instruments under MiFID II. It was introduced in September 2020 as part of the same legislative package that produced the Markets in Crypto-Assets Regulation (MiCA) and the Digital Operational Resilience Act (DORA).

The DLTR is structured as a time-limited, sandbox-style arrangement rather than a permanent licence. Firms need to understand its boundaries precisely.

Eligibility, limits and exemptions

Participation is open to authorised investment firms, market operators and CSDs, but also to new entrants that obtain the relevant permissions. The key structural parameters are:

• Permission is capped at six years and subject to periodic review, meaning any business case built on DLTR must account for the possibility of unwinding or transitioning out.
• Only less-liquid bonds, shares and fund units can be admitted. The aggregate market capitalisation or value of a newly admitted DLT financial instrument cannot exceed 6 billion euros at the point of admission or initial recording.
• Once operational permission is granted, operators can apply for exemptions from certain current regulations. Most significantly, direct access for natural persons to deal on their own account as DLT infrastructure participants becomes possible, removing the usual intermediation layer. Operators can also apply to combine the functions normally performed separately by MTFs and CSDs.
• Participants remain subject to organisational requirements covering IT and cyber resilience, safeguarding arrangements, record-keeping, investor protection and KYC/AML obligations.

ESMA is currently consulting on draft guidelines to standardise the formats and templates that market participants must use when submitting information to competent authorities. The DLTR provisions went live in March 2023, and ESMA is tasked with delivering a full evaluation report by March 2026 that will inform whether a permanent regime follows. For firms building technology investment cases, that 2026 report is a pivotal date.

ESMA's outstanding work on reporting standards

ESMA is also reviewing whether the MiFIR regulatory technical standards on trade and transaction reporting need adapting before they can be applied effectively to DLT financial instruments. This matters for crypto accounting software configurations: if reporting field definitions or timing rules change for DLT-settled instruments, the data extraction and submission workflows that firms rely on will need updating before those instruments can be held in a reporting-compliant portfolio.

The UK FMI Sandbox: Technology-Neutral but Structurally Similar

The UK is following a comparable route, though on a slightly different timeline and with a deliberate decision to keep the sandbox scope broader than DLT alone. Through legislation enacted via the Financial Services and Markets Act framework, HM Treasury gained the power to establish FMI regulatory sandboxes in which relevant legislation can be temporarily disapplied or modified to allow participating firms to test and adopt new technologies and practices.

How the UK sandbox differs from the EU DLTR

The UK's approach is intentionally technology-neutral, meaning it is not restricted to DLT in the way the EU DLTR is. HM Treasury consulted industry on the list of legislation in scope for modification and retains the right to amend that list. Crucially, findings from each sandbox can be used to make permanent legislative changes via statutory instrument, subject to the affirmative parliamentary procedure, after HM Treasury has reported back to Parliament.

Each sandbox is created by a statutory instrument that specifies the requirements and restrictions for participants, including the types of securities that can be traded and settled. Potential participants include existing recognised CSDs and MTF operators, though the scope could extend to other categories. Firms must apply to participate, and only a limited number will be accepted. The sandboxes are a step beyond the FCA's original regulatory sandbox launched in 2016, which was a firm-level testing environment rather than an infrastructure-level legislative modification.

For accounting firms advising UK-regulated FMI clients, the key point is that temporary legislative modification creates a parallel compliance reality. A client operating inside the sandbox is subject to a modified legal framework, while a client outside it is not. Audit opinions, compliance attestations and regulatory reporting must clearly distinguish which framework applies.

Switzerland and Australia: Live Deployments and Legacy Challenges

Two markets have moved beyond sandboxes into operational territory, though with different results.

Switzerland: SDX and the wholesale CBDC proof of concept

In September 2021, SIX Digital Exchange (SDX) in Switzerland received regulatory approval from FINMA to operate as an end-to-end, fully regulated exchange and CSD for the listing, trading, settlement and custody of digital assets. SDX allows financial institutions to trade digitised shares, bonds and other assets on a DLT-based system. Its first bond was issued in November 2021.

Separately, Phase II of Project Helvetia, a multi-phase investigation conducted by the BIS Innovation Hub, the Swiss National Bank and the financial infrastructure operator SIX, was completed in January 2022. Phase II demonstrated that a wholesale central bank digital currency (CBDC) can be integrated with existing core banking systems and processes of both commercial and central banks, a meaningful proof of concept for settlement in central bank money using tokenised assets.

For Swiss accounting firms and CFOs, SDX's live status is not a future scenario. Clients holding assets settled through SDX need a clearly documented accounting policy covering DLT-based settlement finality, custody classification, and how the firm's crypto accounting software ingests and reconciles on-chain settlement data against traditional ledger entries.

Australia: CHESS replacement and the cost of complexity

The Australian Securities Exchange has been working to replace its legacy post-trade system, known as CHESS, with a DLT-based successor. Market participants will be able to communicate with the new system via SWIFT or by hosting a DLT node. However, the project has been delayed multiple times since it was first announced in 2016, a reminder that migrating embedded, systemically critical infrastructure onto a new technology base is genuinely difficult and expensive.

The CHESS case is instructive for any firm conducting a cost-benefit analysis of DLT adoption. Running legacy systems in parallel with a new DLT environment during the transition period adds operational cost, and that cost does not appear only in the technology budget. It also appears in audit complexity, in the need to maintain two reconciliation frameworks simultaneously, and in the staff time required to manage dual reporting obligations.

Accounting and Compliance Implications Across All Four Jurisdictions

Whether a firm is operating inside a sandbox, advising a participant, or simply holding financial instruments that are admitted to a DLT infrastructure, several practical obligations arise.

Record-keeping and the authoritative ledger question

Under DLTR and equivalent frameworks, the DLT operator becomes the authoritative source of record for admitted financial instruments. Accounting firms auditing participants need to assess whether a client's own records are derived from the ledger in a reliable, tamper-evident way, or whether there is a reconciliation gap between the on-chain state and the firm's internal books. The answer determines whether audit evidence is sufficient under ISA 500 and ISAE 3000 equivalents.

Firms that configure crypto accounting software for DLTR-admitted instruments should ensure the system captures settlement finality timestamps from the ledger directly, rather than relying on bilateral confirmation messages that may lag the actual on-chain event. Getting this wrong means recognising derecognition of assets at the wrong date, which flows through to any mark-to-market P&L calculation, collateral reporting, and financial statement comparatives.

KYC/AML obligations inside the sandbox

Despite the exemptions available under DLTR and the UK sandbox, KYC and AML requirements are explicitly preserved. Direct participant access by natural persons does not remove the obligation to screen those participants. For compliance officers and accounting firms with AML responsibilities, this means that any expansion of direct access under sandbox rules needs to be matched by a proportionate expansion of onboarding and monitoring capacity. Sandbox participation is not a regulatory holiday.

Firms should also note that the BIS has flagged that most DLT experiments to date have been completed in controlled, technology-focused environments without a full cost-benefit analysis, and that several claimed DLT advantages, such as parallel transaction databases secured by encryption and validators, can also be achieved through upgraded traditional systems. That observation should temper investment narratives and ensure that any business case presented to a board or audit committee is grounded in honest comparative analysis rather than technology enthusiasm. Read more on how similar dynamics affect settlement accounting in our piece on how SWIFT's token ledger changes settlement accounting.

Audit, disclosure and board-level governance

For CFOs and audit committees, DLTR participation or exposure to DLTR-admitted instruments requires disclosure consideration under IFRS 7 (financial instrument risk disclosures) and, where applicable, IFRS 13 (fair value measurement). If settlement finality changes the definition of a transfer of risks and rewards, the accounting treatment for a traded instrument may differ from that of the equivalent instrument settled through a conventional CSD.

Governance frameworks need to reflect this. The six-year cap on DLTR permissions, the ongoing ESMA review process, and the possibility that the pilot does not lead to a permanent regime are all material uncertainties that belong in a risk register. Firms that have started building technology or operational infrastructure around DLTR need contingency plans for an exit or transition scenario. The broader context of digital sovereignty and regulatory infrastructure risk is covered in our article on digital sovereignty as a board-level risk under DORA and the ECB.

What Firms Should Do Now

The regulatory direction is clear enough to act on, even before sandboxes reach full operational scale. Accounting firms and CFOs should prioritise the following steps:

• Map any existing or prospective client exposure to DLTR-admitted instruments and confirm that current crypto bookkeeping software can ingest and timestamp on-chain settlement data accurately.
• Review accounting policies for settlement date versus trade date recognition in the context of DLT finality, and document the policy rationale clearly for auditors.
• Assess whether any client operating inside a regulatory sandbox is subject to modified legislation that differs from what is captured in current compliance monitoring frameworks.
• Ensure AML/KYC onboarding procedures cover the expanded direct participant access that DLTR exemptions permit, and do not assume that sandbox participation reduces screening obligations.
• Build the ESMA 2026 evaluation report into forward planning timelines: a negative assessment could trigger a sunset of the pilot regime, requiring a transition back to conventional settlement infrastructure.
• For Swiss-based clients, confirm that any assets held through SDX are accounted for under a documented policy that reflects FINMA-approved CSD status and DLT-based settlement finality.

The shift from controlled experiments to regulated pilots is real, and it is happening across multiple major jurisdictions simultaneously. The firms that prepare their accounting and compliance infrastructure now will be better placed to serve participants, advise on the risks, and avoid the reconciliation and reporting failures that tend to surface when new settlement infrastructure meets legacy accounting processes.

Source: KPMG Digital Assets

Frequently Asked Questions

What is the EU DLT Pilot Regime and when did it go live?

The EU DLT Pilot Regime, referred to by ESMA as the DLTR, is a time-limited regulatory framework that allows authorised investment firms, market operators and CSDs to trade and settle financial instruments that qualify as such under MiFID II on a distributed ledger. It was introduced as part of the EU's digital finance package in September 2020 and its provisions went live in March 2023.

What types of financial instruments can be admitted under the DLTR?

Only certain less-liquid instruments are eligible: bonds, shares and fund units. The aggregate market capitalisation or value of a newly admitted DLT financial instrument cannot exceed 6 billion euros at the point of admission to trading or initial recording on the ledger.

Does participating in a DLT sandbox remove KYC and AML obligations?

No. Both the EU DLTR and the UK FMI sandbox explicitly preserve KYC and AML requirements. While the DLTR allows exemptions from certain intermediation and CSD recording rules, compliance with anti-money laundering obligations remains mandatory for all participants, including where direct natural person access is permitted under an exemption.

How does DLT-based settlement finality affect financial statement accounting?

When settlement finality is recorded on a distributed ledger rather than confirmed through bilateral messaging, the timing of asset derecognition under IFRS 9 may change. Firms need to review their trade date versus settlement date accounting policy elections and ensure their crypto accounting software captures the on-chain finality timestamp rather than relying on downstream confirmation messages that may arrive later.

What is the significance of ESMA's March 2026 report on the DLT pilot?

ESMA is required to publish a report by March 2026 assessing the success of the DLTR pilot and making recommendations on whether a permanent regime should follow. For firms and CFOs, this report is a key date in forward planning: a negative assessment could mean the pilot regime sunsets, requiring participants to transition back to conventional settlement infrastructure, which carries its own operational and accounting complexity.