Issuance and settlement of securities directly on blockchain: now a reality in Luxembourg

Luxembourg

Last summer in one of our e-alerts, we shared our insights on the key features of the bill of law n°7637 allowing for registration of dematerialised securities issued on the blockchain with central account keepers.

The legislative process has now come to an end as on 21 January 2021, the Luxembourg parliament approved the bill and a request for its exemption from the second round of voting was filed with the State Council. The law is therefore expected to enter into force in the next few days.

This new piece of legislation is another significant landmark in the transformation of the Luxembourg financial services landscape.

In 2019, the Distributed Ledger Technology (“DLT”) first found its way into the Luxembourg securities legislation (ie the Luxembourg law on the circulation of securities dated 1 August 2001). In recognising the possibility of using secured electronic registration mechanisms such as Blockchain for holding and registering book-entry securities in securities accounts (comptes-titres), Luxembourg has become one of the first country in Europe to offer to investors a safe and technologically advanced financial system.

In early 2021, the Luxembourg legislator goes a step beyond to further shape the future of the Luxembourg financial services legal framework in fostering the use of new technologies:

  1. It modernises the Luxembourg law of 6 April 2013 on dematerialised securities (the “2013 Law”) by inserting a definition of “issuance account” which expressly refers to the secured electronic registration mechanisms technology and environment.
  2. It tweaks the Luxembourg law of 5 April 1993 on financial sector, as amended in opening the role of central account holder with respect to unlisted debt securities to European Economic Area (“EEA”) investment firms and credit institutions.

Issuance account

Mirroring the language used in the Luxembourg securities regulation, the definition of “issuance account” inserted in the 2013 Law states that such account may be held and the securities records therein may be effected within or by virtue of secure electronic recording systems, including ledgers or databases relying on DLT. Reliance on DLT is now allowed in the context of the issuance of dematerialised securities.

The role of central account holders for unlisted debt securities open to EEA investment firms and credit institutions

The law opens the activity of central account holder with respect to unlisted debt securities to EEA investment firms and credit institutions to the extent that they meet the appropriate technical and organisational requirements to carry out such activities.

Our digital assets team will be happy to navigate you through the practical implications this new law may have during our Webinar on Friday 12 February.

For any questions regarding the above, please do not hesitate to contact our specialists.