Skip to content
On 29 November 2021, the Commission de Surveillance du Secteur Financier (the “CSSF”), the Luxembourg financial supervisory authority, published its guidance on virtual assets (the “Guidance”) along with frequently asked questions (“FAQ”).
In its Guidance, the CSSF stresses that, as part of its mission, it is committed to promote an open, technology neutral and prudent risk-based regulatory approach. The CSSF also reminds that tokens, which are a digital representation of value, may come with a variety of rights and serve a wide range of purposes. Whilst most of the tokens are unregulated, some may fulfil the conditions of regulated instruments (e.g. financial instruments or e-money) and therefore fall within the scope of the regulation applicable thereto.
Any entity under the supervision of the CSSF which intends to pursue an activity involving virtual assets is required to carry out a thorough due diligence and weigh the risks and benefits of the virtual assets’ activity in light of the relevant professional’s business model and risk appetite. This should be done with regard to the specific characteristics and functions of the virtual asset at hand. Furthermore, the management body of the entity is responsible for developing:
The regulatory environment relating to virtual assets is rapidly evolving and professionals should adapt their business and operational arrangement activities to such developments.
Finally, professionals are reminded that they should proactively engage with the CSSF when planning any activity involving virtual assets.
2. The FAQ
The FAQ complements the Guidance by clarifying the regime applicable to investments in virtual assets by supervised undertakings for collective investments (UCIs).
1) UCITS and AIF
The CSSF adopts, with respect to virtual assets, a similar approach as the one previously stated with respect to virtual currencies on 14 March 2018. Investing in virtual assets (as defined under the law of 12 November 2004 on the fight against money laundering and terrorist financing, as amended (the “AML/CTF Law”) is not suitable for all kind of investors and/or all investment objectives. As such, undertakings for collective investment in transferable shares (UCITS) and other UCIs addressing non-professional customers and pension funds are not allowed to invest directly or indirectly in virtual assets.
However, the CSSF adopts a different approach for alternative investment funds (AIF). An AIF with an authorised alternative investment fund manager (AIFM) may invest directly or indirectly in virtual assets if (i) such AIF is targeted to professional investors only and (ii) if the authorised AIFM of the AIF obtains an extension of authorisation from the CSSF with regards to its new investment strategy into virtual assets.
The CSSF underlines that the authorised AIFM should consider on a case-by-case basis the risks associated to virtual assets when integrating virtual assets into the investment policy of the AIF and how such risks may impact the investment policy. The authorised AIFM should furthermore have the adequate internal control functions as the latter play a key role in the approval of new products/investment strategies.
2) Authorisation for Investment Fund Managers regarding the management of virtual assets
Before investing in virtual assets, the following process must be followed by any Investment Fund Managers (IFM) intending to manage an AIF, regulated or not, investing in virtual assets and any initiator of such AIF where applicable:
the CSSF expects that the initiator and/or the IFM of the AIF presents the project of investments into virtual assets to the CSSF beforehand;
the IFM is required to obtain the prior authorisation by the CSSF for the strategy “Other-Other-Fund-Virtual assets”;
an analysis of the services provided by the IFM or any other participants should be conducted to assess whether such activities are falling within the scope of article 1 (20c) of the AML/CTF law (virtual assets services) and are therefore subject to a prior registration as a “virtual asset service provider” (“VASP”) with the CSSF.
3) Increasing risk of money laundering, terrorist financing and proliferation financing
According to the CSSF, investing in virtual assets increases the money laundering (“ML”), terrorist financing (“TF”) and proliferation financing risks. Therefore, measures must be put in place to mitigate the increasing risks accordingly. In that respect, the CSSF expects the “Responsible du Contrôle” and the “Responsible du Respect” to demonstrate that the new ML, TF and proliferation financing risks related to the investment in virtual assets are considered and that the necessary measures are in place to mitigate such risks. In this regard, the CSSF refers to the national vertical risk assessment of ML and TF related to VASP.
 Warning regarding virtual currencies published on 14 March 2018, available here: https://www.cssf.lu/en/2018/03/warning-regarding-virtual-currencies/