Yesterday, Luxembourg passed its Blockchain 4 law, which aims to facilitate the adoption of DLT for securities. The fact that this is the fourth national blockchain law shows how pioneering it has been in this area. It extends the coverage of the DLT law to funds.
The new legislation introduces the optional role of screening agent for digital securities issuances, as was explored when the Bill was published. This is similar to a crypto securities registrar under the German Electronic Securities Act (eWpG) with some additional advantages.
Under existing laws on DLT-based securities, Luxembourg had a two-tier concept including a central account holder, similar to a central securities depository (CSD) but less expensive. The second level concerns account holders, who are depositories. With two layers involved, this still requires the reconciliation process which DLT can bypass.
With the new ability to use a single screening agent, there is only one tier and it is possible for investors to hold securities directly.
The controlling agent is responsible for maintaining the issue account, tracking the chain of title of securities, and reconciling issued securities.
A credit institution, investment firm or EU CSD can take on the role of supervisory agent. They are not required to be approved in Luxembourg, but they must give a few months’ notice to the regulator (CSSF).
This is where Luxembourg law is superior to that of Germany. First, a German crypto securities registrar must be German. And institutions are required to apply for a license in the same way as startups. Thus, in Germany, the sector is dominated by startups, DekaBank being to our knowledge the only institution to have followed the licensing process. This is not surprising given that he is the founder of the SWIAT blockchain network.
Extension of DLT to securities and funds
In Luxembourg, the existing DLT law with account holder only applied to unlisted debt securities. The law has now been extended to include unlisted shares, including funds.
Given Luxembourg’s central position as a hub for EU fund issuance, this is a big deal.
