Nothing has really happened, despite efforts. In 2019, in 2021, in 2023: law after law, text after text has been produced to help put Luxembourg at the European forefront of blockchain and distributed ledger technologies (DLT).
But the financial centre, by nature cautious and risk-averse, has not really embraced the technology.
“Progress on institutional adoption has reached an inflection point as firms continue innovating in silos, with small-scale initiatives that fail to progress or prioritise broad ecosystem development,” concluded, in May, three of the world’s largest financial market infrastructures: DTCC, Clearstream and Euroclear. The statement came in the context of a collaboration with the Boston Consulting Group, a study of around 100 regulations and white papers in several jurisdictions and more than 20 interviews with big market players and technology providers.
By 2030, however, the tokenisation of the world’s illiquid assets is expected to represent a business opportunity worth $16trn, say the quartet of firms in the paper, called “Building the Digital Asset Ecosystem” and available to read .
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This week, prime minister (CSV) and finance minister (CSV) added a new stone to this nascent edifice by introducing a bill to create a monitoring agent for securities issuance, a project that has largely taken a back seat to the Caritas affair and the new coalition’s first nine months in government.
CSSF to oversee implementation
“It surprised us,” admits Émilie Allaert, head of the Luxembourg Blockchain Lab. “We spoke about it with various stakeholders. This text is not linked to any current European legislation, such as Dora [Digital Operational Resilience Act] or the European Pilot Scheme on Market Infrastructures. After three experiments with legal frameworks in Luxembourg, which did not really produce the expected results, this shows very clearly that Luxembourg wants to position itself. And that’s very positive!”
The Luxembourg text introduces a new status for monitoring agents in the legislation on dematerialised securities, who can be designated by European investment firms or credit institutions. This status does not replace the existing one, but is added as a new possibility for market participants, all under the supervision of the CSSF. This new role must be notified, with all the usual information, two months after the start of its activities for prior control.
The supervisory officer must rely on DLT to carry out their supervisory role “with regard to the issue of securities,” says the text. Such a role is threefold: “It maintains the issue account within or through a secure electronic recording device, including a distributed electronic register or database; it monitors the chain of custody of dematerialised securities held in securities accounts within or through a secure electronic recording device, including a distributed electronic register or database; and it verifies that the total amount of each issue recorded in an issue account maintained in or through a secure electronic recording device, including a distributed electronic register or database, is equal to the sum of the securities recorded in the account holders’ securities accounts maintained in or through a secure electronic recording device, including a distributed electronic register or database.”
The supervisory officer, says the text, must establish a contractual framework, in particular with the account holders and the issuer, for the performance of their duties. The new model differs from the current model, which requires the establishment of a two-tier holding chain (depository-custodian) to monitor the holding of securities, including the reconciliation of securities issued. And all this comes without having direct contact with secondary depositories.
“The bill is in line with the government’s objective of enhancing the attractiveness and competitiveness of the financial centre,” says the government, “by creating a welcoming legal framework for digital securities and offering greater flexibility, security and transparency to issuers and investors. It also follows on from the pioneering laws adopted in Luxembourg on distributed ledger technology.”
Luxembourg was one of the first states to have established a set of rules explicitly authorising securities transactions using DLT systems. In 2019, the Blockchain I law clarified that the holding and transfer of securities was possible on DLT-based systems and that transfers recorded in this way were to be considered as transfers between securities accounts. Two years later, the Blockchain II law specified that authorised issuers could also use DLT to issue and convert dematerialised securities.
This article in French.