Luxembourg’s most recent Blockchain Law IV, adopted on 19 December 2024, advanced the framework for the country around distributed ledger technology (DLT). As BSP , “This legislation facilitates the issuance of digital securities and promotes tokenisation by integrating DLT into payment, reconciliation, and smart contract processes,” thereby ensuring “legal certainty, flexibility, and transparency of digital financial services.”
Partner and head of the Investment Management department, Evelyn Maher has been active on Luxembourg’s investment fund market since 2001, assisting fund promoters and asset managers in relation to the structuring and establishment of a wide range of funds, including private equity, venture capital, loan origination, loan participation and real estate. She sees the advancement of the law as another measure by which Luxembourg is putting a proper framework in place to allow service providers to build or use DLT in a way to support funds.
“I think Luxembourg and the CSSF [Luxembourg’s Financial Sector Supervisory Commission] realised some time ago that for the financial sector here to remain relevant, efficient and profitable, they have to adopt and use some of these innovative technologies,” she says.
In addition to the advancement of the framework to support funds, she cites the openness of the CSSF when it comes to having discussions with newcomers and existing providers alike, including via its Innovation Hub, which, per the financial watchdog’s website, consists of “a dedicated point of contact for any person wishing to present an innovative project or to exchange views on the major challenges faced in relation to the financial innovation in Luxembourg.”
I think Luxembourg and the CSSF realised some time ago that for the financial sector here to remain relevant, efficient and profitable, they have to adopt and use some of these innovative technologies,
The CSSF has also published white papers and guidance when it comes to virtual assets, and clarified the use of DLT for share registers.
Opportunities for future development
Evelyn explained that she has seen clients use tokenisation in a limited number of cases, but that she expects there to be an uptick especially now that there is EU clarification that a financial instrument that is tokenized is not necessarily a crypto asset. As the industry becomes more accustomed to the technology she would expect to see more funds tokenizing.
In relation to future development in crypto assets, as Evelyn points out, in a 16 January 2025 published by the European Banking Authority (EBA) and European Securities and Market Authority (ESMA), research found, per the report authors, “that EU investment funds providing exposure to crypto-assets markets or the blockchain sector in a broader sense represent, as of February 2024, a tiny portion of the EU fund universe (0.02%) with a combined net asset value of a few billion euros only”.
“If we take crypto-assets, I think the major challenge is service providers,” she explains. “Over the years, we’ve been approached to set up funds for investment in crypto-assets, but they have often been thwarted due to the dearth of service providers in Luxembourg that can support them, be it the depository or the AIFM.”
If we take crypto-assets, I think the major challenge is service providers.
While, she adds, there are now some Luxembourg providers that are active in this area, the market needs more of them in order to grow. Maher adds that the Markets in Crypto-Assets Regulation (MiCA), which , and fully applies since December 30, 2024 might make this space more attractive for investors as it provides a more harmonised framework.
So, how likely could it be that Luxembourg will see a rise in crypto-assets? “I can’t see how there can’t be a rise,” Maher argues. “Five or six years ago, crypto-assets were extremely volatile and risky. They still are, but it’s becoming more acceptable to have some crypto-assets as part of a diversified portfolio.”
Even if growth in this area within the EU has lagged behind the U.S., Maher believes that as the sector matures and with the legal framework in place, there will be more acceptance of crypto assets, with Luxembourg already well-positioned within Europe. “Institutional investors are used to Luxembourg, they know Luxembourg investment funds in Europe. Provided we can grow the service providers, I think the Luxembourg funds are there to be used to pool assets to make these types of investments.”
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BSP is an independent, full-service law firm in Luxembourg, providing services for domestic and international clients in all areas of Luxembourg business laws. With around 115 employees, the BSP team includes lawyers with a wealth of experience in banking and finance, capital markets, corporate law, dispute resolution, employment law, investment funds, intellectual property, private wealth, real estate and tax.