The bill on blockchain technology was passed on 14 February 2019 with 58 votes in favour and 2 against (Déi Lénk)
Firms using blockchain technology in financial transactions now have legal certainty in Luxembourg after parliament passed a law on Thursday.
Bill 7363 was intended to “provide financial market participants with legal certainty for the circulation of securities via blockchain technology”, the bill document reads, adding: “The bill should provide more security for investors and make the transfer of securities more efficient by reducing the number of intermediaries.”
It was passed with 58 votes in favour and 2 against (Déi Lénk).
The new legislation builds on the reform of the 1 August 2001 law on the circulation of securities, which in 2013 introduced the generalised possibility to issue dematerialised securities. It goes further in clarifying that securities may also be registered in an account and transferred using secure electronic registration mechanisms, in particular based on blockchain-type technologies of distributed registers or ledgers.
Blockchain, which was originally devised for digital currencies, works by creating lists of records, known as blocks, which are linked by cryptography. The blockchain keeps a record of all data exchanges, or transactions in a ledger. Every verified transaction is added to the ledger as a block. The system is secure because the transactions cannot be altered once they have been signed and verified.
There has, however, been some legal uncertainty regarding its use in Luxembourg, prompting calls in 2018 for a blockchain task force at government level. Responding to a parliamentary question in May 2018, finance minister Pierre Gramegna (DP) said the financial centre high committee served as a task force and gave the impetus for the creation of the Luxembourg House of Financial Technology. At the time, he said that 15 out of the 128 active fintech companies in Luxembourg were specialised in blockchain.
The passing into law of the bill was welcomed by the blockchain community. Lhoft CEO Nasir Zubairi told Delano on Thursday: “Though some would suggest that existing regulation was adequate, this new rule is welcomed in that it provides clarity on the settlement of securities by blockchain, removing ambiguity for Fintech firms and traditional institutions who are looking at Blockchain/DLT technologies as a means for reducing cost and optimising securities processes.”
LëtzBlock posted on its website that it “looks forward to a further extension to all Luxembourg companies in due course.” It further wrote that the commentary in the law demonstrated the fact that “Luxembourg legislator’s embrace of the “token” concept, stating that a token is “essentially a digital asset stored in a blockchain which, like a paper security or a conventional dematerialised security, represents the "security". This is from a technological point of view a new type of dematerialized security, but one that legally has attached to it the same rights as conventional dematerialized securities.”