On 19 December 2024, the Luxembourg Parliament (Chambre des Députés) voted and adopted the Blockchain Law IV (or the "New Law"), a landmark step in advancing the country’s legal framework for distributed ledger technology ("DLT"). This legislation facilitates the issuance of digital securities and promotes tokenisation by integrating DLT into payment, reconciliation, and smart contract processes.
The New Law enhances the existing Luxembourg legal framework for Blockchain, in a continuous effort of the Luxembourg legislators to ensure legal certainty, flexibility, and transparency of digital financial services.
We take this opportunity to provide a brief recap on the state of (legal) play for Blockchain in Luxembourg.
Existing blockchain legal regime in Luxembourg
Blockchain Law I, passed on 1 March 2019, amended the law of 1 August 2001 on the circulation of securities. The notable changes included, among others, defining blockchain-related concepts, thus recognizing the use of DLT to register and hold securities account and to transfer securities. Pursuant to Blockchain Law I, securities transactions conducted via DLT were afforded legal validity equal with the traditional methods.
Blockchain Law II, adopted on 22 January 2021, amended the law of 6 April 2013 on dematerialised securities and also expanded the scope of the law of 5 April 1993 on the financial sector. Firstly, by defining the “issuance account” it recognized the alternative to issue and maintain dematerialised securities on a blockchain. Secondly, it opened the possibility for any credit institution or investment firm authorised in a Member State of the EEA to act as central account keepers for unlisted debt securities.
Blockchain Law III, enacted on 14 March 2023, introduced key amendments to further modernise Luxembourg’s financial framework for digital assets. It updated the Luxembourg law of 5 August 2005 on financial collateral arrangements, to explicitly recognise financial instruments registered on DLT systems as equivalent to traditional book-entry securities, ensuring their legal validity in collateral arrangements. The law also transposed the EU DLT Pilot Regime, enabling firms to operate DLT-based trading and settlement systems under a flexible regulatory framework. Additionally, it redefined financial instruments in line with EU regulations, such as MiFID, reinforcing legal certainty and paving the way for secure, blockchain-based financial operations.
We reported on the above laws in our previous newsletter articles of March 2019, January 2021 and March 2023.
Blockchain IV
The main changes brought by the New Law are (1) the introduction of a control agent, (2) the extension of DLT application and (3) payments streamlining. A general overview of the New Law, in particular the control agent's role, has been provided in our last newsletter.
As a reminder, the control agent oversees critical aspects of the securities lifecycle. These tasks are executed through secure DLT systems, reducing the reliance on intermediaries and offering issuers a cost-effective and efficient pathway for issuing and managing digital securities. The control agent must notify the CSSF at least two months before launching their activities. Additionally, the agents must meet strict prudential requirements on governance, IT security, and operational standards.
This alternative custody structure is a technological bridge offering issuers the ability to transition gradually by adopting DLT-based solutions without abandoning traditional frameworks entirely and without undergoing a full-scale technological overhaul.
The New Law broadens the scope of DLT and tokenisation, by allowing the digital issuance, holding, and transfer of a wider range of financial assets, including equity securities such as shares, partnership interests or fund units, as well as enabling the tokenisation of physical assets like real estate and luxury goods. This step may open new investment opportunities, for instance, the access of retail investors to secondary private market solutions.
Furthermore, through smart contracts automating payment obligations of the issuer, (of, for example, interest or dividends and repayments), the payments are instantly settled after the issuer transfers the relevant amounts to the paying agent, settlement agent or central account keeper. The intention is to reduce procedural hurdles and intermediaries, thus enhancing operational efficiency.
The progressive development and the refining of the regulations around blockchain facilitates a smooth integration of the DLT-based systems into the process of issuing and trading dematerialised securities. This approach makes blockchain a viable alternative to traditional frameworks and increases the likelihood of a positive reception by the market.
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