On 24 July 2024 draft law No.8425 (the "Draft Law") was issued by the Luxembourg Parliament (Chambre des députés) with the purpose of modernising the regulatory framework for dematerialised securities and the financial sector, through targeted amendments to the amended Law of 6 April 2013 on dematerialised securities ("Dematerialised Securities Law").
The Draft Law aims to enable the Luxembourg financial sector to utilise modern technologies, particularly distributed electronic registers or databases (DLT technology), without compromising on legal certainty.
Luxembourg has already made great strides in the development of a modern legal framework for the use of secure electronic recording devised for the circulation of securities, through the previous adoption of the Blockchain I, II and III laws.
Introduction of a new role - a control agent for securities issuance - as an alternative to the existing two-tier holding chain
The Draft Law proposes the possibility for an issuer to appoint a control agent who may be tasked with maintaining an issuance account, monitoring the securities holding chain and reconciling issued securities. Importantly, the control agent will leverage DLT technology to secure and share information about issued securities across various market participants.
A control agent shall be an investment firm within the meaning of Article 1er, point 9), of the amended Law of 5 April 1993 on the financial sector (the “Financial Sector Law”), a credit institution within the meaning of Article 1er, point 12), of the Financial Sector Law or a clearing organisation within the meaning of Dematerialised Securities Law.
The current Dematerialised Securities Law requires the establishment of a two-tier holding chain between the central account keeper and secondary account keepers (depository-custodian model). This Draft Law provides an alternative framework whereby dematerialised securities registered in an issuing account held by a control agent can be maintained by account keepers in securities accounts held within a distributed register. The control agent shall maintain the issuing account but has not direct custody relationship with the secondary depositories.
The introduction of the control agent aims to enhance transparency and traceability in the securities market by centralising information management within a distributed register. This will reduce the administrative burden on issuers and ensure real-time monitoring of securities.
Ancillary amendments to other laws
The Draft Law proposes a minor amendment to Article 28-11 of the Financial Sector Law to carve out control agents from the provision stating that no person may carry out the activity of central account keep without being in possession of a CSSF authorisation.
It is also proposed to insert a new paragraph (10) in Article 2 of the amended Law of 23 December 1988 creating the Financial Sector Supervisory Commission ("Law creating the CSSF") whereby the CSSF shall monitor compliance by control agents of proposed new Article 21bis of the Dematerialised Securities Law.
What to expect
Luxembourg market players and related associations have shown significant interest in this Draft Law. Whether this attention will lead to substantial changes before its final adoption remains to be seen.
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