New Luxembourg draft law on distributed ledger technology
On 28 July 2022, draft law No. 8055 regarding the financial market and distributed ledger technology ("DLT") (the "Draft Law") was submitted to the Luxembourg Parliament (Chambre des Députés).
The main purpose of the Draft Law is the transposition of Regulation (EU) 2022/858 of the European Parliament and of the Council of 30 May 2022 on a pilot scheme for market infrastructures based on DLT (the "DLT Pilot Regime Regulation").
The DLT Pilot Regime Regulation aims to support the development of crypto-assets that qualify as financial instruments and for the development of DLT more generally, while still preserving a high level of investor protection and market integrity. The pilot regime is intended to allow for certain DLT market infrastructures to be temporarily exempted from some of the specific requirements of financial services legislation that could otherwise prevent operators from developing solutions for the trading and settlement of transactions in crypto-assets that qualify as financial instruments, without weakening any existing requirements or safeguards applied to traditional market infrastructures.
To effectively transpose the DLT Pilot Regime Regulation, it is intended that the Draft Law will amend three laws as follows:-
- the law of 5 April 1993 on the financial sector (the "Financial Sector Law") and the law of 30 May 2018 on markets in financial instruments (the "Markets in Financial Instruments Law") will each be amended to include in the definition of "financial instruments" those financial instruments issued through DLT (with reference to the definition of distributed ledger technology in the DLT Pilot Regime Regulation), and
- the law of 5 August 2005 on financial collateral arrangements will be amended so that the definition of "financial instruments" includes financial instruments transferable by distributed electronic registers or databases.
ESMA report on the DLT Pilot Regime
On 27 September 2022, ESMA released its report on the DLT Pilot Regime on the call for evidence on the DLT Pilot Regime and compensatory measures on supervisory data (the "Report"). The DLT Pilot Regime Regulation requires ESMA to assess whether the regulatory technical standards (RTS) developed under MiFIR and relating to certain pre- and post-trade transparency and data reporting requirements need to be amended to be effectively applied also to securities issued, traded and recorded on DLT. While ESMA's conclusion in the Report is that there is no need to amend the RTS on transparency and data reporting requirements before the DLT Pilot Regime starts applying in March 2023, ESMA also gives guidance on certain technical elements and makes recommendations on compensatory measures on supervisory data to ensure a consistent application by DLT market infrastructures from the start of the regime.
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