Yesterday Luxembourg passed its Blockchain Law 4, which aims to make it easier to adopt DLT for securities. The fact that this is the country’s fourth blockchain law highlights the extent to which it has been a trailblazer in this area. It expands coverage of the DLT law to funds.
The new legislation introduces an optional role of a control agent for digital securities issuances, as explored when the draft law was published. This is similar to a crypto securities registrar under Germany’s Electronic Securities Act (eWpG) with a few additional advantages.
Under existing laws for DLT based securities, Luxembourg had a two tier concept including a central account keeper, similar to a central securities depository (CSD) but less onerous. The second tier involves account keepers, which are custodians. With two layers involved, it still requires the reconciliation process that DLT can circumvent.
With the new option of using a single control agent, there’s just one layer and it’s possible for investors to hold securities directly.
The control agent is responsible for maintaining the issuance account, tracking the chain of title for securities, and reconciling issued securities.
An EU credit institution or investment firm or CSD can take on the role of the control agent. They are not required to be licensed in Luxembourg, but they have to give the regulator (CSSF) a couple of months’ notice.
This is where the Luxembourg law is superior to Germany’s. Firstly, a German crypto securities registrar has to be German. And institutions are required to apply for a license in the same way as startups. Hence, in Germany the area is dominated by startups, with DekaBank the only institution we’re aware of to have gone through the licensing process. That’s not surprising given it’s the founder of the SWIAT blockchain network.
Expanding DLT to securities and funds
Back in Luxembourg, the existing DLT law with an account keeper only applied to unlisted debt securities. Now the law has been expanded to include unlisted equities including funds.
Given Luxembourg’s pivotal position as the EU fund issuance hub, that’s a big deal.
