Luxembourg brings dematerialised securities to the blockchain

A new draft law 7637 (the Draft Law) has been submitted to the Luxembourg parliament modifying the law of 5 April 1993 on the financial sector, as amended (the Financial Sector Law) and the law of 6 April 2013 on dematerialised securities (the Dematerialised Securities Law). Currently, the Dematerialised Securities Law allows for the issuance and conversion of dematerialised securities only by registration in an issuance account held with a settlement provider or central account keeper.

The Draft Law aims to modernise Luxembourg securities laws in the same spirit as the modernisation of the Luxembourg law of 1 August 2001 on the circulation of securities and liberalise the Dematerialised Securities Law on two main arches:

1. Firstly, the Draft Law provides legal certainty by introducing in the Dematerialised Securities Law a definition of what constitutes an issuance account. Pursuant to this amendment an issuance account needs to be understood as an account held with a settlement provider or central book keeper which can be held by and allows for the recording of dematerialised securities by secured electronic recordings (including distributed ledger technology). This is a novelty and will allow for a variety of technologies to be adopted.

2. Secondly, the Draft Law expands the scope of entities that may act as a central account keeper. Currently this role is reserved to settlement providers under the Financial Sector Law¹. By the nature of the license this is implicitly limited to Luxembourg credit institutions and investment firms as well as Luxembourg branches of credit institutions and investment firms authorised in other European Member States. The Draft Law now expands the role of central account keepers to investment firms within the sense of MiFID II ² and CRR credit institutions ³. However, these institutions must have adequate control and security systems in place in respect of the issuance accounts ensuring the registration of the integral amount of the issued securities, the circulation of securities and the verification of the issuance amounts in the issuance account against the securities accounts of the holders.

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¹ See the definition of central account keeper in Article 1, 10) of the Dematerialised Securities Law juncto Article 28-11 of the Financial Sector Law
² See Article 1, 9 of the Financial Sector Law
³ See Article 1, 12 of the Financial Sector Law