Luxembourg publishes law of 22 January 2021 on distributed ledger technology and issuance of dematerialized securities

Context and objectives

On 22 January 2021, Luxembourg published law of 22 January 2021 on dematerialized securities. This law modifies both the law of 5 April 1993 on the financial sector, as amended and the law of 6 April 2013 on dematerialized securities.

It aims to modernize the existing legal framework for dematerialized securities, notably by recognizing the possibility of using secure electronic registration mechanisms—including distributed electronic registers or databases—to issue dematerialized securities. The Luxembourg government originally submitted the first version of the draft on 27 July 2020: a separate news alert on this matter is available.

This law is a continuation of the law of 1 March 2019, which modifies the law of 1 August 2001 on the circulation of securities. This introduced the transfer of securities through secure electronic registration mechanisms, in particular those based on the technology of distributed electronic ledgers or databases.

The law recognizes the reality of distributed electronic ledgers or database technology. It aims to enable relevant actors to benefit from these innovative technologies in the context of dematerialized securities while remaining technologically neutral. This law is a necessary step in allowing market stakeholders to move ahead with creating and managing digital assets in Luxembourg. It is to be further considered in light of the European Commission’s digital strategy, bridging a gap in current regulations to allow the use of digital instruments, not just for market and trading but also for “custody” aspects.

In addition, the law extends the application of the law of 6 April 2013 on dematerialized securities, by opening the activity of central account holders for unlisted debt securities to European Union (EU) credit institutions and investment firms. To guarantee high quality and security standards, these entities must have adequate infrastructure, control and security mechanisms in place, equivalent to those required for the authorization of central account holders. This is to ensure a level playing field between the various actors.

The adoption of this law is an important step towards Luxembourg’s goal of meeting the challenges and seizing the opportunities of the financial sector’s digitalization.

What is next?

The law entered into force on 26 January 2021 following its publication in the Official Journal.

How can Deloitte help?

Deloitte can help you gain awareness of distributed ledger technology (DLT) and design a pragmatic strategy to manage the evolution of this new technology. We can also aid you in identifying the potential impacts DLT may have on the securities value chain, including issuance, trading, post-trading and custody services.

To learn more about the business opportunities and regulatory framework related to securities services in a DLT environment, please see our white paper “Are securities token the securities of tomorrow?” and our report on digital finance “Towards a new digital finance world”.

We can also support you on various critical dimensions including strategy; business and operating models; regulations and compliance; technology; and risk management.

Deloitte’s Regulatory Watch Kaleidoscope service helps you stay ahead of the regulatory curve to better manage and plan upcoming regulations.

This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte Network”) is, by means of this communication, rendering professional advice or services. No entity in the Deloitte network shall be responsible for any loss whatsoever sustained by any person who relies on this communication.

Contacts

Subject matter specialists

Regulatory Watch Kaleidoscope service