Luxembourg completes its DLT framework with Blockchain III Law
27 March 2023
Regulatory News Alert
At a glance:
- The distributed ledger technology (DLT) Law III completes Luxembourg’s regulatory framework for digital issuances and management of digital securities
- Helps make Luxembourg a fully regulated hub for digital securities in a European framework
- Confirms Luxembourg’s leading role in a new era of financial products
Context
On 9 March 2023, Luxembourg updated the Law of 5 August 2005 on financial collateral arrangements (the Financial Collateral Law) to allow the use of electronic DLT in collateral over financial instruments registered on securities accounts. By confirming this law, the Luxembourgish government ensures the legal protection of creditors, even in case of technological disruption.
The new Luxembourg bill of law 8055, known as Blockchain III Law, completes the first two versions of the laws and transposes EU Regulation 2022/858 on a pilot regime for market infrastructures based on distributed ledger technology (the DLT Pilot Regime Regulation). To achieve this, the law redefines the notion of financial instruments under the Law of 5 April 1993 on the financial sector and the Law of 30 May 2018 on markets in financial instruments to include those arising from the European Regulation.
With the Law of 1 March 2019 on the circulation of securities (Blockchain I Law), Luxembourg became one of the very first EU Member States to pass a law recognizing blockchain as equal to traditional transactions and allowing the use of DLTs for account registration, transfer of securities, and their materialization. The Law of 22 January 2021 (Blockchain II Law) enforced the Luxembourgish legal framework around dematerialized securities, notably by recognizing the possibility of using secure electronic registration mechanisms to issue such securities and expanding access for all credit institutions and investment firms.
This way Luxembourg further adapts to advanced market practices and demands for DLT-based financial instruments in an adequately regulated context, thus contributing to the attractiveness of its financial market overall.
Why it matters for you
This regulation completes Luxembourg’s unique legal framework regulating the full value chain around collateral held in DLT securities, including the development of, issuance, negotiation, and maintenance of security tokens. Luxembourg has a competitive foothold as one of the few centers of strong regulatory excellence to design the security token value chain of tomorrow.
This ties in with the latest security token issuances organized under the Luxembourg legal blockchain laws. Together with the upcoming DLT Pilot regime being transposed into Luxembourg national laws, we expect an increase in security token issuance occurring in the Luxembourg marketplace, including from international issuers and stakeholders across the full security value chain.
With the support of local authorities and governing bodies, who intend to follow this trend, and a strong local legislative framework, Luxembourg is clearly positioning itself as one of the key crypto asset centers in tomorrow’s marketplace.
Previous related Regulatory Alerts can be found below:
How can Deloitte help you?
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Deloitte’s Advisory and Consulting services can help you:
- Understand and define your digital asset strategy, as well as enable the tokenization of assets for financial or other purposes;
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- Assess the impact on reporting standards on your business;
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