Luxembourg’s Bill on Blockchain-held Securities

Published on 26 February 2019

Luxembourg’s Chamber of Deputies recently passed a bill to “offer greater certainty for investors and to make the transfer of securities more efficient by reducing the number of intermediaries”. This Bill 7363, passed with 58 votes in favor and 2 against it, provides a legal framework to the financial market participants by bringing transactions performed using blockchain and distributed ledger technologies at par with the traditional ones.

In April 2013, Luxembourg amended the securities law of 1 August 2001 and made it possible to legally issue “dematerialized securities”. Bill 7363 now essentially adds Article 18a to update the umbrella of dematerialized securities as follows (free translation):

“Account-keeper may hold securities accounts and register securities in securities accounts within or through secure electronic registration devices, including distributed electronic registers or databases. Successive transfers recorded in such a secure electronic registration device are considered like transfers between securities accounts. The holding of securities accounts within such a device secure electronic registration or registration of securities in securities accounts through such a secure electronic recording device does not affect the fungible nature of the securities concerned.”

“Neither the application of this law nor the location of the securities that continue to be held in the relevant account keeper or the validity or enforceability of any security interests or collateral arrangements created under the amended of 5 August 2005 shall be affected by holding of securities accounts within, or by the registration of securities in the securities accounts through such a secure electronic registration device.”

Although the Amendment in itself remains technologically neutral, blockchain most aptly serves as a technology that could serve as a distributed electronic register and an electronic registration device. In fact, the Commentary makes a specific mention of the blockchain technology. However, certain points need to be explicitly clarified here:

  • The law of 1 August 2001 and therefore its Amendment only relates to holding and circulation of securities and not their issuance. This implies that the Bill 7363 does not govern Initial Coin Offerings and Security Token Offerings, for example.
  • A token stored in a blockchain serves as a means of representing a security. The possession of a token therefore serves as a proof of holding the associated security and not the validity of the security and its rights.
  • Holding blockchain tokens representing securities will not limit the applicability of the law of 1 August 2001, including with respect to the principles of fungibility, the location of the securities concerned, as well as the validity and enforceability of collateral arrangements within the scope of the amended Law of 5 August 2005 on financial collateral arrangements.

Nevertheless, Bill 7363 will boost the much-needed confidence in the market and will stimulate investments in a wide range of blockchain-related initiatives. We at PwC Luxembourg welcome this development, and we are glad to support our clients in tapping the real potential of blockchain and distributed ledger technologies. We strive to combine our unique blockchain expertise with our in-depth industry and regulatory knowledge to help our clients define a robust and effective approach to blockchain implementation. Our services span the entire spectrum of a blockchain project – starting from building awareness and strategy to execution and assurance work.

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Thomas Campione

Blockchain & Crypto-assets Leader, PwC Luxembourg

Tel: +352 49 48 48 5093

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