30 July 2020

Arendt & Medernach

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On 27 July 2020, the government has introduced a draft billn7637 in Parliament (the "DraftBill"), which - if adopted - will modernise the lawof 6 April 2013 on dematerialised securities, as amended (the"2013 Law"), in order to facilitate theuse of distributed ledger technology when issuing dematerialisedsecurities.

Last year, the Luxembourg legislator had already amended the lawof 1st August 2001 on the circulation of securities and otherfinancial instrument (the "2001 Law") bya law of 1st March 2019 in order to clarify that account keepinginstitutions such as banks could offer securities accounts operatedusing distributed ledger technology and a number of related items,including confirmation that successive registrations of securitiesusing distributed ledger technology have the same effects astransfers between securities accounts (e.g. regarding transfer ofownership).

The purpose of the new draft bill is essentially to introducetwo changes:

When issuing dematerialised securities, it is necessary to keepa record of the number and type of securities issued in a so-calledissuance account in order to enable the central account keeper orliquidation organism to verify that in securities accounts thereare not more securities in circulation than securities issued. Theissuance account is not a securities account, but simply a recordkept for the purposes of making the aforementioned reconciliationverifications. The central account keeper or liquidation organismwhose duty it is to make these verifications will be able to keepthese records using distributed ledger technology. As a result allelements linked to an issuance of dematerialised securities can bekept using distributed ledger technology in the future, i.e. notonly securities accounts (already possible since 2019 by virtue ofthe 2001 Law) but also issuance accounts.

Currently, only certain regulated Luxembourg service providerscan act as central account keepers under the 2013 Law. Moreover,they require a specific additional license in order to be able toperform this function. This situation will remain unchanged inrelation to equity securities. However, for (non-listed) debtsecurities, the scope of regulated service providers able to act ascentral account keepers will be broadened. In the future thisfunction can be performed by any credit institution or investmentfirm authorised in a Member State of the European Economic Area,provided that they have appropriate control mechanisms and ITsecurity arrangements for the purpose of keeping issuance accountsand performing the relevant tasks linked thereto such as theaforementioned reconciliation verifications. As a result issuers ofnon-listed debt securities governed by Luxembourg law will have alarger choice of service providers for this aspect of anissuance.

The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circumstances.

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Issuance Of Dematerialised Securities Using Blockchain Technology New Draft Legislation Published! - Corporate/Commercial Law - Luxembourg - Mondaq...