Q&A - Reform Brings Luxembourg Securities Law To The Blockchain Age

What is the new securities law about?

Since Bitcoin's blockchain technology entered the mainstream, the crypto-currency market has boomed at an incredible rate. Blockchain - the underlying distributed ledger technology behind Bitcoin - has the power to disrupt many industries, and in particular to revolutionize the security of ownership. Luxembourg has opted to embrace and adapt to these technological developments.

What does the draft law aim to do?

In a nutshell, it seeks to afford legitimacy and legal sanction to the use of blockchain technology in the holding, distribution and transfer of securities. Securities may be held, registered, and transferred using secure electronic recording mechanisms such as distributed ledger technology i.e. by way of blockchain. Thus a custodian may use blockchain in the management of a securities account, to record entries and transfers. Does this have a corresponding impact on the treatment of the securities themselves? Not exactly. The ledger will use the token concept - and the token will be treated as a security, in this avatar a digital asset in the ledger. The token (like the security) remains fungible and in theory has the same attributes as does a dematerialised or paper security.

How has this been received?

Naysayers will have much to agonise over in the draft law (7363) amending the law on the circulation of securities published by the Chambre des Députés on 27 September 2018. On the other side of the fence, believers will be ecstatic that legislative action is being taken by the Luxembourg authorities to modernise securities law in line with developments in technology, given the usual time lag between (the pace of) technological...