Luxembourg is taking further steps to support the issuance of digital securities on distributed ledger technology (DLT) with a proposed fourth DLT bill. This bill introduces the concept of a “control agent” who would be responsible for issuing digital securities, tracking the issuance amount, and maintaining ownership records. The control agent would utilize DLT technology to securely share information on the holding of securities among market participants.
Luxembourg is already a leading jurisdiction for fund issuance and has been supportive of DLT issuances. The country has previously finalized laws allowing for native digital securities on DLT and has completed its DLT framework with the “Blockchain III Law,” which permits the use of DLT as collateral for financial instruments.
Currently, the issuance and record-keeping of digital securities are handled by a central account keeper or custodian. However, the Luxembourg Ministry of Finance sees this model as burdensome due to the need for reconciliation between the central account keeper and the account keeper. They believe that a DLT shared ledger would alleviate this reconciliation burden.
The control agent’s responsibilities would include maintaining the issue account, monitoring the chain of holding of securities, and reconciling the securities issued. An EU credit institution, investment firm, or central securities depository can serve as the control agent and does not need to be licensed in Luxembourg. However, the entity taking on this role must notify the country’s finance regulator.
The Ministry of Finance emphasizes that the new regime is optional for issuers and aims to strengthen the attractiveness and competitiveness of Luxembourg’s financial center. They believe that by creating a welcoming legal framework for digital securities, the country can offer more flexibility, security, and transparency to issuers and investors.