Financial Crime World

Luxembourg Takes Major Step in Cryptocurrency Fraud Prevention with Blockchain III Law

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On March 23rd, Luxembourg’s legislator implemented the EU Regulation 2022/858 on a pilot regime for market infrastructures based on distributed ledger technology (DLT). This new law, known as the Blockchain III Law, aims to provide legal certainty and attract financial players using DLT.

A Major Step Forward in Becoming a Hub for Blockchain and Cryptocurrency Businesses

The Luxembourg government’s decision to recognize the existence of DLT in the financial sector is seen as a significant step forward in the country’s efforts to become a hub for blockchain and cryptocurrency businesses. The law allows national competent authorities to temporarily exempt market infrastructures intending to use DLT from some specific requirements typically applicable to traditional market infrastructures.

Clarifying the Definition of “Financial Instruments”

According to experts, the existing legal framework was not fully adapted for the new environment and lacked technological neutrality. The Blockchain III Law aims to address this issue by:

  • Clarifying the definition of “financial instruments” to include those issued and represented under DLT
  • Providing greater legal certainty for financial players using DLT on the market

Extending the Scope of Entities Able to Act as Central Account Keepers

The law also extends the scope of entities able to act as central account keepers to:

  • EU credit institutions
  • Investment firms, provided they meet technical and organizational requirements to operate such activities

Clarifying Financial Collateral Law

Additionally, the Blockchain III Law clarifies that financial instruments registered or existing in securities accounts held within or through DLT fall under the scope of the Financial Collateral Law.

A Double-Edged Sword: Increased Risk of Cryptocurrency Fraud

While the law is expected to attract more players to the market, experts warn that it also increases the risk of cryptocurrency fraud. This is because financial institutions can use DLT without fully complying with traditional regulations. Therefore, it is crucial that regulatory authorities closely monitor the implementation of the Blockchain III Law to prevent fraudulent activities in the cryptocurrency space.

Conclusion

The Blockchain III Law marks a significant step forward for Luxembourg’s fintech industry and its efforts to become a major player in the global blockchain landscape. While there are concerns about the increased risk of cryptocurrency fraud, the law provides greater legal certainty and is expected to attract more financial players to the market.