Financial Crime World

Luxembourg Takes a Leap Forward in Blockchain Security with New Legislation

Introduction

Luxembourg’s financial sector has made significant progress with the implementation of the EU Regulation 2022/858 on a pilot regime for market infrastructures based on distributed ledger technology (DLT), also known as the “Blockchain III Law”. This law aims to provide legal certainty and attract more financial players using DLT in the constantly evolving digital landscape.

The Blockchain III Law

The Blockchain III Law builds upon previous legislative efforts, including laws of 2019 and 2021, which introduced the possibility of holding securities accounts, registering, and transferring securities using DLT. The new law clarifies the definition of “financial instruments” to include those issued and represented under DLT, extending the scope of entities able to act as central account keepers.

Key Changes

  • Clarifies that financial instruments registered or existing in securities accounts held within or through DLT fall under the scope of the Financial Collateral Law.
  • Introduces ad hoc changes to existing laws, including:
    • The Financial Law
    • The Financial Collateral Arrangements Law
    • The Financial Instruments Markets Law

Expert Insights

According to experts, the introduction of DLT has highlighted the need for a more technologically neutral legal framework, allowing different technologies to achieve the same objectives. Luxembourg’s legislator is committed to promoting the use of DLT in the financial sector and providing greater legal certainty for investors.

Impact on Luxembourg and Beyond

The Blockchain III Law is seen as a major step forward in solidifying Luxembourg’s position as a pioneer in blockchain technology and a “friendlier” jurisdiction for DLT players. As the financial sector continues to evolve, it remains to be seen how this new legislation will shape the future of finance in Luxembourg and beyond.

Conclusion

The Blockchain III Law marks an important milestone in Luxembourg’s journey towards embracing blockchain technology. With its commitment to promoting the use of DLT and providing legal certainty, Luxembourg is poised to become a leading hub for financial innovation and growth.