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Luxembourg Obligations for Virtual Asset Losses

The Grand Duchy of Luxembourg has established regulations to govern the handling of virtual asset losses, ensuring that financial institutions and service providers operate in a transparent and responsible manner.

Under Luxembourg Civil Law

Under Luxembourg civil law, there is an obligation for restitution for losses suffered due to virtual assets, providing a framework for compensation. However, this obligation does not apply to virtual assets qualifying as financial instruments under MiFID, which are subject to specific investor protection rules.

Virtual Asset Service Providers

To provide services in Luxembourg relating to the offer or sale of virtual assets, service providers must register with the Commission de Surveillance du Secteur Financier (CSSF) and comply with obligations as determined by the CSSF. These include mitigation measures commensurate with the risks embedded in the relevant virtual asset.

Investor Protection

The CSSF has taken a strict approach to investor protection, considering that investments in virtual assets are not suitable for all types of investors. AIFs addressed to non-professional investors or pension funds should not be allowed to invest directly or indirectly in virtual assets.

  • Credit institutions facilitating investments in virtual assets must set up an effective investor protection framework, including:
    • Best execution
    • Suitability and appropriateness of the investments
    • Adequate information on underlying risks provided to clients

Stablecoin Requirements

There is no existing or proposed national law that defines “stablecoin” and imposes requirements on issuers. However, if a stablecoin could be classified as a virtual asset, the considerations outlined above would apply.

Conclusion

Luxembourg has established regulations to ensure responsible handling of virtual asset losses, with an obligation for restitution under civil law. Service providers must register with the CSSF and comply with obligations, while investor protection rules are in place for financial instruments qualifying as such. The strict approach to investor protection is notable, considering that investments in virtual assets are not suitable for all types of investors.

Source

Thomson Reuters Accelus Regulatory Intelligence, October 4, 2022.