Issuance Of Dematerialised Securities Using Blockchain Technology – New Draft Legislation Published! – Corporate/Commercial Law

On 27 July 2020, the government has introduced a draft bill
n°7637 in Parliament (the “Draft
Bill“), which – if adopted – will modernise the law
of 6 April 2013 on dematerialised securities, as amended (the
“2013 Law“), in order to facilitate the
use of distributed ledger technology when issuing dematerialised
securities.

Last year, the Luxembourg legislator had already amended the law
of 1st August 2001 on the circulation of securities and other
financial instrument (the “2001 Law“) by
a law of 1st March 2019 in order to clarify that account keeping
institutions such as banks could offer securities accounts operated
using distributed ledger technology and a number of related items,
including confirmation that successive registrations of securities
using distributed ledger technology have the same effects as
transfers between securities accounts (e.g. regarding transfer of
ownership). 

The purpose of the new draft bill is essentially to introduce
two changes:

1. Clarification that issuance accounts for dematerialised
securities may also be kept using distributed ledger
technology

When issuing dematerialised securities, it is necessary to keep
a record of the number and type of securities issued in a so-called
issuance account in order to enable the central account keeper or
liquidation organism to verify that in securities accounts there
are not more securities in circulation than securities issued. The
issuance account is not a securities account, but simply a record
kept for the purposes of making the aforementioned reconciliation
verifications. The central account keeper or liquidation organism
whose duty it is to make these verifications will be able to keep
these records using distributed ledger technology. As a result all
elements linked to an issuance of dematerialised securities can be
kept using distributed ledger technology in the future, i.e. not
only securities accounts (already possible since 2019 by virtue of
the 2001 Law) but also issuance accounts. 

2. Broadening of type of entities able to act as central
account keeper for debt securities

Currently, only certain regulated Luxembourg service providers
can act as central account keepers under the 2013 Law. Moreover,
they require a specific additional license in order to be able to
perform this function. This situation will remain unchanged in
relation to equity securities. However, for (non-listed) debt
securities, the scope of regulated service providers able to act as
central account keepers will be broadened. In the future this
function can be performed by any credit institution or investment
firm authorised in a Member State of the European Economic Area,
provided that they have appropriate control mechanisms and IT
security arrangements for the purpose of keeping issuance accounts
and performing the relevant tasks linked thereto such as the
aforementioned reconciliation verifications. As a result issuers of
non-listed debt securities governed by Luxembourg law will have a
larger choice of service providers for this aspect of an
issuance.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.