In July 2020, the Luxembourg government submitted draft law 7637 to amend the law of 6 April 2013 on dematerialized securities (Dematerialized Securities Law) and the law of 5 April 1993 on the financial sector (Financial Sector Law).
The draft law follows recognition of the use of distributed ledger technologies in the law of 1 August 2001 on the circulation of securities and other financial instruments, as previously covered in our article here.
Changes to Dematerialized Securities Law: definition of issuance account
The draft law clarifies that an issuance account is an account held with a settlement provider or central account holder that can be held by, and allows for, the recording of dematerialized securities by secured electronic recordings (including distributed ledger technologies).
The issuance account can be used for reconciliation with the securities registered in the securities account of the customers of the settlement provider or central account holder. The ownership of the dematerialized securities is transferred from one securities account to another by a book entry.
Changes to Financial Sector Law: extension of scope of entities acting as central account holders
Currently, only Luxembourg credit institutions and investment firms and their Luxembourg branches authorized in other EU Member States fall within the scope of entities able to act as central account holders.
The draft law contains an amendment to the Financial Sector Law to allow any credit institution or investment firm authorized in a Member State of the EEA – i.e. investment firms within the meaning of MiFID II or CRR credit institutions – to act as a central account holder.
This is provided the institution meets certain specific organizational and technological requirements that ensure the registration of the integral amount of the issued securities, the circulation of securities, and the verification of the issuance amounts in the issuance account against the securities accounts of the holders.