The Luxembourg financial sector has long-discussed the blockchain or as it’s also called “distributed ledger technology (DLT)” as way to strengthen the Luxembourg financial sector. As it was put by Ananda Kautz of Luxembourg’s banks and bankers association the ABBL: “Digital strategy, digital ledger technology, most commonly known as blockchain, has been a key strategic topic for ABBL since many years now.”
However, there has been a sense that the technology has always been on the horizon, not actually in wide use. Is it now finally on the verge of being widely accepted in the banking sector? This was the topic at a recent ABBL virtual conference entitled “Blockchain laws in Luxembourg: is the market ready?”
Series of amendments
Luxembourg has been preparing itself for making more widespread use of blockchain/DLT in several areas but particularly in the areas of securities trading. There have been a series of amendments to the securities law, most recently in January 2021, that has made it possible now to issue securities entirely within a blockchain system, explained Aurélien Hollard, a partner at CMS Luxembourg. This did away with an earlier structure where “dematerialised securities” had to be held by “a specific service provider, central account keeper or settlement organisation”.
Prior to the 2021 reform, anyone who wanted to act as a service provider for holding securities issuance accounts had to obtain a specific authorisation from the CSSF financial sector regulator. One of the significant changes introduced by the 2021 reform was to widen who could act as a service provider for holding securities issuance accounts for non-listed debt securities by removing the need for this authorisation.
Slower pace
While the ensuing panel discussion featured much talk about developments of technical capabilities and experiments, the discussion became animated when one panellist suggested that things are developing slowly in Luxembourg for blockchain and DLT.
“We have some projects in in Luxembourg,” explained Philippe Van Hecke, the COO of Tokeny Solutions, a Luxembourg based tokenisation platform. (Tokenisation is the process of exchanging sensitive data with non-sensitive data known as “tokens” that can be used within a computer system without exposing the sensitive data.) “And we see that it is progressing, but I think it’s progressing slowly in Luxembourg. First, there is some uncertainty or not full understanding of the legal framework and the way it has evolved and how it is applied in practice. And there is a real issue in terms of finding service providers that would serve the issuers who need to understand how they will connect that to their existing systems or their existing procedures, which would be willing to enter the space knowing that there is always a fear of being a little bit en porte à faux with the regulator.”
Van Hecke went on to discuss the banking sector in particular. “When you mention ‘crypto’ all banks and compliance officers in the bank, you see their hair, well, it’s not possible with mine, but their hair going like that on their head (mimicking his hair standing on end). So there is a lot of things to do.”
Proof of concept
Aurélia Viémont, a senior counsellor at CMS Luxembourg, seized on this comment, and painted a different picture. “what we’ve seen is actually an interest from players within the European Union asking us ‘Oh, but we’ve seen what you’ve done in Luxembourg, we’re very interested and we’re actually keen in having a pilot project under Luxembourg law’.” In her view, many players in Luxembourg are at the proof of concept stage prior to “going live and full force”.
Laurent Marochini, Société Générale’s Head of Innovation, weighed in next on the discussion. “So, as a bank, I agree with your with your statement, and we are quite shy in Luxembourg. We are not so shy in the fund industry. So we have seen FundsDLT, we can see that business is coming also to the market.” He pointed out that in some countries (including his native France, with the support of the Banque de France), things are moving faster. “So we just need to have a kind of acceleration programme in Luxembourg.”
Viémont again came to the defence of Luxembourg’s efforts. “We know that at the Commission de Surveillance du Secteur Financier (CSSF) there is an innovation hub, they are very involved in creating an environment which supports reliance on this technology.” She continued: “So I think, you know, in terms of having the support of the regulator, it’s not the same (as having a national bank behind it), but there is a support, there is a will and there are also if you take for example House of Startups or the LHOFT (Luxembourg House of Financial Technology). So I understand, yes, in Luxembourg it’s going more slowly. But I would say that all the cards are in our hands essentially.”