Reactions in some quarters of Luxembourg’s crypto community to the CSSF DLT white paper released earlier this year, still the focus of detailed discussion, highlighted a difference of opinion about public blockchains, with the CSSF focussing on the associated risks, and some market participants pushing back, saying that such risks can be managed. The CSSF issued their document while describing the process of integrating DLT as a “real challenge” for financial institution regulators.
“It is incredibly positive news for the tokenisation industry that the CSSF has released a guide on the use of blockchain technology in the financial sector,” said Shurong Li, head of marketing at Tokeny.
“It provides issuers with a clear message that they can tokenise their assets on blockchain if they understand how to handle technical risks when using DLT, and ensure that regulatory requirements are met while retaining control over assets in case of unexpected events.”
Li said that the guidance from CSSF, the country’s national financial regulator, could “pave the way for mass adoption of asset tokenisation.”
DLT stands for Distributed Ledger Technology. It is a blockchain technology for instance behind crypto currencies, and can also be used to create other types of digital assets.
Roadmap of questions
Christian Dohmens, the corporate secretary-general of the Luxembourg Stock Exchange, discussed the white paper at a recent webinar. “What is really interesting here is that they provide a roadmap of questions that you as a as a project owner … have to ask yourself, you have to become conscious of those risks, legal, financial security, compliance, performance, and so on risks, and then ask the right questions to mitigate those risks or even design your infrastructure around this.”
Dohmens continued: “I think that’s where the CSSF really shows that they have a deep understanding of the technology, willingness also to move forward into that direction and help solution providers, developers, and so on, to move forward and provide something that could become a new generation of infrastructure.”
More clarity welcomed
“The Blockchain whitepaper has been received positively,” said LHoFT CEO Nasir Zubairi, whose organisation was involved in carrying out a study of the fund industry’s thinking on crypto-assets in Q4 2021. The study, published in January 2022, had indicated that the industry “wanted more clarity and that there were open questions.” Shortly afterwards, the CSSF published its document. Zubairi explained that it “has really helped address many of the concerns”. He stated that: “The key is that the industry and the regulator continue this dialogue as the crypto/blockchain sector continues to evolve.”
Simon Ramos, a partner at Deloitte Luxembourg in the area of blockchain and crypto-assets, described the CSSF’s publication of the white paper as “a good initiative”. “I think it has very useful descriptions of what a DLT really is, the difference between private and public DLT, etc,” he said. “It will, first of all, raise awareness. It will also make it clear in the mind of sceptical people that the future is lying in in tokenisation, and digitalisation and also in digital monies.”
His colleagues at Deloitte - partners Laurent Collet and Thibault Chollett - contextualised the CSSF DLT white paper as part of the development of a strong regulatory framework in Europe, through MiCA, or Markets in Crypto Assets regulation, and locally via the Luxembourg laws on tokenised assets and the white paper, “serving as key foundations upon which to build the future for digital assets”
Public vs private blockchain
Tokeny’s representative raised a concern about the document. “Although CSSF states no preference or recommendation for either public or private blockchain, they’ve highlighted that public blockchains are riskier than private blockchains,” said Li. “It would be more neutral to list only the risks and benefits of those different types of DLT, but not the conclusions because the risks can be addressed with the advent of innovative solutions.”
“At Tokeny, we firmly believe the future of finance will operate on public blockchains, and our compliance infrastructure was designed to apply control and compliance through permissioned tokens and on-chain identities that address the risks mentioned in the whitepaper.”
Deloitte’s Ramos argued that public blockchains are much less of an issue for business. “The features of the private blockchain are, in my opinion, much more appropriate to build business-related ecosystems.”
For related articles on Investment Officer Luxembourg:
- Asset custody industry faces digital demands
- Luxembourg’s crypto opportunity demands a collective move
- CSSF: DLT/Blockchain “a real challenge”