A Luxembourg-based investment firm that announced late last week that it will launch what it calls the first alternative fund investing entirely in crypto assets in this country by year’s end is counting on this country’s high quality regulation and supervision to put to rest long-standing doubts about crypto assets.
“We notified the regulator of our intent to service crypto funds back in January, a couple of months after the CSSF published their guidance clarifying that alternative investment funds can invest in this asset class,” said Filip Suchta, Q Securities’ general counsel, in an interview with Investment Officer Luxembourg, referring to the CSSF’s FAQ document provides guidance to firms on crypto funds’ set-up and compliance requirements.
“I think they were expecting some response from the markets and some players to come to the fore and we were one of the first to do so I believe on the depository side,” Suchta explained.
Q Securities, established in 2012, is an independent Mifid investment firm and brokerage house based in Luxembourg and Poland and acts as a depositary for Luxembourg-domiciled alternative investment funds (AIFs).
‘Definitely this year’
The necessary regulatory and compliance work is underway but “it’s not that easy to give a precise date,” said Suchta, in part because “it’s a new process for the CSSF as well.” However, he said, it would be “definitely this year”.
Suchta confirmed that Q Securities will be setting up the fund as a Raif, a reserved alternative investment fund available only to professional and institutional investors.
A little while later on the same day, the European Supervisory Authorities (EBA, Esma and Eiopa) issued strong consumer warnings about crypto-assets. The warnings said that “many crypto-assets are highly risky and speculative. These are not suited for most retail consumers as an investment or as a means of payment or exchange.”
Suchta explained that the timing of the announcements was random and the crypto warning is only the latest in a series of such warnings published by the supervisor authorities “What should be noted is that the warning itself is directed to consumers,” he said. “Whereas at least in the initial stage, according to the CSSF, only professional investors will be able to actually buy the units or on the participation titles in the first crypto funds.”
Luxembourg can help overcome skepticism
Q Securities has acknowledged that cryptocurrencies have been looked at with suspicion in the past. “For quite some time, the cryptocurrency ecosystem was viewed by the financial industry and large corporations rather with skepticism, with the biggest concerns focusing on security, volatility and lack of regulations,” said Wojciech Kozlowski, Q Securities Business Development Director.
The company highlighted a view in the market that Luxembourg is lagging most EU countries in setting up a legal framework for the opening of crypto banks or their branches. Doing so, it argued, would allow Luxembourg to better compete with Switzerland and Germany.
Kozlowski explained that with the high level of risk associated with crypto assets, for crypto funds to succeed, they need to be launched and serviced in the kind of well-regulated environment Luxembourg offers. “Luxembourg is catching up in the crypto asset area, but this jurisdiction guarantees high level of service and supervision over those funds,” he said.
“Market participants’ expectations impose some moves towards this particular type of assets,” Kozlowski said. “That’s why Luxembourg and the CSSF have made respective steps enabling the market participants to catch up with the rest of the world … But Luxembourg is not that far behind.”
Depositary services
Q Securities also emphasised one of the benefits of its crypto fund, saying that it will make it much easier for investors to be in crypto, relieving them of the need to manage their portfolio daily.
The firm said that in 2021 it became “the first investment fund in Luxembourg” authorised to offer depositary services to alternative funds. Since that time, it has expanded its area of expertise and will now also service crypto-asset funds.
“Knowing that the interest in crypto assets is growing and that our business model and operational model is easy to adapt to this new reality, we decided to go with the crypto assets also and play this depository role in the crypto asset custody chain as well,” explained Kozlowski.
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