CSSF White Paper On DLT And Blockchain – Finance and Banking

On 21 January 2022, the Luxembourg Financial Authority (the
“Commission de Surveillance du Secteur
Financier” or
““CSSF“) provided
guidance with regard to the use of the DLT in the financial sector
by publishing a Communiquétogether with a press release and a white paper (the “White
Paper“).

Context of publication of the White Paper

In the presence of constantly evolving technologies, it is
important to recall that the Law of 1 March 2019 and the Law of 22
January 2021 respectively enable the
maintenance and circulation of securities by way of inscription in
a distributed ledger and the issuance of such dematerialised
securities through secured electronic registration mechanisms such
as the DLT.

From an AML/CTF standpoint, the Law of
12 November 2004 on the fight against money laundering and
terrorist financing was amended by a law dated 25 March 2020
introducing a new status of “virtual asset service
providers” which must be registered with the CSSF for such
AML/CTF purposes.

In this context of appetite for decentralisation and
dematerialisation, the White Paper follows two FAQs (one related to
UCIs and another one for credit institutions)
published in November and December 2021 by the CSSF in relation to
virtual assets. These FAQs emphasise the need for professionals to
carry out a case-by-case assessment of the specific risks related
to investments in, and services provided in relation to, such types
of assets.

Please see our other publication for more information about the FAQ
concerning UCIs.

Content of the White Paper

First of all, the White Paper, which is a non-binding document,
agrees on the following definition for the DLT:

“DLT is a technology allowing a network of independent
and often geographically dispersed computers to update, share and
keep a definitive record of data (e.g. information, transactions)
in a common decentralised database in a peer-to-peer way, without
the need for a central authority.”

Then, the White Paper focuses on three main aspects:

• Explanatory developments related to the identification of the
  main components of a DLT and the different types of DLT;




• Indication of the roles and responsibilities of the different
  players in the use of the DLT such as the DLT developers or the
  infrastructures service providers;




• Emphasis on the fact that entities should weigh up the risks
  that involve the use of a DLT against the benefits.

From a practical standpoint, the White Paper ends with an
appendix summarising all DLT-specific key questions and
considerations, some of which have legal or contractual
implications.

Footnotes

Amending the Law of 1 August
2001 on the circulation of securities.

Amending the Law of 5 April
1993 on the financial sector and the Law of 6 April 2013 on
dematerialised securities.

Anti-Money Laundering and
Counter Terrorist Financing.

See: https://www.cssf.lu/en/registration-vasp/.

Noting in particular that
performance of certain services may trigger the need to obtain
additional or different licences.

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.