OUR INSIGHTS AT A GLANCE
The law of 22 January 2021 modifying the law of 5 April 1993 on the financial sector and the law of 6 April 2013 on dematerialised securities was adopted (the “Law”) with the aim to modernise the legal framework for dematerialised securities.
The Law forms part of a continued modernisation of the legal framework of financial transactions and is a continuation of the law of 1 March 2019, stating in essence that account keepers may hold securities accounts and register securities within or through secure electronic recording systems, including distributed ledgers or databases.
This initiative supports the players concerned and, more generally, the attractiveness of the financial place in the digitalisation and use of new technologies in the field of issuance and circulation of dematerialised securities.
The Law introduces changes regarding issuance accounts and it broadens the scope of entities able to act as central account keepers for debt securities.
The law of 22 January 2021 modifying the law of 5 April 1993 on the financial sector and the law of 6 April 2013 on dematerialised securities was adopted (the “Law”) with the aim to modernise the legal framework for dematerialised securities. This Law forms part of a continued modernisation of the legal framework of financial transactions and is a continuation of the law of 1 March 2019, stating in essence that account keepers may hold securities accounts and register securities within or through secure electronic recording systems, including distributed ledgers or databases. This initiative supports the players concerned and, more generally, the financial place in the digitalisation and use of new technologies in the field of issuance and circulation of dematerialised securities.
The Law is an important new step for the Luxembourg financial centre in its desire to meet the challenges and opportunities resulting from the digitalisation of the financial sector in order to enable it to position itself actively in relation to recourse to secure electronic recording mechanisms in the issuance of securities.
Two material changes are introduced.
Issuance accounts
It is necessary to keep a record of the number and type of dematerialised securities. The issuance or conversion of dematerialised securities is carried out by registering the securities in an issuance account held with a settlement institution or a central account holder. The dematerialised securities are represented by an entry in the securities account. The issuance account is not a securities account. The issuance account enables verification that in the securities account there are not more securities in circulation than securities issued.
By means of a clarification of the legal definition of issuance accounts, the Law expressly recognises the ability to use new technologies to secure electronic records, such as distributed ledger technology or electronic databases, as part of the issuance of dematerialised listed and unlisted securities.
As per this definition, an issuance account is an account held with a settlement provider or central bookkeeper which allows for the recording of dematerialised securities by secured electronic recordings (including distributed ledger technology). The Law highlights the technological neutral character of this new framework. This novelty allows for a variety of technologies to be adopted.
Opening of the activity of central account keeper
Before the adoption of the Law, the activity of central account keeper was restricted to certain Luxembourg service providers, provided that a specific license to allow performance of this function is obtained.
For non-listed debt securities, the Law opens access to the activity of central account keeper to investment firms and credit institutions of European Member States.
Since the opening of the role of central account keeper to new players should not give rise to a lower quality of services provided by these new actors, they are required to have adequate control and security systems in place for the issuance accounts in order to 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.