Law of 22 January 2021 amending Luxembourg dematerialised securities law and financial sector law

The Luxembourg Chamber of Deputies voted on 21 January 2021 in favour of the draft law 7637 (“Law”) amending the law of 6 April 2013 on dematerialised securities (“Dematerialised Securities Law”) and the law of 5 April 1993 on the financial sector, as amended (“Financial Sector Law”). The Law was published yesterday in the Mémorial.

Further to the draft law 7363 as passed on 14 February 2019 amending the law of 1 August 2001 on the circulation of securities, as amended (“2001 Law”) and through which Luxembourg demonstrated its innovative approach by recognising distributed ledger technology in its securities law framework (as further detailed in our article here of 22 February 2019), the Law goes a step further and aims to provide more legal certainty and reflect the constant development and competitiveness of Luxembourg regarding innovative technologies in the context of dematerialised securities issues.

As also indicated in our article here of 14 August 2020, the Law now allows investment firms and credit institutions, as defined in the Financial Sector Law, to act as central account keepers for unlisted debt securities, however, having at their disposal mechanisms of control and security of IT systems adapted for central account keepers allowing the registration in an issue account of all the securities making up each issue admitted to their operations, to ensure the circulation of the securities by transfer from one account to another, to verify that the total amount of each issue admitted to their transactions and recorded in an issue account is equal to the sum of the securities recorded in the securities accounts of their account holders and the exercise of the rights attached thereto to securities registered in a securities account.

The commentary section of the Report of the Finance and Budget Committee of 11 January 2021 outlined the importance for these investment firms and credit institutions acting as central account keepers to have specific mechanisms and procedures in place to carry out their activity as a central account holder – in other words, operational and technical capacities to exercise their activity equivalent to those required for a central account keeper requiring a specific approval, in order to maintain a level playing field. It was further stressed that these requirements under were closely modelled on the requirements for Article 28-12, paragraph 2, of the Financial Sector Law.

The Law also clarifies in the definition of the “issuance account” that this is an account held with a settlement provider or central account holder in which the dematerialised securities of an issuer must exclusively be registered. This account may be maintained and registrations of securities may be made in or through secure electronic recording devices, including distributed electronic registers or databases (distributed ledger technologies).