Unfortunate Hype About Luxembourg Blockchain Act

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It’s been reported recently by a number of news outlets (here or here) that Luxembourg introduced a new Blockchain law.

Why I refer to it as an “unfortunate hype” is because, factually speaking, this regulatory statement did not introduce any significant changes and did not really provide a lot of clarity. It was just 2 pages statement 🙂 amending some of the existing legal provisions within the existing security law. (In comparison, the Liechtenstein Blockchain Act draft or Singapore Payments Act are 200+ pages long - it tells you that something fundamentally new has been introduced).

In my opinion, it's unfortunate, because the industry already suffers from unnecessary hype and lack of fact-checking 🙁

Anyway - here are my key takeaways from the amendment to the Lux law of 2001 on securities

The way the current text is written is actually concerning, because in many instances the lawmakers equate token and securities and refer to tokens as securities.  Unless something is lost in translation (which may happen, since the law is written in French).

Other key points:

• Strong emphasis on neutrality of technology (blockchain never specifically referred to in the final text)
• The big idea is to provide legal certainty specifically to securities issuers or security offerings who wish to leverage blockchain-type technologies
• The commentary to the law (but not the text of the law itself) defines a token as a digital asset stored on a blockchain-type tech, which represents a “dematerialized security”, but which (from a legal perspective) has the same rights as a classical dematerialized security
• The text of the law always refer to “securities accounts” when talking about blockchain accounts
• The text considers transactions between “blockchain” accounts to be the same as transactions between securities accounts
• Transfers between such accounts do not affect the fungible (mutually substitutable) nature of the securities transferred (but what about CryptoKitties???)

What’s missing:

• What about the tokens that are not securities?
• What about the tokens that grant rights to other tokens?
• What about stable coins?
• What about tokens that grant rights to art, real estate and other non-financial assets?
• Where do you need to have a prospectus?
• How to decide if the token is a security, if it was issued in a different jurisdiction other than Luxembourg and different rules applied there?
• Does it mean that all the reporting obligations and assets safeguarding related to asset managers and other entities that offer securities now apply to those platforms that offer tokens in Luxembourg?

So, frankly, I do feel that this 2-page statement was a good step in the right direction, but it’s definitely not a huge change and Luxembourg is still far away from a comprehensive regulatory framework related to blockchain-based transactions. Hopefully, it's coming soon;-)