New CSSF white paper relating to the DLT and blockchain
27 January 2022
The Luxembourg financial regulator, Commission de Surveillance du Secteur Financier (the "CSSF") has recently published a white paper relating to the Distributed Ledger Technologies & Blockchain (the "White Paper") which aims to create a checklist for businesses considering implementing distributed ledger technology (DLT) solutions in their operations. The White Paper is addressed to professionals providing or intending to provide services to the Luxembourg financial sector.
The White Paper has been divided into six chapters and includes an appendix. The document starts by introducing various notions that characterise a DLT and a typology of distributed ledgers, it then follows with a detailed description of the actors participating in a typical DLT ecosystem. Most importantly, use-cases of the technology are presented and examined with an emphasis on the relationships between the developers/various service providers and the end-user. Considerations relating to the outsourcing regulatory framework are also introduced. It is worth noting that in the document, the CSSF discusses various risks relating to specific use-cases of the technology, such as data management on blockchain, payment processing as well as creation of fund distribution platforms on blockchain. In addition, the appendix to the White Paper provides for a list of DLT specific key-questions and considerations relating thereto.
While the White Paper does not aim to be a guide to basic notions of DLT and blockchain technologies, it should be a useful checklist and introduction to risks involved for any service provider contemplating introducing solutions based on a DLT in Luxembourg.
The issuance of the White Paper also reflects the CSSF's willingness to engage in dialogue with the market and promote technological innovation in the financial services industry in Luxembourg and follows recent legislative changes in relation to virtual assets.
This includes the introduction of a framework for issuances of dematerialised securities directly using DLT (our briefing on this can be found here) as well as the obligation for virtual asset service providers to be registered with the CSSF for the purposes of AML/CFT supervision pursuant to the law of 12 November 2004 on the fight against money laundering and terrorist financing. The CSSF has also previously addressed virtual assets in its guidance documents addressed to, respectively, undertakings for collective investment and credit institutions (https://www.cssf.lu/en/2021/11/cssf-guidance-on-virtual-assets/), which mainly cover rules on the offering of tokens to investors as a method of diversifying their portfolios.
While the White Paper will not revolutionize the virtual assets markets, it can be seen as another step showing decision makers' commitment in promoting Luxembourg as a FinTech hub.
