Luxembourg is expanding its legal framework for dematerialised securities - Introduction of new Blockchain IV bill of law

On 24 July 2024 the Ministry of Finance submitted a new bill of law (Blockchain IV) to the Luxembourg Parliament that is intended to amend the existing dematerialised securities framework set out in the law of 6 April 2013 on dematerialised securities. The Blockchain IV initiative reflects Luxembourg's long-term strategy to position the country as an important centre in Europe for both national and international issuers.

The general purpose of Blockchain IV, as has been the case with Blockchain I to III, is to improve the ease of use of distributed ledger technologies (DLT) with respect to the issuance as well as the holding and transfer of dematerialised securities (which also encompass equity securities including fund units) mainly by introducing a control agent role.

In this respect, Blockchain IV is, in particular, likely to provide investment funds with new and easier ways to structure their securities issuances given that the Luxembourg dematerialised securities regime is also applicable to equity securities.

The introduction of this new bill of law represents a further important step with respect to the development and expansion of dematerialised securities rules in Luxembourg complementing previous amendments in recent years (Blockchain I to III, you can check out our previous Ashurst Luxembourg briefing on Blockchain III here: https://www.ashurst.com/en/insights/blockchain-iii/).

What are the main changes Blockchain IV proposes?

The main development will be the introduction of a new agent as an alternative to the existing structures relying on central account keepers and secondary account keepers, the so-called control agent.

EU investment firms or credit institutions can be chosen by the issuer as control agent. However, the use of a control agent will be optional.

In practice, the control agent will set up a DLT issuance framework for the issuer, including making available to it a chain for the issuance of securities and assist the issuer with the management of the issuance and, if necessary, the payments to be made between the investors and the issuer.

The control agent's tasks will be three-fold:

• It will maintain the securities issuance account (compte d'émission).
• It will check the consistency of the number of securities issued by the issuer and the number of securities registered on the relevant securities accounts (comptes-titres) using DLT.
• Finally, it will also supervise the securities chain at both the levels of the account holders and the investors.

Furthermore, the new Blockchain IV regime will provide a high degree of flexibility as the control agent will not be required to take charge of the payment procedures related to the securities.

These functions can still be done directly by the issuer to the investors or by the issuer paying to the paying agent.

In the latter approach the paying agent will then make the necessary payments to the holders of the securities that are registered in the DLT system. In this case once the issuer has paid the relevant amounts to the paying agent or the settlement agent, it will have effectively complied with its payment obligations with respect to dividend, interest or redemption payments under the securities.

As reflected above, Blockchain IV's main innovation will thus be the elimination of the additional custody layer established between the central account keeper and the secondary account keepers at investor level.

Given that the exchange of information in a DTL network is generally considered to be secure Blockchain IV will ultimately provide for the possibility to directly credit the securities to the accounts of the investors or their nominees, without the intermediation of secondary securities account keepers. These procedures can be done by way of specific contracts between the control agent and the different securities account providers.

Should you need more information on the above please feel free to contact our Luxembourg Ashurst Capital Markets team.