CSSF publishes first version of its FAQ on fund tokenisation

On Friday the CSSF published the first version of its FAQ on fund tokenisation, addressing a number of questions actively discussed across the industry over the past year.

We set out below the points most likely to impact your projects:

1. Technological neutrality: It is confirmed that Luxembourg UCIs can issue native units/shares using DLT, provided the operating model complies with the applicable regulatory framework. Tokenised units/shares may be issued natively in registered or dematerialised form: the use of blockchain does not by itself determine (nor limit) the legal form of the underlying securities.
2. A single UCI can issue both tokenised and traditional units/shares. Asset managers can hence issue tokenised unit/share classes within existing umbrella structures/sub-funds. The CSSF also confirms that different entities may act as UCI administrator  for the registrar function (“UCIA”) and clarifies the conditions attached to this. One can hence appoint another UCIA to operate the tokenised units/shares, if needed, but the IFM and/or one of the appointed UCIAs must maintain a consolidated view of the units/shares issued by the UCI.
3. The registrar function must be performed regardless of the model. The form under which units/shares of a UCI are issued (registered or dematerialised) does not impact the need to ensure the registrar function within the meaning of Circular CSSF 22/811. 
4. Notifications to the home Member State: Any entity located in the EEA intending to notify the CSSF in respect of the control agent activity must first inform the competent authority of its home Member State.
5. Possible additional notifications: Depending on the chosen model, if the activity of the control agent/digital transfer agent requires operational and/or ICT outsourcing arrangements, additional notification forms are to be prepared in line with the existing framework. The control agent activity is likely to qualify as a critical or important function within the meaning of Article 3(22) of DORA.
6. DORA: The CSSF confirms that a control agent is subject to DORA and as such, have to ensure their DORA compliance framework is applied to their control agent activities, including potential ICT notifications under DORA to be submitted to the CSSF, as necessary.

We would be pleased to discuss the implications of this FAQ for your fund structures.