The CSSF publishes a White Paper on Distributed Ledger Technologies (DLT) and blockchain

On 21 January 2022, the Luxembourg Financial Authority (the “Commission de Surveillance du Secteur Financier” or ""CSSF”) provided guidance with regard to the use of the DLT in the financial sector by publishing a Communiqué  together with a press release and a white paper (the “White Paper”).

Context of publication of the White Paper

In the presence of constantly evolving technologies, it is important to recall that the Law of 1 March 2019¹  and the Law of 22 January 2021²  respectively enable the maintenance and circulation of securities by way of inscription in a distributed ledger and the issuance of such dematerialised securities through secured electronic registration mechanisms such as the DLT.

From an AML/CTF³  standpoint, the Law of 12 November 2004 on the fight against money laundering and terrorist financing was amended by a law dated 25 March 2020 introducing a new status of “virtual asset service providers” which must be registered with the CSSF for such AML/CTF purposes.⁴

In this context of appetite for decentralisation and dematerialisation, the White Paper follows two FAQs (one related to  UCIs and another one for credit institutions) published in November and December 2021 by the CSSF in relation to virtual assets. These FAQs emphasise the need for professionals to carry out a case-by-case assessment of the specific risks related to investments in, and services provided in relation to, such types of assets.

Please see our other publication for more information about the FAQ concerning UCIs.

Content of the White Paper

First of all, the White Paper, which is a non-binding document, agrees on the following definition for the DLT:

“DLT is a technology allowing a network of independent and often geographically dispersed computers to update, share and keep a definitive record of data (e.g. information, transactions) in a common decentralised database in a peer-to-peer way, without the need for a central authority.”

Then, the White Paper focuses on three main aspects:

• Explanatory developments related to the identification of the main components of a DLT and the different types of DLT;
• Indication of the roles and responsibilities of the different players in the use of the DLT such as the DLT developers or the infrastructures service providers;
• Emphasis on the fact that entities should weigh up the risks that involve the use of a DLT against the benefits.

From a practical standpoint, the White Paper ends with an appendix summarising all DLT-specific key questions and considerations, some of which have legal or contractual implications.⁵