The 2021 Legislation stems from invoice of regulation no. 7637, which was filed with Parliament on 27 July 2021 (see our newsflash of 30 July 2020 for extra info).
The 2021 Legislation amends the regulation of 6 April 2013 on dematerialised securities (the “2013 Legislation”), which now explicitly recognises the potential for utilizing safe digital registration mechanisms, together with distributed digital registers or databases, to problem dematerialised securities. The listing of entities empowered to behave as account keeper for (unlisted) debt securities has additionally been expanded.
The Luxembourg legislator had already made a lot of related modifications, in amending the regulation of 1 August 2001 on the circulation of securities and different monetary devices (the “2001 Legislation”) with the regulation of 1 March 2019. This modification served to make clear that account-keeping establishments corresponding to banks might present securities accounts with distributed ledger expertise. It additionally launched a lot of associated gadgets, together with affirmation that successive registrations of securities utilizing distributed ledger expertise have the identical results as transfers between securities accounts (e.g. relating to switch of possession).
The 2021 Legislation introduces two most important modifications:
1. Clarification: issuance accounts for dematerialised securities could also be saved utilizing distributed ledger expertise
When issuing dematerialised securities, a file should be saved of the quantity and kind of securities issued. That is executed in an “issuance account”. Issuance accounts permit the central account keeper or liquidation organism to confirm that the variety of securities in circulation in securities accounts doesn’t exceed the full quantity issued.
An issuance account shouldn’t be a securities account; it’s merely a file saved for the needs of the aforementioned reconciliation checks. Central account keepers and liquidation organisms liable for performing these checks are actually expressly permitted to maintain such information utilizing distributed ledger expertise. Because of this going ahead, the most important instruments for dematerialised securities can all be saved utilizing distributed ledger expertise: not simply securities accounts (permitted since 2019 by the 2001 Legislation), however issuance accounts as nicely.
The issuance account has now been outlined as an account held with a settlement establishment or central account keeper by which the dematerialised securities of an issuer should be registered solely. Such an account could also be maintained, and securities registered in it, utilizing safe digital recording mechanisms, together with distributed digital registers or databases.
This definition stays technology-neutral, i.e. it permits for using each conventional registers and databases and distributed ledger expertise and databases.
2. Extra entities might be allowed to behave as account keeper for unlisted debt securities
At the moment, solely sure regulated Luxembourg service suppliers can act as central account keepers below the 2013 Legislation. Furthermore, they require a selected further license so as to have the ability to carry out this operate. This example will stay unchanged in relation to fairness securities. Nonetheless, for (unlisted) debt securities, the scope of regulated service suppliers in a position to act as central account keepers might be broadened. This position will now be open to any credit score establishment or funding agency authorised in a Member State of the European Financial Space, offered it has acceptable management mechanisms and IT safety preparations for holding issuance accounts and performing different associated duties, such because the aforementioned reconciliation checks. Issuers of unlisted debt securities ruled by Luxembourg regulation will thus have a bigger alternative of service suppliers for this a part of the issuance course of.
Henceforth, Luxembourg and EU credit score establishments and funding corporations might be permitted to carry out this position below the 2013 Legislation offered they’ve appropriate management and IT safety mechanisms for holding central accounts, enabling them:
(i) to file in an issuance account the whole lot of the securities making up every problem admitted to their operations,
(ii) to make sure the circulation of securities by switch from account to account,
(iii) to confirm that the full quantity of every problem admitted to their operations and recorded in an issuance account is the same as the sum of the securities recorded within the securities accounts of their holders, and
(iv) to train the rights hooked up to the securities recorded in securities accounts.