Luxembourg’s Blockchain Law No. 4 facilitates the issuance of DLT securities.

like Coding As it takes hold globally, Luxembourg has adopted a new law that seeks to make issuing digital securities easier, cheaper and more efficient.

Parliament of Luxembourg recently Pass Blockchain 4 Act, the country’s latest effort to facilitate blockchain adoption. It is the fourth in the series of blockchain laws; The first was implemented in 2019. The latter framework provides a simplified system for “issuing, recording and transferring ownership of intangible debt and equity securities using DLT (distributed ledger technology).”

The Luxembourg Finance Agency, the country’s financial development agency, says the new law will strengthen the country’s “leading role within the European Union in the use of distributed ledger technology, particularly in the field of issuance of dematerialized securities.”

Intangible securities exist only electronically and are registered in a central depository system, such as stocks, bonds, and exchange-traded funds (ETFs).

The prominent requirement in the new law is the introduction of a monitoring agent aimed at reducing inefficiencies and simplifying procedures Issuing debt and token securities practical. Previously, issuance required a central custodian (which in other markets may be a central securities depository or CSD), which are highly regulated financial entities, making the process more expensive and limited. Next, there will be a separate guard, creating a two-tier system.

However, with monitoring agents, the process will be easier for participants as credit institutions, investment companies, banks and settlement organizations can now play this role. EU companies licensed in other EU countries can also play this role, further expanding the scope; This is different from other EU members who need local operations.

A Control agent He will maintain the issuance of tokenized securities, supervise the chain of custody of these securities, and ensure reconciliation between the issuance account on DLT and the securities account. Essentially, instead of having two separate companies handling issuance and custody, a monitoring agent can handle both, eliminating the two-tier system.

The new law simplifies the requirements for monitoring agents, making it easier for most financial firms to apply for this role. To qualify, a company must notify the Financial Markets Regulatory Authority at least two months in advance and meet all prudential requirements, such as governance, security, organizational structure and internal controls.

In recent years, Luxembourg has quietly evolved its financial laws to accommodate blockchain technology. In 2023, it passed The third blockchain lawwhich allowed electronic DLT to be used as collateral for financial instruments held in securities accounts.

With tokenization taking hold and ambitious expectations for the technology being launched $15 trillion in the next decadeLuxembourg is making strides ahead of other advanced economies in the European Union, which may make it the biggest winner in Europe. Regional frameworks such as the Markets for Cryptoassets (MiCA), which continue to standardize the bloc’s regulatory approach, mean companies can set up business in Luxembourg and then use an EU passport to serve the rest of the region. Latvia is another small country that has quickly realized the potential of the post-MiCA world and is Busy working with companies Using blockchain to set up in the country.

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