Unlocking Efficiency: The Impact of Blockchain Law IV on Luxembourg's Dematerialised Securities Landscape

Blockchain Law IV introduced changes to the Law on Dematerialised Securities which added more flexibility and efficiency. It offers an alternative to the current role of the central account keeper, as well as extends the scope of the Law on Dematerialised Securities to include equity instruments and fund units.

Extension of the scope – investment fund units

With extension of the scope of the Law on Dematerialised Securities to equity and fund units, the fund industry in Luxembourg - being the largest one in Europe and second largest worldwide – is able to use DLT under the Law on Dematerialised Securities in a broader spectrum. The processes of issuing and transferring fund units will be made more efficient, quicker and less costly, including the fact that less intermediaries are required.

An alternative: the new role of a control agent

As an alternative structure to the existing role of the central account keeper, Blockchain Law IV adds the new role of a control agent. Such control agent has similar responsibilities to those of the central account keeper model.

However, where the central account keeper model foresees a two layer deposit/custody structure with securities accounts provided by the secondary account keepers, the control agent model allows a direct holding of the securities held in the issuance account by the secondary account keepers for third parties/investors or themselves via the use of DLT.

The control agent, similarly to the central account keeper:

• holds the securities issuance account;
• ensures the number of securities issued by the issuer and via the issuance account is identical to the total number of securities registered with the securities accounts of the account holders held via use of DLT; and
• supervises the securities custody chain at the account holder and investor levels.

Furthermore, Blockchain Law IV also opens up more flexibility for the use of smart contracts to cover and execute the various processes to increase efficiency and reduce the number of intermediaries, and increases traceability and transparency. 
Blockchain Law IV should further position Luxembourg as a key jurisdiction in the digital securities space.

Watch this space for further trends in the DLT, impacts on the fund industry, and details for the new role of control agent.

Authored by Ariane Mehrshahi Marks.