The 2021 Regulation 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 data).
The 2021 Regulation amends the regulation of 6 April 2013 on dematerialised securities (the “2013 Regulation”), which now explicitly recognises the opportunity of utilizing safe digital registration mechanisms, together with distributed digital registers or databases, to challenge dematerialised securities. The checklist of entities empowered to behave as account keeper for (unlisted) debt securities has additionally been expanded.
The Luxembourg legislator had already made quite a lot of related modifications, in amending the regulation of 1 August 2001 on the circulation of securities and different monetary devices (the “2001 Regulation”) 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 quite 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 Regulation 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 report have to be saved of the quantity and kind of securities issued. That is accomplished 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 whole quantity issued.
An issuance account is just not a securities account; it’s merely a report saved for the needs of the aforementioned reconciliation checks. Central account keepers and liquidation organisms chargeable for performing these checks at the moment are expressly permitted to maintain such information utilizing distributed ledger expertise. Which means 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 way of the 2001 Regulation), 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 have to 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 can be allowed to behave as account keeper for unlisted debt securities
Presently, solely sure regulated Luxembourg service suppliers can act as central account keepers beneath the 2013 Regulation. Furthermore, they require a particular further license so as to have the ability to carry out this perform. This example will stay unchanged in relation to fairness securities. Nevertheless, for (unlisted) debt securities, the scope of regulated service suppliers capable of act as central account keepers can 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, supplied it has applicable management mechanisms and IT safety preparations for protecting 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 selection of service suppliers for this a part of the issuance course of.
Henceforth, Luxembourg and EU credit score establishments and funding companies can be permitted to carry out this position beneath the 2013 Regulation supplied they’ve appropriate management and IT safety mechanisms for protecting central accounts, enabling them:
(i) to report in an issuance account the whole lot of the securities making up every challenge admitted to their operations,
(ii) to make sure the circulation of securities by switch from account to account,
(iii) to confirm that the whole quantity of every challenge 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 connected to the securities recorded in securities accounts.