Cryptoassets for investment and Financing

Regulatory threshold

What attributes do the regulators consider in determining whether a cryptoasset is subject to regulation under the laws in your jurisdiction?

To determine the regime and regulations applicable to cryptoassets, an in-depth analysis of the characteristics of each cryptoasset must be carried out to determine whether it falls within the scope of the legal defnition of a virtual asset, a fnancial instrument, a unit of an investment fund or e-money. Elements taken into consideration relate to the purpose, fungibility and rights attached to the relevant asset.

Law stated - 22 November 2021

Investor classification

How are investors in cryptoassets classified and treated differently?

Investors in cryptoassets are generally classifed into two categories: retail investors and professional investors. Retail investors beneft from a higher level of protection than professional investors.

Law stated - 22 November 2021

Initial coin offerings

What rules and restrictions govern the conduct of, and investment in, initial coin offerings (ICOs)?

Initial coin offerings (ICOs) are not regulated by any specific Luxembourg law or regulation. However, depending on the characteristics of the project, the activities relating to ICOs may be subject to certain legal provisions in Luxembourg.

In 2018, the Financial Sector Supervisory Commission (CSSF) issued a communication in line with the European Securities and Markets Authority’s position, drawing the attention of consumers to the risks implied by ICOs. It also stresses that undertakings for collective investment in transferable securities (UCITS) and undertakings for collective investment (UCIs) addressing non-professional customers are not allowed to invest directly or indirectly in virtual currencies such as those issued under an ICO. However, the CSSF has informally slightly amended its position to enable UCITS and UCIs to target well-informed investors. 

Finally, the CSSF considers that for any fundraising, the initiators of such ICOs are required to establish anti-money laundering and countering the fnancing of terrorism (AML/CTF) procedures.

Law stated - 22 November 2021

Security token offerings

What rules and restrictions govern the conduct of, and investment in, security token offerings (STOs)?

There are currently two types of security tokens that may be issued in Luxembourg:

• ‘proof of ownership tokens’, which are considered a digital representation of the underlying security issued by an issuer; and
• ‘native tokens’, which are dematerialised securities issued directly on the blockchain

The issuance of security tokens may be subject to the legislative framework applicable to the offering of securities, depending on the type of security token offered. Furthermore, professional service providers assisting in this context or involved in the issuance, distribution and trading of such security tokens may fall within the scope of regulated activities and the related legal framework. Investment in security tokens is not, however, subject to specific rules, unless it is carried out by a regulated entity (such as UCITS).

Law stated - 22 November 2021

Stablecoins

What rules and restrictions govern the issue of, and investment in, stablecoins?

There is currently no specifc legal or regulatory framework governing the issue of and investment in stablecoins. However, a case-by-case analysis must be carried out to assess whether a given stablecoin may fall within the scope of existing laws or regulations such as the Law of 5 April 1993 on the fnancial sector, as amended, which covers fnancial instruments or the Law of 10 November 2009 on payment services, which covers e-money and payment services.

Law stated - 22 November 2021

Airdrops

Are cryptoassets distributed by airdrop treated differently than other types of offering mechanisms?

Luxembourg has not yet adopted a specifc regulatory framework with respect to the treatment of cryptoassets distributed by airdrop. 

Law stated - 22 November 2021

Advertising and marketing

What laws and regulations govern the advertising and marketing of cryptoassets used for investment and fnancing?

There are no specific rules applicable to the marketing and advertising of cryptoassets. Depending on the legal qualification of the relevant cryptoassets, certain specific rules may apply, such as markets in financial instruments, payment services, etc. Furthermore, where the advertising and marketing are targeted at consumers, the general framework, such as that set out under the Consumer Code, would likely apply.

Law stated - 22 November 2021

Trading restrictions

Are investors in an ICO/STO/stablecoin subject to any restrictions on their trading after the initial offering?

In Luxembourg, the trading of digital assets by investors after the initial offering is not regulated. Whether there are restrictions relating to the trading of the relevant asset from a product perspective depends on the characteristics of such asset. However, those involved in the trading of the assets from a service provider perspective may be subject to regulatory requirements

Law stated - 22 November 2021

Crowdfunding

How are crowdfunding and cryptoasset offerings treated differently under the law?

Crowdfunding offerings may fall within the scope of application of Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European crowdfunding service providers for business, amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937 (the Crowdfunding Regulation). The Crowdfunding Regulation is directly applicable under Luxembourg law. However, if there is a specific legal framework relating to certain crowdfunding offerings, this is not the case for cryptoasset offerings. Further, depending on their characteristics, cryptoasset offerings may fall within the scope of the Crowdfunding Regulation and, therefore, may be subject to specific requirements.

Law stated - 22 November 2021

Transfer agents and share registrars

What laws and regulations govern cryptoasset transfer agents and share registrars?

There are no specific laws and regulations governing cryptoasset transfer agents and share registrars. Depending on the qualification of the cryptoasset, other rules may apply.

Law stated - 22 November 2021

Anti-money laundering and know-your-customer compliance

What anti-money laundering (AML) and know-your-customer (KYC) requirements and guidelines apply to the offering of cryptoassets?

Where the offering of cryptoassets falls within the scope of regulated activities (ie, virtual asset service providers, investment firms, e-money institutions, alternative investment fund managers), the following professional obligations, as provided for by, among others, the Law of 12 November 2004 on the fight against money laundering and terrorist financing, as amended (the AML Law), apply:

• the completion of a risk assessment of the entity offering cryptoassets and of the business relationship with the customer;
• identifying and verifying the identity of the customer, the person purporting to act on behalf of the customer and the customer’s beneficial owner;
• identifying the purpose and intended nature of the business relationship;
• conducting an ongoing monitoring of the business relationship;
• implementing an appropriate internal organisation for the prevention of money laundering and terrorist fnancing;
• monitoring of transactions; and
• cooperating with the Financial Information Unit

Finally, the CSSF considers that for any fundraising, the initiators of ICOs are required to establish AML/CTF procedures. The above is notwithstanding any requirements and guidelines set out at EU and international levels.

Law stated - 22 November 2021

Sanctions and Financial Action Task Force compliance

What laws and regulations apply in the context of cryptoassets to enforce government sanctions, anti-terrorism fnancing principles, and Financial Action Task Force (FATF) standards?

With regard to government sanctions, legal persons having their registered ofce, permanent establishment or centre of main interests in the territory of Luxembourg and that operate in or from Luxembourg or abroad are subject to sanction screening requirements under the Law of 19 December 2020 on the implementation of restrictive measures in fnancial matters (the 2020 Law). The relevant lists, which are subject to frequent changes, are found on the website of the Luxembourg Ministry for Finance.

With regard to anti-terrorism fnancing, the AML Law applies.

FATF standards and recommendations specifc to cryptoassets must also be considered.

Law stated - 22 November 2021