General Legal and Regulatory Framework

Legal Framework

What legal framework governs cryptoassets? Is there specifc legislation governing cryptoassets and businesses transacting with cryptoassets?

In general, the Luxembourg legal and regulatory framework does not govern cryptoassets as such but rather those that provide services as a business in relation thereto.

The main framework applicable in this context is set out by the Law of 12 November 2004 on the fght against money laundering and terrorist fnancing, as amended (the AML Law). The AML Law defnes a virtual asset as ‘ a digital representation of value, including a virtual currency, that can be digitally traded, or transferred, and can be used for payment or investment purposes, except for virtual assets that fulfl the conditions of electronic money. . . and the virtual assets that fulfl the conditions of fnancial instruments . . .’ (article 1(20b) of the AML Law). Depending on their characteristics and purposes, tokens created on a blockchain may, therefore, fall within the defnition of virtual assets (with the exclusion of e-money and fnancial instruments).

Persons that carry out certain activities that relate to virtual assets (ie, virtual asset service providers (VASPs)) are subject to a prior registration requirement with the Financial Sector Supervisory Commission (CSSF). Article 1(20c) of the AML Law defnes a VASP as any person providing one or more of the following services (on behalf of its customers):

• the exchange between virtual assets and fat currencies ,including the service of exchange between virtual currencies and fat currencies;
• the exchange between one or more forms of virtual assets;
• the transfer of virtual assets;
• the safekeeping or administration of virtual assets or instruments enabling control over virtual assets, including the custodian wallet service; and the participation in and provision of fnancial services related to an issuer’s offer or sale of a virtual asset.

In addition to the registration requirement, VASPs that are established or provide services in Luxembourg must also comply with the professional obligations set out under the AML Law.

The Luxembourg legislature has also adopted a modern legal framework regarding the issuance and circulation of securities within or through secured electronic registration mechanisms, including distributed electronic ledgers or databases.

The first step taken in this respect consisted in the adoption of the Law of 1 March 2019 (the 2019 Law), which amended the Law of 1 August 2001 on the circulation of securities (the 2001 Law). The 2019 Law inserted a new article in the 2001 Law, enabling account keepers to maintain securities accounts and credit securities on such accounts within or through secured electronic registration mechanisms, including distributed electronic ledgers or databases. In practice, this means that the 2001 Law allows for the maintaining and transfer of securities by way of distributed ledger technology. The term ‘secured electronic registration mechanisms, including distributed electronic ledgers or databases’ was purposely chosen to encompass a variety of new technologies, which include, but should not be limited to, blockchain technology.

A second step was taken with the adoption of the Law of 22 January 2021, amending the Law of 5 April 1993 on the fnancial sector, as amended (the 1993 Law) and the Law of 6 April 2013 on dematerialised securities, which allows central account keepers or settlement organisations to keep securities issuance accounts and carry out the registration of dematerialised securities within or through secured electronic registration mechanisms, including distributed electronic ledgers or databases.

Cryptoassets that do not qualify as virtual assets may qualify as securities, units in an alternative investment fund or electronic money, thus triggering the application of the 1993 Law, the Law of 17 December 2010 on undertakings for collective investment, as amended (the 2010 Law), the Law of 16 July 2019 on prospectuses for securities or the Law of 10 November 2009 on payment services, as amended, or all of these, depending on the case. In such cases, activities related to cryptoassets may require prior authorisation from the CSSF or the application of additional obligations. Thus, a case-by-case analysis of the characteristics of each cryptoasset must be carried out.

In conclusion, the applicable legislative framework relating to transactions, activities or services relating to cryptoassets depends on the characteristics of the relevant cryptoassets.

Law stated - 22 November 2021

Government policy

How would you describe the government’s general approach to the regulation of cryptoassets in your jurisdiction?

Luxembourg has implemented requirements relating to VASPs by amending its AML Law, taking into consideration the recommendations of the Financial Action Task Force. Luxembourg has also strived to modernise its legal framework relating to the issuance and circulation of dematerialised securities to take into account the evolution of the technology. However, beyond the legal framework, many initiatives have been taken at government and regulator level to ensure that Luxembourg remains at the forefront of innovation and maintains the attractiveness of its fnancial centre. For example, the creation of the Luxembourg House of Financial Technology (LHoFT) fosters the development of start-ups and the creation of think-tanks dedicated to the cryptoasset space. In addition, the CSSF has created an internal innovation department dedicated to projects linked to cryptoassets, demonstrating great reactivity and interest in this respect.

Otherwise, the Luxembourg government works closely with its international and European counterparts on how to best regulate cryptoassets. 

Law stated - 22 November 2021

Regulatory authorities

Which government authorities regulate cryptoassets and businesses transacting with cryptoassets?

There is no specifc government authority dedicated to the supervision of cryptoassets.

However, VASPs established or providing services in Luxembourg are subject to the supervision of the CSSF.

Furthermore, if a relevant cryptoasset qualifes as a fnancial instrument, a unit in an investment fund or e-money, the relevant entity carrying out activities in relation to such cryptoassets may also be subject to the supervision of the CSSF. 

Law stated - 22 November 2021

Regulatory penalties

What penalties can regulators impose for violations relating to cryptoassets?

The AML Law sets out sanctions for non-registration as a VASP or non-compliance by a VASP with the professional obligations provided for by the AML Law.

In this context, the CSSF may impose the following administrative sanctions and measures:

• a warning; 
• a reprimand; 
• a public statement, which identifies the natural or legal person and the nature of the breach; a temporary ban imposed by the CSSF for a period not exceeding five years, to exercise: 
  • a professional activity of the financial sector or to carry out one or several transactions with respect to the persons subject to the respective supervisory powers of the CSSF;or 
  • managerial functions within professionals subject to the supervisory powers of the CSSF with respect to any person discharging managerial responsibilities within such professionals or any other natural person held liable for the breach; and 
• maximum administrative fines of twice the amount of the benefit derived from the breach, where that benefit can be determined, or €1 million at most.

In addition to these administrative sanctions, a criminal fine of an amount between €12,500 and €5 million may be imposed on any person who knowingly contravenes the registration requirement or the professional obligations provided for by the AML Law.

In addition, where a given cryptoasset qualifies as a financial instrument, a security, a unit in an investment fund or e-money, other similar sanctions may be imposed under the 1993 Law, the 2010 Law, the Law of 16 July 2019 on prospectuses for securities or the Law of 10 November 2009 on payment services, as amended, depending on the case.

Law stated - 22 November 2021

Court jurisdiction 

Which courts have jurisdiction over disputes involving cryptoassets?

The competent courts will be determined in line with national, EU or international rules, depending on the specifc circumstances of the relevant dispute.

Law stated - 22 November 2021

Legal status of cryptocurrency

Is it legal to own or possess cryptocurrency, use cryptocurrency in commercial transactions and exchange cryptocurrency for local fat currency in your jurisdiction?

It is legal to own, possess or use cryptocurrency in commercial transactions in Luxembourg. It is also legal to exchange cryptocurrency for local fat currency. Service providers acting for their clients in relation to the above may be required to register as a VASP.

Law stated - 22 November 2021

Fiat currencies

What fat currencies are commonly used in your jurisdiction?

The euro is the ofcial fat currency in Luxembourg (Regulation (EC) No. 974/98 on the introduction of the euro).

Law stated - 22 November 2021

Industry associations

What are the leading industry associations addressing legal and policy issues relating to cryptoassets?

The leading industry associations addressing legal and policy issues relating to cryptoassets are Infrachain, LëtzBlock, the LHoFT, the Luxembourg Institute of Science and Technology and the Interdisciplinary Centre for Security, Reliability and Trust of the University of Luxembourg.

Law stated - 22 November 2021