Crypto Regulations in Luxembourg

Luxembourg does not regulate cryptocurrencies and in 2018, Luxembourg’s Financial Sector Monitoring Commission released a statement warning about the risks of investing in cryptocurrencies. However, on March 1, 2019, Luxembourg enforced a law that officially recognized tokenized securities as having the same legal status as traditional securities, allowing the transfer of securities via distributed ledger technology. For tax purposes, cryptocurrencies are not actual currencies but are considered intangible assets. However, Luxembourg has recognized cryptocurrencies as currencies, but no regulation exists for them.

Source: Freeman Law

The new law recognizes the possibility of using public electronic recording mechanisms such as blockchain, particularly the principle of neutrality in technology. This gives more certainty to financial market participants as well. Luxembourg adopting this law brought its global position in the field of fintech to the top. This law offered one of the safest and most advanced technology financial systems to its investors as of 2020. Besides, the Luxembourg Act is the biggest factor in the country’s operation most efficiently and securely in the global financial market.

Source: Sanction Scanner

Although there are no specific legislative steps on the radar for Luxembourg cryptocurrency regulation, we expect more crypto legislation to be forthcoming, especially given the introduction of the EU’s 5AMLD and 6AMLD that came into effect in December 2020 and the government’s desire to align with ESMA (on ICO, QFi’s, and UCIS) whilst driving its token and blockchain agendas.

Source: Comply Advantage

Cryptocurrencies: Not legal tender there are no specific Luxembourg cryptocurrency regulations but the government’s legislative attitude towards cryptocurrencies is generally progressive. Finance Minister Pierre Gramegna has commented that, given their widespread use, cryptocurrencies should be “accepted as a means of payment for goods and services” in Luxembourg. 

Source: Comply Advantage

Despite the fact that they’re no specific cryptocurrency regulations in Luxembourg, the government’s open to development in this matter. The best proof of this is that Luxembourg was the first country in Europe to license virtual currency exchange platforms named Bitstamp as payment institutions. What is more, a considerable number of FinTech companies, including leading industry players in e-commerce and e-payments, such as PayPal, Amazon, and Rakuten have chosen Luxembourg as their European hub.

Source: MWW Law

Luxembourg: Crypto-assets – Luxembourg regulator paves the way for alternative investment funds to invest in virtual assets An authorized investment fund manager must obtain prior authorization to invest in virtual assets by providing the CSSF with detailed information on the investment project (including experience of the portfolio manager, targeted investors, services providers involved and distribution channels), on how the investments in virtual assets will be made, how the related risks will be managed, how the custody of the assets will be organized by the depositary and the AML/CFT analysis by the AIFM on the virtual assets.

Source: Insight Plus

Although cryptocurrencies are not legal tender they are considered intangible assets for tax purposes. In 2018, authorities issued advice on the tax treatment of cryptocurrencies which, in a business context, depends on the type of transaction involved. Accordingly, for tax purposes, use of cryptocurrencies as means of payment does not affect the nature of income, aligning compliance with Luxembourger tax rules.

Source: Comply Advantage

Cryptocurrency exchanges or virtual currency platforms in Luxembourg are regulated by the CSSF and new crypto businesses (i.e. service providers or intermediaries that are receiving or transferring) must obtain a payments institutions license if they wish to begin trading.

Source: Comply Advantage

With the development of cryptocurrency and blockchain technology in Luxembourg, various regulations have occurred. The main emphasis is on the regulations established in the Luxembourg Law regarding the use of new technologies for companies and transporting financial instruments. The new law recognizes the possibility of using public electronic recording mechanisms such as blockchain, particularly the principle of neutrality in technology. This gives more certainty to financial market participants as well.

Source: Sanction Scanner

Luxembourg PM wants nation to be the ‘digital frontrunner’ in blockchain Prime Minister Xavier Bettel said that he was “not a technical person” or a developer but still backed blockchain technology for the future of Luxembourg. Almost $1M in crypto stolen from vanity address exploit​​ Hacks and exploits continue to plague the decentralized finance (DeFi)

Source: Cointelegraph

French police have arrested a former Luxembourg spy chief, who was suing EUobserver for criminal libel, in an unrelated US fraud case. His arrest came in connection with a US probe into a cryptocurrency Ponzi scheme by the firm OneCoin, worth over $4bn [€3.3bn] – the largest such form of fraud in history.

Source: EU Observer

Luxembourg has chosen to adopt a tech-neutral strategy for regulating Fintech. This means new Fintech sponsors looking to establish in Luxembourg are subject to existing regulation which already applies to Fintech’s traditional competitors. Through this approach, Luxembourg is steering clear of the regulatory sandboxes which have been established in other jurisdictions. 

Regulatory sandboxes allow Fintech companies to launch their products under lighter regulations. Although approaches differ, the pattern is usually: apply for an exemption, launch a product, and then graduate from the sandbox once a regulatory threshold is reached. Following graduation (exiting the sandbox), the product or service is typically subject to comprehensive financial regulations which apply across all other technologies. Ideally, this approach should foster Fintech innovation given a less onerous set of regulations, keeping costs and complexity down. 

Source: Loyensloeff