New registration and governance requirements for virtual asset service providers in Luxembourg
Luxembourg has published two new laws to strengthen the anti-money laundering and counter-terrorist financing framework which introduce new registration and governance requirements for virtual asset service providers.
Luxembourg has published two new laws to strengthen the anti-money laundering and counter-terrorist financing framework. These laws introduce new registration and governance requirements for virtual asset service providers:
- the law of 25 March 2020 amending, among others, the AML Law1; and
- the law of 25 March 2020 establishing a centralized electronic data research system with respect to payment accounts and bank accounts identified by an IBAN number as well as safe deposit boxes held by credit institutions in Luxembourg (together, the Laws).
What are virtual asset service providers?
“Virtual asset service providers” are entities which provide, in the name of a client or for their own account, one or more of the following services:
- the exchange between virtual assets and fiat currencies, including the exchange between virtual currencies and fiat currencies;
- the exchange between one or more forms of virtual assets;
- the transfer of virtual assets;
- the safekeeping or administration of virtual assets or of instruments enabling control over virtual assets, including custodian wallet services;
- the participation in and the provision of financial services related to the offer of an issuer or the sale of virtual assets.
This definition is quite broad and covers a number of FinTech players providing services in Luxembourg.
A “virtual asset” is a digital representation of value, including a virtual currency, that can be exchanged in a digital manner or transferred and that can be used for payment or investment purposes. The definition excludes virtual assets that meet the conditions to be qualified as electronic money within the meaning of the Payment Services Law2 or the conditions to be qualified as financial instruments under the Financial Sector Law3. This means that under the Laws, financial instruments are not included in the definition of virtual assets. Entities providing the services described in the definition of “virtual asset service provider”, but with respect to financial instruments (even if such financial instruments are in virtual form) would fall within the scope of other financial regulations and be qualified, for instance, as investment firms or credit institutions, which are already subject to AML/CTF obligations.
A “virtual currency” is the digital representation of a value that is neither issued nor guaranteed by a central bank or other public authority, that is not necessarily linked to a legally established currency, and that does not have the legal status of currency or money, but that is accepted as means of exchange by persons and that can be transferred, safekept and exchanged electronically.
Finally the “custodian wallet service” is a service consisting of safekeeping private cryptographic keys on behalf of clients for the purpose of holding, safekeeping and transferring virtual currencies.
New registration requirement for providers
Virtual asset service providers must be registered with a register of virtual asset service providers (the Register) established by the Luxembourg financial regulator, the Commission de Surveillance du Secteur Financier (CSSF). The providers must send a registration request to the CSSF, together with the following information:
- the name of the requesting entity;
- the address of the central administration of the requesting entity;
- a description of the services provided and the activities performed, and the list of the specific virtual asset services provided; and
- a description of the money laundering and terrorist financing risks that the requesting entity will be exposed to and of the internal control mechanisms that the requesting entity implements to mitigate those risks and to comply with the professional obligations included in the AML Law and in Regulation (EU) No 2015/847 on information accompanying transfers of funds.
The Register is published on the CSSF’s website.
This new requirement under the Laws applies to virtual asset service providers which provide services other than payment services covered by the Payment Services Law, and which are either established in Luxembourg or provide their services in Luxembourg.
Enhanced governance requirements
In order to be successfully registered in the Register, virtual asset service providers must also comply with new governance requirements contained in the Laws with respect to the individuals exercising management functions and the ultimate beneficial owners (UBOs) of the providers themselves.
The individuals exercising management functions and the UBOs must submit evidence of their professional repute to the CSSF, which is assessed on the basis of police records and any other elements showing that the persons concerned are of good repute and offer every guarantee of irreproachable conduct. The CSSF may ask for any additional information from these individuals, including with respect to professional experience.
At least two individuals must be in charge of the management of the entity and must be empowered to effectively determine the direction taken by the business. They must also possess adequate professional experience. Any change to the members of the management or the UBO(s) must be pre-approved by the CSSF.
Virtual asset service providers are well-advised to seek advice prior to submitting with the CSSF given the ongoing personal liability of management and UBOs with respect to these declarations.
Next steps for FinTech players in Luxembourg
FinTechs in Luxembourg should assess whether they fall within the definition of “virtual asset service provider” set out above. If that is the case, they should:
- ensure that their internal governance meets at least the conditions set out in the Laws; and
- prepare the relevant documentation for a registration filing with the CSSF.
It is important to note that the Laws specify that the fact that a virtual asset service provider is listed in the Register shall not be considered and described as any type of positive assessment by the CSSF of the quality of the services offered by the provider.
For an overview of the other changes introduced by the Laws, please click here.
1 Law of 12 November 2004 on the fight against money laundering and terrorist financing, as amended
2 Law of 10 November 2009 on payment services, as amended
3 Law of 5 April 1993 on the financial sector, as amended
Anne-Marie NicolasPartner Attorney at Law / Avocat à la Cour
Anne-Marie Nicolas, partner, is a member of the Banking & Finance Practice Group in our Luxembourg office. She focuses on secured lending, including acquisition finance and real estate finance, as well as debt restructuring.T: +352 466 230 314 E: email@example.com
Michael SchweigerCounsel Attorney at law / Solicitor
Michael Schweiger, counsel, is a member of the Banking & Finance practice group in our Luxembourg office. He leads the Luxembourg financial regulatory team and regularly advises banks, e-money and payment institutions, insurers, and other clients regarding financial regulation.T: +352 466 230 520 E: firstname.lastname@example.org