Canada    FinTech Guide    Chapter 15    Luxembourg

15. Initial Coin Offerings (ICOs)
Luxembourg  Luxembourg

Since the ICOs are an international matter, the Commission de Surveillance du Secteur Financier (CSSF) supports a European or even international level approach to create a legal framework, analyze impacts on financial stability, protect investors and prevent from exploitation of cryptocurrencies for illegal activities.

Legal Affairs

There is no specific regime or legal framework in Luxembourg. It, however, does not mean that no regulation at all will apply. Depending on the specific features of the ICO, existing rules on prospectus, transparence, financial instruments and anti-money laundering would have to be respected anyway. In absence of such a regulation, Luxembourg’s financial regulator (Commission de Surveillance du Secteur Financier – CSSF) has issued warnings about cryptocurrencies and initial coin offerings (ICOs).

Restrictions: ICOs are risky operations with few or no protection for the investors who may lose the full investment made in it. The entities under prudential supervision of the CSSF must take into account that investments in tokens through ICOs are not suitable for all types of investors and investment objectives. Thus, it is not permitted for UCITS, UCIs intended for non-professional clients and pension funds to invest directly or indirectly in these products.

Licence and costs: Despite the absence of specific regulations applicable to ICOs, the activities related to or implied by the creation of tokens, the collection and raising of funds, may, depending on their characteristics, be subject to certain legal provisions in Luxembourg and therefore to some monitoring requirements.The CSSF will not hesitate to evaluate these fundraising by extending its analysis to the objectives pursued to assess whether it may be an operation to circumvent or avoid the regulation applicable to the financial sector, in particular the provisions of the Luxembourg law of 10 July 2005 relating to prospectuses for securities and the law of 5 April 1993 on the financial sector. The CSSF is of the opinion that in all cases of fundraising, it is up to the initiators of such ICOs to put procedures in place to prevent money laundering or terrorist financing.

Token classification: The legal qualification of cryptocurrencies and services provided in relation to these cryptocurrencies is complex, especially in view of the technical specificities inherent in different types of cryptocurrencies. This is the reason why the CSSF invites people who are planning to carry out a business related to cryptocurrencies (for example the issue of payment instruments denominated in cryptocurrencies or other forms of payment, the offer of payment services using virtual or other currencies or the provision of cryptocurrencies exchange services) to submit their documentation projects in advance to the CSSF, which will determine whether or not it is potentially a regulated activity.

Prospectus: Given that some Luxembourg regulatory provisions may apply to the otherwise as yet unregulated ICOs, the CSSF will consider existing rules in full to protect the integrity of the market place, and will assess fundraising made through Luxembourg-based ICOs for potential violations of the 2005 prospectus law, the 1993 financial sector law or the anti-money-laundering regulations.

AML/KYC: The AML Law in force in Luxembourg is fully applicable to initial issuance of tokens / coins and any following transfer of tokens / coins to third party.

Further comments: The CSSF points out that ICOs may involve significant and often unpredictable risks for both professional investors and consumers who participate in the initial call for financing or who invest in tokens on or through specialized platforms (risk of volatility in the crypto market, bubble effect because the environment lacked transparency and monitoring, fraud, money laundering, volatility…).

Contributing Authors

Felten & Associes

Bernard Felten

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1. Payment Services / Mobile Payment

2. Asset and Portfolio Management

3. Consulting and Broking Services / Robo-advisory / Auto-trading

4. Trading Platforms / Social Trading Platforms / Signal Following

5. Crowdfunding / Crowdinvesting / Crowdlending

6. Virtual Currency - Bitcoin

7. Loan Services / Factoring / Loan Broking / Finetrading

8. Online Banking Services

9. Analytics and Research / Data Management / Risk Management

10. Accounting

11. Identification

12. Online-pawning

13. InsurTech

14. RegTech

15. Initial Coin Offerings (ICOs)

The information in this guide provides a general overview at the time of publication and is not intended to be a comprehensive review of all legal developments nor should it be taken as opinion or legal advice on the matters covered. It is for general information purposes only and readers should take legal advice from a Multilaw member firm.

Publication Date: 1 August 2019