Luxembourg is an accessible financial center in an international frame. With the latest developments in virtual currencies, it has succeeded in making itself a world leader in digital financial services.
The development of Cryptocurrencies and Blockchain technology has also caused various movements in the financial sector of Luxembourg. This developing technology brought new legal regulations with it.
In this article, we have compiled the effects of virtual currencies on the Luxembourg financial area.
What is Cryptocurrency?
A cryptocurrency is a virtual form of payment used to purchase goods and services. Tokens or casino chips are examples of cryptocurrency. However, many companies have issued their own currency. The main purpose of cryptocurrency is to enable the exchange of cryptocurrency and real currency to access the provided goods or services.
A cryptocurrency does not have centralized management, unlike a real currency. It is distributed to a wide audience over the internet with a digital and encrypted system. In other words, cryptocurrency is based on a recording technology called a blockchain.
What is Blockchain?
Blockchain is a system for recording and managing transactions that is common on many computers.
You can think of the blockchain as a booklet. Transactions are recorded in code, collected in one place, and distributed to countless computers worldwide. These collected and distributed transactions are recorded in blocks and depend on previous cryptocurrency transactions. Thus, a chain or digital ledger is created.
Although blockchain technology is often known as cryptocurrencies, it has a wide range of work areas. Central or decentralized is used in many industries. In Luxembourg, the main uses of blockchain include:
- notary procedures
- smart contracts
- public sector
- energy sector
- health sector
Cryptocurrency Laws in Luxembourg
Luxembourg has significant regulations on anti-money laundering. Depending on developments in blockchain technology, Luxembourg has also brought its place in the global economy to the top.
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.
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.
A consumer warning about virtual currencies issued by the Financial Sector Supervisory Commission (CSSF) on March 14, 2018, states;
Financial sector regulations should evaluate and analyze, in particular, provisions under the 10 July law. Also, the CSSF stated that funders should establish anti-money laundering and terrorist financing procedures.
However, the law of March 25, 2020 (AML / CTF) contains definitions for virtual asset service providers (VASPs).
Anti Money Laundering Requirements for Cryptocurrency
According to FATF, Virtual Asset Service providers mean that a digital asset organization engages in an activity involving virtual assets on behalf of their customers.
On the one hand, In the AML / CTF Act, a virtual asset is defined as a virtual currency that can be purchased, sold, or transferred digitally and used for payment or investment purposes.
The broad definition of VASPs provided by the AML / CTF Act includes all entities that exchange between virtual assets and real currencies and between one or more virtual assets. Persons with management functions and ultimate stakeholders must provide evidence of their professional reputation to the CSSF.
Under this law, requests for registration of VASPs with the CSSF must include the name of the legal entity that demand, the name of the central administration of the requesting organization, the description of the service or activity provided, and the list of services performed, and the money laundering and terrorist financing risks of the requesting organization.
CSSF is technology-independent. Therefore, instead of regulating cryptocurrency and blockchain technology, it chose to regulate financial service providers, including cryptocurrencies.
CSSF reserves the right to deregister the requesting organization in case of failure to comply with these obligations. It also can impose administrative sanctions. under AML / CTF law.
Learn more about Cryptocurrency and Blockchain Analysis