On 4 January 2022, the CSSF supplemented its questions and answers (the “Q&As”) on virtual assets (the “VAs”), which were published on 23 December 2021.
Such Q&As are intended to provide answers to certain questions on virtual assets, focusing on credit institutions and therefore complete the first set of Q&As published by the CSSF for investment funds.
The Q&As first indicate that credit institutions may directly invest in VAs to the extent that they assess, document and validate by their authorised management the classification and the accounting approach retained for VAs and adopt a conservative approach when risk-weighting VAs under Regulation 2013/575 (the Capital Requirements Regulation).
Credit institutions cannot open bank accounts in VAs, nor facilitate or execute the settlement of payments in virtual currencies. However, they can open accounts that allow customers to deposit VAs as they would do in a traditional securities account. Because of the risks associated with VAs, such account must be segregated from the bank's own assets.
Prior to the provision of VA services on behalf of or for their customers[1] or any other activity in relation to Vas, (e.g. issuance of asset-referenced tokens and e-money tokens or dematerialised recordkeeping via DLT), credit institutions are required to submit a detailed business case beforehand to the CSSF, including notably a risk-benefit assessment, required adaptations to their governance and risk management frameworks, investor protection rules, etc. Furthermore, when carrying out certain services relating to VAs, credit institutions must be registered as a virtual assets service provider.
The CSSF also reminds that VAs are not deemed to be financial instruments and thus do not fall under the MiFID II investor protection framework. Nevertheless, credit institutions are required to set-up an effective investor protection framework including information on underlying risks, best execution, suitability and appropriateness assessments.
The principles of sound and prudent banking under the amended CSSF Circular 12/552 shall apply to credit institutions offering services or transacting in relation to VAs.
As for the Luxembourg fund depositaries acting as a depositary for investment funds investing directly in VAs, credit institutions have to (i) notify the CSSF prior to the beginning of their activity and (ii) implement an appropriate operational model and adequate organisational arrangements. Moreover, their responsibility and regulatory requirements will depend on whether they will effectively offer safekeeping or administration type of services for the VAs.
Should you have any questions relating to the above, please do not hesitate to contact one of the experts of our digital assets team.
Aurélia Viémont, Senior Counsel | Avocat à la Cour
Sarah Hantscher, Managing Associate | Avocat
Mélanie Poirrier, Associate, Luxembourg
[1] Such as (i) the exchange between VAs and fiat currencies; (ii) the exchange between one or more forms of VAs; (iii) the transfer of VAS; (iv) the safekeeping or administration of VAs or instruments enabling control over VAs, including the custodian wallet service; (v) the participation in and provision of financial services related to an issuer’s offer or sale of a VA.
