Commission de Surveillance du Secteur Financier (CSSF), Luxembourg, published a Communication on virtual assets, along with guidance on investments in virtual assets by credit institutions and investment funds.
As stated in the Communication, although all tokens constitute a digital representation of value, that can be digitally traded, and are provided by the same technology using DLT and cryptography, they may vary in terms of features, functions or applicable regulations.
First of all, they may have different purposes or even multiple purposes (such as payment, investment or utility purposes). Some of them may come with an underlying instrument or constitute a new type of asset without underlying instrument that does not exist outside of the DLT space (e.g. cryptocurrencies), or have specific and unique characteristics due to which they are not interchangeable (e.g. non-fungible tokens – NFTs). ‘Virtual assets may be created to finance a specific project (such as the creation of a new cryptocurrency or other in the context of an initial coin offering (ICO) or the tokenisation of real estate in the context of security token offering (STO)).’
Although most tokens are unregulated and thus do not fall under any existing legislation (for example cryptocurrencies), those that fulfil the conditions for financial instruments or e-money are subject to appropriate regulations.
Market participants have been reminded of the need to closely follow any regulatory developments and to adapt their business to the anticipated changes, for example to those under the upcoming EU Regulation on markets in crypto-assets (MICA), that will regulate certain virtual assets which until now have been excluded from existing legislation. The CSSF expects that professionals should proactively engage with the CSSF when planning any activity involving virtual assets.
The Communication is accompanied by FAQs concerning investments in virtual assets by investment funds and credit institutions. Full text of the Communication is available here: https://www.cssf.lu/en/2021/11/cssf-guidance-on-virtual-assets/