Luxembourg financial services regulator CSSF publishes FAQ on investments in virtual assets by undertakings for collective investment and credit institutions | K&L Gates LLP


Like other financial centers, Luxembourg has recently seen a growing interest in investing in new technologies, including virtual assets such as digital tokens. Complementing this interest is a strong growing demand for advice regarding the regulatory treatment of virtual assets.

Luxembourg law defines a “virtual asset” (VA) as a digital representation of value, including virtual currency, that can be exchanged or transferred digitally and can be used for payment or investment purposes, exception of digital financial instruments (i) and (ii) electronic money.1

On January 4, 2022, the Luxembourg Financial Sector Supervisory Authority, Financial Sector Supervisory Commission (CSSF), has updated and completed its Frequently Asked Questions (FAQ) on AV investments by (i) undertakings for collective investment and (ii) credit institutions (CI). The FAQs, which were published for the first time at the end of 2021, follow on from the CSSF’s guidelines published on 29 November 2021 and its previous communications on virtual asset service providers (VASPs).2 They will be updated from time to time in the future. At European level, the future European regulation on crypto-asset markets3 is expected to influence the regulatory framework for the foreseeable future.

1. Main points to remember from the CSSF guidelines of November 2021

The CSSF takes up the challenges posed by financial innovation such as VA. As part of its mission, the CSSF undertakes to promote an open, technologically neutral and prudent regulatory approach based on risks. Any entity under the prudential supervision of the CSSF intending to carry out an activity involving VA is required to carry out thorough due diligence, to weigh the risks and advantages of such activity and to undertake to proactively with the CSSF when planning such an activity.

2. Collective investment schemes

2.1 Investment in VA Reserved for Professional Investors

Only regulated or unregulated alternative investment funds that are marketed to professional investors (AIFs) can invest in AVs. In contrast, collective investment schemes marketed to retail investors and pension funds generally cannot invest in AV.

An AIF may invest in AVs directly or indirectly (eg by using derivatives), provided that such investment does not compromise existing regulatory requirements applicable to that AIF. AIFs interested in investing in AVs should keep in mind that AVs are specific in terms of volatility, liquidity and technology risk, all of which can affect the risk profile of the AIF. In addition, it is important for the AIF to keep investors informed in a timely and transparent manner and to update fund documentation.

2.2 Requirements for Luxembourg investment managers

Specific requirements apply to Luxembourg Authorized Investment Managers (IAMs) who manage an AIF investing in VA.

An IFM managing an AIF that invests or intends to invest in VAs must obtain prior authorization by requesting an extension of its license for the so-called “Other-Other Fund-Virtual Assets” strategy. As part of the license extension, special emphasis is placed on risk management, assessment determination, analysis and mitigation of anti-money laundering and terrorist financing , and AV control (i.e. access to and control over cryptographic keys).

Depending on the activities carried out by the IFM (or another participant in the management of the AIF), it may be necessary to ask the CSSF for registration as a VASP.

2.3 Requirements for Luxembourg Fund Depositaries

A Luxembourg authorized fund depositary must notify the CSSF before acting as depositary of an AIF investing directly in AVs, and it must put in place both organizational arrangements and an operating model which reflect in a manner the specific risks related to the custody of AVs appropriately.

With regard to AVs which are not eligible for custody as financial instruments under Article 19(8)(a) of the Luxembourg law of 12 July 2013 on alternative investment fund managers , as amended, the role of the custodian is limited to verifying ownership and keeping records (as opposed to the custody of financial instruments).

A Luxembourg fund depositary that provides services related to the safekeeping or administration of VA (including the custodian wallet service) must file an application for registration with the CSSF as a VASP. In addition, a depositary that plans to directly save AVs must inform the CSSF of this intention.

3. Credit institutions

Banking regulations do not prevent an IC from investing directly in VA (subject to certain accounting and capital requirements),4 or to open accounts allowing its clients to deposit their VA. However, CI cannot accept deposits or execute payments in virtual currencies.

The CSSF requires that a CI intending to offer VA-related services or directly protect VA consults the CSSF before starting this activity (with particular emphasis on the governance and management frameworks risks, the effective management of counterparty and concentration risks and the implementation of investor protection rules).

When an IC acts as depositary of funds, the rules described in point 2.3 above apply.

Depending on the circumstances, it may be necessary for an IC to file an application for registration with the CSSF as a VASP before being able to offer VA-related services.

1 See article 1 (20b) of the Luxembourg law of 12 November 2004 relating to the fight against money laundering and the financing of terrorism, as amended (the 2004 law). Financial instruments are defined in article 1 (19) of the Luxembourg law of 5 April 1993 on the financial sector, as amended. Electronic money is defined in article 1 (29) of the Luxembourg law of 10 November 2009 on payment services, as amended.
This legal alert only takes VA into account. Where other digital assets meet the requirements of financial instruments or electronic money, the regulatory framework established in this regard continues to apply.

2 VASPs are defined in section 1(20c) of the 2004 Act. See in particular the application form for registration as a VASP published on 9 April 2020 and the study on the vertical risk assessment of VASPs published on January 27, 2021.

3 See the European Commission’s proposal for a regulation of the European Parliament and of the Council on crypto-asset markets and amending Directive (EU) 2019/1937, of 24 September 2020, COM(2020) 593 final.

4 See in this context the advisory document on the prudential treatment of exposures to crypto-assets of the Basel Committee on Banking Supervision of the Bank for International Settlements, dated June 2021, and the associated client alert available at https://www


About Author

Comments are closed.