OUR INSIGHTS AT A GLANCE

  • On 27 April 2022, the Commission de Surveillance du Secteur Financier ("CSSF") released some new guidance to the attention of consumers who have obtained an increasing access to virtual assets through a wide variety of means and are exposed to promotion campaigns done via a high number of - sometimes untraditional - media, including social media platforms or other digital communication channels.
  • This new guidance follows previous warnings to consumers issued on 14 March 2018 by the CSSF in relation to virtual assets and initial coin offerings and is in line with the traditional position of the CSSF to promote a neutral and prudent regulatory approach.
  • The guidance is published "with the aim of helping consumers, who despite the risks inherent to virtual assets are willing to invest in them, by outlining some minimum steps to be performed before investing" and is built on two pillars: "educate yourself" and "prefer regulated entities".

On 27 April 2022, the Commission de Surveillance du Secteur Financier ("CSSF") released some new guidance to the attention of consumers who have obtained an increasing access to virtual assets through a wide variety of means and are exposed to promotion campaigns done via a high number of - sometimes untraditional - media, including social media platforms or other digital communication channels.

This new guidance follows previous warnings to consumers issued on 14 March 2018 by the CSSF in relation to virtual assets and initial coin offerings and is in line with the traditional position of the CSSF to promote a neutral and prudent regulatory approach.

The guidance is published "with the aim of helping consumers, who despite the risks inherent to virtual assets are willing to invest in them, by outlining some minimum steps to be performed before investing" and is built on two pillars: "educate yourself" and "prefer regulated entities".

"Educate yourself"

Any consumer contemplating an investment in virtual assets is invited to have the highest level of understanding and knowledge of the instrument in which it intends to invest. The CSSF rightly points out that virtual assets may be of very diverse nature, have very different features and functions, and may, therefore, entail very different risks, far from the basic representation one may have from this asset class.

This warning is of particular importance given the absence of a detailed legal framework for virtual assets, and the absence of technical standards or transparency rules for the industry. The Terra (Luna) collapse, or the Celsius Network incapacity to honour redemptions in a bear market, are just a few examples that demonstrate where certain misconceptions may arise from.

In brief, consumers are invited to only invest an amount of money that they can afford to lose. This reminder is somewhat in line with the restriction imposed by the CSSF, whereby investments in virtual assets may only be offered by alternative investment funds to professional investors.

"Prefer regulated entities"

It is quite interesting to note that the CSSF recommends consumers to direct their investment to entities that are regulated or partially regulated, this being intended to minimise risks relating to money laundering, terrorist financing or criminal activities, as well as fraud and manipulation.

The CSSF goes even further and points out that "additional risks may arise if an entity is under some regulation in a foreign country which entails the application of the legal framework of a foreign jurisdiction", thus favouring the investment through Luxembourg regulated or partially regulated entities.

We may only concur with this approach. Over the last two to three years, significant investments have been made by market participants in Luxembourg to build and offer a comprehensive and high-end suite of investment products relating to virtual assets, as well as services pertaining directly or indirectly to such products: Investment management, fund administration, custody, etc. More is yet to come, and market participants rely on the regulator to maintain a constructive and agnostic approach, ahead of the upcoming Markets in Crypto-Assets Regulation ("MiCA").

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.