DeFi protocol frontend in Luxembourg

Registration as a VASP: Entities providing "custodian wallet services" (which includes custody of virtual assets on behalf of clients) are considered Virtual Asset Service Providers (VASPs) under Luxembourg law. These VASPs are subject to registration with the CSSF for AML/CFT purposes.

The registration is governed by the Law of 12 November 2004 on the fight against money laundering and terrorist financing, as amended (the "AML Law"), which incorporated the EU's 5th AML Directive.

Registration requires the entity to comply with AML/CFT obligations, including customer due diligence (CDD), ongoing monitoring, suspicious transaction reporting, and internal control frameworks.

Law of 12 November 2004 on the fight against money laundering and terrorist financing, as amended (Loi du 12 novembre 2004 relative à la lutte contre le blanchiment et contre le financement du terrorisme, telle que modifiée): While a specific URL to the consolidated law is hard to pinpoint, it's the primary legal basis. The key amendments are from 2018 and later.

CSSF Circular 22/811 (and previous versions like 20/747 and 21/769 which it consolidates/replaces): This circular provides detailed guidance on AML/CFT obligations for VASPs.

Authorization, not just Registration: MiCA will require firms providing "custody and administration of crypto-assets on behalf of third parties" to obtain a full authorization from a national competent authority (the CSSF in Luxembourg) to operate across the EU. This is a more stringent licensing regime than the current AML registration.

Regulation (EU) 2023/1114 on Markets in Crypto-Assets (MiCA):

MiCA Regulation (EU) 2023/1114, Article 67 ("Custody and administration of crypto-assets on behalf of third parties"): Specifically, Article 67(1)(b) addresses segregation.

Law of 12 November 2004 on the fight against money laundering and terrorist financing, as amended (the "AML Law"): This is the cornerstone legislation. It was significantly amended by the Law of 25 March 2020 to transpose the 5th AML Directive, explicitly including virtual asset service providers as "professionals" subject to AML/CFT obligations.

CSSF Circular 20/747 (as amended by Circular 22/815): This circular is crucial for VASPs as it consolidates and specifies the AML/CFT professional obligations under the amended AML Law for all entities subject to CSSF supervision, including VASPs. It provides detailed guidance on risk assessment, customer due diligence, internal organisation, and reporting requirements.

Exchange services: Exchanging virtual assets for fiat currencies or other virtual assets.

Custodial wallet providers: Entities that provide services to safeguard private cryptographic keys on behalf of their customers, to hold, store and transfer virtual assets.

Transfer of virtual assets: Services involving the movement of virtual assets between addresses or accounts.

Identification and Verification:

Obtain and verify the customer's name, residential address, date and place of birth, nationality, and a unique identification number (e.g., from a passport or national ID card).

Verify identity using reliable, independent source documents, data, or information (e.g., government-issued photo ID, proof of address utility bill).

Beneficial Ownership (UBO): Identify and take reasonable measures to verify the identity of the beneficial owner(s) (any natural person who directly or indirectly owns or controls 25% or more of the shares or voting rights, or otherwise exercises control over the entity). For trusts or similar legal arrangements, identify the settlors, trustees, beneficiaries, and any other person exercising ultimate control.

Scrutinize transactions undertaken throughout the course of the relationship to ensure they are consistent with the VASP's knowledge of the customer, their business, and risk profile.

Regularly review and update customer identification data, especially for high-risk clients.

Enhanced Due Diligence (EDD): Required for situations posing a higher ML/TF risk, including:

Politically Exposed Persons (PEPs), their family members, and close associates.

Transactions involving high-risk jurisdictions.

Complex or unusually large transactions, and all unusual patterns of transactions, that have no apparent economic or lawful purpose.

Issuing warnings for unregistered activities.

Ordering non-compliant entities to cease operations.

Focus on Registration and AML/CFT Compliance:

CSSF VASP Register (Information Page): This page explains the registration requirements and provides access to the list of registered VASPs.

CSSF Circular 23/843 (Relevant for AML/CFT for VASPs):