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01 January 0001
The EU Capital Requirements Directive (2013/36/EC) (CRD IV) has been implemented into Luxembourg law by the Act of July 23 2015. This act also amends (among others):
Certain other provisions of CRD IV that were considered too granular to be incorporated into the Financial Sector Act have been implemented through CSSF Regulation 15-02 of August 14 2015, which relates to the supervisory review and evaluation process applicable to institutions that are subject to the EU Capital Requirements Regulation (575/2013). The purpose of CRD IV, alongside the Capital Requirements Regulation, is to implement the Basel III regulatory framework into European law. Basel III and CRD IV are intended to:
A number of key definitions have been introduced into the Financial Sector Act to pave the way for implementation of the EU supervisory framework for credit institutions and investment firms. In particular, the definition of 'CRR institutions' was introduced in Article 1 (11bis) of the Financial Sector Act, which applies to credit institutions and investment firms that are subject to the Capital Requirements Regulation as set out in Article 4(1) of the regulation. Methods and procedures to identify 'systemically important institutions' are also set out under Article 59-3 of the Financial Sector Act. Moreover, a distinction has been made between 'CRR investment firms' (broadly, those authorised to hold client assets or engage in proprietary trading, underwriting, placement of financial instruments or operation of multilateral trading facilities) and firms which fall outside the scope of the Capital Requirements Regulation. CSSF Circular 15/606 of February 23 2015 sets out precise criteria to distinguish between CRR and non-CRR investment firms and with regard to holding client assets.
In addition to the total capital ratio requirements provided under the Capital Requirements Regulation, Basel III and EU-specific capital buffers have been introduced by the new Chapter 5 of the Financial Sector Act (Articles 59-1 to 59-14). These include:
The calculation method for countercyclical capital buffer rates is set out in CSSF Regulation 15-01 of August 14 2015, implementing Article 140 of CRD IV into Luxembourg law.
The internal governance regime has been strengthened, primarily through addressing the management body's composition and functioning, as well as by imposing certain principles and prescriptions – such as the separation of certain functions as set out under Article 38-1 of the Financial Sector Act – in order to promote effective and prudent management.
Rules governing remuneration policies within credit institutions and certain types of investment firm were initially introduced by EU Directive 2010/76/EC (CRD III). Remuneration principles established by CRD III were implemented into Luxembourg law through CSSF Circular 10/496 for credit institutions and CSSF Circular 10/497 for investment firms. In addition to the existing rules, CRD IV introduces a clear distinction between fixed and variable remuneration and establishes a ratio of the fixed and variable components of remuneration by fixing the bonus cap at 100% of fixed remuneration. However, the shareholders may increase the variable part of remuneration to a maximum of 200% of fixed remuneration, following a special procedure set out under Article 38-6 of the Financial Sector Act. CSSF Circular 15/606 of October 21 2015 specifies the CSSF notification requirements in case of such an increase.
Public disclosure and reporting requirements have been increased through (among other things) the introduction of country-by-country disclosure requirements (Article 38-3 of the Financial Sector Act).
Administrative fines and other measures to combat non-compliance with CRD IV and the Capital Requirements Regulation have been introduced, and fines have been increased (Article 63-1 of the Financial Sector Act).
The CSSF Act has been slightly amended to introduce new rules governing cooperation with the European Systemic Risk Board. Article 3-1 of the CSSF Act has been adapted to comply with these new cooperation obligations under the Single Supervisory Mechanism based on EU Regulation 1024/2013, which confers specific tasks on the European Central Bank (ECB) concerning policies relating to the prudential supervision of credit institutions. The Single Supervisory Mechanism is one of the pillars of the EU banking union. It is a new system of banking supervision in the European Union, where the ECB directly supervises major banks and otherwise closely cooperates with the member state supervisors. In addition, Article 16 of the CSSF Act now specifies that the professional secrecy obligations of the CSSF do not prevent disclosure of information covered by the cooperation obligations relating to the European Systemic Risk Board.
For further information on this topic please contact Josée Weydert or Jad Nader at NautaDutilh Avocats Luxembourg by telephone (+352 26 12 29 1) or email (firstname.lastname@example.org or email@example.com). The NautaDutilh Avocats Luxembourg website can be accessed at www.nautadutilh.com.
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