In recent months, the Luxembourg Financial Supervisory Authority (CSSF) has been active and the industry is preparing for the open banking wave. The changes in response to the EU Payment Services Directive aim for a generally positive evolution of the payment scene in Luxembourg. The CSSF has published the fallback exemption request form and adopted several circulars that are applicable to payment service providers.
By way of the Law of 20 July 2018, Luxembourg has finally implemented the EU Payment Services Directive (PSD 2). As the PSD 2 is a full harmonisation directive, most of Luxembourg's PSD 2 provisions are identical to the legal framework implemented across the European Union. Nonetheless, EU member states were given scope to decide on certain topics and the Grand Duchy seized the opportunity to define its own rules.
EU Regulation 655/2014, which established a European Account Preservation Order (EAPO) procedure, aims to facilitate the collection of claims in civil and commercial matters by introducing a uniform EU procedure for identifying and freezing funds held in a debtor's bank accounts in another member state. This increased transparency is a particularly new development for Luxembourg, which recently introduced a straightforward EAPO enforcement procedure that is in line with its existing enforcement measures.
A recent Luxembourg District Court judgment has confirmed the well-established, flexible and creditor-friendly environment offered by the Collateral Act. The court ruled that the enforcement of a pledge cannot be set aside, except in the case of clearly established fraud. The main takeaway from the decision is the confirmation of the possibility offered by the act to enforce a pledge without any payment default and in case of a breach of a financial covenant.
The Luxembourg financial sector regulator (CSSF) recently published a number of circulars in order to streamline its regulation of IT outsourcing in the financial sector and introduce specific rules for the use of cloud services. In doing so, the CSSF has defined the conditions under which financial service providers may outsource activities without infringing the regulatory principles of central administration and sound governance.
EU Regulation 655/2014 recently became fully applicable, making it possible for creditors in Luxembourg to obtain a preservation order for the bank accounts of a debtor situated in another EU member state and vice versa. The regulation introduces a certain degree of transparency at the EU level with regard to debtors' assets, which is greater than that provided under existing Luxembourg law.
The Luxembourg financial sector regulator (CSSF) recently published frequently asked questions clarifying the criteria that it considers when assessing whether to accept an external expert as a regulated entity's internal auditor. The CSSF also confirmed that the criteria are assessed proportionately, and that it may request further information or interview the relevant parties when determining whether outsourcing an internal audit is possible.
The Luxembourg financial sector regulator has issued Circular 15/631, which provides guidance on the definition and treatment of dormant accounts. According to the circular, professionals should maintain regular contact with their clients and monitor client relationships with vigilance. They must also set out rules to determine clearly when a relationship has become inactive and when an account has become dormant.
Persons exercising key functions in credit institutions are now subject to specific approval by the Luxembourg financial regulator, the Commission de Surveillance du Secteur Financier (CSSF). The CSSF recently published guidelines on the new prudential approval procedure, which applies to directors, authorised managers and persons in charge of internal control functions.
The proliferation of bitcoin users goes hand in hand with the emergence of operators providing bitcoin-related services – enabling, for instance, the exchange of bitcoins for conventional official currencies. In the absence of EU legislation to curb the risks of bitcoin use, the Luxembourg financial regulator has clarified the way in which it intends to deal with bitcoin-related service operators.
Recent legislation has amended the Collateral Act. The act has always been a lender-friendly implementation of the EU Collateral Directive and, in general, it remains favourable to creditors in insolvency situations and other contexts. However, all stakeholders should be aware of the insolvency aspects of collateral arrangements.
Parliament has passed a new law which amends the Collateral Act. It seeks to enhance the legal security of the creditor's position when taking collateral, and to ensure that such collatoral is effective and bankruptcy-remote. Among many other measures, it introduces two new means of perfecting pledges over financial assets.
Excessive risk taking, incentivised by inappropriate remuneration policies, has led to the failure of many institutions. Luxembourg's financial regulator has addressed the issue with circulars that implement the EU Third Capital Requirements Directive. They explain how the proportionality principle applies to remuneration policies and when institutions may disapply certain remuneration obligations.
The Supervisory Authority of the Financial Sector has implemented the European Commission's recommendation on remuneration policies in the financial sector. The regulator's circular on the subject affects members of a bank's administration and management bodies, as well as certain categories of employee whose professional activities have a material impact on the bank's risks.
The passing of the Payment Services Act has implemented the EU Payment Services Directive in Luxembourg. Payment services providers include credit institutions, e-money institutions and payment institutions - a new classification that takes in supermarkets, retailers and public transport companies. The act also makes significant changes to the supervisory structure for such services.
Banks in Luxembourg and around the world have prioritized liquidity risk and risk exposure and have taken steps to improve the quality of their risk management. The Supervisory Authority of the Financial Sector has issued a circular that implements the Committee of European Banking Supervisors' principles on liquidity risk management provisions and the prudential supervision of liquidity risk.
The Law of July 17 2008 has entered into force, implementing the EU Acquisitions Directive. The Supervisory Authority of the Financial Sector has issued a circular that, among other things, offers guidance on the approach it will take in assessing acquisitions of credit institutions.
Customers of credit institutions and investment firms benefit from two guarantee systems: deposit guarantee schemes for customers of credit institutions and compensation schemes for investors in credit institutions and investment firms. However, due to the current financial crisis the guaranteed amount of the deposit guarantee scheme has recently been increased to cover deposits up to €100,000.