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Luxembourg: Directors’ Duties and Liability in Financial Services
In a recent move to strengthen corporate governance and regulatory compliance, the Commission de Surveillance du Secteur Financier (CSSF) has emphasized the importance of directors’ duties and liability in financial services firms. This article provides an overview of the key responsibilities of directors in Luxembourg companies, particularly those operating in the financial sector.
General Duties of Directors
According to the Law of 10 August 1915 on commercial companies, as amended, and the Law of 19 December 2002 relating to the register of commerce and companies, directors are responsible for:
- Managing and representing their company
- Preparing its financial accounts
- Ensuring business continuity
- Implementing sound and prudent management
- Performing duties with reasonable care, skill, diligence, and independence
Liability of Directors
Directors can incur personal liability in various situations, including:
- Performing acts outside their mandate
- Failing to act in the interest of the company
- Violating applicable law or articles of association
- Failing to comply with CSSF rules
- Committing crimes or offenses on behalf of the company
- Non-compliance with tax laws
Private Rights of Action
In cases where a fault or wrongful behavior causes damage and a causal link can be established, private rights of action may apply. This allows individuals affected by the wrongdoing to seek redress through legal means.
Standard of Care for Customers
Financial services firms are bound by general conduct business rules, including:
- Acting honestly and fairly
- Using due skill, care, and diligence
- Complying with regulatory requirements
- Operating in the best interests of clients and market integrity
When dealing with retail customers, stronger information and investigation requirements apply. This includes disclosing material information and avoiding conflicts of interest.
Standard of Care for Sophisticated Customers
The standard of care differs depending on the customer or counterparty. Retail clients benefit from stronger protection provisions, while professional clients are defined as possessing experience, knowledge, and expertise to make their own investment decisions.
Rule-Making Process
Rules affecting the financial services industry are adopted through various channels, including:
- Legislative process: initiated by the Chamber of Deputies or government
- CSSF’s suggestions for improving the legislative and regulatory environment
- Issuance of guidance, circulars, and regulations by the CSSF
- Professional associations’ opinion papers and proposals
This article highlights the importance of directors’ duties and liability in financial services firms, emphasizing the need for effective corporate governance and compliance with regulatory requirements.