Financial Crime World

Directors of Financial Services Firms Face Heightened Scrutiny

In a bid to ensure the stability and integrity of the financial sector, directors of financial services firms in Luxembourg are subject to strict guidelines and regulations. Two key laws govern their general duties: 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 as well as the accounting and the annual accounts of companies, as amended.

General Duties

Directors are required to manage and represent their company in a way that is in the best interest of the firm and within its corporate objects. They must also:

  • Prepare the financial accounts of the company
  • Ensure the execution of activities to preserve business continuity through sound central administration and internal governance arrangements

Personal Liability

Directors can be held personally liable for the activities of their companies under various grounds, including:

  • Performing acts that fall outside their mandate as directors
  • Failing to act in the interest of the company
  • Violating applicable law or articles of association
  • Failing to follow CSSF rules and regulations

In cases of insolvency, directors may also be held liable for failure to file a confession of bankruptcy within the required period. Additionally, they can be criminally responsible if a crime or offense is committed in the name and interest of the company.

Private Rights of Action

Private rights of action may apply when a fault or wrongful behavior results in damage and a causal link between the damage and the fault can be established. This means that individuals or entities affected by wrongdoing can seek legal recourse against directors who fail to meet their obligations.

Standard of Care for Customers

Financial services firms are bound by general conduct business rules, including:

  • Acting honestly and fairly
  • With due skill, care, and diligence
  • Complying with regulatory requirements
  • Act in the best interests of clients and the integrity of the market

When dealing with retail customers, stronger information or investigation requirements apply to ensure that services meet the needs of the counterparty.

Duty of Care for Sophisticated Customers

The standard of care differs based on the sophistication of the customer. Retail clients benefit from stronger protection provisions, including:

  • Stronger information requirements
  • Prudential treatment by regulated parties

Rule-Making Process

Rules affecting the financial services industry are adopted through various channels, including:

  • Legislative processes
  • Government initiatives
  • Regulations issued by the CSSF
  • Professional associations, such as the Luxembourg Bankers Association, formulate opinion papers and proposals on legislation, taxation, and banking regulation at national, European, and international levels.

As the financial sector continues to evolve, directors of financial services firms in Luxembourg must remain vigilant and comply with these stringent guidelines to ensure the stability and integrity of the industry.