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Luxembourg’s Financial Watchdog Provides Guidance on Cross-Border Services

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The Commission de Surveillance du Secteur Financier (CSSF), Luxembourg’s financial regulator, has issued guidance on the provision of cross-border financial services by non-EU firms in Luxembourg.

Clarification on Equivalence Condition

In a circular, CSSF provided clarification on its expectations regarding the equivalence condition, which determines whether a non-EU firm is subject to authorization requirements when providing financial services in Luxembourg. The regulator also adopted a regulation that lists countries whose supervision and authorization rules are considered equivalent to those of the EU.

Exemptions

  • Non-EU firms will not be required to obtain authorization if they provide investment or ancillary services on a pure intra-group basis.
  • The reverse solicitation exemption may also apply.

Territoriality Aspects

The CSSF emphasized that territoriality aspects regarding investment and ancillary services should be carefully considered. These services are deemed provided in Luxembourg if one of three conditions is met:

Conditions for Service Provision

  • The non-EU firm has an establishment in Luxembourg.
  • It provides the relevant services to retail clients in Luxembourg.
  • The place where the “characteristic service” is supplied is Luxembourg.

Compliance Requirements

Non-EU firms providing financial services on a cross-border basis must comply with certain rules of general good, including:

Anti-Money Laundering and Counter-Terrorism Financing Requirements

  • These requirements are essential for all non-EU firms operating in Luxembourg.
  • Non-EU firms must assess whether their services are provided in Luxembourg or not, and document such assessment before providing services to clients based in the country.

Context: CRD Revisions

The EU is considering revisions to the Capital Requirements Directive (CRD), which could introduce a harmonized regime for the provision of banking services by non-EU firms. If adopted, this new regime would prohibit non-EU banks and large investment firms from providing certain banking services on a cross-border basis unless they establish a branch in the EU.

Purpose of Guidance

The CSSF’s guidance aims to provide clarity for non-EU firms looking to provide financial services in Luxembourg, while also ensuring that these firms comply with relevant regulations and standards.