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Luxembourg: A Hub for Cross-Border Financial Services

In its ongoing efforts to promote financial stability and transparency, the Commission de Surveillance du Secteur Financier (CSSF) has clarified its stance on non-EU firms providing investment/ancillary services in Luxembourg. According to CSSF Circular 19/716, such firms are subject to supervision and authorization rules deemed equivalent to those set out in the Banking Act.

Equivalence of Supervision and Authorization Rules

The CSSF has established a Memorandum of Understanding (MoU) with relevant third-country authorities, ensuring cooperation between the two parties. The CSSF has also adopted Regulation 20-02, which lists countries considered as applying equivalent supervision and authorization rules. Currently, this list includes:

  • Canada
  • Switzerland
  • United States
  • Japan
  • Hong Kong
  • Singapore
  • United Kingdom
  • China
  • Australia

Authorisation Requirements

However, authorisation requirements do not apply if:

  • The non-EU firm provides services on a pure intra-group basis (assessed on a case-by-case basis);
  • Reverse solicitation exemption applies.

Territoriality Aspects

CSSF Circular 19/716 specifies that investment/ancillary services are deemed provided in Luxembourg where at least one of the following conditions is met:

  • The non-EU firm has an establishment in Luxembourg;
  • The firm provides services to retail clients in Luxembourg;
  • The place where the “characteristic service” is supplied (the essential service for which payment is due) is Luxembourg.

This means that there may be situations where investment/ancillary services are not considered as being provided in Luxembourg, despite the recipient of the service being based in Luxembourg. Non-EU firms must assess whether the relevant services are provided in Luxembourg or not and document this assessment before providing services to Luxembourg-based clients.

Authorisation Requirements Applicable to PFS Activities

Non-EU firms willing to provide financial services other than investment/ancillary services (such as payment services and e-money services) on a purely cross-border basis will be subject to the authorisation regime set out in Article 32(5) of the Banking Act.

Authorisation Requirements Applicable to Payment Services and E-Money Services

Payment services and e-money services are listed in Annex I to the Banking Act relating to banking activities. The authorisation regime applies to all services qualifying as banking activities, unless specific regimes apply (such as investment/ancillary services).

Rules of General Good

Non-EU firms providing regulated financial services in Luxembourg on a cross-border basis must abide by certain rules of general good, including the provisions of the Luxembourg Consumer Code when dealing with clients considered as consumers from a Luxembourg law perspective.

Expected Developments

Discussions are currently taking place at the EU level to revise some provisions of the Capital Requirements Directive (CRD). If adopted, a harmonized regime for the provision of banking services within the EU by non-EU firms will introduce stricter and more cumbersome requirements for cross-border service provision. This may affect the possibility of providing banking services in Luxembourg on a purely cross-border basis.

The CSSF’s guidance and regulations aim to promote a stable and transparent financial environment in Luxembourg, while ensuring the protection of clients and the integrity of the financial system. As the EU continues to evolve its regulatory framework, non-EU firms must remain vigilant and adapt to changing requirements to maintain their presence in the Luxembourg market.