Luxembourg Requires Equivalent Authorisation for Third-Country Banks
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The Grand Duchy of Luxembourg has implemented strict regulations for third-country banks looking to provide investment services in the country. According to new guidelines, foreign institutions must be subject to equivalent authorisation and supervisory rules as those of the Banking Act in their home jurisdiction.
Conditions for Branch Establishment
Third-country banks seeking to offer investment services to eligible counterparties and professional clients may establish a branch in Luxembourg, provided they meet certain conditions. These include:
- Being authorised in their home country to provide the same services
- Having an equivalence decision from the European Commission or the Commission de Surveillance du Secteur Financier (CSSF)
- Establishing cooperation arrangements with the relevant competent authority
Licensing Requirements for Retail Clients and Professional Clients
However, if the third-country bank intends to offer investment services to retail clients or professional clients that are not considered per se, they must establish a branch in Luxembourg subject to the same licensing requirements as Luxembourg law credit institutions and investment firms.
Base Requirements for Obtaining Authorisation
The Banking Act sets out a number of base requirements for obtaining authorisation as a credit institution. Applicants must:
- Demonstrate robust internal governance arrangements, including:
- Clear organisational structures
- Effective risk management processes
- Adequate internal control mechanisms
- Specific organisational requirements also apply if the institution provides investment services and/or performs investment activities
Shareholding Structures
Shareholding structures are closely scrutinised by the CSSF, which assesses whether the sound and prudent management of the credit institution can be ensured, and whether shareholders have sufficient knowledge, skills, and experience to exercise significant influence over the bank’s management.
Guidelines for Third-Country Groups
The guidelines also apply to third-country groups incorporating a bank in Luxembourg, which may need to establish a single intermediate EU parent undertaking.
Purpose of the Regulations
The new regulations are designed to ensure that all banks operating in Luxembourg adhere to equivalent standards of authorisation and supervision, protecting investors and maintaining financial stability in the region.
Additional Information
For more information on the Banking Act and its requirements for credit institutions, please see our article “Authorisation Requirements for Credit Institutions in Luxembourg”.