LUXEMBOURG’S BANK SECRECY LAWS CHALLENGE DIGITALISATION OF FINANCIAL SERVICES

Embracing Digitalisation in the Financial Sector

Luxembourg’s financial sector is embracing digitalisation, but a key challenge remains: navigating the country’s bank secrecy laws. Outsourcing has become an essential tool for financial groups to provide efficient and adequate services to clients while allocating tasks to the most suitable team members.

Understanding Luxembourg’s Professional Secrecy Laws

Under Luxembourg law, professional secrecy is a core requirement, subject to criminal sanctions unless specific exemptions are provided by law. A Luxembourg professional in the financial sector may only outsource activities if it complies with the requirements of professional secrecy.

Key Aspects of Luxembourg’s Professional Secrecy Rules

• Article 41 of the Luxembourg law on the financial sector provides that a Luxembourg professional in the financial sector may not disclose confidential data of clients to third parties.
• This principle is subject to criminal sanctions as provided by Article 458 of the Luxembourg Criminal Code.
• The entities targeted by the professional secrecy provisions are credit institutions, investment firms, specialised professionals in the financial sector, and support professionals in the financial sector.
• Members of the board, authorised managers, employees, and other persons in service of these entities are also subject to professional secrecy.

Outsourcing and Professional Secrecy

Luxembourg’s professional secrecy rules have international reach, meaning that as long as a person has knowledge of client data in the scope of their work or mandate in Luxembourg, such data may not be disclosed outside Luxembourg. Furthermore, after leaving the relevant functions, that person may not disclose the information.

Outsourcing Scenarios

Two typical scenarios illustrate outsourcing exemptions:

Scenario 1: Using a Luxembourg-Based Outsourcing Provider

• The outsourcing provider must be controlled by the CSSF, ECB, or Luxembourg control authority of the insurance sector.
• There is no obligation of professional secrecy vis-a-vis the provider, and client data may be freely transmitted.

Scenario 2: Outsourcing to Another Type of Provider

• The outsourcing provider must be subject to a confidentiality obligation by law or pursuant to a confidentiality agreement with the outsourcer.
• This type of provider is not controlled by a prudential authority.

Best Practices for Implementing Outsourcing Solutions

When implementing different outsourcing solutions, local professionals in the financial sector and service providers must check that their contractual arrangements align with the legal requirements of the relevant exemptions under Luxembourg law.

Checklist:

• Determine from a professional secrecy perspective whether a foreign branch of a Luxembourg professional in the financial sector is considered a third party.
• Ensure that the outsourcing provider is subject to a confidentiality obligation by law or pursuant to a confidentiality agreement with the outsourcer.
• Review and update contractual arrangements regularly to ensure compliance with changing legal requirements.