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LUXEMBOURG’S EVOLVING BANKING REGULATIONS: A CHALLENGE FOR FINANCIAL INSTITUTIONS
In an increasingly complex and fast-paced regulatory environment, financial institutions in Luxembourg are facing significant challenges in complying with the ever-changing banking regulations. From sustainable finance to anti-money laundering (AML) and combating the financing of terrorism (CFT), the list of regulations is long and requires increased investment in terms of time and resources.
Governance Rules for Banks and Investment Firms
As a bank or investment firm operating in Luxembourg, you are subject to corporate governance rules outlined in various regulations and CSSF Circulars. Specifically, banks are governed by the CSSF Circular 12/552 on central administration, corporate governance, and risk management (as amended by the newly issued CSSF Circular 22/807), while investment firms fall under the CSSF Circular 20/758.
Key Changes
- The updated circulars strengthen the responsibilities and organizational rules of both the Board of Directors and authorized management.
- Reinforce the tasks of internal control functions.
- Introduce additional requirements related to suitability and diversity assessments for management body members and key function holders.
How PwC Can Help
At PwC, we assist banks and investment firms in identifying and assessing the regulatory and operational impacts related to the successive revisions of CSSF Circulars. Our services include:
- Impact assessment on governance frameworks and internal control systems
- Review of organizational structures and processes
- Development of policies and procedures
- Training and awareness programs for employees
Sustainable Finance Regulations
The new Sustainable Finance regulatory framework, introduced by the Regulation (EU) 2019/2088, aims to increase transparency on Environmental, Social, and Governance (ESG) products. Financial institutions providing portfolio management services, Alternative Investment Funds Managers (AIFMs), and UCITS Management Companies are subject to the regulations.
Key Requirements
- Incorporate sustainability risks into investment processes.
- Disclose potential adverse impacts of investment decisions on sustainability factors.
PSD2 Regulations
As a payment service provider operating in the European Economic Area (EEA), you are subject to the Payment Services Directive 2 (PSD2) for all transactions performed within the EEA. The aim of PSD2 is to enhance the regulatory framework for payment services by regulating and harmonizing payments market processes, improving system security, strengthening consumer rights, and reducing overall costs.
Key Changes
- New reporting requirements for payment service providers, including reporting on major incidents, frauds, and operational and security measures.
- CSSF Circular 22/807 introduces additional requirements related to risk management and internal control.