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Luxembourg’s Financial Sector Adapts to Changing Regulatory Landscape

As the financial sector continues to evolve, regulatory bodies are working to ensure stability and innovation. GSK Stockmann Luxembourg provides an update on recent developments in banking regulation, fintech, and Brexit.

Banking Regulation: A Response to the Financial Crisis

In response to the 2008 financial crisis, the European Union introduced several regulations aimed at reducing risk in the banking sector. These include:

  • CRD IV
  • CRR
  • EU Regulations 2013/1024 and 2013/1022, which established the Single Supervisory Mechanism (SSM)
  • EU Regulation 2014/806, which created a Single Resolution Mechanism

These regulations have undergone amendments, with the most recent being the CRD V Law and BRRD II Packages. The European Commission has also launched a review of the EU Banking Rules, which will likely lead to further changes.

Brexit: Luxembourg Adapts to Changes

Following the UK’s departure from the EU, the Luxembourg financial sector has had to adapt to new regulations. In December 2020, the CSSF published Regulation 20-09, amending CSSF Regulation 20-02 on the equivalence of certain third countries for supervision and authorization rules.

The regulation includes the United Kingdom in the list of jurisdictions deemed equivalent for the application of the national third-country regime.

Fintech: Luxembourg Takes a Proactive Approach

Luxembourg has been at the forefront of fintech innovation, with significant legislative initiatives aimed at digitalizing banking and financial activities. The Blockchain I Law, passed in 2019, allowed the use of secure electronic mechanisms for holding and circulating securities.

The Blockchain II Law, passed in 2021, extended the possibility to use secured electronic registration systems, such as distributed ledger technology (DLT), to the issuance of dematerialized securities.

CSSF Guidance on Virtual Assets

In November 2021, the CSSF published a Communication entitled “CSSF guidance on virtual assets,” followed by an FAQ on virtual assets for credit institutions. The aim is to inform professionals of their responsibilities when engaging with tokens, including:

  • Carrying out thorough due diligence
  • Developing a business and risk strategy

The CSSF has also communicated its expectation that credit institutions facilitating investments in virtual assets set up an effective investor protection framework.