LUXEMBOURG Law and Practice Contributed by: Andreas Heinzmann, Valerio Scollo and Angela Permunian, GSK Stockmann
• Regtech – entities that provide certain services to regulated financial services entities may need to be licensed by the CSSF as support professionals of the financial sector in accordance with the Law of 5 April 1993 on the financial sector, as amended (the “Financial Sector Law”). • Lending/banking activities – lending on a profes - sional basis would typically require a banking licence in accordance with the Financial Sector Law. Most Luxembourg banks are authorised and supervised by the CSSF, and are subject to EU regulations and national legislation. • Alternative lending – entities that provide lend - ing services that do not qualify as banks may fall under the scope of the Financial Sector Law, which requires an entity to be licensed as a professional performing lending operations. Alternatively, an entity may also grant loans in the context of a securitisation transaction under the Luxembourg Law of 22 March 2004 on securitisation, as amend - ed. • Blockchain and virtual assets – entities providing virtual asset services are required to register with the CSSF and are subject to the obligations laid out in the Law of 12 November 2004 on the fight against money laundering and terrorist financ - ing, as amended (the “AML Law”). However, not all blockchain-related operations would qualify as virtual asset services. In addition, if the relevant assets qualify as financial instruments, rules laid out in Directive 2014/65/EU on markets in financial instruments, as amended (MiFID II), and related regulations would apply. Most of the aforementioned legislation is accompa - nied by technical standards, regulations, circulars and guidance issued by the competent authorities, which should also be considered. In addition, each of the activities above may be subject to, among others, AML regulations (see 2.14 Impact of AML and Sanc- tions Rules ) and data protection regulations (see 2.11 Implications of Additional, Non-Financial Services Regulations ). 2.3 Compensation Models The compensation models that industry participants are allowed to use to charge customers vary mainly depending on the service provided by the fintech enti -
ty and the relevant customer type. Disclosure obliga - tions relating to fees vary depending on the same fac - tors. Typically, regulated entities, such as investment firms, are subject to certain pre-contractual obliga - tions, which include the obligation to disclose costs charged by the service provider. 2.4 Variations Between the Regulation of Fintech and Legacy Players As a general rule, there is no structural difference between the regulation of fintech companies and legacy players, as long as the services they provide fall under the scope of regulated activities. However, given the size and business model of fintech compa - nies, certain rules applicable to legacy players would typically not apply to fintech companies. In addition, in some cases the applicable regulations depend directly on the scale of the business – for example, the EU crowdfunding regulation provides certain regula - tory exemptions as long as the yearly funding remains under the threshold of EUR5 million. 2.5 Regulatory Sandbox There is currently no general regulatory sandbox regime in Luxembourg applicable to all fintechs. However, the adoption of Regulation (EU) 2022/858 has introduced a pilot regime for market infrastruc - tures based on DLT (the “DLT Pilot Regime”), which is fully applicable from March 2023. The DLT Pilot Regime provides a temporary exemption from cer - tain regulatory requirements for eligible firms for the development of market infrastructures used for the trading or settlement of financial instruments that are issued, recorded, transferred and stored using DLT. In addition, the CSSF has established an innovation hub that seeks to foster an open and constructive dialogue with the fintech industry. The innovation hub is a single point of contact for any person who wishes to present an innovative project or exchange views on challenges facing financial innovation in Luxembourg. 2.6 Jurisdiction of Regulators Fintech companies may be supervised by several regulators in Luxembourg, of which the following are the most relevant.
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