LUXEMBOURG Trends and Developments Contributed by: Baptiste Aubry, Carole Schmidt and Adam Obadia, A&O Shearman
• adequate supervision of outsourced activities and functions; and • dealing with the continuity of outsourced services in internal arrangements. Outsourcing arrangements are also a point of scrutiny in the context of IT on-site inspections, with deficiencies being identified in 2022 and 2023 in respect of criticality assessment of the outsourcing, applicable contractual arrange - ments (in particular, intra-group ones) and oper - ational monitoring. As already announced in its annual report for 2023, the CSSF expectations and practices regarding ICT outsourcing are likely to further evolve in the course of 2025 following the entry into force of DORA, and the CSSF Circular 22/806 is likely to be amended accordingly. It should be noted that the delayed implementa - tion of the EBA guidelines enabled the CSSF to align certain requirements of the 22/806 with the discussions held at the time regarding DORA. However, at this stage, we are not aware of the extent of the modifications that the CSSF expects to introduce. CSSF Supportive Approach to Innovation To balance regulatory oversight with the need to support innovation in the financial sector and in line with the recommendations of the European Supervisory Authorities, the CSSF has set up an Innovation Hub whose mission is to support the use and development of innovative tech - nologies. This hub’s mission is to act as a sup - port system for developing and implementing innovative technologies in the financial sector. It provides guidance, resources, and a platform for collaboration between financial institutions, fintech companies and relevant CSSF teams. This allows financial institutions and fintech companies to test new digital products within
a supervised environment, encouraging inno - vation while ensuring compliance with relevant regulatory requirements. Thus, in the case of a concrete project involving financial innovation, a first meeting will be organised with the CSSF Innovation Hub and the appropriate internal experts to assess whether a license or registra - tion is needed and facilitate discussion between the CSSF and the applicant on regulatory expec - tation. It allows for the testing of new products under the supervision of the CSSF, ensuring that they meet regulatory standards, helps identify and mitigate potential risks before they are fully launched in the market, and it provides valuable feedback to both the applicant and the regula - tors, facilitating a better understanding of new technologies and their implications. Considering the last two CSSF annual reports, this Innovation Hub has been particularly active in the following fields: • implementation of DORA; • monitoring of AI developments; • assessment of RegTech solutions; and • development of activities related to crypto- assets. Expected Developments As digitalisation progresses, Luxembourg actors in the financial sector are exploring advanced applications in new technologies such as AI or crypto-assets. While promising, these technolo - gies and new types of assets also generate new risks. The CSSF is therefore expected to release specific guidance in these areas. Furthermore, new EU legislative developments in the financial sector with digital impacts are forthcoming, meaning the CSSF, in its capacity as the competent authority, will become increas - ingly involved in digital topics.
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