LUXEMBOURG Trends and Developments Contributed by: Andreas Heinzmann, Manuel Fernandez, Valerio Scollo and Katharina Schramm, GSK Stockmann SA
in credit-linked notes, whereby the originator issues credit-linked notes to the securitisation vehicle, which assumes the risk of a default in respect of the underlying risk. Further, the risk can also be transferred by way of a credit default swap or other complex credit derivative transac - tions. In addition, the securitisation vehicle can enter into a collateral agreement with the originator and guarantee any failure to pay of the origina - tor in connection with a portfolio of reference obligations. The originator will pay a fee to the securitisation vehicle for entering into the collat - eral agreement and to provide credit protection. Typically, the securitisation vehicle will provide a cash deposit to the originator, funded by the issue proceeds derived from the issue of secu - rities by the securitisation vehicle to investors, which ultimately will bear the risk of the underly - ing loan portfolio. The main purpose of the col - lateral agreement is to achieve a better regula - tory capital treatment for the originator. Even though the Securitisation Law clarifies that transactions qualifying as securitisations under the Securitisation Law do not qualify as activities that are subject to the legal framework apply - ing to the insurance sector, there have been discussions in the Luxembourg legal literature (as well as Belgian and French legal literature, to which Luxembourg courts tend to turn) as to whether the provision of credit protection by the use of credit derivatives or a guarantee could be recharacterised as an insurance contract. Without going into the details of the main differ - ence between an insurance contract and a credit derivative or a guarantee, there are strong argu - ments in support of the proposition that these instruments would not be considered as insur - ance contracts under Luxembourg law.
This position was further strengthened by the adoption of the Luxembourg Law on profes - sional payment guarantees dated 10 July 2020 (the “Professional Guarantee Law”), which intro - duced a special regime for personal securities ( sûretés personnelles ) providing for a payment obligation and granted in a professional context. The professional guarantee (the “Professional Guarantee”) is defined as an arrangement by which the guarantor undertakes towards a ben - eficiary to pay, at the request of the beneficiary or of an agreed third party, a sum determined in accordance with the specific terms in relation to one or more claims or the risks associated with them. The Professional Guarantee may be granted by any person, including an individual, in a professional context. As stated above, there were discussions as to whether the granting of a guarantee in the context of a synthetic securitisation, in which credit risk of loss is transferred by using such an instrument, could constitute an insurance contract and hence a regulated insurance activ - ity carried out by a securitisation vehicle. With the adoption of the Professional Guarantee Law, there are now further arguments, strengthening the view that such a guarantee will not qualify as an insurance contract under Luxembourg law. Provision of Loans The granting of loans as a business is heavily regulated in Luxembourg in accordance with the Law of 5 April 1993 on the financial sec - tor, as amended (the “Financial Sector Law”). Professional lenders must either hold a banking licence or hold a licence as a professional of the financial sector carrying out lending operations. The main difference between a licensed bank and a licensed professional carrying out lending operations is that the latter is not allowed to take
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