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Luxembourg’s 12 month transitional regime for UK financial services firms on a no deal Brexit

  • Luxembourg
  • Financial services and markets regulation
  • Financial institutions

22-07-2019

Introduction

Luxembourg’s financial services regulator, Commission de Surveillance du Secteur Financier (the “CSSF”) has announced a year-long transitional period during which UK financial services can continue their current activities in Luxembourg (under the EU passport for financial services) after a no deal Brexit. Beyond this period – which is currently expected to run for the 12 months from October 31 this year - UK firms will have to be Luxembourg authorised if they wish to continue to operate in Luxembourg.

The transitional period arises under the Luxembourg law of 8 April 2019 on Brexit and was announced in two CSSF press releases on 15 July.

To read the Brexit law (French language only), click here.

To read CSSF press release 19/33, click here.

To read CSSF press release 19/34, click here.

Scope of the transitional regime

The transitional regime applies to:

• UK firms that are authorised to carry out investment activities in Luxembourg under:

o Capital Requirements Directive (“CRD”)

o Markets in Financial Instruments Directive II (“MiFID II”)

o Payment Services Directive II (“PSD 2”)

o Electronic Money Directive (“EMD”)

• UK UCITS management companies (“UCITS ManCos”)

• UK alternative investment fund managers (“AIFMs”)

UK firms that want to participate in the transitional regime must notify the CSSF of their intention to do so.

Applying to the CSSF to participate in the transitional regime

Notification of run-off activity

UK firms that are planning to continue to service existing contracts (for what are often known as lifecycle events, for instance collection of premiums or payment of interest and dividends) in Luxembourg under the transitional regime must notify the CSSF by 15 September 2019.

Approval is not automatic and the CSSF will assess each applicant UK firm to ensure that it meets the transitional regime conditions, in particular whether that the UK Firm has previously provided financial services to Luxembourg under the EU passport that has given rise to contracts that require servicing.

The notification must outline the UK firm’s activity in sufficient detail in order to be accepted. It is therefore essential to complete the notification as thoroughly as possible.

A dedicated notification portal will be opened on the CSSF website in the coming weeks, and further guidance on the notification process is likely to be provided by the CSSF at this point.

Authorisation for new business activity

UK firms that intend to continue to write new business in Luxembourg beyond 31 October 2019, will need authorisation from the CSSF. Applications can take up to 12 months to be granted, and any UK firm that is not authorised will have to cease writing new business on 31 October 2019.

Given CSSF lead times, it is highly unlikely that any new application for authorisation will be granted before 31 October 2019. However a full application should be submitted as a matter of priority to obtain the earliest authorisation possible.

UCITS ManCos and AIFMs

A further transitional regime provides that UK UCITS ManCos and AIFMs may, on a case-by-case basis and provided that they are also making an application for full authorisation, give notice that they intend to continue their activity in Luxembourg for a period of 12 months following a no deal Brexit. Such an application must further the protection of the interests of investors and the applicant will be permitted to continue writing new business pending the CSSF’s determination of their application to obtain full authorisation.

Applicant UCITS ManCos and AIFMs must submit a notification to the CSSF by 15 September 2019, and must submit their application for authorisation no later 31 October 2019.

The notification must outline the applicant’s activity in sufficient detail in order to be accepted. It is therefore essential to complete the notification as thoroughly as possible.

A dedicated notification portal will be opened on the CSSF website in the coming weeks, and further guidance on the notification process is likely to be provided by the CSSF at this point.

How Eversheds Sutherland can help

Since June 2016, our lawyers and consultants have advised various institutions passporting into the UK from EU27 Member States and passporting from the UK into the EU27 on Brexit planning and Brexit related issues.

We would be happy to discuss how we can help you with your Brexit planning and execution of those plans.

If you require any assistance in submitting an authorisation application or notification, the investment funds team at Eversheds Sutherland Luxembourg would be happy to assist.

For more information contact

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