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Luxembourg prepares for no-deal Brexit

  • United Kingdom
  • Luxembourg
  • Financial services and markets regulation
  • Financial services

28-02-2019

Luxembourg to permit British asset managers to continue to do business in Luxembourg in the event of no-deal Brexit

On 31 January 2019, the Luxembourg Chamber of Deputies submitted a bill setting out measures to be taken in relation to the financial sector on the withdrawal of the United Kingdom from the European Union, taking into account the legislative initiatives of other European Union member states.

If adopted, the bill will become law on 23 March 2019.

Context

  • In the event a no-deal Brexit, British companies involved in financial services will no longer benefit from the European passport (i.e. be able to conduct their activities throughout the European Union under the freedom to provide services or under the freedom of establishment of a branch) and they will lose their access to the Luxembourg market
  • Luxembourg has stepped up efforts to give the Commission de Surveillance du Secteur Financier (“CSSF”) and to the Commissariat aux Assurances (“CAA”) the necessary powers to take temporary measures in order to ensure a smooth transition
  • The Bill enables the Luxembourg authorities to permit a grandfathering period of 21 months starting from 29 March 2019 during which UK firms with Luxembourg regulatory permissions granted prior to that date will be able to continue to exercise those acquired rights (the “Grandfathering Period”)

Three major objectives

  • Preserving the stability and the proper functioning of the financial markets
  • Enabling/ensuring investors and consumers protection
  • Avoiding risks for UK companies carrying out financial activities in EU Member States, as well as for participants in the Luxembourg financial sector

Impact on the financial sector

In the event of a no-deal Brexit, the CSSF will have the power to allow UK credit institutions and MiFID firms to continue conducting banking and financial activities in Luxembourg during the Grandfathering Period as if they retained their EU passport rights to provide services either in their own right, by way of a branch or by a tied agent in Luxembourg.

Impact on investment funds

During the Grandfathering Period, the CSSF will have the power to allow UCITS management companies and alternative investment fund managers (AIFMs) established in the UK and authorised as such by the UK authorities to continue providing investment services to UCITS or AIFs established in Luxembourg by way of the freedom to provide services or by way of a branch.

No-deal Brexit memorandum of understanding between the CSSF and UK’s Financial Conduct Authority

On 1 February 2019, the European Securities and Markets Authority (ESMA) issued a press release announcing that memoranda of understanding (MoUs) have been agreed between EU/EEA securities regulators (including the CSSF) and the Financial Conduct Authority (FCA) of the United Kingdom, and between ESMA and the FCA. The MoUs will only enter into force in the event of a no-deal Brexit scenario, and although the wording of these MoUs is not public, they are similar to those already concluded on the exchange of information with many third country supervisory authorities.