Legal Watch: Your Luxembourg Law Firm

Published 30 January 2020 by duvieusart ebel, avocats associés

Asset management & investment funds
-PRIIPS update
-AML/CFT investment market entry forms (funds and IFMS)
-CSSF overview of undertakings for collective investment at the end of October 2019
-FAQ CSSF – Persons involved in AML/CFT for a Luxembourg Investment Fund or Investment Fund Manager

Tax
-ATAD 2 adopted by Luxembourg Parliament
-Invalidation of pre-2015 advance tax agreement

Banking, finance & corporate
-Anti-money laundering – 2019 annual survey
-Circular CSSF 19/731 - Documents to be submitted to the CSSF and the European Central Bank on an annual basis
-Law of 4 December 2019 with a view to introducing macro-prudential measures relating to home loans for residential property
-Circular CSSF-CPDI 19/19-Survey of amount of guaranteed deposits as at 31 December 2019
-End of additional administrative deadline for declarations to the register of beneficial owners

Asset management & investment funds

PRIIPS update
On 11 December 2019, the Commission de Surveillance du Secteur Financier (“CSSF”) communicated via press release 19/60 to all SIFs, Part II UCIs and SICAR on the obligation:

- for funds created after October 2019 to also complete the assessment through the eDesk portal.
- for all information fields in the PRIIPs assessment completed through eDesk before October 2019 to be kept up to date via the eDesk portal.
- for all funds which failed to complete the PRIIPs assessment by 31 October 2019 to comply with
the regulation

The press release also mentions that a mandate document now allows law firms/legal advisors to complete the assessment in accordance with a contract signed between the fund's directors and the law firm/legal advisors.

AML/CFT investment market entry forms (funds and IFMS)
On 7 November 2019, the CSSF informed the public that the new form previously presented in the 23 May 2019 press release is now available in an updated version.

This form aims at collecting standardised key information in relation to money laundering and terrorist financing risks to which professionals supervised by the CSSF are exposed to and in relation to the measures they put in place to mitigate these risks.

- The AML/CFT market entry form for funds:
The AML/CFT form for funds must be completed and added as enclosure to any submission of an application for the set-up of a UCITS, UCI Part II, SIF, SICAR, ELTIF, EUSEF, EUVECA or MMF. It must also be renewed when requesting approval of an additional sub-fund to provide sub-Fund related information and to update any information previously submitted which is no longer valid. Further details are provided in the form.

- The AML/CFT market entry form for investment fund managers:
The AML/CFT form for investment fund managers must be completed and added as enclosure to any
submission of an application for the set-up of an authorized or registered Investment Fund Manager.

It must also be renewed when requesting approval of an additional license, a license extension or a change in the shareholder structure of the IFM. This aims at providing license or shareholder related information and to update any information previously submitted which is no longer valid.

CSSF overview of undertakings for collective investment at the end of October 2019
On 2 December 2019, the CSSF issued a press release (19/58) on the overall situation of undertakings for collective investment at the end of the month of October 2019.

As at 31 October 2019, the total net assets of undertakings for collective investment, including UCIs subject to the 2010 Law, specialized investment funds and SICARs, amounted to EUR 4,577.890 billion against EUR 4,569.999 billion as at 30 September 2019, i.e. an increase of 0.17% over one month. Over the last twelve months, the volume of net assets increased by 8.81%.

The Luxembourg undertakings for collective investment’s industry therefore recorded a positive variation in October amounting to EUR 7.891 billion. This increase represents the balance of positive net issues in the amount of EUR 15.549 billion (+0.34%) and unfavourable developments on the financial markets in the amount of EUR 7.658 billion (-0.17%).

FAQ CSSF – Persons involved in AML/CFT for a Luxembourg investment fund or investment fund manager
On 25 November 2019, the CSSF released a FAQ on persons involved in AML/CTF for a Luxembourg fund or investment fund manager supervised by the CSSF for AML/CTF purposes comprising two questions.

Question 1 being: do the requirements of Article 4(1) of the Law of 12 November 2004 as amended (“the Law”) that call for the appointment of two different persons in charge of AML/CFT need to be implemented by a Luxembourg Investment Fund or Investment Fund Manager supervised for AML/CFT purposes by the CSSF?

The CSSF answers that any Luxembourg investment fund and any investment fund manager are required by law to appoint both:
i) a person among the members of their management bodies, responsible for compliance with AML/CTF obligations (the original French version of the law refers to a “responsable du respect des obligations” or “RR”), and
ii) if the size and nature of the activity so require, a compliance officer at appropriate hierarchical level (the original French version of the law refers to a “responsable du contrôle du respect des obligations” or “RC”).

In practice:
1. For Investment Funds supervised by the CSSF for AML/CFT purposes:

-The RR can be the board of directors (or other governing body depending on the legal structure of the Fund) acting as a collegial body. Alternatively, the board may appoint one of its members as RR. The RR must be reachable for any contact by the Luxembourg AML/CFT competent authorities.

-The RC shall be mandated intuitu personae by the board of directors (or other governing body) of the Fund. The RC may be a member of the board with appropriate experience. Where the Fund appoints a third party RC, the Fund must enter into a contractual relationship with the RC. As a principle, the RC must be available in Luxembourg, for the accomplishment of his/her tasks. However, on an exceptional basis, and under the conditions set forth in the answer to Question 2 below, it is acceptable that the RC is located outside of Luxembourg, if the IFM and its relevant staff member acting as RC are not domiciled in Luxembourg.

2. For Investment Fund managers supervised by the CSSF for AML/CFT purposes:

-The RR can be the entire board of directors (or other governing body depending on the legal structure of the Investment Fund Manager) of the IFM acting as a collegial body or can be one of the members of such board of directors (or other governing body).

-The RC shall be the compliance officer at appropriate hierarchical level in charge of AML/CFT aspects for the Investment Fund Manager.

According to the CSSF these rules are general rules that need to be adapted on a case-by-case basis.

Question 2 being: what are the conditions applicable to the persons in charge of AML/CFT pursuant to Article 4(1) of the Law?

The CSSF refers to Article 40 of CSSF Regulation 12-02 of 14 December 2012 on AML/CTF.

Banking, finance & corporate

Anti-money laundering – 2019 annual survey
According to CSSF’s press release 19/57 dated 28 November 2019, the annual survey for the year 2019 will be launched on 3 February 2020. The survey collects key standardized information on the risks of money laundering and terrorist financing to which professionals under supervision are exposed and on the implementation of related risk mitigation measures and targeted financial sanctions. The CSSF points out that this 2019 cross-sectional survey remains broadly unchanged compared to the previous year and contributes to the continuous assessment of money laundering and terrorist financing risks present in the financial sectors under its AML/CFT supervision while being part of the AML/CFT riskbased supervision approach set up by the CSSF several years ago.

The CSSF insists that the investigation must be initiated and submitted to the CSSF by a member of the entity's governing body (preferably the AML/CFT Compliance Officer who is responsible for AML/CFT compliance) or another employee of the entity, bearing in mind that the ultimate responsibility for the proper conduct of the investigation lies with the aforementioned member of the management body.

The CSSF specifies that answers to the survey questions must be submitted via the CSSF's eDesk portal within 6 weeks, except for the banking sector, where the deadline is 4 weeks.

In order to avoid connection problems when launching the survey, the CSSF urges all entities it supervises in AML/CFT matters to create such accounts as soon as possible.

Circular CSSF 19/731 - Documents to be submitted to the CSSF and the European Central Bank on an annual basis
The purpose of the circular is to amend Circular CSSF 19/710 relating to the documents to be submitted on an annual basis by credit institutions. It abolishes, for certain documents listed, the transmission in paper format and introduces the exclusive transmission in electronically through one of the secure e-file or SOFiE channels. In addition, it repeals and replaces the Circulars CSSF 19/710, CSSF 15/624, CSSF 15/602 and CSSF 10/457.

Law of 4 December 2019 introducing macro-prudential measures relating to residential mortgages
The law confers the CSSF the power to supervise mortgage lending criteria in order to avoid financial stability risks.

The law allows the CSSF to regulate lending for residential property through five different measures: the loan-to-value ratio, the loan-to-revenue ratio, the debt-to-income ratio, the debt-to-income expense ratio and the maturity of the loan.

These measures may be applied either individually or in combination. They can be applied to a bank's entire portfolio or to part of it. If these measures are introduced, they will apply only to new loans and not to outstanding loans.

In order to ensure good governance, the CSSF requires a formal recommendation of the committee on systemic risk (members being minister of finances, BCL, CSSF and CAA) before activating the measures.
The CSSF cannot make decisions on such measures on its own. Rigorous analysis and impact assessment will have to be submitted by the committee in order to allow an informed opinion on the need for measures for borrowers. The committee may, on the basis of this analysis, issue a recommendation which enables the CSSF to act.

Luxembourg has been encouraged in recent years to put in place measures for borrowers by international institutions.

In the wake of the financial crisis similar laws were implemented across Europe ten years ago. With regard to Luxembourg (as well as a number of other EU countries), a warning was issued by the European Systemic Risk Board in 2016, followed by a recommendation for action in 2019. The IMF, like the OECD in a special article dedicated to residential property, also called the authorities to create such a law. The Law on Measures for Borrowers is the response to this recommendation.

Circular CSSF-CPDI 19/19 - Survey of amount of guaranteed deposits as at 31 December 2019
The purpose of the Circular is to request information on deposits, in particular guaranteed, as of 31 December 2019, by all credit institutions governed by Luxembourg law, of POST Luxembourg in respect of its provision of postal financial services and of the branches of credit institutions having their head office in a third country.

End of additional administrative deadline for declarations to the RBO
The law of 13 January 2019 establishing a register of beneficial owners with the aim of preventing the use of the financial system for the purpose of money laundering or terrorist financing makes mandatory, under penalty of sanctions of up to 1,250,000 euros, to declare the beneficial owners of each entity registered in the Luxembourg Companies Register.

The deadline, initially scheduled for 31 August 2019 and extended to 30 November 2019 has expired together with the end of the free registration fees.

Tax

ATAD 2 adopted by Luxembourg Parliament
On 19 December 2019, the Luxembourg Parliament voted on the transposition into Luxembourg law of Council Directive (EU) 2017/952 of 29 May 2017. The draft law n°7466 transposing the directive had been submitted to Parliament on 8 August 2019.

The new ATAD 2 Law should enter into force as of 1 January 2020 and aims at strengthening the rules introduced by the law of 21 December 2018 on hybrid mismatches. The objective of these rules is to address hybrid mismatches that capitalise on disparities between tax systems to achieve double nontaxation. The new law extends the existing rules to third party countries and to additional categories of hybrid mismatches. It also introduces the new article 168Quater of the Luxembourg income tax law to make the use of reserve hybrid entities ineffective.

Invalidation of pre-2015 advance tax agreement
On 19 December 2019, the Luxembourg Parliament voted the 2020 budget law (the “Law”) which introduces, in particular, the end of the validity of the advance tax agreement issued prior to 1 January 2015.

These new provisions of the Law intend to comply with paragraph 29a (3) of the Abgabenordnung, which provides for a maximum period of validity of five tax years.

As a result, all prior advance tax agreements issued before 1 January 2015 shall have no legal effects, as from the end of the 2019 tax year.