Brexit: New Luxembourg Bill of Law

On 31 January 2019, the Luxembourg Government submitted Bill 7401 to the Luxembourg Parliament regarding measures to be taken in relation to the Luxembourg financial sector in the case of the UK leaving the EU without a withdrawal agreement (see our Newsletter December 2018) (“no-deal Brexit”) in the light of the initiatives at EU level and in other Member States to prepare for such a scenario.

Considering the fact that in the event of a no-deal Brexit, UK firms of the financial sector currently passporting services to Luxembourg (via a branch, the free provision of services or, where applicable, via an agent) will lose access to the Luxembourg market, Bill 7401 proposes amendments to relevant legislative texts. In essence, in order to protect Luxembourg clients/consumers and allow for an orderly transition, a grandfathering regime of contractual arrangements existing at the date of a no-deal Brexit is provided for a period of 21 months from that date:

• for banking and investment services covered by the amended Law of 5 April 1993 on the financial sector as well as for payment and e-money services within the context of the amended Law of 10 November 2009 on payment services, entities currently benefiting from a passport will be able to obtain an exemption from licensing requirements from the Commission de Surveillance du Secteur Financier (“CSSF”) regarding the execution of existing contracts, and for new contracts to the extent that they present a close link with an existing contractual relationship (e.g. life-cycle events);
• the Commissiariat aux Assurances will have the same powers as those granted to the CSSF regarding insurance and reinsurance activities covered by the amended Law of 7 December 2015 on the insurance sector;
• management companies ("UK ManCo(s)") and AIFMs ("UK AIFM(s)") duly authorised by the UK financial supervisory authority prior to the date of Brexit may continue to provide services in Luxembourg by way of establishment of a branch or on the basis of the free provision of services, and Luxembourg UCITS and AIFs may continue to appoint a UK ManCo or a UK AIFM, as applicable, to act as their management company or AIFM. In our opinion, this latter provision of Bill 7401 remains subject to confirmation, at least for Luxembourg UCITS, as regards its compliance with UCITS Directive (2009/65/EC).

Bill 7401 still has to go through the regular (but accelerated) legislative process.