Cross-border services by third-country firms

CSSF recognises first equivalent third countries and clarifies when an investment service is rendered in Luxembourg.

On 2 July 2020, the CSSF published a regulation listing the first third countries with equivalent supervision regimes as well as a circular amending an existing circular on the regime applicable to third-country firms wishing to provide investment services to clients in Luxembourg in accordance with Article 32-1 of the amended Law of 5 April 1993 on the financial sector ("1993 Law"), which transposed the third-country regime of MiFID II¹   and MiFIR² .

The third-country regime of Article 32-1 of the 1993 Law is indeed clarified by the CSSF in Circular 19/716, discussed in our previous publication available here. Circular 19/716, in particular, lays out the conditions for the provision of investment services by third-country firms to per se professional clients or eligible counterparties in Luxembourg on a cross-border basis in accordance with Article 32-1(1), second paragraph of the 1993 Law ("national regime"), which applies to the extent that there is no EEA-wide equivalence regime by the European Commission in accordance with MiFIR. The national regime requires a prior authorisation from the CSSF, including a decision on the equivalence of the third-country supervisory regime, which is the purpose of the new regulation.

The Regulation

CSSF Regulation 20-02  on equivalence of certain third countries establishes a list of countries outside the EU/EEA for which the CSSF considers that the supervision and authorisation rules for investments firms are equivalent to those of the 1993 Law. With this decision, the regulator is opening the way for investment firms from these countries to benefit from the national regime, pending the adoption of any Commission equivalence decisions. At this stage, the regimes of Canada, Switzerland, the United States of America, Japan, Hong Kong and Singapore are deemed equivalent for purposes of the national regime. It is expected that the United Kingdom will similarly benefit from such a decision and be added to the list upon the end of the (Brexit) transition period.

The Circular

Circular 20/743 ("Circular") amends Circular 19/716 and clarifies, in particular, when an investment service provided by a third-country firm is deemed provided in Luxembourg, i.e. on Luxembourg territory. The CSSF considers this is deemed to be the case if one of the following conditions is met: the third-country firm has a branch in Luxembourg, the investment service is provided to a retail client established or situated in Luxembourg, or the place of the "characteristic performance" of the service, i.e. the essential service for which payment is due, is deemed to be in Luxembourg. 

It is the third-country firm's responsibility to analyse whether the investment service is provided in Luxembourg or not. In the latter case, the investment service is out of scope and no branch requirement or authorisation under the national regime applies to its cross-border provision to per se professional clients or eligible counterparties. As the Circular recalls, that is similarly the case when the investment service is provided on the basis of reverse solicitation.