Luxembourg and MIFID II third countries access regime for investment services: publication of CSSF Circular 19/716

• Article 32-1 of the Law of 5 April 1993 on the financial sector, as amended (the LFS)¹ ; and
• Article 46 et seq. of MiFIR². 

On 10 April 2019, the CSSF provided further guidance by publishing Circular CSSF 19/716 (the Circular) which describes the different regimes available to these third-country firms, as well as the conditions to be met and the information and documentation to be submitted.

The key features of the three regimes as further detailed by the Circular are as follows:

1. Provision of investment services to either retail clients or to professional clients on request

• The establishment of a branch in Luxembourg is required;
• The branch is subject to the same authorisation and supervision rules as laid down in the LFS for Luxembourg-based credit institutions and investment firms; and
• The branches of third-country credit institutions that are already authorised in Luxembourg at the date of the entry in force of the Circular are not required to apply for a new authorisation.

2. Provision of investment services to either per se professional clients or to eligible counterparties

• The third-country firm may provide investment services through either:
  • the establishment of a branch in Luxembourg; or
  • from its home third country on a cross-border basis.
• The investment services from the third country on a cross-border basis may be provided either:
  • on a CSSF decision (“national regime”); or
  • on an EU Commission equivalence decision and a registration in the register of third-country firms kept by the European Securities and Markets Authority (the ESMA) (“EU regime”).

National regime

• The national regime does not grant an EU passport to the third-country firm and therefore does not provide access to the whole EU market.
• It is subject to the following three conditions:
  
  • Condition relating to third-country equivalence: the CSSF verifies that the firm is subject, in the relevant third country, to supervision and authorisation rules that the CSSF deems to be equivalent to those of the LFS for the provision of investment services. The CSSF considers as non-equivalent third countries that are not signatories of the IOSCO Multilateral Memorandum of Understanding and that do not have adequate legislation and supervision with respect to the fight against money laundering and terrorist financing (AML/CFT). The list of countries that the CSSF considers as equivalent for the purposes of the national regime will be published and kept up to date by the CSSF.
  • Condition relating to the cooperation between the CSSF and the third-country supervisory authority: the CSSF verifies that the cooperation between the CSSF and the supervisory authority(ies) of the third country is ensured (through the conclusion of MoU between the authorities or by the signature of an addendum to an existing MoU).
  • Conditions relating to the third-country firm: The third-country firm must be authorised in the third country to provide the investment services it wishes to provide in Luxembourg.

In addition:

The decision on the provision of investment services in Luxembourg is taken by the CSSF upon written application and after examination of the request submitted to the CSSF at direction@cssf.lu.

The application form for the provision of investment services by a third-country firm on the basis of the “third-country” national regime, which is now available on the CSSF website, must be fulfilled by the third country firm.

EU regime

• The third-country firm may also provide investment services on a cross-border basis to both per se professional clients and eligible counterparties in Luxembourg where the EU Commission has adopted beforehand an equivalence decision relating to the third country in which the firm has its head office or its registered office and where the firm has been registered in the relevant register kept by ESMA.
• Registration in said register gives access to the whole EU market and is, as a consequence, similar to a European passport.

3. Provision of investment services at the own exclusive initiative of the client

• Where a client established in the EU requests at its own exclusive initiative (“reverse solicitation”), the provision of an investment service by a third-country firm, the latter does not need any CSSF or EU Commission decision.
• Marketing new categories of investment products or investment services to this client would however trigger authorisation requirements. In such a case, the third-country firm can provide new investment services subject to the conditions as described above (through the establishment of a branch if targeting retail clients or professional clients on request, or on a cross-border basis if targeting per se professional clients or eligible counterparties). 

¹_{Article 32-1 of the LFS has been introduced by the Law of 30 May 2018 on markets in financial instruments (the MIFID II Law).}

²_{MIFIR means Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments.}

To read the Circular, please click below.