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Update of the CSSF FAQ on the Statuses of "PFS" - Part II Concerning Lending to the Public
25/06/2021

On 15 June 2021, the Luxembourg Financial Sector Supervisory Authority (Commission de Surveillance du Secteur Financier - "CSSF") published an updated version of its FAQ concerning the scope of permitted activities for professionals in the financial sector ("PFS II") in the context of the application of the law of 5 April 1993 on the financial sector, as amended ("1993 Law"), clarifying the definition of "public" in the context of lending.

This update clarifies under which conditions lending is assumed to be to the public, and makes the provisions relating to lending by unregulated loan funds more user-friendly.

> Background

With regard to lending under the 1993 Law, PFS1 are of particular importance under Article 28-4, as they are the only entities authorised under this law to lend to the public for their own account, in addition to credit institutions. However, Article 1-1 (2) of the 1993 Law excludes a number of actors from the scope of the 1993 Law, including regulated loan funds, making Luxembourg the market leader in this sector to date.

It should be noted that the CSSF's FAQ on the law of 12 July 2013 on alternative investment fund managers ("Law of 2013") already clarified in June 2016 that lending as such is a permitted activity for alternative investment funds ("AIF") and their managers ("AIFM"). 

> New provisions

The term "public" within the meaning of Article 28-4 of the 1993 Law has been clarified. Thus, as an aid to interpretation, a legal negative delimitation has been made by the CSSF, according to which the granting of loans is not considered to be directed to the public insofar as:

1. the loan is granted exclusively to a limited group of persons or the granting of loan does not fall below an amount of EUR 3,000,000; and 
2. the loan is granted exclusively to professionals within the meaning of Article L. 010-1.2) of the Luxembourg Consumer Code (Code de Consommation).

With regards to the term "professional", article L. 010-1.2 of the Luxembourg Consumer Code defines it as any natural or legal person, whether privately or publicly owned, who acts, including through another person acting in his name or on his behalf, for purposes relating to his commercial or industrial activity, craft or profession.

> Impact

To date, loan transactions by unregulated vehicles (whether qualified as an AIF or not) have been expressly prohibited by the CSSF where they were recurring activities.

In the past, it has been questionable whether and how the issuance of loans to the public should be qualified and whether it falls within the scope of Article 28-4 of the 1993 Law. Due to the lack of information from the CSSF in this area, it was therefore always necessary to examine the individual case in question.

Thus, in the past, it remained questionable, among other things, how the term "public" was to be interpreted.

One-off activities, however, were permitted. 

With this updated FAQ, the CSSF opens up the possibility for unregulated vehicles to grant loans on a continuous basis, but only under the above-mentioned conditions.

Should loans be issued in the future at the level of unregulated loan funds and simple vehicles, it can now be assumed that article 28-4 of the 1993 Law does not apply, provided that the aforementioned conditions are met.

In addition, the FAQ clarifies that the provisions of article 28-4 of the 1993 Law cover all types of loans, and apply equally to secured and unsecured consumer loans.

> Conclusion

The publication of the PFS FAQ is a welcome clarification for the Luxembourg market, which previously required a case-by-case examination this will now be obsolete in many cases with the framework for lending activities by unregulated loan funds being available. Moreover, the clarification also applies to unregulated vehicles, so opportunities for granting loans have also been created here.

Our lawyers specialising in regulatory issues will be happy to assist you with any questions you may have on this topic.

1. The update of the FAQ essentially refers to the 1993 Law and concerns - as the name suggests - the professionals of the financial sector (professionnels du secteur financier), thus both the credit institutions and the professionals of Part I, Chapter 2 of the 1993 law, which are known by the acronym "PFS". These PFS essentially consist of the investment firms (entreprises d'investissement), the specialised PFS (PSF spécialisés) and the support PFS (PSF de support).

 

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