The law of 5 May 2026 (the “Law”) implements inter alia Directive (EU) 2024/1619 amending the capital requirement directive (“CRD VI”) into Luxembourg law.
The Law introduces a series of amendments to the financial sector law, focusing on the following three main areas:
- Third-country entities carrying out banking activities;
- M&A transactions; and
- Internal governance.
1. Third-country regime
The Law introduces a new regime for entities established in a third-country which contemplate providing certain banking services in Luxembourg. In principle, these entities will need to set up a Luxembourg branch to carry out deposit-taking activities, lending or guarantees. Whether the requirement to establish a branch applies will depend on (i) the type of service, (ii) the status of the provider, and (iii) whether the service is provided in Luxembourg. On this last criterion, reference should be made to the characteristic performance test, i.e. is the characteristic performance of the relevant service performed in Luxembourg or exclusively by way of distance.
The Law provides for exemptions to the requirement to establish a Luxembourg branch such as:
- the provision of banking services on an ancillary basis to MiFID II services,
- the own initiative of the client (the so-called reverse solicitation),
- in interbank provision of services on an interbank or intragroup basis.
This regime applies as from 11 January 2027 onwards. Therefore, third-country firms still benefit from the current regime in place until that date. Preparation should, however, take place in the meantime to ensure that these entities have an EU strategy for beginning of 2027. To prepare effectively, third-country firms should assess their status under CRD VI (e.g. whether they would qualify as a credit institution), the type of services provided to EU customers, whether these services are provided in Luxembourg and finally whether an exemption is available.
2. Material transactions
The Law also sets out new rules on material transactions. Acquisitions or disposals of material holdings by a credit institution as well as material transfers of assets or liabilities trigger a prior notification requirement to the CSSF. Mergers and demergers are subject to a prudential review process.
3. Internal governance
Finally, the Law reinforces the obligation to maintain a robust governance structure, notably by ensuring a clear allocation of responsibilities within the management body and key functions, supported by a documented governance framework and strong, independent internal control functions. It also requires relevant institutions to take ESG risks into account in their governance, strategy, and risk management notably by establishing effective processes to identify, measure, manage and monitor the impact of ESG factors (including stress testing under both baseline and adverse scenarios).
Apart from the new regime for third country branches which, as mentioned above, applies from 11 January 2027, the main provisions of the Law enter into application as from 11 January 2026 and 11 July 2026.
Authors: Aurélia Viémont, Mélanie Poirrier, Delia Nesbitt, Anne Picot-Guillot (CMS Luxembourg)
