Changes to the investor compensation scheme regime in Luxembourg

With the entry into force of the law of December 18th 2015 on the resolution, reorganisation and winding-up measures of credit institutions and certain investment firms and on deposit guarantee and investor compensation schemes (the “Law of December 18th 2015”), the institutional architecture of the investor compensation scheme in Luxembourg has been renewed.

"The Law of December 18th 2015 introduces a new public system of indemnification of investors (Système d’indemnisation des investisseurs au Luxembourg, the “SIIL”), based on European Parliament and Council Directive 97/9/EC of 3 March 1997 on investor-compensation schemes and repeals the regime in the Law of April 5th 1993 on the financial sector."

The SIIL is operated by the Luxembourg financial markets authority (Commission de Surveillance du Secteur Financier, the “CSSF”) and managed by the Council of protection of depositors and investors (Conseil de protection des déposants et des investisseurs, the “CPDI”), a newly created internal body of the CSSF.

The regime covers investors in Luxembourg credit institutions and investment firms or Luxembourg branches of credit institutions and investment firms with a head office in a third country, whether those investors are natural persons or legal entities. The SIIL indemnifies investors for claims up to a maximum amount of EUR 20,000 if

  1. the CSSF has concluded that a credit institution or investment firm is and will be unable to satisfy those claims at the moment and for reasons directly related to its financial condition, or
  2. the Luxembourg district court issued a ruling declaring the suspension of payments or liquidation of the company involved.

Under the current regime, some type of claims are excluded from the scheme. The new list specifically excludes claims arising from operations with respect to which a criminal conviction for a violation of laws prohibiting anti-money laundering or terrorism financing has been imposed. The SIIL is required to pay eligible claims at the latest three months after the eligibility and the amount of the claim have been established. After it has indemnified investors, the failing credit institutions and investment firms involved are required to pay contributions to the SIIL (ex-post contributions).

The new rules are accompanied by information duties. As under the former regime, credit institutions and investment firms must inform investors of the investor compensation scheme, upon request. In addition, the CPDI must set up a website dedicated to informing investors on the functioning of the scheme. According to the CSSF, this website is currently under construction.