A new CSSF Circular 20/743 provides more clarification on third country firms providing investment services or performing investment activities.
The CSSF has published Circular 20/743 dated 1 July 2020 which updates and provides more clarification to Circular 19/716 concerning third country firms providing investment services or performing investment activities.
Following the entry into force of the Luxembourg law of 30 May 2018 which implemented MiFID II into the Luxembourg legislation, there was no clear legal definition of when a Luxembourg licence requirement would be triggered for investment services and activities.
Article 32-1 of the Luxembourg law on the financial sector concerns third country firms providing investment services or performing investment activities and the CSSF has now made it clear that this is when carried out "in Luxembourg" and provides some guidance as to what this means.
When assessing whether a third country firm needs a Luxembourg licence there are a few questions to address:
1. Who is your client?
a. Retail clients or professional clients on request
A Luxembourg branch is required and this branch will be subject to the same conditions as Luxembourg institutions. Once approval is granted the branch will be subject to the CSSF's supervision.
b. Per se professionals or eligible counterparties
You can provide services either (i) through a Luxembourg branch, or (ii) from the third country on a cross-border basis on the basis of the ESMA equivalence decision (pursuant to MiFIR) or the "national equivalence regime".
The national equivalence regime is based on a decision by the CSSF and is available until ESMA publishes the list of equivalent countries (including the transitory period thereafter).
The CSSF has published a list of third countries it considers equivalent "CSSF publishes list of third country equivalent jurisdictions for investment services or activities" and as of today this includes Canada, Switzerland, USA, Japan, Hong Kong and Singapore. The list is made available by the CSSF and jurisdictions can be added or removed depending on the CSSF's assessment.
The national equivalence regime does not give the third country firm a European Passport or the possibility to provide services into other Member States.
2. When are you providing services "in Luxembourg"
The CSSF confirms that providing services "in Luxembourg" is considered to mean on the Luxembourg territory.
There is a presumption of providing services "in Luxembourg" in the following circumstances:
The third country firm has an establishment in Luxembourg (for example a branch);
Investment services are being provided to a retail client in Luxembourg (whether resident or temporarily in Luxembourg);
Where Luxembourg is the location of the characteristic performance of the service, meaning the essential activity for which payment is due.
As such, if clients are not retail clients (or professional upon request) there are many scenarios in which third country firms can provide investment services to a client in Luxembourg on a cross-border basis without this triggering a licensing requirement. For retail clients the reverse enquiry exemption remains available.
It is important for each third country firm to make this assessment individually and document its analysis and outcome of the assessment.