New Luxembourg Draft Law transposing IFD and IFR

The purpose of the draft law 7723, submitted to the Luxembourg Parliament (Chambre des Députés) on 27 November 2020 (the “Draft Law”) is to:

  • transpose into Luxembourg law Directive (EU) 2019/2034 of 27 November 2019 on the prudential supervision of investment firms and amending Directives 2002/87/EC, 2009/65/EC, 2011/61/EU, 2013/36/EU, 2014/59/EU and 2014/65/EU ( “IFD”); and
  • operationalise Regulation (EU) 2019/2033 of 27 November 2019 on the prudential requirements of investment firms and amending Regulations (EU) No.1093/2010, (EU) No. 575/2013, (EU) No. 600/2014 and (EU) No. 806/2014 (“IFR”).

Contents and key changes

The IFD, investment firm directive and IFR, investment firm regulation, introduce a new prudential regime applicable to investment firms. The existing prudential regime under Regulation (EU) No. 575/2013 (CRR) and Directive 2013/36/EU (CRD IV) largely focuses on the prudential supervision of credit institutions and only partially addresses investment firms. Therefore, the IFD and IFR lay down provisions on the specific risks posed to different types of investment firms concerning internal governance, remuneration policies, concentration risk, capital requirements, liquidity requirements and reporting requirements.  One particular change introduced by the new regime, is the creation of four major categories of investment firms. “Class 1” investment firms will now be considered as credit institutions in their own right and will continue to be subject to the CRR and CRD IV regimes. “Class 1b” investment firms, by virtue of their size and importance or their membership of a group, will remain subject to a number of obligations stemming from the CRR and CRD IV framework, however, without being treated as credit institutions in their own right. “Class 2” investment firms represent the traditional investment firm, which will be fully subject to the new IFR and IFD regime. Finally, “Class 3” investment firms will be considered as small, non-interconnected firms that will benefit from certain exemptions to ensure the proportionality of the rules applicable to them.

Luxembourg must adopt and publish the measures necessary to comply with the IFD by 26 June 2021 whereas the IFR regimes will become directly applicable on the same date.

Further highlights of the resulting Draft Law

The Draft Law, which mainly amends the Luxembourg law of 5 April 1993 on the financial sector (the “1993 Law”), also, inter alia, aims at:

  • abandoning the purely Luxembourgish designations and statuses of investment firms, as set out in Art. 24 to Art 24-11 of the current version of the 1993 Law and focussing in the future on the investment activities and services listed in Section A of Annex I to Directive 2014/65/EU (MiFID II). Access to the activities of an investment firm will in the future be reserved to legal persons only, as is the default case in Directive 2014/65/EU; and
  • modifying the status of certain specialized and support PFS. Thus, the status of "currency exchange dealers" will be abolished and the activities performed by currency  exchange dealers will in the future be reserved solely for credit institutions. Moreover the status of primary and secondary computer system operators will be merged.