Legal requirements and authorisation procedure for investment firms
The legal requirements that must be met and the procedure that must be followed in order to obtain an authorisation as investment firm are laid down in Articles 13 to 23 of the Law of 5 April 1993 on the financial sector (“LFS”).
An authorisation as investment firm may be granted to natural or legal persons in the form of a public entity or a commercial company. An authorisation for an activity involving the management of third-party funds may be granted only to legal persons. Please refer to the legal provisions of the LFS applicable to the categories which are sought in order to determine the required legal form.
The investment firms shall prove that they have a subscribed and fully paid-up share capital of not less than EUR 50,000. Depending on the category of investment firm for which the authorisation is sought, the required minimum share capital may amount to up to EUR 730,000. Please consult the relevant legal provisions of the LFS in order to determine the minimum share capital required for the categories of investment firm you seek.
Central administration and infrastructure
An applicant which is a legal person shall prove that its central administration and its registered office are located in Luxembourg. An applicant who is a natural person shall prove that s/he effectively conducts business in Luxembourg and that his/her central administration is in Luxembourg.
An investment firm shall have robust internal governance arrangements, which include a clear organisational structure with well-defined, transparent and consistent lines of responsibility, effective processes to identify, manage, monitor and report the risks it is or might be exposed to, and adequate internal control mechanisms, including sound administrative and accounting procedures, as well as control and security arrangements for IT systems.
The internal governance arrangements, processes, procedures and mechanisms shall be comprehensive and proportionate to the nature, scale and complexity of the investment firm’s activities. Investment firms shall comply with the organisational requirements set out in Article 37-1 of the LFS for the investment services provided or the investment activities performed and Article 17 of the LFS for the ancillary services provided.
Investment firms shall have an internal audit, risk management and a compliance function. Moreover, investment firms shall comply with Circular CSSF 12/552 on central administration, internal governance and risk management.
Natural and legal persons are allowed as shareholders or members in an investment firm, provided that they are previously authorised by the CSSF. In order to be authorised, the applying investment firm shall communicate to the CSSF the information referred to in Article 3 of Commission Delegated Regulation (EU) 2017/1943 of 14 July 2016 with respect to persons with a direct or indirect qualifying holding. “Qualifying holding” means any direct or indirect holding in the investment firm which represents 10% or more of the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of the investment firm.
The shareholders or members with a qualifying holding shall fulfil the required conditions to ensure a sound and prudent management. The concept of sound and prudent management shall be assessed in light of the criteria listed in Article 18(9) of the LFS. The main criteria are:
- the professional standing of the shareholders or members;
- the professional standing and experience of any person who will direct the business of the investment firm upon obtaining the authorisation;
- the financial soundness of the shareholders or members;
- the risk of money laundering and terrorist financing.
Professional standing and experience
In order to obtain authorisation, natural persons and, in the case of legal persons, the members of the administrative, management and supervisory bodies and the shareholders or members with a qualifying holding shall prove their professional standing. Professional standing is assessed on the basis of the extracts from the police record and of any other evidence showing that the persons concerned are of good repute and offer every guarantee of irreproachable conduct.
The persons responsible for the day-to-day management shall be empowered to effectively direct the business and shall have adequate professional experience, i.e. they shall have previously carried out similar activities at a high level of responsibility and autonomy. Moreover, the prudential approval procedure of key function holders in investment firms must be complied with.
In the case of a legal person, the day-to-day management shall be entrusted to at least two natural persons, who must both have professional standing and experience and closely equal powers. This two-man management principle shall allow mutual control and common decision-taking, but does not necessarily imply that these persons must act together to commit the investment firm. These persons must be reachable by the CSSF at any time in case of need, i.e. they shall reside in Luxembourg or in the Grande Région. An exemption from the requirement of residence may be requested for one of these persons but only for the first six months following the issue of the authorisation.
In the case of a natural person, s/he shall prove to the CSSF that s/he has taken appropriate arrangements to ensure the sound and prudent management of the investment firm.
The investment firm shall entrust the audit of its accounting documents to one or several réviseurs d’entreprises agréés (approved statutory auditors) who have adequate professional experience. The réviseur d’entreprises agréé shall be appointed by the body responsible for managing the investment firm, i.e. the board of directors for sociétés anonymes and the managers (gérants) or the management board for sociétés à responsabilité limitée.
Participation in an authorised Investor Compensation Scheme
Investment firms shall participate in the investor compensation scheme set up in Luxembourg and recognised by the CSSF, namely the Système d’Indemnisation des Investisseurs Luxembourg (SIIL, Investor Compensation Scheme Luxembourg).
The authorisation as an investment firm is granted by the Minister responsible for the CSSF, i.e. the Minister of Finance, upon written application and following an investigation of the application file by the CSSF. The CSSF verifies whether the conditions laid down in the LFS are fulfilled.
Where the services offered or activities performed by an investment firm also concern insurance products, the application file will, in addition, be verified by the Commissariat aux Assurances in light of the provisions of the Law of 7 December 2015 on the insurance sector.
In order to simplify administrative burdens, the CSSF encourages applicants to first transmit their application files to the CSSF before filing the formal application request with the Minister of Finance.
The authorisation is granted for an unlimited period of time provided the investment firm complies at all times with the applicable legal requirements. Upon receipt of the authorisation, the investment firm may immediately start to carry on business.
Before transmitting the application to the CSSF, the applicant may contact the CSSF to request information on the qualification of an activity, on the need for an authorisation, on the status requested, on the application documentation for the authorisation file or any other important question relating to the applicant’s project. The applicant may also request a meeting to present the project and to discuss certain aspects of it.
The examination of the file by the CSSF
In order to speed up the verification process, the applicant may submit a detailed and complete file to the CSSF by using the application forms available on the CSSF website.
The complete application file shall be submitted to the CSSF in paper form and shall, in addition, be transmitted in electronic form to email@example.com.
The application file shall include all necessary information required for the assessment thereof. The following non-exhaustive list of information to be included in an application form is for general guidance purposes only:
- Key information
- Presentation of the future investment firm (including articles of association)
- Presentation of the project (including reasons for setting up an investment firm and establishing in Luxembourg)
- Description of the business model
- Detailed description of proposed activities and offered services
- Description of targeted clients and strategy to achieve targeted levels
- Description of geographical distribution and envisaged branches/subsidiaries/tied agents
- Description of key elements of business plan
- Financial forecast for the next 3 years (Balance sheet, profit & loss account, capital ratio)
- Description of organisational structure including human resources
- Description of IT infrastructure and organisation
- Description of outsourcing arrangements
- Description of business continuity plan including backup facilities & disaster recovery
- Capital and liquidity
- Own funds (amount, sources and composition)
- Capital requirements/Liquidity requirements
- Audited financial statements for the last 3 financial years (if entity is already existent) or financial forecast for the first 3 business years (if newly established entity)
- Presentation of the group, including complete structure chart
- Description of direct and indirect shareholders (identity, details of shareholder rights, shareholder agreements, extract from the shareholder register)
- Presentation of Beneficial owners (identity, proof of financial soundness)
- Central administration/internal governance
- Internal organisation chart of the future investment firm (comprising board of directors, authorised management, board committees, operational committees, key functions, business and administrative departments, etc.) including hierarchical and functional reporting lines
- Description of internal governance including key processes, conflict of interest policy and AML/CFT policy
- Information on internal control functions (organisation, heads of function, reporting lines)
- Presentation of board members, authorised managers and key function holders
Upon receipt of the file by the CSSF, the applicant receives an acknowledgement of receipt which indicates the department in charge of the examination of the file and the name of a contact person at the CSSF. The CSSF will examine the file and may raise comments or request additional information.
Once the CSSF deems that the conditions laid down in the LFS are fulfilled, the applicant will be notified in writing and the applicant may file an official request with the Minister of Finance.
The formal analysis by the Minister of Finance
The application file submitted to the Minister of Finance shall be signed by the initiators of the project and all the relevant annexes shall be enclosed. The annexes and, in particular, the declarations of honour and the extracts from the police records must be original documents. All information contained in the annexes must be up to date and the extracts from the police records must not be older than three months.
The decision of the Minister of Finance will be notified to the applicant within six months following receipt by the Minister of Finance of the application file. Should the application file be incomplete, the applicant will be notified of the decision of the Minister of Finance within six months following receipt of the missing information. All decisions on an application request shall be motivated in fact and in law.
A decision shall be taken within 12 months, at the latest, of the receipt of the application. If no decision is notified within 12 months, it means that the application has been refused.
The decision of the Minister of Finance may be appealed against and referred to the Tribunal administratif (Administrative Court), which deals with the substance of the case. The appeal shall be filed within one month, or else shall be time-barred.