Legal requirements and procedure for authorisation of credit servicers

The legal requirements that must be met and the procedure that must be followed in order to obtain an authorisation as credit servicer are laid down in Articles 17(1), 28-14, 28-15 and 28-16 of the Law of 5 April 1993 on the financial sector (“LFS”).

An authorisation as a credit servicer may only be granted to legal persons.

The authorisation as credit provider is conditional on the production of evidence showing the existence of a fully paid-up capital of not less than EUR 75,000, where the applicant is not authorised to receive and hold funds from borrowers in order to transfer those funds to credit purchasers.

The authorisation is conditional on the production of evidence showing the existence of a fully paid-up capital of EUR 150,000, where the applicant is authorised to receive and hold funds from borrowers in order to transfer those funds to credit purchasers.

The credit servicer is subject, in addition to the requirements relating to the authorisation under Article 17(1), the first subparagraph of Article 28-14(2) and Article 28-16 of the LFS, notably to the requirement to have a separate account in a credit institution into which all funds received from borrowers are to be credited and kept until their channelling to the respective credit purchaser, under the conditions agreed with the credit purchaser.

It also follows from Article 28-14(5) of the LFS that the credit servicer shall enter the funds received from borrowers in accounts separate from its own assets.

Receiving and holding funds from borrowers pursuant to Article 28-14 of the LFS does not constitute management of third-party funds.

The authorisation is subject to justification of the existence in Luxembourg of the central administration or the registered office of the applicant.

In accordance with Article 28-16(5) of the LFS, the credit servicer shall have in place robust governance arrangements and adequate internal control mechanisms, including accounting and risk management procedures, which ensure respect for borrower rights and compliance with the laws governing a creditor’s rights under a credit agreement, or the credit agreement itself, and with Regulation (EU) 2016/679  of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation).

The credit servicer shall notably have in place adequate and specific internal procedures that ensure the recording and handling of complaints from borrowers in accordance with Article 28-16(7) of the LFS.

The persons who hold qualifying holdings in the credit servicer must be of sufficiently good repute, which is demonstrated by fulfilling the requirements set out in points (1) and (4) of the second subparagraph of Article 28-16(1) of the LFS, namely:

• they have a clean police record or other national equivalent in relation to relevant criminal offences, in particular those relating to property, financial services and activities, money laundering, usury, fraud, tax crimes, violation of professional secrecy or to physical integrity, and also in relation to any other offences under laws relating to companies, bankruptcy, insolvency or consumer protection;
• they are not subject to any ongoing insolvency procedure nor have previously been declared bankrupt unless reinstated.

In order to obtain and maintain the authorisation as credit servicer, the members of the management body must be at all times of sufficiently good repute.

The members of the management body must demonstrate their good repute by proving that:

1. they have a clean police record or other national equivalent in relation to relevant criminal offences, in particular those relating to property, financial services and activities, money laundering, usury, fraud, tax crimes, violation of professional secrecy or to physical integrity, and also in relation to any other offences under laws relating to companies, bankruptcy, insolvency or consumer protection;
2. the cumulative effects of minor incidents do not impinge on their good repute;
3. they have always been transparent, open and cooperative in their past business dealings with supervisory and regulatory authorities;
4. they are not subject to any ongoing insolvency procedure nor have previously been declared bankrupt unless reinstated.

Where members of the management body do not fulfil the requirements set out above, the CSSF has the power to remove such members from the management body.

The management body of a credit servicer, as a whole, must have adequate knowledge and experience to conduct the business in a competent and responsible manner.

The persons responsible for the management must be authorised to effectively direct the business. The number of these persons must be at least two.

The credit servicer must entrust the audit of its annual accounting documents to one or several réviseurs d’entreprises agréés (approved statutory auditors) who have adequate professional experience.

The authorisation is granted by the CSSF upon written request and after verification by the CSSF of the compliance with the conditions laid down in the LFS. The authorisation shall be granted for an unlimited period of time.

Upon receipt of the authorisation, the credit servicer may immediately start to carry on business.

In accordance with Article 28-15(3) of the LFS, the application for authorisation of credit servicers must include all the information necessary to its assessment, and the following elements in particular:

1. evidence of the applicant’s legal status and a copy of its act of incorporation and of the company by-laws;
2. the address of the applicant’s head office or its registered office;
3. the identity of the members of the applicant’s management body and the persons who hold qualifying holdings within the meaning of Article 4(1), point (36), of Regulation (EU) No 575/2013;
4. evidence that the applicant fulfils the conditions laid down in Article 28-16(1) and (4) of the LFS;
5. evidence that the persons who hold qualifying holdings within the meaning of Article 4(1), point (36), of Regulation (EU) No 575/2013 fulfil the conditions laid down in Article 28-16(9) of the LFS;
6. evidence of the governance arrangements and internal control mechanisms referred to in Article 28-16(5) of the LFS;
7. evidence of the policy referred to in Article 28-16(6) of the LFS;
8. evidence of the internal procedures referred to in Article 28-16(7) of the LFS;
9. evidence of the procedures referred to in Article 28-16(8) of the LFS;
10. where relevant, evidence of the existence of a separate account in a credit institution as provided for in Article 28-14(5), point (1) of the LFS;
11. any outsourcing agreement referred to in Article 8(1) of the Law of 15 July 2024 on the transfer of non-performing loans.

Where a credit servicer does not intend to receive and hold funds from borrowers as part of its business model, the credit servicer must convey that intention in its application for authorisation.

Before transmitting the application to the CSSF, the applicant may contact the CSSF to request information on the need for an authorisation as credit servicer, 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 at the CSSF to present its project.

A complete application file documenting the compliance with the legal requirements applicable to credit servicers, and in particular the information set out in Article 28-15(3) of the LFS, must be submitted to the CSSF in paper format, as well as electronically to the email address specialisedpfs_license@cssf.lu .

The CSSF will assess within 45 days of receipt of the application for authorisation, whether that application is complete.

The decision of the CSSF with respect to an application for authorisation must be duly substantiated and notified to the applicant within 90 days of receipt of a complete application or, if the application is considered incomplete, of receipt of the required information. Such a decision must in any event be adopted within twelve months of receipt of the application, failing which the absence of a decision shall be deemed to constitute notification of a refusal.

The authorisation will be refused if the conditions for the grant thereof are not fulfilled.

The credit servicer must comply at all times with the conditions for initial authorisation and with the provisions of the Law of 15 July 2024 on the transfer of non-performing loans. Any substantial change to the conditions to which the authorisation was subject must be notified to the CSSF.