Legal requirements and authorisation procedure for investment firms

The legal requirements that must be met and the procedure that must be followed to obtain an authorisation as investment firm are laid down in Articles 13 to 24-9 of the Law of 5 April 1993 on the financial sector, as amended (the “LFS”).

An authorisation as investment firm may only be granted to legal persons in the form of a public-law institution (établissement de droit public) or a commercial company.

To fulfil the requirement of substance in Luxembourg, the applicant investment firm (the “applicant”) shall prove that its central administration and its registered office are located in Luxembourg. The central administration comprises the functions of directorship and management, execution and control and shall enable the investment firm to control all its activities. It is characterised by the existence at the registered office of the “decision-making centre” and the “administrative centre”. This also implies that the investment firm must have a commercial function that effectively operates from its registered office in Luxembourg.

The investment firm shall fulfil, in particular, the organisational requirements defined in Article 37-1 of the LFS for the investment services provided or the investment activities performed, as well as in Article 17 of the LFS for the ancillary services provided.

The investment firm shall have robust internal governance arrangements, which include, in particular, a clear organisational structure with well-defined, transparent and consistent lines of responsibility, effective processes to identify, manage, monitor and report the risks to which it is or might be exposed and adequate internal control mechanisms, including sound administrative and accounting procedures as well as control and security mechanisms for its IT systems.

The internal governance arrangements, processes, procedures and mechanisms referred to above shall be comprehensive, proportionate and adapted to the nature, scale and complexity of the investment firm’s activities, including its risks.

The investment firm shall have adapted internal control functions, comprising an internal audit function, a risk management function and a compliance function.

The more detailed regulatory requirements and expectations with respect to central administration, internal governance and risk management arising from Circular CSSF 20/758 apply and shall be fulfilled at all times by the investment firm.

Natural and legal persons are allowed to be shareholders or members of an investment firm, provided that they have been previously authorised thereto by the CSSF.

In order to obtain authorisation, the applicant shall communicate to the CSSF the information referred to in Article 3 of Commission Delegated Regulation (EU) 2017/1943 of 14 July 2016 relating to the persons with a direct or indirect qualifying holding (“Regulation 2017/1943”) and, where applicable, also the information required more particularly under Articles 3, 4, and 5 of Commission Delegated Regulation (EU) 2017/1946 of 11 July 2017 relating to the exhaustive list of information to be included by the proposed acquirers in the notification of a proposed acquisition of a qualifying holding in an investment firm (“Regulation 2017/1946”). “Qualifying holding” shall mean 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 that investment firm.

The shareholders or members with a qualifying holding shall fulfil the required conditions to ensure a sound and prudent management of the investment firm. The concept of sound and prudent management shall be assessed in accordance with the criteria listed in Article 18(9) of the LFS. The main criteria are:

• the reputation of the shareholders or members;
• the reputation 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.

In order to obtain an authorisation, the members of the administrative,  managerial and supervisory bodies and the shareholders or members holding a qualifying holding shall produce evidence of their reputation. Reputation is assessed on the basis of the extracts of the criminal 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.

The professional experience of each member of the body concerned shall be assessed on an individual as well as collective level with regard to the nature, scale and complexity of the activities and the organisation of the investment firm.

The day-to-day management shall be entrusted to at least two natural persons, who must both have the reputation and experience  as well as 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 residence requirement may be requested for one of these persons but only for the first six months following the issue of the authorisation.

The authorisation of an investment firm shall be conditional on the production of evidence showing the existence of a subscribed and fully paid-up authorised capital amounting to not less than EUR 75,000, provided that this firm is not permitted to hold client money or securities belonging to its clients.

It shall be conditional on the production of evidence showing the existence of a subscribed and fully paid-up authorised capital amounting to not less than EUR 150,000, where this firm is permitted to hold client money or securities belonging to its clients.

The investment firm shall 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 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 [public limited companies] and the managers (gérants) or the board of managers for sociétés à responsabilité limitée [private limited liability company]. The investment firm shall, where applicable, have the réviseur d’entreprises agréé to which it entrusted the statutory audit of its accounts recognised by the CSSF.

The investment firm 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).

The investment firm shall have at all times the minimum own funds as required under Regulation (EU) 2019/2033 on the prudential requirements of investment firms (“Regulation 2019/2033”).

The investment firm shall have at all times a minimum amount of liquid assets as required under Regulation 2019/2033.

The authorisation as investment firm shall be granted by the CSSF following a formal written authorisation request based on a complete authorisation file that complies with the applicable regulations.

The applicant is invited to contact the CSSF before submitting the formal request. This first stage of preliminary contacts and exchanges, which is necessary to properly structure the authorisation file to be submitted, may be divided into two sub-steps.

Firstly, initial contacts and exchanges are necessary to verify the qualification of the activity and the services envisaged in order to better determine the authorisation(s) needed.

Secondly, the subsequent contacts and exchanges which precede the filing of the formal application notably allow refining the details of the activity and services envisaged and assessing whether the applicant’s project is likely to fulfil the authorisation requirements set out in the national (in particular, the LFS) and European (in particular, Regulations 2017/1943 and 2017/1946 and Regulation 2019/2033) legislation and identifying any potential obstacles.

To this end, the applicant is invited to contact:

• for the qualification of the activity and services envisaged, the General Secretariat (sg@cssf.lu); and then
• for the review in order to assess the authorisation requirements, the department Supervision of Investment Firms (investmentfirms_license@cssf.lu)

The applicant and/or its advisor are informed of an inventory of documents and information that will be communicated to them by the CSSF in a timely manner. The main principles governing the above-mentioned procedure, the formal written authorisation procedure mentioned below and the main information to be provided (non-exhaustive list) can be found under “Important principles governing the authorisation procedure for investment firms”.

Following this first stage, the applicant is invited to submit the formal written application. Upon receipt of the complete and compliant file by the CSSF, the applicant will receive an acknowledgement of receipt from the department Supervision of Investment Firms, as well as the name of the contact person. The department will examine the file and may raise comments or request additional information.

The decision taken by the CSSF with respect to a formal application for authorisation must be notified to the applicant within six months following receipt of the (complete and compliant) application file or, should the file be incomplete, within six months following receipt of the missing information. All decisions on an official application for authorisation shall state the factual and legal reasons on which they are based.

A decision shall be taken within 12 months, at the latest, of the receipt of the official complete and compliant application. The absence of a notification of the decision within 12 months shall be deemed equivalent to a refusal of the authorisation.

The decision of the CSSF may be referred to the Tribunal administratif (Administrative Tribunal) which deals with the merits of the case. The case shall be filed within one month, or else shall be time-barred.

The authorisation is granted for an unlimited period of time provided that 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.