Luxembourg: A new regulatory and prudential framework applicable to investment firms Trending News & More

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The legislation of 21 July 2021, efficient as of 31 July 2021 (“Law“), has applied the European prudential regime applicable to investment firms licensed below the Markets in Financial Instruments Directive II (MiFID II) set out below the Investment Firms Directive (IFD) and the Investment Firms Regulation (IFR) into Luxembourg legislation.

The Law has the aim of (i) embracing the MiFID II’s classification based mostly on the providers and actions carried out by the investment agency and (ii) modernizing the statuses of sure different monetary sector professionals.

Therefore, the Luxembourg lessons of investment firms are being recast.

Implementation of the IFR/IFD framework into the Luxembourg legislation dated 5 April 1993 on the monetary sector, as amended (LFS)

  • The IFR/IFD framework is designed to higher go well with the character, dimension, and complexity of investment firms’ actions in contrast to the Capital Requirements Regulation (CRR) and the Capital Requirements Directive (CRD) framework applicable to conventional credit score establishments and to which most investment firms had been additionally topic till 25 June 2021.
  • The Law has amended the LFS to introduce 4 main lessons of investment firms, as follows:
  • The LFS distinguishes between (i) credit score establishments or banks, (ii) CRR investment firms (iii) IFR investment firms and (iv) “IFR non-PNI investment firm” (the place PNI stands for small and non-interconnected investment agency). Credit establishments or banks and CRR investment firms are collectively referred to as CRR establishments whereas a subcategory of IFR investment firms has additional been launched.
  • A credit score establishment is now outlined as a credit score establishment throughout the that means of Article 4 (1) (1) of the CRR, i.e. an enterprise the enterprise of which is to take deposits or different repayable funds from the general public and to grant credit for its personal account.
  • An investment agency below the LFS is now outlined as a authorized individual as outlined in Article 4(1)(1) of the MiFID II. Credit establishments have been faraway from the definition of investment firms.
  • The “bank-like” investment firms which can be the most important investment corporations engaged within the proprietary buying and selling or underwriting of monetary devices and/or the putting of monetary devices with a agency dedication, and that exceed EUR 30 billion of whole asset worth, are handled in all respects as credit score establishments and qualify as credit score establishments below the LFS. They correspond to Class 1 investment firms below the IFR/IFD framework. As such, they continue to be topic to the extra stringent CRR/CRD regime.
  • CRR investment firms are investment firms which can be not thought of credit score establishments however, due to their dimension and complexity, stay topic to a sure variety of obligations applicable below the CRD/CRR regime. They correspond to Class 1b investment firms below the IFR/IFD framework.
  • IFR investment firms are smaller, non-interconnected investment firms that profit from lighter provisions below the IFD/IFR framework to guarantee proportionality to their nature, scale and complexity. They correspond to Class 3 investment firms below the IFR/IFD framework.
  • IFR non-PNI investment firms are all different investment firms that don’t qualify as CRR establishments or IFR investment firms, i.e., the traditional sort of investment firms. They correspond to Class 2 investment firms below the IFR/IFD framework. These IFR non-PNI investment firms are totally topic to the IFR/IFD regime.

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