Banking Regulation - Legal Framework

Which legislative and regulatory provisions govern the banking sector in your jurisdiction? The main law governing credit institutions in Luxembourg is the Law of 5 April 1993 on the financial sector, as amended ('Banking Act'), which covers:

access to professional activities in the financial sector (including the authorisation of credit institutions established under Luxembourg law, and the authorisation for the establishment of branches and freedom to provide services in Luxembourg by credit institutions governed by foreign law); professional obligations, prudential rules and rules of conduct in the financial sector; prudential supervision of the financial sector; prudential rules and obligations in relation to recovery planning, intra-group financial support and early intervention; and sanctions. As Luxembourg is an EU member state, European banking regulations are also applicable to Luxembourg credit institutions - in particular, Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms, as amended (CRR). The Banking Act implements into Luxembourg law, among others, Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms (CRD IV).

Many specific laws and regulations (at both a European and Luxembourg level) also apply, depending on the activities pursued by Luxembourg credit institutions (eg, investment services, securitisation, over-the-counter derivative transactions, securities financing transactions, regulation of benchmarks).

Luxembourg credit institutions are also subject to the Law of 18 December 2015 on the resolution, reorganisation and winding up measures of credit institutions and certain investment firms and on deposit guarantee and investor compensation schemes ('BRR Law'), which implements Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms (BRRD); and to the Law of 17 June 1992 relating to the annual and consolidated accounts of credit institutions governed by the laws of Luxembourg ('Accounts Law').

The legal framework is completed by grand-ducal regulations, Commission de Surveillance du Secteur Financier (CSSF) regulations and CSSF circulars on a variety of specific topics. One of the most important circulars is CSSF Circular 12/552 on the central administration, internal governance and risk management of credit institutions, investment firms and professionals performing lending operations, as amended. At the date of publication, an update to CSSF Circular 12/552 is imminent.

The words 'credit institution' and 'bank' are used interchangeably throughout this Q&A.

1.2 Which bilateral and multilateral instruments on banking have effect in your jurisdiction? How is regulatory cooperation and consolidated supervision assured?

A number of international organisations are working on topics that are of relevance to the financial sector as a whole, and to credit institutions in particular.

Luxembourg is a member state of the Organisation for Economic Cooperation and Development (OECD), which works on establishing norms and better policies for a wide range of subjects, such...