Fintech (2nd Edition)

1. What are the sources of payments law in your jurisdiction?

   The sources of payments law in Luxembourg include, amongst others, the following:

   Law of 10 November 2009 on payment services, on the activity of electronic money institution and settlement finality in payment and securities settlement systems, as amended (the "2009 Law"); CSSF Circular 19/714 update of CSSF Circular 17/654 on IT outsourcing relying on a cloud computing infrastructure; CSSF Circular 19/713 regarding the guidelines of EBA on the security measures for operational and security risks of payment service providers; CSSF Circular 17/656 regarding administrative and accounting organisation; IT outsourcing, repealing Circular 05/178; Circular CSSF 11/520 that enlists CSSF applicable Circulars specifically to the payment and e-money institutions: Circular IML 95/120 regarding the central administration; Circular IML 96/126 relating to the administrative and accounting organisation; Circular IML 98/143 on internal control (as amended by Circular CSSF 04/155 on the compliance function); Circular CSSF 04/155 on the compliance function; Circular CSSF 05/178 regarding the administrative and accounting organisation and outsourcing of IT services (abrogation of point 4.5.2. of Circular IML 96/126 and replacement by point 4.5.2. of Circular CSSF 05/178); Circular CSSF 06/240 on the administrative and accounting organisation; IT outsourcing and details regarding services provided under the status of support PFS, Articles 29-1, 29-2 and 29-3 of the law of 5 April 1993 on the financial sector, as amended; amendment of IT outsourcing conditions for branches located abroad. The law of 12 November 2004 on the fight against money laundering and terrorist financing, as amended (hereafter the "AML Law") and other Luxembourg and EU AML related laws. 2. Can payment services be provided by non-banks, and if so on what conditions?

   Under the 2009 Law, non-banking institutions in the form of payment institutions and electronic money institutions may provide payment services.

   As per entities incorporated in Luxembourg, the general principle is that no person under Luxembourg law may provide payment services as a payment institution or e-money as an e-money institution without holding a written authorisation by the Minister responsible for the Commission de Surveillance du Secteur Financier ("CSSF"). This means that the prerequisite for companies to provide payment services is to obtain a license from the Ministry of Finance after having been reviewed by the CSSF. The licensing package to be reviewed by the CSSF for that purpose includes, amongst others, the following conditions:

   Legal Form

   Undertakings applying for a payment institution license shall be a legal person incorporated and governed by the law of 10 August 1915 on commercial companies, as amended (the "1915 Law"). Undertakings applying for an e-money license, however, have to be established in the form of a public-law institution, public limited company, a limited partnership with a share capital or a cooperative society under the 1915 Law.

   Initial Capital

   According to the 2009 Law, an initial capital of not less than EUR 350,000 is required for undertakings applying for an e-money license. Undertakings applying for a license as a payment institution are, depending upon the regulatory activity for which they seek to obtain an authorization, required to have an initial capital varying between EUR 20,000 and EUR 125,000.

   Own Funds

   Own funds requirements vary between own funds for obtaining an authorization as a (i) payment institution and (ii) an e-money institution.

   Payment institutions shall have own funds calculated according to the three methods as set out under 2009 Law. The final amount of own funds that a payment institution shall hold is, in fact, a higher number of either initial capital or the amount calculated based on the three calculation methods A, B or C for own funds requirements as described hereafter.

   Under Method A, a payment institution's own funds shall amount to at least 10% of its fixed overheads of the preceding year. The CSSF may adjust this requirement in the event of a material change in a payment institution's business since the preceding year. Where a PI has not completed a full year's business at the date of the calculation, the requirement shall be that its own funds amount to at least 10% of the corresponding fixed overheads as projected in its business plan, unless an adjustment to that plan is required by the CSSF.

   Under Method B, a payment institution's own funds shall amount to at least the sum of the following elements multiplied by the scaling factor k defined below, where payment volume ("PV") represents one twelfth of the total amount of payment transactions executed by the payment institution in the preceding year.

   Multiplication factors are then applied to the slices composing this amount:

   4,0% of the slice of PV up to EUR 5 million plus 2.5% of the slice of PV above EUR 5 million up to EUR 10 million plus 1% of the slice of PV above EUR 10 million up to EUR 100 million plus 0.5% of the slice above EUR 100 million up to EUR 250 million plus 0.25% of the slice of PV above EUR 250 million. The result of the preceding calculation is multiplied by the scaling factor k according to the services provided by the payment institution:

   0.5 where the payment institution provides only the payment service listed in point 6 of the Annex to the Law (money remittance); 0.8 where the payment institution provides the payment service listed in point 7 of the Annex to the Law (Intermediary Execution of Payment Transactions); 1.0 where the payment institution provides any of the payment services listed in points 1 to 5 of the Annex to the Law (i.e. other than money remittance or Intermediary Execution of Payment Transactions). In accordance with Method C, the own funds shall amount to at least the relevant indicator...