Activity Of Family Offices In Luxembourg

On 17 November 2011, the Ministry of Finance and Budget presented a draft bill n° 6366 relating to the activity of Family Office in Luxembourg. Once this draft bill shall be enacted as a law (presumably in the course of 2012), Luxembourg will become the first European jurisdiction to implement a specific legal regime for this activity. Outside Europe, only the USA recently added this activity to their legislative arsenal pursuant to the Dodd-Frank Act (July 2010).

The raison d'être of the draft bill is self explanatory. As everyone knows, Luxembourg is eager to be proactive and at the vanguard of the evolution in the field of financial services. In addition to the well established private banking activities, funds' industry, private equity servicing, M&A structuring and other more recent developments (IP/IT regime, Islamic finance), the Family Office market, although having already been active in practice for decades in Luxembourg, lacked a specific and coordinated legal and regulatory framework. On the one hand, such specific clients are looking for more transparency and are in need of a global service and independent advisors. On the other hand, the current Luxembourg Family Office offer is fragmented and relatively heterogeneous in terms of know-how.

There is therefore clearly an opportunity for Luxembourg to stand upfront on this specific niche market by offering a tailor-made legal and regulatory regime which may be attractive and competitive vis-à-vis long-standing jurisdictions of choice (Switzerland, UK, USA, Singapore). The main guidelines of the draft bill are true to the standard Luxembourg legislative approach, i.e. combining a strict legal and regulatory framework with a businesslike flexible approach. This approach applies to both the definition of "Family Office activities" in the meaning of the draft bill and to the scope of professionals admitted to provide Family Office activities and services.

The functional definition of "Family Office activities"

Family Office activities are defined by the draft bill as the activities "consisting in providing, on a professional level, patrimonial related advice or services to private individuals, families or patrimonial entities founded/owned by or benefiting to private individuals or families". The above general definition of "Family Office activities" is further clarified by the definition of included sub-concepts:

"Patrimonial related advice or services" are defined as relating to...