The Luxembourg watchdog recently issued circular 19/716 on 12 April 2019 (the "Circular").
The purpose of the Circular is to lay out the different regimes that apply to third-country firms that wish to provide, in Luxembourg, investment services or perform investment activities together with ancillary investment services in accordance with Article 32-1 of the LSF (Luxembourg MiFID law), as amended.
Key points of the Circular are:
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Preconditions
Before providing any investment service covered by the LFS in Luxembourg, a third-country firm must first identify:
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the type of service it intends to provide (investment service or any other service covered by the LFS); and
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the type of clients it intends to serve according to the client classification imposed by MiFID II as transposed in the LFS (retail client, per se professional client, professional client on request or eligible counterparty).
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First step
Where the service provided is an investment service, a third-country firm must refer to Article 32-1 of the LFS and Article 46 et seq. of MiFIR to determine which regime may apply to it and according to which arrangements (establishment of a branch in Luxembourg or provision of services on a cross-border basis without establishing a branch in Luxembourg).
Thereafter, there are three possible scenarios:
A) In accordance with Article 32-1(2) of the LFS, third-country firms that wish to provide, in Luxembourg, investment services to retail clients or to professional clients on request are required to establish a branch in Luxembourg;
B) Where a third-country firm provides its investment services to per se professional clients or to eligible counterparties in Luxembourg, it may choose to provide investment services:
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through a branch established in Luxembourg; or
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from the third country on a cross-border basis without establishing a branch in Luxembourg.
Where the third-country firm provides its investment services from the third country on a cross-border basis without establishing a branch in Luxembourg, the LFS and MiFIR provide that the investment services may be provided:
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based on a decision by the CSSF (“national regime”); or
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based on an equivalence decision of the European Commission and registration in the register of third-country firms kept by the European Securities and Markets Authority (ESMA) (“European regime”).
The CSSF confirmed that national regime will be valid for three years and it does not grant an EU passport (access will be limited to Luxembourg market).
C) Client established or situated in the European Union initiates at its own exclusive initiative (reverse solicitation) the provision of an investment service by a third-country firm, Article 32-1(1) and (2) of the LFS does not apply.
In such a case, the third-country firm can provide the investment service without being required to fulfil the conditions laid out in Chapters 1 and 2 of Part II above, i.e. without having to establish a branch or without having to obtain a decision of the CSSF and irrespective of the client’s classification (retail client, per se professional client, professional client on request or eligible counterparty). An equivalence decision of the third country is not required either.
The situation as regards reverse solicitation must be assessed by the third-country firm on a case-by-case and continuous basis, notably by taking into account the Questions and Answers published by ESMA in this respect.
Impact
The Circular has been issued with perfect timing, in light of the uncertainties linked to Brexit and the foreseen qualification of the UK as third country. Indeed, MiFID cross-border services between the UK and Luxembourg have always been fluid and a national temporary regime may grant rights to UK firms wishing to continue their activities with Luxembourg-based clients.
We look forward to working with third country firms (and especially UK-based firms) that would like to take advantage of this new regime.
Ingrid Dubourdieu
Fieldfisher Luxembourg Country Managing Partner