Draft Law N° 6866 implementing Deposit Guarantee Scheme Directive (DGS) and Bank Recovery and Resolution Directive (BRRD)
The Draft Law N° 6866 has been published on 3 September and implements in Luxembourg Law:
- Directive 2014/59/EU of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms (DGSD); and
- Directive 2014/49/EU of 16 April 2014 on deposit guarantee schemes (BRRD).
The scope of the draft Law is :
- Luxembourg credit institutions and investment firms;
- Luxembourg financial institutions which are subsidiaries of a credit institution, an investment firm or a financial holding company, on which a EU consolidated prudential supervision is exercised;
- Certain holding companies; and
- Luxembourg branches of non EU institutions.
Key elements of this Directive are:
- Preparation and prevention: Institutions are required to draw up a recovery plan, while the resolution authority (CSSF) has to prepare resolution plans based on information provided by institutions;
- Early intervention: CSSF is accorded an expanded set of powers to enable them to intervene if an institutions faces financial distress;
- Resolution: The objective of the resolution is to minimisethe extend to which the cost of a bank failure is borne by Members states and taxpayers;
- Cooperation and coordination between national authorities.
Key improvements introduces by DGSD are:
- DGSs are required to be supervised on an ongoing basis and to perform regular stress tests of their systems;
- Depositors will no longer have to submit an application for repayment if their deposits become unavailable, the determination of their eligibility for repayment is further simplified and harmonised;
- The time limit for paying out depositors in the event of bank deposits becoming unavailable will be reduced from the current 20 working days to seven working days by 2024.
The implementation deadlines of these Directives are overdue.
The new Law will repeal Part V of the Law of 5 April 1993 on the financial sector (LFS). The amended LFS will deal only with authorisation, exercise and supervision of credit institutions and PSFs in normal course of business, while the new Law will deal with institutions in crisis.