Authorisation procedure for Professionals of the Financial Sector (PSF)

Article

Authorisation procedure for Professionals of the Financial Sector (PSF)

PSF Licence

To ensure that the financial sector is recognised for its quality and reliability, the regulating body requires that players in the sector, i.e. persons engaged in business in the financial sector on a regular and professional basis, or in any business related or complementary to an activity in the financial sector, undergo a licence procedure to obtain the desired status. In addition, such activities may not be carried out (and the licence will not be issued) through another person or as an intermediary.

Legal entities whose company’s purpose requires that they obtain a licence under the Law may be incorporated with this company purpose even before obtaining such a licence from the Minister, provided they applied for a licence to the CSSF and undertook in writing not to conduct the business before obtaining it.

A change to the company’s purpose, corporate name or legal form of a company already incorporated is issued directly by the CSSF. Similarly, the CSSF’s licence is sufficient to create and acquire subsidiaries in Luxembourg and abroad. The creation of agencies and branches in Luxembourg is no longer subject to a licence.

Furthermore, the licence that investment firms must have to extend their business to investment services or activities, or ancillary services not governed by their current licence, now falls within the exclusive scope of the CSSF.

A company or other legal person which has a licence for a specific financial sector business, must not have a company purpose covering a business in the financial sector which is not also covered by such licence.

Licence procedure

The licence is subject to obtaining a written authorisation from the Ministry of Finance which handles the licence documentation filed to obtain the desired status. This written request is made to the CSSF which prepares an application aiming to meet the requirements of the Law.

The application (see next point) may give rise to additional questions or requests after being examined.

The decision made by the CSSF on any licence application must be supported by a statement of the reasons on which it is based and be notified to the applicant within six months of receiving the application or, if the documentation is incomplete, within six months of receiving the information needed to make the decision.

The absence of an answer from the authority within twelve months of receiving the application shall be deemed notification of a decision refusing it. An appeal against the CSSF’s decision may be lodged with the administrative tribunal within one month after which it will be time-barred.

It should be noted that an authorisation from the CSSF is required for any PSF established in Luxembourg wishing to change its purpose, name, legal form or to create or acquire agencies, branches or subsidiaries in Luxembourg or abroad. The same is true for any investment firm wishing to extend its business to other investment services or activities or to other ancillary services not covered by its licence.

Once obtained, the licence is valid for an unlimited length of time and the PSF may immediately commence business.

Moreover, the Law specifies that once a licence is obtained, the members of the administrative, management and supervisory bodies of the PSF must notify the CSSF on their own initiative and in writing, in a complete, consistent and comprehensible manner, of any change to the material information on which the CSSF based its decision. This information particularly concerns the professional standing of the members of the above mentioned bodies, the structure of the PSF’s shareholding as well as its central administrative office and its infrastructure. By disclosing such information, the CSSF will have updated data.

Licence procedure

Application file

The licence application file must be sent together with all information as may be needed for the assessment thereof and with a schedule of operations specifying the type and volume of business envisaged and the administrative and accounting structure planned. In practice, this application for status as PSF generally includes the following information which reflects a part of the requirements to be met to obtain the licence:

  • Presentation of the natural or legal person, where applicable, of the group to which this person belongs, with a presentation of the financial statements available for the last three years
  • The reasons for and objectives of establishing the PSF in Luxembourg
  • The information concerning the identity of shareholders
  • A three-year business plan including the balance sheet and income statement
  • The company’s draft articles of association
  • The CVs together with certificates of respectability of the directors and managers of the company in Luxembourg as well as criminal records from the authorities in their respective country of residence
  • Presentation and demonstration by the applicant of the existence in Luxembourg of the central administrative office in accordance with CSSF circular 95/120 or 12/552 and of its registered offices13 (see next page)
  • The name of the independent auditor who must be a registered company auditor with appropriate professional experience. The PSF’s annual accounts must effectively be entrusted to an auditor with such experience and any change to the approved auditor must be justified and authorised beforehand by the CSSF
  • Authorisation shall be conditional on participation by investment firms in an investors’ compensation scheme set up in Luxembourg and operated by the CSSF, meaning that it must provide cover in respect of claims arising out of the inability of an investment fi m to:

- Repay money owed to or belonging to investors and held, administered or managed on their behalf in connection with investment business
- Return to investors any instruments belonging to them and held, administered or managed on their behalf in connection with the investment business

Application file

Professional standing and experience

The personal data of authorised directors or managers is obtained to ascertain their professional standing and experience. The persons responsible for management must be empowered to determine the direction taken
by the business and must prove their level of skill by having previously carried out similar activities with a sufficient level of responsibility and autonomy. They must be at least two in number and receive their authorisation from the CSSF.

Pursuant to company law, a legal entity appointed as director must designate a permanent representative to fulfil these duties for and on behalf of the legal entity (Art. 51bis of the modified law of 10 August 1915 on commercial companies). Under Article 59 of the same law, a legal entity appointed as director is liable to the company, in accordance with ordinary law, for fulfilling the duties entrusted and for any misdeeds committed
in its management.

Any change to the persons responsible for the day-to-day running must be notified to the CSSF which shall be free to request additional information. The CSSF checks that such new persons comply with the legal requirements in terms of professional standing and experience.

Professional standing and experience

Central administration and organisation

As the decision-making centre, the PSF must have a sound internal governance system in Luxembourg with a clear and consistent organisation and distribution of tasks, efficient processes for detecting and monitoring risks, appropriate internal control including sound administrative and accounting procedures and mechanisms for ensuring information system control and security.

The scope of the applicable CSSF circulars covering the aspects explained above varies according to the category of PSF, i.e. investment firms (most restrictive environment), specialised PSF or support PSF (least restrictive environment)

Central administration and organisation

Shareholding

Authorisation to hold the status is subject to disclosing to the CSSF the identities of the shareholders and partners, whether direct or indirect, natural or legal persons, any qualifying holding and the amounts of such holdings.

Thereby, the CSSF seeks to guarantee firstly the sound and prudent management of the PSF and secondly the transparency of the shareholding structure within the PSF to clearly identify the authorities responsible for the prudential supervision of the PSF and, where applicable, perform consolidated supervision of the group to which it belongs.

Refer to Article 18 of the Law for additional requirements regarding CSSF notification for cases of acquisition or sale of PSF in Luxembourg.

Shareholding

Minimum capital or financial base

Conducting business as a financial sector professional is subject to a minimum capital or financial base requirement which varies depending on the risks involved in the various PSF statuses, the major decisive factor of which lies in whether third-party funds are managed or not. The capital or financial base requirement is between €50,000 and €730,000 depending on the PSF’s operations.

The CSSF requires that the direct shareholders finance all ownership interest with their own equity, after deduction of any other ownership interests or losses carried forward. The aim is clearly to prevent direct shareholders from refinancing their ownership interest using borrowed funds (Art. 20 of the Law). Therefore, in particular, the share capital may not be brought by means of a loan contracted by the PSF shareholder with the PSF.

The financial base includes the share capital subscribed and paid up, issue premiums, legally formed reserves and amounts carried forward, minus any potential loss in the current fiscal year. According to the same article, it must be permanently available to the PSF and be invested in its own interest.

Owing to prudential concerns, a PSF may not grant loans to its shareholders, whether directors or employees. It is vital that any acquisition of interests in the share capital of a financial sector professional be made using one’s own funds and not borrowed money. Now, granting advances and loans to the shareholders amounts to giving the share capital back to shareholders.

Minimum capital or financial base

External audit

Authorisation shall be conditional on the PSF having its annual accounts audited by one or more réviseurs d’entreprises agréés (approved statutory auditors) who can show that they possess adequate professional experience. Those réviseurs d’entreprises agréés (approved statutory auditors) shall be appointed by the body responsible for managing the PSF, usually the board of directors, board of managers or the executive board.

Any change in the réviseurs d’entreprises agréés must be authorised in advance by the CSSF.

External audit

Licence withdrawal

Although issued for an unlimited length of time, the licence will be withdrawn if:

  • The PSF does not make use of the licence within 12 months of it being granted
  • The PSF expressly waives its licence
  • The PSF has not conducted any of the activities for which the licence was obtained over a period of 6 months
  • The conditions of granting PSF status are no longer met
  • The licence was obtained through misrepresentation or by any other irregular means
  • The investment firm PSF has seriously and systematically infringed Articles 37-2 to 37-8 of the Law or Articles 21, 22, 23, 26, 27 or 28 of the Law on markets in financial instruments
  • The PSF (other than an investment firm) has seriously and systematically infringed Articles 36, 36-1 or 37 of the Law

The decision to withdraw the licence may be deferred to the administrative tribunal, within one month, after which the appeal will be time-barred.

The board of directors of a PSF notifies the CSSF of any planned dissolution or voluntary winding-up with at least one month’s notice prior to calling the general meeting to vote on the dissolution or winding-up.

A closing balance sheet must be drawn up and sent to the CSSF. The conditions of a voluntary winding-up must also be disclosed to the CSSF.

Licence withdrawal
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