Luxembourg branches of investment firms and financial institutions headquartered elsewhere in the European Union from this year onwards will have to ask their auditors to produce an independent report on measures taken to prevent money laundering and the financing of terrorism.
Just after Christmas, the grand duchy’s financial supervisor CSSF announced an update to its guidance on the country’s 2007 law that governs foreign-owned branches in its financial services sector. The fresh guidance follows a CSSF overhaul of Luxembourg’s supervision of the banking and investment services sector completed last year.
The overhaul is seen as an modernisation of Luxembourg’s supervisory approach that is known as the Long Form Report. It also expands the reporting to include the ways firms have implemented the Markets in Financial Instruments Directive - Mifid 2 - and the EU payment services directive, known as PSD2.
In its new guidance to foreign branches, legally known as CSSF Circular 22/827, the authority underlined that foreign-owned branches must also respect Luxembourg’s anti-money laundering framework and sanctions requirements, and that, as supervisor, it is legally entitled to implement restrictive measures when a branch does not comply with the legal requirements.
Obligatory questionnaire
Just as Luxembourg-based firms and institutions, branches now also face the obligation to digitally fill out a self-assessment questionnaire on an annual basis and to have a review executed by an external auditor on “the compliance with the rules on the prevention of money laundering and the fight against terrorism (AML/CFT) and on the applicable conduct of business rules when providing investment services/activities as well as ancillary services to clients,” CSSF said in its guidance.
The questionnaire needs to provide an overview of the operational setup, describe the investment services and financial instruments offered and detail information about distribution and the client database.
The new guidance also clarifies the scope of CSSF’s competencies. While the national supervisory body in a firm’s home country has the primary responsibility for supervising services at its branches, the supervision of “investment services/activities and ancillary activities falls under the responsibility of the CSSF,” it said.
Referring to its duties in the field of anti-money laundering, CSSF added an additional paragraph in its guidance to make clear that it may carry out investigations and on-site inspections of foreign branches at the request of the firm’s home-country authority.