In review: capital markets law in Luxembourg – Lexology
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Key international players consider Luxembourg, one of the few AAA rated countries, to be among the most attractive business centres in the world. With approximately 125 registered banking institutions, a successful investment fund industry managing net assets of approximately €5.9 trillion and a dynamic insurance sector, Luxembourg offers a full range of diversified and innovative financial services.
Luxembourg is a parliamentary democracy headed by a constitutional monarch, the Grand Duke. The Grand Duke and the government (headed by the Prime Minister) exercise executive power, and legislative power is vested in the Chamber of Deputies, a unicameral legislature of 60 directly elected members. A second body, the Council of State, composed of 21 ordinary citizens appointed by the Grand Duke, advises the Chamber of Deputies on the drafting of legislation.
The Constitution is the supreme law of Luxembourg.2 Luxembourg’s legal system is based on civil law; a number of laws are based on French or Belgian legislation.
Laws are enacted by the Chamber of Deputies and promulgated by the Grand Duke. The Constitution confers the Grand Duke with the power to adopt the necessary regulations and orders for the implementation of laws. The Grand Duke may, however, not suspend laws or dispense their implementation.
The Grand Duke can also authorise the government to make ministerial regulations in respect of limited technical issues.
Certain public bodies have the power to adopt special regulations within their field of competence. These bodies must act within the limits that have been previously defined by the legislature. Administrative circulars offer guidance on the interpretation of laws, especially in tax law matters.
Case law is not binding in Luxembourg; the law does not recognise the rule of precedent that applies in Anglo-Saxon legal systems. Judges can, however, refer to case law to found their decisions. In the absence of Luxembourg case law, judges may turn to Belgian, French or even German case law for tax law matters.
The Luxembourg judicial system is divided into a judicial branch and an administrative branch. Aside from these two branches is the Constitutional Court, the aim of which is to rule by way of judgment on the conformity of particular laws with the Constitution, except for laws sanctioning international treaties.
The judicial branch is headed by the Superior Court of Justice, which comprises the Court of Cassation, the Court of Appeal and a department of public prosecution. The Court of Cassation is primarily responsible for hearing cases that seek to overturn or set aside decisions given by the various benches of the Court of Appeal, and judgments by courts of last resort.
The country is divided into two judicial districts and three townships, and each has, respectively, a district court or a lower court (or both). The district court hands down decisions in ordinary law and hears all cases other than those falling expressly within the competence of another jurisdiction. It is competent for most appeal cases against judgments rendered by the lower court operating within the court’s judicial district. The presidents of the district courts, or the magistrates appointed to them, hear interlocutory applications and render interim orders in urgent cases, civil or commercial.
Unless otherwise provided for by law, appeals can be lodged with the Administrative Court against decisions rendered by the Administrative Tribunal, or other administrative jurisdictions that have been granted specific jurisdiction. The Administrative Tribunal decides on claims introduced against administrative measures or decision in cases of:
The Luxembourg financial sector supervisory authority (CSSF) regulates the financial services sector. It is responsible for investigating possible wrongdoing, and bringing enforcement actions against credit institutions and professionals in the financial sector (PFS) for breaches of applicable law. It has the widest powers to supervise and control Luxembourg credit institutions and the PFS. The CSSF cooperates with foreign supervisory authorities on prudential supervision matters. Circulars and regulations issued by the CSSF complete the legislative framework of the Luxembourg financial sector.
The CSSF also supervises the securities markets and receives complaints from investors. It is the Luxembourg competent authority for approving prospectuses that are compliant with Regulation (EU) 2017/1129 on prospectuses for securities (the Prospectus Regulation) and alleviated prospectuses that are compliant with the Luxembourg Act of 16 July 2019 on prospectuses for securities (the Prospectus Act). Furthermore, the CSSF monitors the compliance of issuers with their obligations arising under the Luxembourg Act of 11 January 2008 on transparency obligations, as amended (the Transparency Act), and Regulation (EU) 596/2014 on market abuse (the Market Abuse Regulation), certain provisions of which have been implemented into Luxembourg law by the Luxembourg Act of 23 December 2016 relating to market abuse (the Market Abuse Act).
Finally, the CSSF participates, at a European Union and international level, in negotiations concerning the financial sector, and coordinates the implementation of governmental initiatives and measures to bring about an orderly expansion of activities of the financial sector.
The Luxembourg central bank (BCL) has a dual role: it is an integral part of the European System of Central Banks and the Eurosystem, on the one hand, and it is the central bank of Luxembourg, on the other. The BCL is responsible for implementing the monetary policy in Luxembourg decided by the Governing Council of the European Central Bank (ECB) and, among others, for payment systems and clearing of settlement systems, cash operations and financial stability.
The Luxembourg Finance Ministry has general competence over the financial services sector (including tax legislation and financial legislation).
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