Brexit and the Luxembourg Temporary Permissions Regime

The ​Luxembourg government has tabled a draft law relating to a No Deal Brexit in order to avoid potential financial stability risk.

On 02 February 2019 the Luxembourg Chamber of Deputies published a draft law relating to a No Deal Brexit.

The draft law gives certain powers to the CSSF and the CAA for the purpose of preserving the proper functioning and stability of the financial markets and to guarantee the protection of depositors and investors. Should the UK leave the European Union without having reached an agreement, this will have an impact not only on the provision of financial services by UK firms in Luxembourg but also the contracts entered into between UK financial institutions and their Luxembourg clients.

The draft legislation allows the CSSF to continue to apply the EU Passport Regime to UK firms providing banking or investment services or carrying out investment activities in Luxembourg. The same applies to UK AIFMs and their Luxembourg UCITS as well as insurance and reinsurance companies. This possibility will exist for a period of 21 months following the withdrawal of the UK, attempting to match the transitory phase for further Brexit discussions. UK firms are thus permitted to continue their Luxembourg operations. They may also continue the contractual relations and for the time being do not need to cater for bringing these within the EU or making alternative arrangements. These temporary measures apply to contracts entered into before the withdrawal of the UK only, unless such contracts present close links with contracts entered into prior to this date. The idea being to cover an existing relationship giving rise to the entry into of a new contract (so-called life cycle events), notably targeting derivative contracts.

The draft law, once finalised, will enter into force on 29 March 2019, coinciding with the scheduled Brexit date.

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