At the end of last year, Luxembourg passed a new law establishing the Register of Beneficial Owners (Registre des Bénéficiaires Effectifs, or RBE), which requires all firms registered in the Luxembourg company register, including investment funds, to enter and regularly update information on their beneficial owners. The scope of the new law is quite wide. It covers all forms and types of organizations, including companies and partnerships, as well as investment funds in Luxembourg, such as UCITS, and other types of AIFs.
The new law also covers Luxembourg mutual funds, which were excluded in the original draft law, as well as Luxembourg subsidiaries of foreign companies and organizations.
Today we will consider some aspects of the regulation of funds in Luxembourg, which will be relevant for those who plan to start a business in this country.
Luxembourg's legal system belongs to the continental (Roman-Germanic) legal family. As a member and one of the founders of the European Union, Luxembourg is also integrated into almost all international structures - the Eurozone, the Schengen Agreement, the Council of Europe, OECD, WTO. At the same time, Luxembourg is one of the most prosperous countries in Europe with a high standard of living, a stable social and political system.
Requirements for Luxembourg registered funds
Companies with venture capital investments, Specialized Investment Funds, or Reserve Alternative Investment Funds must have a registered office in the jurisdiction.
There are a number of other requirements that Luxembourg-based foundations must comply with. Here are just a few of them:
- Funds are managed either internally or by external administration with third-party providers;
- All funds must have a depository bank to ensure asset protection in the jurisdiction.
Authorization of financial activities in Luxembourg
Investment fund activities must always be authorized. These funds are governed by the Luxembourg Commission for the Supervision of the Financial Sector (CSSF) for compliance with applicable laws and contractual agreements.
In order to obtain a license for financial activities in Luxembourg upon application, managers and directors must provide a detailed resume showing their track record and a criminal record, and prove they have substantial experience in the financial sector.
Obtaining a CSSF license in Luxembourg also depends on proof that the fund is managed inside and not outside the country.
Funds must submit financial information to the CSSF at least once every six months, which includes:
- data on the financial position;
- portfolio report;
- the amount of subscribed and paid-up capital;
- investors profile;
- data on debt.
If you are interested in registering a company in Luxembourg, it is crucial to take into account that professionals in the financial sector are to prevent the use of investment companies for money laundering purposes under the MiFID Directive.
Obligations to provide information to the register of beneficiaries are imposed on companies and their governing bodies (directors or managing partners) and the beneficiaries themselves, who must provide data to the company. The new law also requires that all Luxembourg-based organizations and individual professionals covered by the Anti-Money Laundering Act (financial sector professionals, notaries, solicitors) notify RBE if they determine that the information provided is incomplete or erroneous.
Due diligence includes:
- verification of the investor identity;
- verification of the identity of the beneficial owner and understanding of the ownership structure;
- obtaining information about the real purpose and nature of the business relationship;
- ongoing legal due diligence of transactions.
If you have any questions about this material, do not hesitate to sign up for a personal consultation on the regulation of funds in Luxembourg by contacting the specialists of our company. Our company provides full-scale legal assistance in the registration of investment funds in Luxembourg, and we also prepare legal opinions on Luxembourg law issues related to the activities of collective investment funds.
We are ready to provide the necessary accompanying and consulting services at all stages of establishing a fund in Europe.