On 15 June 2021, the Luxembourg financial services regulator, the Commission de Surveillance du Secteur Financier (the "CSSF") updated its Questions and answers on statuses of "PFS" – part II (the "PFS Q&A")1 by providing further clarification as to the interpretation of the notion of "public" and when a lending activity is to be considered as directed towards the public, pursuant to the act of 5 April 1993 on the financial sector, as amended (the "Financial Sector Act"). In this On Point we look at what this clarification means in practice.
Professionals carrying on a lending activity to the public for their own account (i.e. without taking deposits from the public, such as credit institutions) must be authorised as financial sector professionals under article 28-4 of the Financial Sector Act.
Certain persons performing a lending activity for their own account do not need to be licensed, either because, amongst other things, they are excluded from the scope of the Financial Sector Act2 or because the loans that they issue are not granted to the "public".
To date, in the absence of a legal definition of "public", the CSSF has considered that "public" generally refers to a multitude of non-identifiable persons so that no lending to the public occurs where loans are granted to a limited circle of previously determined or ‘identifiable’ persons.
In the updated version of the PFS Q&A, the CSSF has further detailed its interpretation of "public" by confirming that, similarly, a lending activity shall not be considered as being directed towards the public where the nominal value of the loans amounts to more than €3 million (or the equivalent amount in another currency) and such loans are exclusively granted to professionals as defined in the Luxembourg Consumer Code3.
This additional clarification has been welcomed by the financial services industry as it provides further legal certainty as to the scope of such lending activity and licensing requirement.
For alternative investment funds ("AIFs")4 with an investment strategy consisting in granting loans, their activities must be limited to raising capital and making investments, including by granting loans, but they are not permitted to carry on a ‘business activity’, such as granting loans outside of any investment activity. Therefore, the view may be taken that, because of their specific nature, AIFs do not generally fall within the scope of the Financial Sector Act which regulates the professional activity of financial service providers but does not regulate the investment activity of AIFs. The updated version of the PFS Q&A remains silent on this distinction.
To conclude, the CSSF’s additional clarification is nevertheless helpful for loan originating AIFs as it provides an additional (and in practice simpler) route to ensure they fall outside of the scope of article 28-4 of the Financial Sector Act.
Footnotes
1) To access the PFS Q&A in English, click here and in French, click here.
2) Examples of what is expressly excluded from the scope of the Financial Sector Act include undertakings for collective investments regulated by the CSSF (e.g., SIFs) as well as persons carrying out an activity which is governed by specific laws which is generally considered to be the case for RAIFs.
3) Article L. 010-1.2) of the Luxembourg Consumer Code defines "professional" as any legal or natural person, whether it is public or private, acting for purposes relating to their trade, business, craft or independent profession ("activité commerciale, industrielle, artisanale ou libérale").
4) AIFs are defined as collective investment undertakings, including investment compartments thereof, which (a) raise capital from a number of investors, with a view to investing it in accordance with a defined investment policy for the benefit of those investors and (b) do not require authorisation pursuant to article 5 of Directive 2008/85/EC.
