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How are the following key activities in the fintech space regulated and what specific legal issues are associated with each? (a) Crowdfunding, peer-to-peer lending; (b) Online lending and other forms of alternative finance; (c) Payment services (including marketplaces that route payments from customers to suppliers (eg, Uber and AirBnb); (d) Forex; (e) Trading; (f) Investment and asset management; (g) Risk management; (h) Roboadvice; and (i) Insurtech.
Answer ...

(a) Crowdfunding, peer-to-peer lending

Crowdfunding is not specifically regulated under Luxembourg law. The applicable regulatory regime will depend on the platform’s characteristics. Among other things, this includes how it is structured; if the platform collects the money before distributing it to borrowers, a licence may be required.

Peer-to-peer lending between individuals is not specifically regulated. The role of the platform will then need to be assessed to understand what it actually does. If it is essentially a credit broker which is not linked to a specific credit institution, no particular regulatory requirements apply, other than the potential need to obtain a business licence.

(b) Online lending and other forms of alternative finance

(Online) lending: In Luxembourg, (online) lending is subject to the following licensing requirements:

  • A banking licence (Article 2 of the Law on the Financial Sector) is required by credit institutions which grant loans for their own account to the public; or
  • A specialised PFS licence (Article 28-4 of the Law on the Financial Sector) is required by entities that perform lending operations (eg, engaging in the business of granting loans to the public for their own account). Unlike credit institutions, which can also receive deposits and other repayable funds from the public, such entities must refinance themselves exclusively through other means (shareholders, intra-group loans).

Alternative finance: As credit activities evolve outside traditional banking circles (shadow banking), the competent authorities are required to monitor such activities – notably, where they involve a maturity transformation risk or where the entity uses leverage.

If the applicability of Article 28-4 of the Law on the Financial Sector cannot be excluded, an entity that is considering granting loans is invited to submit to the CSSF a detailed description of the activities envisaged, so that the CSSF can determine whether such activities are subject to authorisation (CSSF Q&A on the statuses of “PFS”- Part II, Page 29) .

(c) Payment services (including marketplaces that route payments from customers to suppliers (eg, Uber and Airbnb)

The provision of payment services (ie, the execution of payment transactions, the issue and/or acquisition of payment instruments, money remittance) requires the prior authorisation of the CSSF in accordance with the Law on Payment Services.

Since 2015, the CSSF has dealt with a great number of requests from companies wondering whether their business is subject to the existing regulations – in particular, in relation to payment institutions and e-money institutions.

Bitcoin exchange and transfer platforms have recently been established in Luxembourg; and major regtech players, which are using new technologies in regulations and financial reporting, have also shown particular interest in establishing themselves in Luxembourg.

On 19 April 2016 the minister of finance authorised Bitstamp Europe SA, a platform that allows clients to exchange Bitcoins, euros and US dollars. If the issue of virtual currencies as such is not subject to authorisation, the services provided by intermediaries – that is, the receipt of funds from a buyer of Bitcoin in order to transfer them on to the seller – is covered by the authorisation as payment institution. This authorisation echoed the opinion of the CSSF, which in 2014 became the first competent authority of the financial sector to advocate the regulation of platforms for the exchange of virtual currencies when conducting activities in the financial sector (2016 CSSF Annual report, page 41).

(f) Investment and asset management

The following laws and regulations apply to collective investment schemes:

  • the Law of 15 June 2004 on Investment Companies in Risk Capital, as amended;
  • the Law of 13 February 2007 on Specialised Investment Funds, as amended;
  • the Law of 17 December 2010 on Undertakings for Collective Investment, as amended;
  • EU Regulation 648/2012 of the European Parliament and of the Council of 4 July 2012 on over-the-counter derivatives, central counterparties and trade repositories;
  • the Law of 12 July 2013 on Alternative Investment Fund Managers, as amended;
  • EU Regulation 2015/2365 of the European Parliament and of the Council of 25 November 2015 on transparency of securities financing transactions and of reuse; and
  • the Law of 23 July 2016 on Reserved Alternative Investment Funds.

(h) Roboadvice

Digital financial advisory services are treated in exactly the same manner as traditional financial advisory services. Due to the specific nature of roboadvice, the relevant licence needed depends on the types of transactions performed, the type and structure of the platform, the contractual arrangements, the services provided and the operating model. In general, the following roboadvisers must obtain authorisation:

  • investment advisers that resemble traditional, non-automated financial advisers, which limit themselves to advisory services and do not assist with the implementation of the advice they provide;
  • brokers in financial instruments, which play the role of an intermediary by either helping to bring parties together with a view to concluding a transaction or passing on clients’ purchase or sale orders without holding their investments;
  • commission agents, where roboadvisers execute orders on behalf of clients and in relation to one or more financial instruments; and
  • private portfolio managers, where roboadvisers use technology to manage portfolios as per clients’ mandates on a discretionary client-by-client basis.

(i) Insurtech

Insurtech companies are supervised by the insurance competent authority, the Commissariat aux Assurances (CAA). Insurance and reinsurance-related activities may be subject to licensing requirements and are generally regulated by the Law on the Insurance Sector, as amended, and the applicable CAA regulations.

For more information about this answer please contact: Anne-Marie Nicolas from Loyens & Loeff