Luxembourg enacts Directive 2014/59/EU on bank restructuring and resolution (« BRRD »)

Banking Regulatory, Bankruptcy, Compliance, Financial Sector, Insolvency

The Luxembourg Parliament has on 17 December 2015 adopted a new law implementing the EU’s BRRD and DGSD in a single “gone concern” law for banks and financial institutions. The law comprises four parts:

Part I implements the “resolution” chapters of BRRD governing the resolution of banks and certain investment firms. Resolution is now an administrative measure aiming at restructuring “gone concern” banks with a view to ensuring the continuity of critical activities, whose termination would be contrary to a “public interest” within the meaning of the law, i.e. which could have a systemic impact or a contagion effect. The CSSF is designated as resolution authority for Luxembourg, with a distinct department within the CSSF assuming such functions (“conseil de résolution”). The law also creates a Luxembourg resolution fund (“Fonds de résolution Luxembourg”), which is the Luxembourg resolution financing tool.

A law voted the same day has decided to implement the intergovernmental European accord concerning the transfer and mutualisation of the contribution of resolution signed at Brussels on 21 May 2014 – this law resolves to transfer the funds contributed by banks to the Luxembourg resolution fund to the European resolution fund. This law also creates a fiscal backstop of up to 1 085 million euro which may be granted by the Government by way of loans or guarantees during the build-up of the fund.

Part II comprises the suspension of payments and liquidation proceedings which are transferred to the “gone concern” law from the law of 5th April 1993 on the financial sector, as amended. Part II is still relevant in relation to banks and investment firms which either do not qualify for resolution under the criteria of BRRD, because they do not fulfil one or more of the “resolution objectives” under article 32 of the law, or because they must be liquidated after a restructuring.

Part III implements the DGSD into Luxembourg law and creates a new public deposit guarantee system under the name of “Fonds de garantie des dépôts Luxembourg” (FGDL). The FGDL replaces the previous system of the AGDL, which was an “ex-post” funded system governed by a private association of local banks. The FGDL will in a first stage ending in 2018 be funded with contributions of 0.8% of the total guaranteed deposits. Thereafter, an additional cushion of 0.8% is provided in the law which may be collected from the banks over a period of 8 years, which may however be extended depending on the economic context. This additional cushion will not be included in the mutual European deposit guarantee fund which will be set up under the third pillar on deposit guarantees of the European Banking Union.

Part IV implements the preparation, early intervention and recovery planning parts of the BRRD into the law of 5th April 1993 on the financial sector (“going concern” part of the law).

For further questions, contact Franz Fayot (franz.fayot@fischfayot.lu),