CSSF updates its FAQ with respect to the PFS status relating to the granting of loans to the public

On 15 June 2021 the Luxembourg financial supervisory authority (CSSF) published on its website a newsflash drawing the public's attention to the fact that it had added to its Questions and answers on the statuses of Professionals of the Financial Sector Part II (the "PFS Questions and Answers") further explanations on the interpretation of the notion "to the public" within the meaning of article 28-4 of the Luxembourg law of 5 April 1993, as amended (the "Financial Sector Law").

Pursuant to article 14 of the Financial Sector Law no person may have as their regular occupation or business activity a financial sector activity without the prior written authorisation of the Minister responsible for the CSSF.

According to article 28-4 (1) of the Financial Sector Law, professionals performing lending operations which consist of the business of granting loans to the public for their own account qualify as persons engaging in a financial sector activity and therefore have to be authorised pursuant to the aforementioned article 14 of the Financial Sector Law. Conversely, any loan which is not granted to the public cannot trigger the authorisation obligation.

Unfortunately, the Financial Sector Law does not specify, neither in article 28-4 nor in any other article, how the expression "to the public" needs to be construed within the meaning of article 28-4 (1). However, as mentioned, the CSSF now provides more clarity on this issue in the updated question 52 of the PFS Questions and Answers.

Loans being granted to a limited circle of predetermined persons

Given that the general concept of public usually refers to a multitude of non-identifiable persons the CSSF takes the view that whenever loans are only granted by professionals to a limited circle of previously determined persons, such persons would not qualify as "the public" and consequently such loans cannot have been granted to the public for their own account. Such a context does therefore not fall within the scope of article 28-4 of the Financial Sector Law and cannot trigger the authorisation requirement pursuant to article 14 of the Financial Sector Law.

The same conclusion applies in a situation in which the loans are granted through the interposition of a Luxembourg SPV and granted to a limited circle of previously determined persons by the entity that holds the SPV at 100% or whenever that entity directly or indirectly controls it.

Loans the nominal value of which amounts to at least to EUR 3,000,000 and which are exclusively granted to professionals defined in the Luxembourg Consumer Code

However, even in situations in which loans are not being granted to a limited circle of predetermined persons the CSSF is of the opinion that there is an additional context in which the notion of "to the public" is not met. This is the case when the nominal value of the loan(s) in question has at least a nominal value of EUR 3,000,000 and such loan(s) is/are exclusively granted to professionals as defined in article L. 010-1 2) of the Luxembourg Consumer Code. The latter defines a professional as any natural or legal person, whether public or private, who acts, including through another person acting in his name or on his behalf, for the purposes falling within the scope of his commercial, industrial, artisanal or liberal activity.

In all other cases the CSSF will usually carry out an assessment on a case-by-case basis assessment.

General aspects to be taken into account

Furthermore, it should be worthwhile remembering that two other more general aspects continue to be relevant when assessing a particular situation as to whether or not a person has engaged in the business of granting loans to the public within the meaning of article 28-4 of the Financial Sector Law.

Professional character of the granting of the loan(s)

The wording of article 28-4 (1) of the Financial Sector Law suggests that the activity of granting loans to the public needs to have a professional character. This implies that the granting of the loan(s) has to be performed repetitively and therefore unique or one-off credit operations are neither governed by article 28-4 nor the Financial Sector Law in general.

Group exception

Finally, the notion of "to the public" also suggests that the granting of loans could not be deemed to be done to the public if such loans are exclusively made to one or several companies which belong to the same group to which the professional granting the loan belongs. This general principle is also reflected by article 1-1 (2) c) of the Financial Sector Law according to which the Financial Sector Law is not applicable to persons which provide a service under the law exclusively to one or more undertakings forming part of the same group as the undertaking providing the service unless otherwise provided.

Consequences for loan originating funds

Unlike regulated funds (such as specialised investment funds - SIFs), unregulated funds (such as reserved alternative investment funds – RAIFs – and unregulated partnerships) do not benefit from an exemption from the Financial Sector Law. Thus, there is an assessment to be made on a case-by-case basis whether direct lending strategies pursued by unregulated loan/debt funds are considered as granting loans "to the public". The present update of the PFS Questions and Answers provides further guidance in this respect and will provide more certainty to the market.

Authors: Isabelle Lentz, Partner; Antonios Nezeritis, Partner; Marc Hirtz, Senior Associate and Markus Waitschies, Senior Associate.