On 15 June 2021, the Commission de Surveillance du Secteur Financier (CSSF) published updated Frequently Asked Questions (FAQs) on the status of Professionals of the Financial Sector (PFS) with respect to the PFS status relating to the granting of loans to the public, as per Article 28-4 of the Law of 5 April 1993 (here) on the financial sector (LFS).
It should be taken into consideration that Article 1 of the Law of 5 April 1993 on the LFS provides that the professionals of the financial sector falling within the scope of application of this law are credit institutions and PFS.
PFS means a group composed of:
- investment firms referred to in Part I, Chapter 2, Section 2, Subsection 1;
- specialised PFS referred to either in Part I, Chapter 2, Section 2, Subsection 2 or in Article 13 and which do not belong to the categories of the first and third indent of this definition;
- support PFS referred to in Part I, Chapter 2, Section 2, Subsection 3.
Given the increasing number of requests to take a stance regarding the interpretation of the notion of “public” and the question of when the CSSF considers that a lending activity is directed towards the public, the CSSF updated the FAQ (Part II, Question 52) in order to provide clarification and legal certainty.
CSSF’s updated information comments on the following:
- Refinancing: The status of “professional carrying on lending operations” governed by Article 28-4 of the LFS consists in granting loans, for their own account, to the public. Unlike the activity of a credit institution, it does not allow collecting savings from the public, in any form whatsoever, for refinancing purposes.
- Exclusions from the scope of Article 28-4: The text of Article 28-4(3) specifies that, as need be, Article 28-4 of the LFS does not concern the persons that refinance themselves through securitisation operations. These persons are governed by the law on securitisation. Likewise, the PFS status governed by Article 28-4 of the LFS does not cover the activities exclusively reserved to banks issuing mortgage bonds. The professionals concerned are thus not allowed refinancing themselves by issuing debt instruments known as mortgage bonds based on rights in rem in immoveable property or charges on real property guaranteeing the mortgage loans they are granting.
- Granting of loans to the public: By definition, the professional activity of a “professional carrying on lending operations” governed by Article 28-4 of the LFS consists in granting, for its own account, loans to the public.
The reference to the public, in addition to the principle of “group exception” laid down in Article 1-1(2) of the LFS, also implies that neither Article 28-4 of the LFS nor the LFS in general apply to professionals that grant loans exclusively to one or several companies belonging to the group to which they belong themselves. Apart from the aforementioned exceptions, the CSSF stresses that under the terms of Article 14 of the LFS, no person may have as their regular occupation or business activity a financial sector activity without prior written authorisation of the Minister responsible for the CSSF and that granting loans is such an activity.
Loans are granted to a limited circle of previously determined persons; or the nominal value of a loan amounts to EUR 3,000,000 at least (or the equivalent amount in another currency) and the loans are granted exclusively to professionals such as defined in Article L. 010-1.2 of the Consumer Code.
- Prior information of the CSSF: As credit activities are developing outside traditional banking circuits (shadow-banking), regulatory authorities are required to pay attention to these activities as well, notably where they imply a maturity transformation risk or where the professional uses leverage.
- Lending operations concerned: Article 28-4 of the LFS applies to all types of loans granted to the public, including mortgage loans and, subject to Article 28-4(3) (cf. Question 55), consumer credits, whether or not the loans are secured.
The answers in the FAQs reflect and summarise the stances adopted by the CSSF following questions asked in the past. CSSF’s FAQ document was elaborated for transparency purposes and in order to provide further indications and explanations to the public concerned.
The press release can be found here.
The FAQ can be found here.