By continuing your visit to this site, you accept the use of cookies. These ensure the smooth running of our services. Learn more.


Gutta cavat lapidem non vi, sed sæpe cadendo

John Christensen visited Luxembourg this week.

Two articles from TJN are online about this visit:
- Taboos and blood sports in Luxembourg
- Downtrodden dentists and banker heroes in Luxembourg

The same week:
- Paul Chambers, from Atoz Tax Advisers, advised banks not to disclose data on request and to wait for a court decision to authorise such disclosure whereas nothing is enforced in Luxembourg to organise the practical implementation of OECD agreements; but Paul Chambers admitted that the offshore business model is ending (original quotation : “Le modèle offshore touche vraiment à ses limites”)
- Luc Frieden would have stated that he could imagine automatic exchange of information with jurisdictions with which Luxembourg signed an agreement.

I wish politicians and professionals in Luxembourg were proactive and receptive enough to do the aggiornamento when I suggested it a couple of years ago.

The drop excavates the stone, not with force but by falling often...

07:35 Posted in Luxembourg | Permalink | Comments (0)


Pragmatic regulation

LFF put online Jean Guill’s interview.


The title sounds interesting: “reinforcing controls in entities”, but when looking carefully he misses the essential.


I have three observations:


1. He does not talk again of the “faithful transposition” of UCITS directive but of “misunderstandings on the applicable provisions in the various countries”. I love such wooden language.


2. He does not speak about the influence of the professionals on the regulator beyond what is normal because it is practically an assent that professionals state for every regulation.

I will quote again Rafik Fischer and the CSSF itself:


The Luxembourg Investment Fund Industry has regularly had a very close and direct say on the evolution of the Luxembourg prudential regulatory environment governing the collective Investment Industry (...) This influence has been exerted directly and indirectly by the lobbying initiatives taken on the level of the different professional associations, be it ALFI or ABBL , but also and more importantly, trough a direct association with the Luxembourg Supervisory Authorities by means of a number of standing committees" (Rafik Fischer, Vice Chairman, ALFI, in 2005)


This is confirmed by the CSSF: "The internal committees assist the CSSF in the analysis of the development of the different financial sector segments, give their advice on any question relating to their activities and participate in the drawing-up and the interpretation of regulations relating to their specific field."


3. There is nothing on the Luxembourg strangeness which gives to the regulator a role in the promotion of the financial center. This had been pointed out with relevance by the Lucien Thiel’s Commission:


« le rôle de la CSSF, défini à l’époque comme celui non seulement d’un contrôleur du secteur financier mais encore d’un promoteur de la place doit être revu afin d’éviter tout équivoque sur sa mission essentielle qui est celle de la surveillance prudentielle » (free translation : “the role of the CSSF, defined at the time as both a controller of the financial sector and as a promoter of the financial center, must be re-examined in order to avoid any ambiguity on its essential mission which is that of the prudential monitoring”) (In report « Vers un nouveau modèle de croissance », 23 March 2009, page 13)


 The Law of 23 December 1998 establishing a financial sector supervisory commission (“Commission de surveillance du secteur financier”), as amended, states :


 Art. 3. The CSSF shall:

(a) examine all requests from undertakings or persons seeking to establish themselves in the Grand Duchy of Luxembourg to engage in one or more of the activities enumerated in Article 2 which require authorisation from the Minister responsible for the CSSF;

(b) carry out prudential supervision of undertakings and persons coming under its authority in accordance with the laws and regulations governing such supervision;

(c) coordinate the implementation of government initiatives and measures aimed at achieving an orderly expansion of the activities of the financial sector in the Grand Duchy of Luxembourg;

(d) monitor dossiers and participate in negotiations at a Community and international level relating to problems affecting the financial sector;

(e) present to the Government any suggestions likely to improve the financial sector’s legislative and regulatory environment;

(f) examine any other question relating to financial activities which the Minister responsible for the CSSF might submit to it.


You know what: whereas the CSSF is involved in the promotion of the financial center and carry out prudential supervision of undertakings and persons coming under its authority in accordance with the laws and regulations governing such supervision in the framework of what professionals that have a very close and direct say have decided, Investor protection is not listed clearly among the missions.







17:57 Posted in Luxembourg | Permalink | Comments (0)

Clear-sighted justice vis-a-vis the small investors

The Tribunal d'Arrondissement of Luxembourg had decided on March 4, 2009 that Luxalpha and UBS release certain important documents to the plaintiffs, investors in Luxalpha advised by Deminor. More in particular, these documents are the contracts entered into between UBS and Bernard Madoff Investment Securities LLC (BMIS) and the yearly auditor's report on the inner functioning of Luxalpha.

This decision followed another decision on February 19, 2009 were investors in Luxalpha advised by Gide Loyrette Nouel were supposed to be communicated informations and documents.

In a recent article in the Land, it is reported that the auditor Ernst & Young refused the communication of Long Form Reports. An investor went before the court to request the communication but the judge did not accept.

The so-called Long Form Report describing and testing the UCI’s activities was created by Circular CSSF 2002-81

As stated in the circular, the purpose of the long form report is to report on the findings of the auditor in the course of its audit concerning the financial and organisational aspects of the UCI comprising inter alia its relationship with the central administration, the custodian and the other intermediaries (the investment managers, the transfer agents, the distributors, etc.). The long form report must be concise, clear and critical.
It is not intended to be made available to the public. It is issued for the exclusive use by the board of directors of the UCI or the management company of the UCI as well as the CSSF

As Nadia Faber, Ernst & Young Luxembourg , explained “Un tel rapport a pour objectif, entre autres, de décrire et d'évaluer les procédures de contrôle mises en place par les différents prestataires de services intervenant dans la production du produit final qu'est la VNI. (…) Cette façon de voir les choses s'est traduite dans le domaine de l'audit en un basculement d'une approche substantive vers une approche basée sur l'identification des contrôles et les tests de conformité de ceux-ci. Pour obtenir son assurance, l'auditeur va non seulement valider des données chiffrées à une date donnée, mais il va aussi analyser les principaux processus de production de la VNI et les contrôles internes qui alimentent ces processus. L'auditeur cherche à avoir une assurance raisonnable que des erreurs éventuelles soient détectées par des contrôles internes efficaces en place avant que la VNI ne soit publiée et ce jour après jour
(free translation : Such a report aims at, inter alia, to describe and evaluate the audit processes installation by the various service providers intervening in the production of the finished product which is the NAV. (…) This way of seeing things was translated in the field of the audit into a swing of a substantive approach towards an approach based on the identification of controls and the tests of conformity of those. To obtain his insurance, the auditor not only will validate statistical data on a given date, but he also will analyze the principal production process of the NAV and internal controls which feed these processes. The auditor seeks to have a reasonable insurance that possible errors are detected by effective internal controls in place before the NAV is published and this day after day)

Long form reports are clearly intended to provide safety and transparency to investors.

One cannot understand the reason why Ernst & Young does not want to communicate these whereas neither the depositary bank nor the CSSF opposed according to the Land, unless these reports would demonstrate a failure in the assignment to describe and evaluate the audit processes installation by the various service providers intervening in the production of the finished product which is the NAV.

One can understand the judge’s decision in the light of what Alex Schmitt wrote: in a book called La Responsabilité du Banquier en droit prive luxembourgeois (Banker’s liability in Luxembourg private law) he concludes that one could be pleased in that Luxembourg jurisprudence generally is very clear-sighted vis-a-vis the small investors (original text: “L'on pourra se féliciter de ce que la jurisprudence luxembourgeoise se montre généralement très clairvoyante face aux investisseurs à la petite semaine”).

The quotation is no longer online, but I had copied the screen:








Luxembourg: a well regulated center with high investor protection?

Caveat emptor.

14:23 Posted in Luxembourg | Permalink | Comments (1)