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Opinions on Bill 6625 Background

What’s next?

3. Article 42 (2) of the Bill s hould be amended as to explicitly exclude global bearer certificates held by securities settlement systems. 4. Article 5(2b) of the law of 5 August 2005 on fi- nancial collateral arrangements should be amend- ed as to state that the transfer of possession of bearer shares may be done by entering the pledge over the financial instruments in such registers.

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THE LUXFLAG’S PRESS RELEASE IS AVAILABLE HERE. Application of CRD IV remuneration rules to management companies Background CRD IV (Directive 2013/36/EU) establishes that the variable component shall not exceed 100% of the fixed component of the total remuneration for those categories of staff whose professional activ- ities have a material impact on the risk profile of the institution. What’s in there? We have contacted the CSSF on an anonymous basis and received the oral confirmation that management companies which are subsidiaries of credit institutions subject to CRD IV, must comply with the CRD IV remuneration requirements. In accordance with CRD IV remuneration rules, the variable remuneration (including “carried in- terest” or “performance fees”) of material risk takers within management companies (being sub- sidiaries of credit institutions) should be capped at 100% of the fixed remuneration (or 200-230% subject to the approval by a shareholders vote). What’s next? CRD IV shall still be transposed in Luxembourg Law.The draft legislation is under the Chambre des Députés’s review.

Bill 6625 was introduced on 4 October 2013 follow- ing FATF’s recommendations; it seeks to amend the law of 10 August 1915 by setting rules applying to the immobilisation of bearer shares. In particular, it will put an end to the free transfer of bearer shares by delivery of certificate and will require (i) the im- mobilisation of the bearer shares by a professional depositary and (ii) the identification of the bearer shares holder. Bill 6625 covers both shares to be issued after the entry into force of the law and existing bearer shares. Only bearer shares exchanged on a regulat- ed market are out of scope. Among other, bearer shares issued or to be issued by investment funds (SICAV or FCP) are in scope of Bill 6625.

On 27 May 2014, the Luxembourg Chamber of No- taries issued its opinion on Bill 6625.

The below outlines the 5 main issues identified:

1. The specificity of the Luxembourg market place should be taken into account by acknowl- edging that most active companies in the Grand Duchy of Luxembourg are small and mid-sized companies, with a limited number of employees which can hardly be used for money laundering purposes. 2. The name “bearer shares” should be amended to better reflect the fact that the ownership and the transfer of bearer shares will be carried out by registering them and no longer via physical trans- fer. The bearer shares regime will be amended to avoid money laundering risk yet their current name still carries the negative image associated to money laundering 3. Article 42 (3) of the Bill provides that an on-go- ing supervision over the register in which the bearer shares are registered can be carried out by credit institutions, asset managers, lawyers and notaries. While credit institutions have an on-going access to their client financial data, the notaries drafts punctual documents, which allow them lim- ited access to the client’s financial information.The on-going control provided in the Bill would thus be unpractical for notaries to perform. Article 3 (3) of the organic Law of 9 December 1976 should be amended to free the Notaries from their obligation to perform their duty when so requested. 4. The Chamber of Notaries points out the cost- liness of the register’s maintenance , especially for small and mid-sized companies which are not impacted by money laundering issues. The Notary Chamber thus suggests to reassess the possibility of simply suppressing bearer shares, which would send a clearer message or to introduce a flexible register system which would allow the manage- ment to choose between keeping the register in- house or externalizing it to actors identified in Article 42 (3) of the Bill. The Notary Chamber also suggests contemplating the idea of an ad-hoc register.

Bill 6625 has been amended by the Luxembourgish Government on April 1 2014.

The Luxembourgish Chamber of Commerce issued its opinion on 22 April 2014 (covered in our tracker).

The Luxembourgish Chamber of Notaries issued its opinion on 06 June 2014. What’s in there? On 27 May 2014, the Conseil de l’Ordre du Barreau de Luxembourg issued its opinion on Bill 6625.

The below outlines the 4 main issues identified:

1. Considering the legal nature of bearer shares, the wording of article 42 (5) of the Bill should be amended to avoid confusion with the wording of article 40 of the 1915 Law on the ownership and transfer regime of registered shares. Therefore article 42 (5) of the Bill should be amended as to state that the depositary is holding the bearer shares on behalf of the shareholder who owns them and that the depositary is not subject to any restitution duty. In addition, any transfer should be made effective against third parties by any transfer report entered on the same register by the depositary. The depositary might accept any documentation or notification evidencing such transfer. 2. A new article 2bis would be added to the Bill as to clearly state that bearers bonds are out scope. Therefore, the reference to article 42 within article 84 of the 1915 Law should be removed.

THE CAPITAL REQUIREMENT REGULATION (575/2013) IS AVAILABLE HERE.

THE CAPITAL REQUIREMENT DIRECTIVE (2013/36) IS AVAILABLE HERE.

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