On March 15th 2016, the Luxembourg Parliament passed the Law 6846 on OTC derivatives, central counterparties and trade repositories (“Law”). The Law was published in the Memorial (Luxembourg Official Journal) on March 17th 2016 and entered into force on March 21st 2016.
The Law aims to ensure the implementation of Regulation (EU) N° 648/2012 of the European Parliament and of the Council of July 4th 2012 on OTC derivatives, central counterparties and trade repositories (“EMIR”) by the Commissariat aux Assurances (“CAA”) and the Commission de Surveillance du Secteur Financier (“CSSF”) who are the entities responsible for ensuring the correct application of EMIR.
In line with the provisions of Article 2 of EMIR the Law empowers the CSSF and the CAA with the function of supervision, intervention, inspection and investigation as necessary for the exercise of their functions and defines their roles.
The Law further gives those authorities a disciplinary power to sanction such financial counterparties and non-financial counterparties in case of non-respect of the requirements under EMIR.
The Commissariat aux assurances will supervise and sanction such financial counterparties that fall under its supervision whereas the CSSF will be entitled to grant and withdraw approval to financial and non-financial counterparties, central counterparties and trading venues and to sanction them as the case may be.
The sanctions range from a warning and may go up to an administrative fine (up to EUR 1,500,000) or even to the withdrawal of the authorisation to exercise one or more operations and/or activities. Some of the sanctions are also requested to be published without delay on the website of the CSSF or the CAA as relevant, and be made available during five years after the date of the sanction.
The Law also transposes Directive 2013/14/EU pursuant to which Institutions for Occupational Retirement Provision (‘IORPs’), UCITS management companies (UCITS, ManCos) and AIFMs should avoid relying solely or mechanistically on credit ratings disclosed by credit rating agencies notably by supervising the references to such ratings in the investment policy of their products and by integrating that principle into their risk-management. The implementation of the Law results in the amendment of several laws in Luxembourg, including the CSSF Law of December 23rd 1998, the UCITS Law of December 17th 2010, the AIFM Law of July 12th 2013 and the SEPCAV and ASSEP Law of July 13th 2005. The new provisions introduced in the UCI Law and the AIFM Law require UCITS (or their management companies) and AIFMs to perform their own credit risk assessment and not to rely solely or mechanically on credit ratings when assessing the creditworthiness of the assets of the funds they manage or to otherwise use them as the only parameter when assessing the risk involved in the investments they make.
The Law further clarifies that in respect of the provisions applicable to such entities, CSSF and the CAA are granted the power to supervise the risk management methodology used by those entities and ensure that there is no over-reliance on credit ratings.