CRD VI Transposition in Luxembourg

Draft Law N° 8627 aiming Luxembourg's transposition of Directive (EU) 2024/1619 (CRD VI) and the EMIR 3 package into national law was adopted by a parliamentary vote on 30 April 2026 without further structural changes, after Commission des Finances of the Luxembourg Chamber of Deputies adopted its report on 14 April 2026. The Draft Law introduces wide-ranging amendments to the law of 5 April 1993 on the financial sector, establishing a harmonized framework for third-country branches (TCB), strengthening governance and fit-and-proper requirements, incorporating ESG and crypto-asset risk management, introducing a new regime for material corporate transactions, and transposing the EMIR 3 package.

 

Key Changes: Third-Country Branch (TCB) Regime

Scope and Branch Establishment Requirement

Under the new regime, third-country financial institutions will be required to establish an authorized branch in Luxembourg before providing "core banking services," defined as deposit-taking, lending, and guarantees/commitments. Critically, Luxembourg draws a distinction based on the nature of the provider:

• Deposit-taking (Annex I, point 1) triggers the branch requirement regardless of whether the third-country entity qualifies as a credit institution.
• Lending and guarantees (Annex I, points 2 and 6) only require branch establishment if the third-country entity would qualify as a credit institution under the CRR were it established in the EU. This means that loan origination by third-country investment funds or non-bank entities remains possible on a cross-border basis without a local branch.

Characteristic Performance Test

A key Luxembourg-specific feature is the adoption of the "characteristic performance" test to determine when a service is provided "in" Luxembourg. In line with the European Commission's interpretive communication, if a banking activity is executed entirely and exclusively on a remote basis from a third country, without any relevant connecting factor to Luxembourg territory, the service may be characterized as taking place outside Luxembourg. This narrows the territorial scope compared to the EU baseline and confirms Luxembourg's position as a preferential location for third-country financial service providers.

Exemptions Retained

Luxembourg retains all four CRD VI exemptions from the branch establishment requirement:

1. Reverse solicitation: Available where the client approaches the third-country firm on its own exclusive initiative, subject to strict interpretation. Solicitation via an intermediary acting on behalf of the third-country firm does not qualify, and the burden of proof lies with the third-country firm.
2. Interbank services: Services provided to EU credit institutions.
3. Intragroup services: Services to members of the same group, including groups with no EU credit institution.
4. MiFID II services: Activities listed in Annex II, Sections A and C of the LSF, including ancillary deposit-taking or lending connected thereto.

Classification of TCBs

TCBs will be classified into two categories based on a proportionality approach:

Feature	Category 1	Category 2
Assets threshold	≥ EUR5 billion booked in Luxembourg	Below all Category 1 thresholds
Retail deposits	≥ 5% of total liabilities or > EUR50 million	Below threshold
Capital endowment	≥ 2.5% of average liabilities (min. EUR10 million)	≥ 0.5% of average liabilities (min. EUR5 million)
Liquidity	Full LCR per CRR	Sufficient liquid assets for 30-day outflows
Governance	Subject to credit institution governance rules; CSSF may require local management board	Internal control functions required; CSSF may require heads of internal control functions

 

Gold-Plating and Subsidiarisation

Luxembourg adds conditions not required under CRD VI at EU level:

• Statutory audit: TCBs must comply with domestic statutory audit requirements under Article 10 of the LSF.
• Deposit and investor protection: Mandatory participation in the FGDL and the investor protection scheme (Système d'indemnisation des investisseurs Luxembourg).
• Subsidiarisation: The CSSF may require a TCB to apply for a full credit institution license when EU-wide group assets reach EUR40 billion or when the branch's own Luxembourg assets reach EUR10 billion. The national EUR10 billion threshold allows for earlier supervisory intervention compared to the EU baseline.

 

Timeline and Entry into Force

The new law is set for parliamentary voting and adoption on 30 April 2026. Assuming a positive outcome of such voting the new law will enter into force 4 days after publication in the Mémorial. As a main rule, the Third-Country Branch regime (branch establishment, authorization, prudential requirements) is to be applied as of 11 January 2027. Nevertheless, articles relating to grandfathering cut-off for legacy contracts shall be applied as of 11 July 2026, whereas Third-Country Branch reporting obligations (Articles 32-14 and 32-15) will have a retroactive effect, to be applied as of 11 January 2026.

Contracts concluded before 11 July 2026 are grandfathered and are not affected by the branch establishment requirement, including the execution of modalities under a framework agreement concluded before that date. Existing TCB authorizations granted by 10 January 2027 may remain valid, provided the branch complies with the new regulatory requirements.

 

Action Items: What You Need to Do?

Third-country institutions providing core banking services in Luxembourg, or considering doing so, should take immediate steps in preparation for the new regime:

1. Assess whether branch authorization is required: Evaluate your entity's activities in Luxembourg against the new scope rules — particularly whether you are providing deposit-taking, lending, or guarantees — and determine whether the nature of your entity triggers the branch requirement. Non-bank entities (e.g., third-country investment funds engaged in loan origination) may continue to operate cross-border without a branch.
2. Evaluate the availability of exemptions: Review whether any of the four exemptions (reverse solicitation, interbank, intragroup, MiFID II services) apply to your activities, and document your reliance on them. In particular, the burden of proof for reverse solicitation rests with the third-country firm.
3. Review existing contracts against the 11 July 2026 grandfathering deadline: Contracts concluded before 11 July 2026 are protected from the new branch requirement. Clients should map their existing contractual relationships and determine whether new engagements planned for after this date will require branch authorization.
4. Prepare for branch authorization or re-authorization by 11 January 2027: Institutions that determine they need a branch should begin preparing the required authorization application, including a detailed program of activities, organizational structure, and risk management framework. Existing branches must ensure full compliance with the new regulatory requirements by this date.
5. Determine your branch classification and prudential requirements: Assess whether you will be classified as a Category 1 or Category 2 TCB, as this will determine your capital endowment, liquidity, governance, and reporting obligations.
6. Establish governance and operational readiness: TCBs must designate at least two CSSF-approved persons to manage Luxembourg activities, implement internal control functions, maintain a comprehensive operations register, and comply with new reporting and audit requirements.
7. Address deposit protection obligations: Prepare for mandatory participation in the FGDL and the investor protection scheme, which are Luxembourg-specific gold-plating requirements.
8. Monitor subsidiarisation risk: If your EU-wide group assets approach EUR40 billion, or your Luxembourg branch assets approach EUR10 billion, the CSSF may require conversion to a full subsidiary.

 

How DLA Piper Luxembourg can help

The new third-country branch regime introduces complex regulatory, corporate governance, and operational compliance requirements. DLA Piper Luxembourg's Finance and regulatory Teams can assist you with:

• Regulatory scoping analysis to determine whether your Luxembourg activities fall within the branch establishment requirement and which exemptions may apply;
• Branch authorization applications before the CSSF, including the preparation of programs of activities, governance structures, and risk management frameworks;
• Grandfathering assessments to map existing contractual relationships against the 11 July 2026 cut-off and structure new transactions accordingly;
• Governance and compliance structuring, including the design of internal control frameworks, operations registers, and reporting processes aligned with the new TCB regime;
• Subsidiarisation planning for institutions approaching the EUR10 billion or EUR40 billion thresholds; and
• Ongoing regulatory advice as the CSSF, EBA, and ECB issue further guidance and technical standards under CRD VI.

The new regime will apply from 11 January 2027, but with the grandfathering cut-off of 11 July 2026 fast approaching, early engagement is essential. We will monitor developments on an ongoing basis and will keep you informed of any relevant updates. In the meantime, please feel free to reach out in case of questions.