CPEffective Insolvency and Creditor Rights Systems
A 2003 European Commission's Final Report of the Expert Group for the "Best Project on Restructuring, Bankruptcy and a Fresh Start" noted that Luxembourg has fully adopted 28 of the World Bank's Principles for Effective Insolvency and Creditor Rights Systems, almost fully adopted 9 of them, and partially adopted the remaining 4. The foundational legislation underpinning Luxembourg's insolvency practices is the Commercial Code of 1807, which is buttressed by provisions of later, specific-purpose laws and amendments. PricewaterhouseCoopers reported in 2006 that Luxembourg has traditionally been perceived as debtor-friendly in matters of insolvency, but the legislation passed during last several years has attempted to shift the balance to accommodate a greater focus on creditor rights, as well.
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NCInternational Financial Reporting Standards
In line with the European Commission Regulation No. 1606/2002, listed companies in Luxembourg are required to use International Financial Reporting Standards (IFRSs) as adopted by the EU in their consolidated accounts. Apart from the mandatory application of IFRSs, Luxembourg already permits IFRSs as a legal option for banks and insurance companies in their annual and consolidated accounts, according to a 2008 European Commission report. Other companies are permitted to use IFRSs albeit with the approval of the Ministry of Justice. Companies that choose not to apply IFRSs follow Luxembourg's Generally Accepted Accounting Principles (GAAP) which, per a 2007 Deloitte publication, differ from the international standards. However, Luxembourg's legal environment is undergoing changes regarding accounting requirements. As explained in a 2009 Ernst & Young report, the national commercial law will be amended to introduce IFRSs into Luxembourg law as a legal alternative to the current local accounting principles. The Luxembourg authorities have developed a draft law (bill No. 5976) which will give all commercial companies registered in Luxembourg the option to use IFRSs both for annual and consolidated accounts. As of December 2009 there is no information on the conversion of Luxembourg’s GAAP with IFRSs.
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IIPrinciples of Corporate Governance
Until 2006, the corporate governance framework in Luxembourg mainly consisted of the 1915 Law on Commercial Companies (as amended) and securities regulations. In April 2006, the Luxembourg Stock Exchange (LSEX) established the Ten Principles of Corporate Governance for listed companies, which entered into force on January 1, 2007. In 2009 these Principles were updated and a new version entered into force on October 1, 2009. These Principles are based on the comply-or-explain principle, and take into consideration the OECD's Principles of Corporate Governance. The LSEX is supervised by the authority responsible for the prudential supervision of credit institutions, the Commission for the Supervision of the Financial Sector (CSSF). On November 1, 2007, the Law on Markets of Financial Instruments was enacted to incorporate new provisions on transparency for shares and transaction reporting. The European Union Transparency Directive No. 2004/109/EC was also transposed into Luxembourg law on January 11, 2008 through the Law on Transparency Requirements, in which supervision of transparency requirements are transferred from the LSEX to the CSSF. However, there is insufficient information publicly available directly addressing Luxembourg's compliance with the OECD’s Principles of Corporate Governance.
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IDInternational Standards on Auditing
According to a 2006 self-assessment prepared by the Institute of Companies' Auditors (IRE) as a part of the International Federation of Accountants' (IFAC) Member Body Compliance Program, audit of financial statements in Luxembourg is conducted in accordance with International Standards on Auditing (ISAs) issued by the Auditing and Assurance Standards Board (IAASB). The IRE adopted the pronouncements of the IAASB without any modifications and, as explained in the self-assessment, ISAs are supplemented with additional guidance for application in Luxembourg. However, the self-assessment noted that not only there was a timing difference between the IFAC’s and IRE’s effective dates, but also some of the amendments to the ISAs had not been adopted in Luxembourg, although the IRE was working on addressing these shortcomings. Luxembourg complies with the European Union Directive No. 2006/43/EC which requires all statutory audits of annual and consolidated accounts to be carried out in accordance with international auditing standards as adopted by the European Commission (EC). Although it is not specified which standards constitute international auditing standards, it is widely anticipated that ISAs, as issued by the IAASB, will be adopted. Per a 2009 EC publication, Luxembourg has fully transposed the above-mentioned Directive into its national legislation.
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IDAnti-Money Laundering/Combating Terrorist Financing Standard
In 2004, the IMF released an assessment on Luxembourg's compliance with the Financial Action Task Force's (FATF) Recommendations on Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT). The IMF found Luxembourg to be broadly compliant with almost all of the FATF's recommendations. However, this assessment was based on the 2002 methodology for assessing compliance with the FATF recommendations. In 2004, the FATF released a revised methodology to assess compliance with its recommendations. Since then, there has been no comprehensive assessment publicly available as to Luxembourg's compliance with these requirements. However, a 2006 report by the IMF noted that Luxembourg continues to make progress in strengthening its AML/CFT framework. The main law criminalizing money laundering in Luxembourg was first enacted in 1989, and subsequently updated in 1998 and 2004. Following the 2004 IMF assessment, Luxembourg’s AML/CFT laws have undergone several changes. In 2008, an Act transposing the Third European Union Directive on Money Laundering and Terrorist Financing (which requires all EU countries to implement the FATF’s recommendations) was passed, modifying Luxembourg's AML/CFT legal framework. The new law contains provisions regarding the scope of predicate offenses, customer due diligence, and internal risk management measures. Furthermore, the FATF, in its 2008-2009 Annual Report named Luxembourg as one of the jurisdictions that have endorsed the FATF's 40+9 recommendations. Luxembourg is also a member of the FATF.
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FCCore Principles for Systemically Important Payment Systems
Luxembourg was among the first wave of countries that migrated to the Trans-European Automated Real-time Gross Settlement Express Transfer (TARGET) 2 in November 2007. Prior to joining to TARGET2, the two important payment systems in the country were the Luxembourg Inter-bank Payment System (LIPS-Gross) and the Luxembourg Inter-bank Payment System-Netting (LIPS-Net), both of which observed the Committee on Payment and Settlement Systems' Core Principles for Systemically Important Payment Systems (CPSIPS). LIPS-Gross was discontinued once Luxembourg joined TARGET2. LIPS-Net, on the other hand, was discontinued in 2006, and transactions settled through this system are now being processed on STEP2 (the pan-European platform operated by the Euro Banking Association. TARGET2 provides harmonized payment services under a single shared platform across its member countries. In May 2009, the European Central Bank (ECB) released an assessment of TARGET2's design against the CPSIPS. The report concludes that TARGET2 fully observes all relevant CPSIPS, although it does make certain recommendations pertaining to Principles III and VIII. It is generally believed that the system is an improvement over its predecessor, TARGET, and its component systems. The ECB in its function as the overseer of TARGET2 aims to ensure continued compliance of the system with the CPSIPS, and will regularly monitor the implementation of its recommendations by the system. The Organic Law of the Central Bank of Luxembourg (BCL) is somewhat vague in addressing its roles and responsibilities in the area of payment systems, although other laws do address these issues. Furthermore, the ECB asserts that the BCL follows the guidelines on payment systems set by the European System of Central Banks.
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