New Luxembourg rules on dormant accounts

In Luxembourg, the legal framework applicable to inactive accounts, safes and insurance contracts that have become unclaimed is very limited. Presently, such accounts, safes and insurance contracts are governed by Luxembourg civil law and the applicable contractual provisions defined internally by the banks. This overview will focus on inactive accounts and the new Luxembourg legal framework expected to be introduced shortly.

According to Article 2236 of the Civil Code, a bank is not authorised to appropriate assets for which it is depositary, nor use such assets for any purpose other than restitution in favour of inheritance beneficiaries. Although, there are exceptions where specific legal regimes are in play, such as in case of litigation, criminal proceedings or under FACTA rules, etc.

Despite there not being a specific legal regime for inactive accounts in Luxembourg, professionals of the financial sector are required to respect the CSSF Circular 15/631 (the Circular) and the Luxembourg Bankers' Association's (ABBL) Code of Conduct when defining their relevant internal procedures.

Under the Circular, banks and other professionals of the financial sector that hold or manage third-party assets are required to have detailed rules defining when an account is considered inactive. The Circular states that, at a minimum, a bank should consider an account as inactive when (i) the account holder or his authorised agent has not communicated with the bank in the past 6 (six) years; and when (ii) the account holder or his authorised agent has not initiated any transaction (automatic transactions are not to be taken into consideration) with regard to the account within the past 3 (three) years. Once a bank determines that an account is inactive on this basis, it must attempt to re-establish contact with the account holder and must continuously monitor whether the account becomes active again. Failing re-establishment of contact, the account holder's assets must continue to be managed, unless the permitted administrative charges surpass the value of the deposit, in which case the account will be closed in accordance with the contractual provisions entered into between the bank and the account holder.

In the absence of a specific legal regime in Luxembourg regarding inactive accounts, on 6 August 2018, the Bill of Law No. 7348 on inactive accounts, inactive safes and unclaimed insurance contracts (the Bill) was submitted to the Luxembourg Parliament. Currently, the Bill is going through the Luxembourg legislative process and on 21 May 2019, the Council of State issued its opinion on the draft law. The Bill aims implement a new legal framework, based on the existing French and Belgian corresponding frameworks, in view of strengthening the protection of clients by imposing professional obligations on banks. If and when passed, the Bill will surely provide enhanced legal clarity on the subject.

The Bill will apply to, among others, any credit institution authorised in Luxembourg and any Luxembourg branch of a foreign credit institution. The Bill gives a broad definition to the term "account" which encompasses any current account, savings account, term deposit account or deposit account repayable with notice, securities account, fiduciary deposits, as well as all other accounts opened with a bank in which the assets are individualised on behalf of account holders.

The Bill sets out measures which impose an obligation on banks to consign unclaimed assets registered in the account to Luxembourg's Consignment office (the Caisse de Consignation) after prolonged inactivity, as well as measures which provide for the subsequent restitution of the assets to any person with a right to them. The Bill also aims to prevent the proliferation of inactive accounts altogether and will thus complement the Law of March 2020 establishing a central data retrieval system for bank, payment accounts and safe-deposit boxes, also known as the Central Register Law.

(The 25 March 2020 Law contributes to the prevention of the proliferation inactive accounts through the creation of a Central Register, which the CSSF has direct electronic access to, thereby providing it with access to Internal Files of affected banks which are required to input data regarding bank and payment accounts identified by IBAN, such as, inter alia, the name and identification information of the account holder, any person purporting to act on behalf of the account holder and the beneficial owner of the account holder, as well as the date of opening and closure of the account.)

In this way, because inactive accounts present a higher risk for money laundering and the financing of terrorism, the Bill contributes to the fight against these. The following sets out in more detail the new rules which will be set out under the Bill.

Prevention

In order to prevent the proliferation of inactive accounts, according to the Bill, banks are required to maintain regular contact with clients and closely monitor relations with the them in view of avoiding that their accounts become inactive. In this regard, banks should have detailed internal procedures in place to identify accounts susceptible of becoming inactive and to ensure these accounts are monitored. Furthermore, precise rules for gathering information on account holders, as well as rules to follow when trying to make contact with account holders or failing that, their heirs, should be in place.

Inactivity

Under the Bill, the starting point for inactivity of accounts is the day from which the account holder has not carried out any transactions in respect of the account and when there has been no communication whatsoever, of any kind, on behalf of the account holder with the bank. Starting from then, if after a total of 6 (six) years no activity has been recorded, the account will be considered inactive. In determining whether there has been any communication with the bank on behalf of the account holder, automatic transactions not initiated by the account holder will not be taken into consideration. In the case of a joint account, transactions initiated by one of the account holders will suffice for the account to continue to be considered active. Once an account is considered inactive, banks must continue to diligently monitor the account.

When, dating from the starting point for inactivity of accounts, an account has persistently been inactive for 3 (three) years, the relevant bank, notwithstanding any contractual provision to the contrary, must try to re-establish contact with the account holder to inform him, or otherwise, his known heirs, of the consequences under the Bill attached to inactivity of the account.

If the inactivity persists and in the absence of a response on the part of the account holder, the bank must engage in supplemental searches to try and contact the account holder or to identify, or if they have already been identified, to contact the heirs of the account holder. The bank may debit from the client's account costs resulting from these searches in accordance with the principle of proportionality. Banks can resort to the assistance of third parties for the supplemental searches, as long as they are subject to a statutory professional secrecy obligation.

Consignment and Restitution

If the searches are not fruitful and the inactivity persists beyond the delay foreseen by the Bill, the bank will be required to request the consignment of the unclaimed assets registered in the account at the Caisse de Consignation. Notwithstanding any contrary contractual provision and despite the fact that the contractual relationship between the account holder and the bank was still in effect on the day of the consignment, the consignment will bring about the closing of the inactive account in accordance with the procedures set out in the Bill.

The Caisse de Consignation will conserve the assets for 30 (thirty) years (the authors of the Bill propose to include the 6 (six) years establishing inactivity of the account within this period). If no restitution has been requested after this delay has elapsed, the assets will be transferred to the State of Luxembourg in accordance with the 29 April 1999 Law on consignments to the State  (La Loi du 29 Avril 1999 sur les consignations auprès de l'Etat). The Bill also proposes that 50% (fifty percent) of the assets consigned be transferred to Luxembourg's Intergenerational Sovereign Fund (Le Fonds souverain intergénérationnel du Luxembourg, FSIL).

Any person with a right to the consigned assets may submit to the Caisse de Consignation, by electronic or postal means, a request for restitution. The relevant bank will in that case be required to cooperate with the Caisse de Consignation to enable the latter to identify and analyse the rights of the claimant for restitution.

In an effort to facilitate the restitution process for account holders, beneficiaries or heirs, the Bill provides for the implementation of a centralised electronic register containing pertinent information regarding consignments made under the Bill. In this regard, any person with a right to the consigned assets will be able to request information held on the register relating to such assets.

Identification and disclosure of inactive accounts

Banks will also be required to identify inactive accounts. This information will need to be provided on an annual basis to the CSSF or the Insurance Commissioner (Commissariat aux Assurances, CAA), as well as to the tax administration.

Council of State Opinion

On 21 May 2018, the Luxembourg Council of State issued an opinion on the Bill. While generally agreeing with the objectives and wording, the Council of State raised some inconsistencies, notably, concerning the definition of 'inactivity', as well as incompatibilities regarding the provisions on the obligation of consignment versus the Caisse de Consignation's right to refuse such consignments. Moreover, the Council requested more information be included in relation to the contents of the centralised electronic register. Finally, the Council of State maintained that an indication of the number of inactive bank accounts, safes or insurance contracts would have been welcome.

Preparatory tips

In anticipation of the draft law being implemented, banks are recommended to put in place internal measures addressing (i) the identification and monitoring of safes which are at risk of becoming inactive; (ii) the re-establishment of contact with clients whose accounts have become inactive; (iii) the development of procedures for the closing of accounts which are unclaimed after persistent inactivity; and, (iv) communication with the CSSF, the CAA and the tax administration of the amount of inactive accounts on a yearly basis.

Please contact the team for further information.