Supervisory, investigations and sanctioning powers of the CSSF and CAA

Introduction

With the law of 25 February 2022 published on 3 March 2022, the Grand Duchy of Luxembourg implements the Regulation (EU) 2019/2088 of 27 November 2019 on sustainability-related disclosures in the financial services sector, as amended (“SFDR”) and the Regulation (EU) 2020/852 of 18 June 2020 on the establishment of a framework to facilitate sustainable investment (the Taxonomy) (hereafter the SFDR/Taxonomy Luxembourg Law).

The SFDR/Taxonomy Luxembourg Law introduces specific legal basis regarding the administrative sanctioning powers of the Commission de Surveillance du Secteur Financier (CSSF) and of the Commissariat aux Assurances (CAA) in case of non-compliance by firms that are within the scope of SFDR and Taxonomy.

Key elements

1. Supervisory and Investigation Powers of the CSSF and the CAA

To ensure that all financial market participants (FMPs) and financial advisers (FAs) under their respective supervision apply SFDR and Taxonomy, the SFDR/Taxonomy Luxembourg Law grants to the CSSF and the CAA the following supervisory and investigation powers:

• Access and receive or take a copy of any document or data in any form;
• Require an FMP or FA to provide information without delay;
• Require information from any person connected with the business of an FMP or FA;
• To carry out on-site inspections of the persons subject to their respective supervision;
• Take appropriate measures to ensure that an FMP or FA continues to comply with the provisions of SFDR, Taxonomy and the measures taken to implement them;
• Order an FMP or FA to comply with the provisions of the SFDR, the TR and their implementing measures, and to refrain from repeating any conduct that constitutes a breach of those provisions;
• Order an FMP or FA to publish information required to be published under SFDR and Taxonomy on their website, in pre-contractual information or in periodic reports, or to amend or removed published false or misleading information in order to bring it into conformity with the criteria laid down under SFDR and Taxonomy, and the measures taken to implement them, and to require the publication of a corrective statement;
• Communicate information to the State Prosecutor for criminal prosecution; and
• Instruct approved statutory auditors (réviseurs d’entreprises agréées) or experts to carry out audits or investigations.

2. Sanctioning Powers of the CSSF and the CAA

The CSSF and the CAA can pronounce in the event of a breach of SFDR and/or Taxonomy :

• a public state specifying the identity of the person responsible and the nature of the violation; and/or
• the temporary prohibition of a person exercising managerial functions of for any natural person responsible for such a violation from exercising managerial functions; and/or
• an administrative fine of between EUR 250 and EUR 250,000.

The above sanctions can be pronounced against:

• the firms/persons subject to the CSSF and CAA supervision;
• the members of their management bodies;
• any other person responsible for a breach;
• those who obstruct the exercised of the CSSF and CAA supervisory and investigations powers;
• those who fail to comply with the CSSF and CAA injunctions; and
• those who knowingly give the CSSF and CAA incorrect or incomplete information in response to requests based on the SFDR/Taxonomy Luxembourg Law.

For further information, please don’t hesitate to reach out to our asset management & investment funds team in Luxembourg.

¹ Article 3 SFDR (website disclosures on sustainability risk policies), Article 4 (website disclosures on the consideration (or not) of principal adverse impacts (PAI) of investment decisions/investment advice on sustainability factors), Article 5 SFDR (website disclosures on the integration of sustainability risk in remuneration policies), Article 6 SFDR (pre-contractual disclosures for all types of financial products on the integration of sustainability risks), Article 7 SFDR (pre-contractual disclosures on the consideration (or not) of PAI at financial product level), Article 8 SFDR (pre-contractual disclosures for financial products promoting environmental and/or social characteristics), Article 9 SFDR (pre-contractual disclosures for financial products with a sustainable investment objective), Article 10 SFDR (website disclosures on ESG objectives or characteristics promoted at financial product level, methodologies used to measure the impact of the products, and Article 8,9,AA SFDR information), Article 11 SFDR (periodic reports), Article 12 SFDR (regular review of website disclosures) and Article 13 SFDR (consistency of marketing communications).

² Article 5 Taxonomy (additional Taxonomy disclosures for financial products that promotes environmental characteristics in pre-contractual disclosures and in periodic reports), Article 6 Taxonomy (additional Taxonomy disclosures for environmentally sustainable investments in pre-contractual disclosures and in periodic reports), and Article 7 Taxonomy (transparency of other financial products in pre-contractual disclosures and in periodic reports).