As a member of the European Union, Luxembourg has a legal and regulatory environment that is largely determined by the numerous Directives and Regulations adopted at a Community level. However, when transposing these standards into domestic law, the legislative authority has skillfully taken advantage of the margins for manoeuvre available within the Directives to create a legal environment that promotes the international character of the financial centre.
The legislative authority has two objectives: to ensure the stability of the financial centre and guarantee an optimal level of protection for investors. Hence, all professional activity within the financial sector is subject to prior ministerial agreement. Equally, all companies that are professionally active in the financial centre are subject to the prudential supervision of either the Commission de surveillance du secteur financier (CSSF) or the Commissariat aux assurances (CAA).
The fundamental law regulating the banking sector is the Law of 5 April 1993, as amended.
Over the years, specific legal frameworks have been created for niche products and promising services, such as covered bond issuing banks and electronic payment establishments.
While remaining subject to strict rules with regard to financial privacy, actors in the Luxembourg financial centre must respect a set of legal measures in the area of the fight against money laundering and the financing of terrorism.