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In brief

The law of 21 July 2021, effective as of 31 July 2021 (“Law“), has implemented the European prudential regime applicable to investment firms authorized under the Markets in Financial Instruments Directive II (MiFID II) set out under the Investment Firms Directive (IFD) and the Investment Firms Regulation (IFR) into Luxembourg law.

The Law has the purpose of (i) embracing the MiFID II’s classification based on the services and activities carried out by the investment firm and (ii) modernizing the statuses of certain other financial sector professionals.

Therefore, the Luxembourg classes of investment firms are being recast.

Overview of the key changes

Implementation of the IFR/IFD framework into the Luxembourg law dated 5 April 1993 on the financial sector, as amended (LFS)

  • The IFR/IFD framework is designed to better suit the nature, size, and complexity of investment firms’ activities compared to the Capital Requirements Regulation (CRR) and the Capital Requirements Directive (CRD) framework applicable to traditional credit institutions and to which most investment firms were also subject until 25 June 2021.
  • The Law has amended the LFS to introduce four major classes of investment firms, as follows:
  • The LFS distinguishes between (i) credit institutions or banks, (ii) CRR investment firms (iii) IFR investment firms and (iv) “IFR non-PNI investment firm” (where PNI stands for small and non-interconnected investment firm). Credit institutions or banks and CRR investment firms are collectively referred to as CRR institutions while a subcategory of IFR investment firms has further been introduced.
  • A credit institution is now defined as a credit institution within the meaning of Article 4 (1) (1) of the CRR, i.e. an undertaking the business of which is to take deposits or other repayable funds from the public and to grant credits for its own account.
  • An investment firm under the LFS is now defined as a legal person as defined in Article 4(1)(1) of the MiFID II. Credit institutions have been removed from the definition of investment firms.
  • The “bank-like” investment firms that are the largest investment companies engaged in the proprietary trading or underwriting of financial instruments and/or the placing of financial instruments with a firm commitment, and that exceed EUR 30 billion of total asset value, are treated in all respects as credit institutions and qualify as credit institutions under the LFS. They correspond to Class 1 investment firms under the IFR/IFD framework. As such, they remain subject to the more stringent CRR/CRD regime.
  • CRR investment firms are investment firms that are no longer considered credit institutions but, due to their size and complexity, remain subject to a certain number of obligations applicable under the CRD/CRR regime. They correspond to Class 1b investment firms under the IFR/IFD framework.
  • IFR investment firms are smaller, non-interconnected investment firms that benefit from lighter provisions under the IFD/IFR framework to ensure proportionality to their nature, scale and complexity. They correspond to Class 3 investment firms under the IFR/IFD framework.
  • IFR non-PNI investment firms are all other investment firms that do not qualify as CRR institutions or IFR investment firms, i.e., the classic type of investment firms. They correspond to Class 2 investment firms under the IFR/IFD framework. These IFR non-PNI investment firms are fully subject to the IFR/IFD regime.

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Laurent Fessmann is a Banking & Finance partner specializing in the formation and structuring of Luxembourg investment funds. He is a former managing partner of the Luxembourg office and the current co-chairman of the Baker McKenzie's Global Funds Steering Committee. He started his career in 1996 as in-house counsel in a French CAC40-listed company where he worked intensively on LBO transactions, capital markets and corporate law matters. Mr. Fessmann joined a Luxembourg business law firm where he became a partner prior to founding his own law firm in 2009. He is a highly regarded professional and recognized legal professional in Chambers, Legal 500, IFLR notably. He contributes time and knowledge in several market participant industry associations in particular as co-chairman of the ABBL/ALFI depositary forum working groups, the European Public Real Estate Association, the Luxembourg Private Equity Association and the Association of Global Custodians. He is also a regulator at fund conferences such as ALFI, IBCI and regularly invited to speak on internal or bank seminars.


Jean-François Trapp is a partner in the Real Estate team of the Baker McKenzie Luxembourg office. He has more than 20 years' experience in Luxembourg law. Prior to joining the Firm, he was a partner in a Luxembourg law firm where he headed the Real Estate department and co-led the Banking & Finance department. In 2007, he co-founded the Luxembourg law firm Roemers Trapp Pautot, a niche firm focusing on the real estate, real assets and infrastructure sectors.

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