The author of this article examines changes to Luxembourg's securitisation regulations, the advantages that apply, and where the market is heading.

Grégoire Mure, CEO, TrustConsult Luxembourg, part of the TrustConsult group, sets out his views about securitisation structures that are registered in Luxembourg. In the European jurisdiction, its Securitisation Law was overhauled, and became law in March 2022. The earlier iteration had been in force for two decades. New features of the law included extension of refinancing to "financial instruments"; allowing for active management of a portfolio of debt instruments, and allowing the setting up of a securitisation vehicle in the form of a partnership. Organisations such as PwC have stated that these modifications should make the system more flexible, and add to legal certainty – a major consideration. Another consideration is that Luxembourg securitisation companies aren't, as such, excluded by various recent EU directives to fight forms of tax avoidance. This publication's understanding is that this area is not yet fixed. 

This article will hopefully shed light on this jurisdiction and the tools available to wealth managers, private banks, family offices and advisors. The editors are pleased to share these views; the customary disclaimers apply. To respond, email tom.burroughes@wealthbriefing.com
 
Luxembourg has long been recognised as a financial hub and a favourable jurisdiction for various investment structures. It generally exhibits a strong and stable economy and is one of the most prosperous countries in the European Union â€“ several factors contribute to its financial stability. The financial sector is a key player in the Luxembourgish economy, with a well-established international financial centre attracting global financial institutions and investors. The country has also cultivated a business-friendly environment characterised by favourable investment policies, attractive tax benefits, and a skilled workforce. In recent years, there has been a growing interest in incorporating securitisation vehicles.

Securitisation, the process of transforming illiquid assets into marketable securities, has gained prominence as a financial strategy. This short article explores the reasons behind the increasing interest in establishing securitisation vehicles and the advantages that this jurisdiction offers.
 
Regulatory framework
Securitisation vehicles can be categorised into two main types: those regulated by the Commission de Surveillance du Secteur Financier (CSSF) and those that operate without direct oversight from the CSSF.

Regulated securitisation vehicles adhere to strict guidelines and oversight imposed by the CSSF to ensure compliance with legal and regulatory requirements aimed at protecting investors and maintaining financial stability. On the other hand, non-regulated securitisation vehicles operate without direct supervision from the CSSF, potentially offering greater flexibility but also posing higher risks due to the absence of regulatory scrutiny. 

Depending on the project (wealth management, structuring, private club deal, public investors), investors should consider the regulatory status of a securitisation vehicle before engaging.

Tax efficiency
Luxembourg offers a favourable tax environment for securitisation vehicles. Specialised securitisation entities, such as securitisation companies, can benefit from a range of tax incentives, including exemptions from withholding tax on interest payments and the absence of capital gains tax on the sale of securities.

Legal and juridical security
Luxembourg's legal system is well regarded for its clarity and efficiency. Investors and stakeholders find confidence in the legal framework, which is conducive to the smooth functioning of securitisation transactions. The country's commitment to investor protection enhances the overall legal security.

Flexibility in structuring
The country provides flexibility in structuring securitisation transactions. This includes the ability to create various types of securitisation vehicles, such as securitisation funds, allowing issuers to tailor their structures to meet specific needs and objectives.

Access to capital markets
Luxembourg's central location in Europe and its well-developed financial infrastructure allows easy access to international capital markets. This facilitates the efficient raising of funds and enhances liquidity for securitisation transactions.

Global recognition
The jurisdiction is recognised globally as a leading financial centre, attracting a diverse range of international investors. This contributes to the attractiveness of Luxembourg as a jurisdiction for securitisation activities.

While Luxembourg offers numerous advantages for securitisation, it is essential to consider potential challenges and regulatory compliance requirements. Stakeholders should carefully navigate the legal and regulatory landscape to ensure that they adhere to reporting obligations and transparency standards.
 
The growing interest in incorporating securitisation vehicles can be attributed to a combination of regulatory advantages, tax efficiency, legal security, and access to global capital markets. As financial markets evolve, Luxembourg continues to position itself as a preferred destination for securitisation transactions, offering a conducive environment for innovation and growth in the financial sector. As with any financial decision, potential stakeholders should seek professional advice to navigate the complexities in order to achieve the best results.