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Inadequate outsourcing of administrative tasks by securitisation undertaking

Administrative Court of Appeal, 21 August 2013 (No 31952), District Court, 26 June 2014 (No 795/2014)

The inadequate outsourcing of certain administrative functions by a Luxembourg securitisation undertaking (Luxco) to an Northern Irish external service provider has provided an opportunity for both the Luxembourg Administrative Court of Appeal and the Luxembourg District Court to clarify some of the concepts of the Luxembourg Law of 22 March 2004 on securitisation, as amended (the Law of 2004). 

The rulings on key "organisational" requirements of Luxembourg securities laws, and subsequent statements by the CSSF concerning outsourcing, are relevant to all financial institutions operating in the securities market in Luxembourg.

Under the Law of 2004, a securitisation undertaking operating in Luxembourg and issuing securities to the public on a continuous basis must obtain authorisation1 by the Commission de Surveillance du Secteur Financier (the Luxembourg regulatory authority of the financial sector, the CSSF).

Luxco had been issuing bonds to the public since 2007, without a licence. The CSSF refused to grant an ex post licence to Luxco. CSSF considered that Luxco was in breach of the Law of 2004 as it lacked the "adequate organisation and adequate resources" to conduct its activities.2 One of the reasons for the CSSF's refusal related to Luxco's outsourcing of certain functions to a service provider in Northern Ireland.

Luxco had outsourced (without the CSSF's approval) the functions of "bond registrar, transfer agent, calculation agent and payment administrator" to the service provider (the Administrative Agent), which, according to the CSSF, made it virtually impossible for it to effectively perform its supervision duties over Luxco's central economic activities.

Administrative Court of Appeal

The CSSF's refusal has been upheld by the Luxembourg Administrative Court of Appeal (Cour administrative).
The Administrative Court of Appeal considered that the "adequate organisation and adequate resources" criterion implies that the securitisation undertaking must be able to respond effectively to the CSSF's requests for information, site investigations and inspections of documents. The outsourcing of the functions of the Administrative Agent to a company established in Northern Ireland should at least have been accompanied by a mechanism safeguarding the exchange of information between the delegated functions and the Luxembourg head office, which could have allowed the CSSF to adequately supervise the business.

Following the judgment of the Administrative Court of Appeal, the CSSF asked the Luxembourg District Court to pronounce the dissolution of Luxco and order its liquidation pursuant to article 39 (1) of the Law of 2004.3 The District Court however stayed the Luxembourg proceedings until after the completion of corresponding insolvency proceedings in the UK.4


The judgement of the Administrative Court of Appeal is the first to clarify some of the organisational requirements arising out of the Law of 2004 for secularisation undertakings, and strengthens the regulatory powers of the CSSF (and thus ultimately the efficiency of the supervision of the financial sector in Luxembourg).

As a result of this judgment, it will be of crucial importance for securitisation undertakings to have an organisational structure that complies with the Law of 2004. Among the reasons given by the Administrative Court of Appeal for upholding the CSSF's decision was the absence of CSSF's prior approval of the delegation of some of Luxco's functions to an external service provider, thus emphasising the risks associated with a failure to inform the CSSF prior to such outsourcing.

The CSSF has since indicated5 that technical functions of a securitisation undertaking (such as those of an Administrative Agent) may still be delegated to external service providers, including to providers not established in Luxembourg. Such delegation will however need to be accompanied by an information exchange mechanism between the Luxembourg head office and the service provider. It remains difficult, however, to predict precisely what characteristics such an information exchange mechanism should have in practice in order to meet the requirements of the "adequate organisation and adequate resources" criterion.

The CSSF has also indicated that the organisational structure of the securitisation undertaking must enable its managers to coordinate and monitor the functions delegated to the external service provider.

In order to guarantee the efficiency of the CSSF's supervision, all documents critical to the activities of a securities undertaking, such as accounting documents or other technical information, should be available at the CSSF's first request. According to the CSSF's guidance, the "administrative substance" of a securitisation undertaking should thus be available in Luxembourg.


1. Article 19 of the Law of 2004: "Securitisation undertakings which issue securities to the public on a continuous basis ("authorised securitisation undertakings") must be authorised by the Commission de Surveillance du Secteur Financier (hereinafter the "CSSF") to exercise their activities."
2. Article 20 (1) of the Law of 2004: "A securitisation undertaking shall be authorised only if the CSSF approves its articles of incorporation or the management regulations of the securitisation undertaking, and, as the case may be, authorises its management company. Securitisation companies and management companies of securitisation funds must have an adequate organisation and adequate resources to exercise their activities and to be supervised by the CSSF".
Article 39 (1) of the Law of 2004: "The district court dealing with commercial matters shall upon request from the public prosecutor, acting ex officio or at the request of the CSSF, pronounce the dissolution and order the liquidation of authorised securitisation undertakings whose entry on the list [of authorised securitisation undertakings] has been definitely refused or withdrawn."
The District Court held that the principle of recognition of insolvency proceedings opened in other EU Member States implies that national proceedings should not have a bearing on the effectiveness of judgments of a court of another Member State.
See “Frequently asked questions on securitisation” a document issued by the CSSF on 23 October 2013;, question 5, page 5, document only available in French.

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