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Luxembourg Modernized Securitization Law

by | Feb 18, 2022 | Securitization

The Luxembourg Modernized Securitization Law
On 9 February 2022, the Luxembourg Parliament approved and adopted the bill amending the Law of 22 March 2004 (Securitization Law). The new granted law delivers greater flexibility to Luxembourg securitization vehicles through the introduction of a series of major changes being adopted much earlier than originally planned. Given the accelerated progress of the Luxembourg Securitization Law, legislators were keen to ensure the amendments are to take effect early this year.

While the old Luxembourg Securitization Law has already proven itself an effective and renowned framework for structured financial transactions, amendments are extremely detailed compared to the previous update. The changes are designed to further improve and clarify market participants across all securitization transactions.

Some key pointers under the newly-amended Securitization Law are as follows:

  • Previously, the core of financing needed to be provided through the issuance of securities. Under the new law, a securitization vehicle can finance itself and can be extended to any form of financial instruments and loans.
  • A securitization vehicle in the form of a company may choose from more legal forms including various types of partnerships.
  • The Modernized Security Law delineates what is to be defined as a public offering on a continuous basis, which in turn triggers the supervision of a securitization vehicle by the Luxembourg Commission for the Supervision of the Financial Sector (CSSF).
  • Active management of receivables and financial debt instruments held by securitization vehicle is allowed for transaction where issued financial instruments cannot be offered to the public. This is a significant change that allows for Collaterized Loan Obligation structures.
  • Within the context of securitization  transactions financed by the issuance of equity, the amended law foresees the accounts can be approved at compartment level, including legal reserves and decisions on distribution of reserves.
  • The amended law also introduces ranking between financial instruments issued by a securitization vehicle.
  • Securitization funds are now subject to registrations with the Luxembourg Register of Commerce and Companies.

A more in-depth look at the Luxembourg Modernized Securitization Law are as follows:

  • Issuance of Financial Instruments in a More Comprehensive Scope

Under the former Securitization Law, special purpose vehicles may only issue instruments that are clearly categorized as securities. Amendments created the distinction between the law of special purpose vehicles and the law of relevant funding instruments, so that if the latter did not define the issued instrument as securities, the issued instruments will therefore not be qualified as securities from the perspective of the Luxembourg Parliament.

The amended Securitization Law puts an end to legal uncertainties, clarifying that a Luxembourg special purpose vehicle is no longer limited to securities and cannot be financed by way of issuance of financial instruments in its broadest possible definition.

  • Active Management of Assets

One of the major considerations established by the new law is the possibility of management of assets acquired by a special purpose vehicle. Due to tax-neutrality being granted to special purpose vehicles and only being allowed for the transfer of risks from the originator to the investors without creating additional risks, former legislation did not allow for active management of assets.

With the new legislation, allowing active management of acquired assets in the form of collaterized loan obligations (CLOs) or debt securities (CDOs), legislators bring special purpose vehicles closer to the form of investment finds without the introduction of additional regulations, thereby achieving a greater level of flexibility.

  • “Offering of securities to the public on a continuous basis” finally clarified

Special purpose vehicles (SPVs) that offer securities to the public on a continuous basic must gain approval from the Luxembourg Commission for the Supervision of the Financial Sector (CSSF).

Formerly, the Commission for the Supervision of the Financial Sector (CSSF) established the criteria for presuming an offer of securities to the public on a continuous basis. The Modernized Securitization Law establishes new conditions to determine if a financial instrument offer to the public may be granted.

On the issuance of financial instruments on a continuous basis

The issuance of financial instruments must be carried out on a continuous basis when a special purpose vehicle conducts more than three issuances to the public during any given financial year.

On the issuance of financial instruments to the public

The issuance of financial instruments to the public is open to the public under the following conditions

  1. The special purpose vehicle does not issue financial instruments to professional clients.
  2. Only when financial instruments whose denominations are less than EUR  100,000
  3. Only when financial instruments are not distributed as private placements.

Loan Financing Amendments

The new law allows for the financing of Luxembourg securitization special purpose vehicles through loans. Formerly, Luxembourh securitization special purpose vehicles were only financed by issuing securities. It was only on an ancillary basis that special purpose vehicles could resort to borrowing money.

Granting securities to third parties

Under the old securitization law, a Luxembourg securitization special purpose vehicle may only grant security to cover liabilities that entered into with a view of carrying out their securitization, or in some instances, for the benefit of investors This prohibited the granting of security interests in favor of third parties, such as in the case of a bank where the borrower is the parent company, and wherein proceeds will be used to invest in the special purpose vehicle.

Legal forms expansion

Under the former legal framework, a Luxembourg securitization special purpose vehicle may only be structured as a public limited company (SA), a partnership limited by shares (SCA), a private limited liability company (SARL), or a cooperative organized as a public limited liability company (ScoopSA).

Under the Modernized Securitization Law, securitization vehicle legal forms have expanded to include the following:

  • A general partnership (SNC) that is advantageous when structural flexibility and tax transparency are a requirement. A general partnership has a legal personality with the sponsors having the ability to retain control over its management functions.
  • A simplified public company (SAS) is highly advantageous due to its management flexibility feature, with the balance of powers between shareholders is a requirement.
  • A common limited partnership (SCS) is highly beneficial when tax transparency and structural flexibility are a requirement, but without a legal personality. Its sponsors may retain control over its management roles.
  • A special limited partnership (SCSp) is highly beneficial due to its tax transparency and excellent structural flexibility required, but without legal personality, with its sponsors maintaining control over its management responsibilities.

Legal subordination in securitization

The new Securitization Law delineates the riles of subordination and priority of rights applicable in securitization.

  • Units of a special purpose vehicle, organized as a fund, are subordinated to other financial instruments issued by a special purpose vehicle and loans granted to the special purpose vehicle.
  • Shares, corporate units, and partnership interests are subordinated to the beneficiary shares issued by it.
  • Beneficiary shares issued by a special purpose vehicle are subordinated to other financial instruments issued by an SPV are subordinated to fixed-income debt instruments issued by it.

Special Purpose Vehicles Organized as a Fund Registration Process

The new legislation introduces a legal obligation of Luxembourg securitization special purpose vehicles organized as funds to register with the Luxembourg Trade and Companies Register.

The Luxembourg Modernized Securitization Law brings excellent news for the country’s securitization landscape and will assist in its rapid growth. As a financial consulting company specializing in assisting foreign investors in establishing special purpose vehicles in Luxembourg, our team will be more than delighted to assist you in your securitization initiative. If you want an in-depth discussion about the new Securitization Law, reach out to a Damalion expert today.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

Damalion – Luxembourg

Luxembourg Modernized Securitization Law — Frequently Asked Questions (Legal)

For sponsors, arrangers and investors • This page provides concise legal answers on Luxembourg securitization under the Law of 22 March 2004, as amended (notably by the law of 9 February 2022). It is not tax or legal advice.

Last updated:

2025 practice points:

  • CSSF authorization is required only if issues to the public are made on a continuous basis (more than three public issues per financial year, on an all-compartment basis) and instruments meet public-offer conditions.
  • Issues are not to the public if reserved to professional clients, or if denominations are at least EUR 100,000, or if placed by private placement.
  • Active management of receivables and debt instruments is permitted when the securitization undertaking does not offer financial instruments to the public.

Frequently asked questions — legal answers

1) What is a Luxembourg securitization undertaking?
A securitization undertaking (SV) acquires risks relating to claims, other assets, or liabilities it assumes, and finances itself by issuing financial instruments or by borrowing. It is governed by the Law of 22 March 2004 on securitization, as amended.
2) Which legal forms can an SV take?
An SV may be set up as a company (SA, S.à r.l., SCA, SAS, SNC, SCS, SCSp, cooperative company in corporate form) or as a fund without legal personality managed by a management company.
3) What financing methods are allowed?
Since the modernization, an SV can be financed by issuing financial instruments in a broad sense (equity and debt-like) and by loans. There is no requirement that financing be limited to “securities.”
4) When is CSSF authorization required?
Authorization is required when an SV issues to the public on a continuous basis. “Continuous” means more than three public issues during a financial year, counting all compartments. An issue is to the public unless it is reserved to professional clients, has denominations of at least EUR 100,000, or is made by private placement.
5) Can an SV manage assets actively?
Yes. Active management of receivables and debt instruments is permitted if the SV does not offer its financial instruments to the public.
6) Are segregated compartments available?
Yes. An SV may create one or more compartments. Unless the constitutive documents provide otherwise, the assets and liabilities of each compartment are ring-fenced from the others.
7) Must a securitization fund be registered?
Yes. An SV organized as a fund must be entered in the Luxembourg Trade and Companies Register (RCS). The management company is identified.
8) What assets can be securitized?
Risks relating to claims, other assets (including movable and immovable property via risk transfer), or liabilities assumed by the SV. The law is asset-class neutral, subject to applicable sectoral rules (e.g., consumer credit, insurance).
9) What are the rules on granting security and guarantees?
An SV may grant security interests or guarantees if they relate to its securitization or are in the interest of investors. The modernization clarifies the ability to grant security in favor of third parties where appropriate to the transaction.
10) How does subordination work between instruments?
The law recognizes contractual ranking between financial instruments. By default, units of an SV organized as a fund are subordinated to other instruments and loans; shares and partnership interests may be subordinated to beneficiary shares; and beneficiary shares may be subordinated to debt instruments, subject to the constitutive documents.
11) Is there a prospectus or listing requirement?
There is no automatic requirement. Public offerings or admissions to trading may trigger EU Prospectus Regulation obligations. Private placements and qualified investor issues can rely on exemptions.
12) Does AIFMD apply?
An SV is generally outside the scope of AIFMD when it qualifies as a “securitization special purpose entity” under EU rules. If arrangements amount to collective investment management of capital raising for investment with a defined policy, AIFMD analysis is required.
13) What are the tax features of an SV company?
A securitization company is subject to corporate income tax and municipal business tax, but it may deduct commitments to investors, achieving tax neutrality in practice. Minimum net wealth tax may apply. No subscription tax is due.
14) What are the tax features of an SV fund?
A securitization fund is generally tax transparent for direct taxes in Luxembourg. Investor-level taxation depends on each investor’s situation and residence.
15) Are there withholding taxes on payments?
Luxembourg does not levy withholding tax on arm’s-length interest paid by an SV. Equity-like distributions follow general rules. Domestic withholding may apply in limited cases under specific regimes; check the current rules for resident individual recipients.
16) What governance and accounting rules apply?
Company-form SVs follow company law on accounts, approvals and audit thresholds. Fund-form SVs keep separate accounts per compartment where equity financing is used; approvals can be made at compartment level as permitted by law and the constitutive documents.
17) What disclosures are needed to investors?
Investors must receive clear information on the risk transfer, the compartment, ranking, eligible assets, and any active management. EU Securitization Regulation transparency, due-diligence and, if applicable, STS requirements must be observed.
18) How are “public” and “continuous” assessed in practice?
Count all public issues across compartments during the financial year. An offering to professional clients only, or with denominations ≥ EUR 100,000, or made by private placement, is not a public offer for these purposes. More than three public issues in the year is “continuous.”
19) Can an SV acquire assets directly or by sub-participation?
Yes. The law allows direct acquisition, assignment, sub-participation or other legally effective risk transfer methods. Perfection formalities follow the law governing the underlying claims and conflict-of-laws rules.
20) Does the Register of Beneficial Owners (RBE) apply?
Yes. Company-form SVs and management companies of fund-form SVs must comply with beneficial ownership registration and ongoing update duties under Luxembourg law.

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