EU Outlook for 2022
At EU level the second half of 2021 saw the Commission put a number of banking related proposals on the table, including the AML package, the review of the consumer credit directive but also and not insignificantly the banking package (including the Basel agreement) and the AIFMD of particular interest to depositary banks.
Looking towards 2022, the incoming French Presidency seems to have high ambitions when it comes to achieving results. And in financial services at least it is said in Brussels that they have booked over 80 meetings of the Financial Services Working Party. If finally confirmed that would be an impressive work schedule. But then the Presidency has an unusually high amount of legislative projects on their plate and feels the pressure to perform not only as a big Member State with significant resources, but also in order to show results during a year of national presidential elections back home. The French Permanent Representation has been significantly reinforced in Brussels and it seems with quite a number of young civil servants, who will undoubtedly see the EU Presidency as an opportunity to make their mark.
Work will shift into the next gear during the first half of 2022. Major progress if not a Council position is expected on the AML package, the CCD as well as the CMU package (including the AIFMD aspects on depositaries). While concluding Council negotiations on the banking package (including the Basel transposition) is unlikely given the complexity of the text, a strong effort towards significant progress can be expected.
On other files like the legislative proposals on digital operational resistance (DORA) and on crypto-assets (MiCA) trialogue negotiations between the three major EU institutions will begin and most likely conclude in the first half of 2022 so that the texts can be published in the EU’s official journal.
The Commission has nevertheless a number of new initiatives in store for 2022, among others a MiFID review regarding banks’ interaction with retail customers. An initiative on instant payments is also in store as well as one on sustainable corporate governance. Not to mention a package on bank crisis management and deposit insurance which might become fairly political. The transposition of the much-publicised global agreement on corporate taxation, as well as an attempt at the harmonisation of some aspects of insolvency law is also expected.
Realistically the French Presidency might start working on the MiFID review and sustainable corporate governance as these are expected for the first quarter. The rest might go to the following Czech Presidency.
Work is also expected to shift gears in the European Parliament when it comes to financial services files. We mentioned the AML package and the CCD review. Both have been held up by internal procedures in the European Parliament. These difficulties seem to have been resolved, and 2022 will see a strong focus on this work. The banking package of late October is also expected to dominate work in the EP in the coming year, with MEPs jockeying for key positions to influence the legislation. MEPs will also try to make a name for themselves as legislators on proposals of interest. Indeed with so many important financial services texts on the table, it is an opportunity to prove their worth in the European Parliament as well as towards their own constituents.
National outlook for 2022
At national level, in the wake of the recent Government reshuffle, our most immediate objective will be to present our priorities and concerns to the new Ministers of Finance and Labour with a view to continuing an open and constructive exchange of ideas and opinions on matters relevant to the financial centre.
A fair proportion of the legislative agenda in 2022 should be driven by the much-expected FATF on-site visit to Luxembourg, aimed at evaluating the effectiveness of country’s AML/CFT framework. The on-site visit has already been postponed several times due to Covid 19 and it is yet unclear as to when the visit will finally take place. The timing of the evaluation may be decided in the course if the next FATF plenary meeting due at the end of February 2022.
The adjustment of the reference period for the FATF evaluation has prompted an acceleration of the agenda towards the adoption, presumably in early 2022, of a number of critical pieces of legislation. These include the creation of a legal framework for the consignment of assets in dormant accounts, safe deposit boxes and insurance contracts, a new regime for the administrative winding-up of companies with no assets and employees, a modernisation of the legal framework for non-profit associations and foundations, as well as a transposition of the 6th EU AML directive and of a EU directive pertaining to the freezing and confiscation of criminal proceeds, the latter to entail the creation of a dedicated asset collection and management agency in Luxembourg.
Covid-related developments are also set to remain an important driver in 2022. A number of the financial support measures currently granted by the Government will not be continued after 31 December 2021. This includes Covid-19 bank loans guaranteed by the State. We may nevertheless expect progress in the long-awaited modernisation of insolvency law in Luxembourg, such reform to include much-needed early warning mechanisms to prevent financially distressed companies from being declared bankrupt. These measures would echo the EU directive on preventive restructuring, which has not yet been transposed.
We anticipate further developments around working from home, in particular with regard to the tax consequences attached to cross-border home working. We understand that the OECD will soon initiate a review of its Model Tax Convention and Commentary in that respect, and that this review will cover the taxation of both employees and employers. In addition, the issue of the French withholding tax on salaries will become increasingly relevant when the current, Covid-related, treaty exemption for days worked abroad will lapse.
A further push may be given to the modernisation of Luxembourg business law. We anticipate the release of draft legislation further enhancing the legal regime of financial collateral arrangements and we will further advocate for a relaxation of restrictions applicable to the capitalisation of interests for financial transactions among professionals. The review of the Civil Code initiated by the Minister of Justice is set to further progress in 2022 and may provide additional opportunities to modernise our legal framework in the longer term.
Looking deeper into 2022, it should be noted that the budget bill for 2023 will be the last budget before the legislative elections due in October 2023. While the last budget was largely shaped by the constraints resulting from the pandemic, the next budget may constitute a last opportunity towards the introduction of targeted tax incentives to support the attraction and retention of talent, digitalisation projects and sustainable investments, all priorities of the ABBL.