Private Banking Product Launch
Before a new product reaches private banking clients, the relevant actor must be identified. Article 37-1(2) of the Luxembourg law of 5 April 1993 on the financial sector, as amended (the “LFS”), applies to credit institutions and investment firms when they manufacture, offer or recommend financial instruments. A private-banking business carried out by a bank remains a credit institution, even when the bank provides investment services. Article 1 of the LFS provides the definitional framework, while Articles 24-1 to 24-9 of the LFS identify the investment-service categories relevant to investment firms, including investment advice, portfolio management, reception and transmission of orders or execution of orders.
Product governance then depends on what the firm actually does. The firm may manufacture the financial instrument, offer or recommend an instrument it does not manufacture, or combine both situations. A firm that manufactures financial instruments for sale to clients must maintain, operate and review a product approval process before the instrument is marketed or distributed. A firm that offers or recommends instruments it does not manufacture must obtain the necessary product information. It must also understand the instrument’s characteristics and identified target market. Where the entity recommends or distributes financial instruments, including fund units or shares, that activity must fall within its product governance perimeter.
Private Banking Product Approval: Three Steps Before Launch
First, define the governance perimeter. Identify whether the firm manufactures the financial instrument, offers or recommends an instrument it does not manufacture, or combines both situations. This classification determines the content of the product launch note under Article 37-1(2) of the LFS.
Second, document the approval decision. Record compliance input, risk input and operational readiness. The product launch note should show that the firm understands the product, the target market, the distribution channel and the operational capacity required before launch.
Third, block early implementation. For credit institutions, including banks active in private banking, Circular CSSF 12/552, point 183 states that no new activity may be undertaken unless authorised management has approved it, all relevant parties have been heard, and the required means are available. For investment firms, Circular CSSF 20/758, point 180 sets the same approval requirement.
Approval comes first. Launch comes last.
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References:
• Articles 1, 24-1 to 24-9 and 37-1 of the Luxembourg law of 5 April 1993 on the financial sector, as amended: https://www.cssf.lu/wp-content/uploads/L_050493_lsf.pdf
• Circular CSSF 12/552, point 183, and Circular CSSF 20/758, point 180: https://www.cssf.lu/wp-content/uploads/cssf12_552eng.pdf ; https://www.cssf.lu/wp-content/uploads/cssf20_758.pdf
