The financial regulator in Luxembourg has turned up the heat on UK fintech and payment services firms, launching on-site inspections of companies that have chosen the European country as a post-Brexit base.
The Commission de Surveillance du Secteur Financier (CSSF) has begun conducting site visits to British fintech startups in Luxembourg, a process that previously only applied to asset management firms.
Luxembourg has become a popular destination for companies which provide payment or e-money services elsewhere in the EU, as they seek to retain so-called passporting rights after the Brexit.
Several prominent firms have chosen to set up shop in the affluent country, such as embattled digital bank Revolut. The digital bank applied for a licence in Luxembourg in September last year, and is awaiting approval before expanding its presence there.
Financial services consultancy Fscom warned that many UK fintechs will be unused to dealing with frequent visits from a regulator, and risk being unprepared.
The CSSF will test firms to see if they meet the requirements for holding authorisation in Luxembourg, including having board members present in the country and staff working at their registered address. Firms must also prove they are hitting targets to establish “a full presence” in the country, including on metrics such as revenue.
If a business is found to have contravened those requirements or deliberately misled the watchdog, the CSSF could levy significant fines.
“The CSSF is in no way a ‘soft touch’ regulator,” said James Borley, director at Fscom.
“It is open to having conversations with prospective applicants and will be pragmatic and work with firms to give them the best opportunity to comply and be successful, but it will come down hard on any business that thinks it can get away with having a ‘brass plate’ presence.”
Revolut has come under scrutiny from several regulators in recent months, including the Financial Conduct Authority.
It caused concerns by temporarily suspending one of its sanctions screening systems last year, and drew further negative publicity in March when a customer complained of a bungled £70,000 payment.
A Revolut spokesperson said it had “nothing to hide” from the regulator.