Financial Companies Working Committee explained

Interview with Harald Thul

ILA’s Financial Companies Working Committee  promotes good governance in the targets of financial investments. In Luxembourg this means attention to the work of directors in sectors such as real estate and private equity, as well as other unregulated business. Working committee co-chair Harald Thul explained this group’s special role. 

“We focus on assisting directors of non-regulated financial companies work as effectively as they can within the Luxembourg context,” said Harald, who works with his fellow co-chair Tamas Mark. That means firms which work directly upstream to regulated financial firms, particularly those investing in private assets.

A regulated world

Although these businesses are not directly supervised by the CSSF, the BCL or the CAA, it is important that they are in line with regulatory requirements and market trends. Financial institutions and the clients they advise seek investment opportunities in healthy businesses, and they want them to meet ESG standards and to ensure regulatory requirements such as AML are applied. “This reality is reflected in the composition of our committee, where all currently work in the non-regulated sector but only after extensive experience with regulated businesses,” Harald said. 

The letters ESG sum-up the scale of the challenge for some companies. For example, a real estate firm will work to ensure that the properties it builds and runs have a low impact on the environment, that they contribute to society by being high quality, and that all financial transactions are legal and ethical. “You might be a director in a property company, receiving reports about the business, but often this can somewhat mask what is going on in the real world,” Harald said. “For example, a hotel owned by your company might have a problem with its façade, making it dangerous for staff, guests and local residents. It is our job as a committee to remind directors that this is their concern. Diversity and inclusion are other important areas that point out the importance of the “G” in ESG.”

ESG, substance, digitalisation…

As part of this, many of these businesses are having to position themselves within SFDR classifications, either with “light green” article 8 assets, impact-making article 9 assets or with a decision to not align with environmental standards, as described in article 6. “This is extremely important for directors as strategy and the policies implemented have to be clear to everyone, both within the business to ensure effective execution, but also outside, particularly towards the investor community,” Harald said. 

Questions around substance and tax must also be addressed. In businesses with assets distributed around Europe and beyond, there is a temptation to think in footloose terms, particularly with the pandemic having normalised remote working. The committee works to remind boards of these somewhat specialised types of company of need to maintain sufficient decision making in the Grand Duchy. How digital technology can be used to fulfil these and other tasks is also part of the committee’s remit, both in the how the companies operate and how their boards work.

Revised publication

The essence of the committee’s role is summarised in the recently updated publication “Directors FAQ – Luxembourg non-regulated entities”. This takes board members step-by-step through the key challenges faced by these special organisations, with suggestions for best practice responses. The committee also has input into the way ILA training sessions and events are organised. 

Ultimately, the group acts as an interface between companies and boards in the regulated and unregulated spaces. “Raising awareness, offering support, making connections: this is central to the work of the committee and ILA as a whole,” said Harald.