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Loyens & Loeff | Brexit: Luxembourg regulator clarifies actions to be taken in view of the end of the transitional period on 31 December 2020

The CSSF issued a press release on 7 December 2020 on the management of Luxembourg AIFs by UK AIFMs and the marketing of UK UCITS and AIFs in Luxembourg. UK AIFMs or impacted funds must take certain actions by 31 December 2020 at the latest to the extent no action has been taken so far.

Luxembourg investment funds managed by a UK AIFM should appoint an EU-27 manager in order to maintain the EU passporting rights.

Under limited circumstances Luxembourg AIFs whose direct or indirect investors are Professional Investors will be allowed to continue to be managed by their current UK managers, which will be considered as third-country managers.

Newly appointed EU-27 managers or current UK managers shall file new marketing notifications.

Context

Luxembourg published two laws on 8 April 2019 regarding measures to be taken in relation to the financial sector in the event of a withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union (the Brexit Laws). The purpose of the Brexit Laws was in particular to anticipate the loss of passporting rights for managers established in the UK which would result from a hard Brexit, since these entities would then be considered “third-country managers”. Please see our previous newsflash on the Brexit laws here.

The CSSF provided additional clarification by publishing inter alia Press Releases 19/48 and 19/54 on mandatory Brexit notifications. Please see our previous newsflash on Press Releases 19/48 and 19/54 here.

In view of the forthcoming end of the transitional period on 31 December 2020, the CSSF has just issued Press Release 20/56 providing additional clarification and extending the deadline set out in Press Release 19/54 to 31 December 2020.

Actions to be taken

UK AIFMs managing Luxembourg funds on a cross-border basis

  • Appointment of an EU-27 manager
    • The management body of any Luxembourg funds currently managed by a UK manager will need to appoint an EU-27 manager in order to maintain the EU passporting rights.
    • New notifications of cross-border management under Article 33 of the Directive 2011/61/EU (AIFMD) or Articles 16 to 21 of the Directive 2009/65/EC (UCITS Directive), as applicable, will need to be made in the home Member State of the newly appointed EU-27 manager.
    • Luxembourg regulated funds will need to inform the CSSF of such change of manager.
  •  Continuation of management by the current UK manager
    • Under limited circumstances Luxembourg alternative investment funds (AIFs) whose direct or indirect investors are professional or well-informed investors (Professional Investors) will be allowed to continue to be managed by their current UK managers, which will be considered as third-country managers and will lose the benefit of their existing passporting rights under the AIFMD as from 1st January 2021. Such UK managers are required to seek the approval of the Professional Investors of the AIFs they manage.
  •  Regulated funds shall provide the CSSF by email at brexitopc@cssf.lu with the following documents before 31 December 2020:
    •  a duly signed confirmation from the UK AIFM that all direct and indirect investors in the relevant AIF qualify as Professional Investors; and
    • a copy of the appropriate and duly signed resolutions (taken under the conditions required to amend the AIF’s constitutional documents) evidencing the approval of the Professional Investors; or
    • when circumstances justify a delay, an explanation of such circumstances as well as a copy of the appropriate convening notice sent to the Professional Investors.

UK AIFMs marketing funds into Luxembourg on a cross-border basis

De-notification under the regime currently applicable

  • The UK manager shall file a notification to withdraw from cross-border distribution into Luxembourg (de-notification) under the regime currently applicable and confirm to the CSSF whether (i) the fund (or any sub-fund thereof) to which the de-notification relates will retain Luxembourg investors and (ii) a new notification for marketing under the rules applicable after the transitional period will be submitted.

Re-registration obligations

1. Active marketing to professional investors has ceased, but the fund continues to retain investors established in Luxembourg

If the fund continues to retain investors established in Luxembourg, that fund is required to be registered with the CSSF to ensure that the CSSF remains informed and receives the relevant reporting for as long as investors established in Luxembourg are invested in such fund.

Such re-registration and reporting obligations do not apply to UK AIFs with an EU-27 AIFM currently notified for marketing in Luxembourg under Article 37 or Article 45 of the Luxembourg law of 12 July 2013 on alternative investment fund managers, as amended (the AIFM Law) (Article 31 or 32 of the AIFMD) if no further active marketing shall be pursued after 31 December 2020.

2. Active marketing to professional investors will continue after 1 January 2021

a) Appointment of an EU-27 manager in respect of a UK AIF

The newly appointed EU-27 manager shall file a new notification or request for authorization under the procedures applicable to such manager.

Marketing to professional investors in Luxembourg will need to be performed mainly under the provisions of Article 37 of the AIFM Law (Article 36 of the AIFMD).

The CSSF confirmed in the Press Release that a notification under Article 37 of the AIFM Law (Article 36 of the AIFMD) will automatically trigger the required de-notification mentioned above.

b) Continuation of management (and marketing) by the current UK manager of an EU AIF or third-country AIF (including UK AIFs)

UK AIFMs will be considered as third-country managers and lose the benefit of their existing passporting rights under the AIFMD.

Marketing to professional investors in Luxembourg will need to be performed mainly under the provisions of Article 45 of the AIFM Law (Article 42 of the AIFMD).

The CSSF confirmed in the Press Release that a notification under Article 45 of the AIFM Law (Article 42 of the AIFMD) will automatically trigger the required de-notification above mentioned.

3. Active marketing to retail investors will continue after 1 January 2021

Marketing to retail investors in Luxembourg will require an authorisation under Article 100(1) of the Luxembourg law dated 17 December 2010 on undertakings for collective investment, as amended, for UK or non-UK funds other than of the closed ended type managed by a UK manager or under Article 46 of the AIFM Law, for UK funds managed by a EU-27 manager. The CSSF further indicates that only regulated funds can be marketed under these articles.

Secondments

The CSSF confirmed that secondments of staff are possible, provided that (i) they comply with all applicable requirements, including a physical presence in Luxembourg albeit with the right to travel for professional purposes and (ii) the AIFM ascertains appropriate supervision over the secondees. If required, the reorganisation of the seconded functions should in principle occur prior to 31 December 2020.

Next steps

The relevant funds and UK AIFMs should assess their current situation and proceed with the relevant formalities and regulatory filings, as applicable, before 31 December 2020.

Author:

  • Marc Meyers, Partner | marc.meyers@loyensloeff.com
  • Pieter R Leguit, Partner | pieter.leguit@loyensloeff.com
  • Jérôme Mullmaier, Partner | jerome.mullmaier@loyensloeff.com
  • Christophe Boyer, Counsel | christophe.boyer@loyensloeff.com
  • Laure Mersch, Counsel | laure.mersch@loyensloeff.com
  • Veronica Aroutiunian, Senior Associate | veronica.aroutiunian@loyensloeff.com

Compliments of Loyens & Loeff – a member of the EACCNY.