European Union: Further Luxembourg Bill Of Law In The Context Of Brexit: Treatment Of Breaches Of Investment Policies/Rules Resulting From Brexit And Marketing Of UK UCITS In Luxembourg

In anticipation of Brexit, draft bill No 7426 was deposited with the Luxembourg Parliament on 20 March 2019. The aim of the bill is to treat breaches of investment policies, rules or investment restrictions set out in the prospectus, the constitutional documents or the law and that result from the UK no longer being a Member State of the EU, or otherwise from a Brexit (irrespective of a "hard" or "soft" Brexit), as "passive" breaches that need to be remedied within a period not exceeding 12 months. The bill provides that the remedial action must be taken as soon as possible (within the 12 months deadline) taking into account the stability of the financial markets and the interests of the shareholders. The 12-month period to take remedial action is only accorded in relation to breaches resulting from positions held prior to the UK leaving the EU. The bill provides for a similar regime for Specialised Investment Funds.

The same bill provides that UK UCITS managed by a UK Management Company, that are currently authorised for marketing to retail investors in Luxembourg, may continue marketing to retail investors in Luxembourg for a period of 12 months from the date the UK leaves the EU. In case a UK UCITS is managed by a Management Company established in another EU Member State (i.e. not the UK), marketing to retail investors in Luxembourg remains possible only if the Management Company is also authorised as Alternative Investment Fund Manager.

As mentioned in our February 2019 Newsletter, draft bill No. 7401, which was deposited with the Luxembourg Parliament on 31 January 2019, provides that, in case of a hard Brexit, the CSSF may permit UK UCITS Management Companies and UK AIFMs to continue acting as a Management Company or an AIFM of Luxembourg UCITS or AIFs respectively. The use of the word "may" seems to imply that this may be at the CSSF's discretion and at this stage the bill does not give any details on the criteria that may or will be applied by the CSSF in that context. Thus it appears that this "permission" will be granted by the CSSF on a case by case basis and it is currently not clear whether, in the specific case of AIFMs and AIFs, the CSSF may or will treat UK AIFMs differently depending on whether they manage AIFs supervised by the CSSF (such as SIFs) or AIFs not supervised by the CSSF (such as RAIFs and SLPs). The process of how the CSSF will grant this permission to an UK Management Company or UK AIFM has also not yet been determined.

Both bills are subject to the usual legislative process and are subject to changes in the course of this process.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.