Regulatory certainty for the investment fund industry in view of the forthcoming end of the transitional period under Brexit

3 mn

In view of the departure of the United Kingdom from the EU on 1 February 2020 and the forthcoming end of the transitional period on 31 December 2020, the CSSF stated its expectations and rendered some clarifications through a press release published on 7 December 2020.

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1) Termination of passporting rights

The CSSF reminds market participants that passporting rights will be terminated as of 31 December 2020 at midnight and therefore be lost as of 1 January 2021. Passporting rights are twofold and can either relate to the management of funds or the distribution and marketing of funds or both.


Concerning the management passport, a Luxembourg fund currently managed by a UK manager shall appoint a new EU manager and proceed with the cross-border management notifications in accordance with the procedures applicable to that EU manager. In the case of a Luxembourg manager, the fund shall inform the CSSF of such change of manager.

Notwithstanding the above, the CSSF confirms that a UK manager may continue to manage Luxembourg funds to the extent that it has obtained investors’ consent and that all of the investors are professional investors (unless the change of manager as a result of Brexit was already contemplated in the fund’s documentation). Supporting documents needs to be notified by email to the CSSF.

Luxembourg managers currently managing funds established in the UK that wish to continue the provision of their management services in the UK are required to apply for authorisation under the FCA’s temporary permission’s regime and inform the CSSF of such application.

Considering that UK funds established as UCITS will no longer qualify as UK UCITS from 1 January 2020, Luxembourg managers of such UK funds must be authorised as an AIFM in Luxembourg in order to be able to continue to manage these funds after 31 December 2020.

As regards the lapse of the distribution passport, the CSSF expects to receive a notification to withdraw from the cross-border distribution into Luxembourg (de-notification) and a new notification or request for authorisation, as the case may be, as is required under the regime applicable to the newly appointed manager. Any de-notification to the CSSF must indicate whether the de-notifying fund (or any sub-fund thereof) will retain Luxembourg investors and whether a new notification for marketing under the rules applicable after the transitional period will be submitted. New notifications or requests for authorisation for cross-border marketing in Luxembourg must be made under the rules of the UCI Law or the AIFM Law, taking into consideration that a distinction must be made between marketing to professional investors and marketing to retail investors. In this context, the CSSF reminds that the marketing of UK-domiciled funds automatically qualifies as marketing of third-country AIFs in Luxembourg as UK managers will need to be considered as third-country managers as of 1 January 2021.


2) Delegation of investment management or risk management activities to the UK

The CSSF confirms that the delegation of portfolio management or risk management activities remains possible, provided that the delegate is authorised or registered for the purpose of asset management and is subject to prudential supervision. In addition, cooperation between the supervisory authority of this undertaking (e.g. the UK FCA) and the CSSF must be ensured. The CSSF refers in this context to the multilateral memorandum of understanding between ESMA and the EU national competent authorities on the one hand, and the FCA on the other hand; that will come into play as was announced by ESMA on 1 February 2019.


3) Compliance with investment policy and eligibility issues

The CSSF also clarifies that as of the end of the transitional period on 31 December 2020 at midnight, any issues of non-compliance with applicable investment rules or policies triggered by the withdrawal of the UK from the EU will be considered as active breaches for the purposes of CSSF Circular 02/77.


4) Secondments

Finally, the CSSF confirms that secondments of natural persons to a Luxembourg manager are acceptable provided they comply with all applicable requirements and that the investment fund manager ascertains appropriate supervision over the secondees. The CSSF explicitly requires the physical presence of the seconded staff in the premises of the Luxembourg investment fund manager, it being understood that travels for professional purposes are accepted. Moreover, the CSSF asks for prior notification by managers which make use or intend to make use of secondments.


To see the CSSF press release 20/26, click here_