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CSSF publishes passporting requirements applicable to UK investment funds and fund managers after the end of the transition period

  • Luxembourg
  • United Kingdom
  • Brexit
  • Financial services and markets regulation
  • Investment funds and asset management
  • Financial services - Asset managers and funds

15-12-2020

On 7 December 2020, the Luxembourg Financial Supervisory Authority (“CSSF”) published a press release on arrangements following the end of the Brexit transition period (“TIP”) relating to the obligations of UK investment fund managers and UK funds in respect of:

  • cross-border management of funds in Luxembourg
  • cross-border distribution of funds into Luxembourg
  • delegation of portfolio management and risk management activities to UK entities
  • compliance with investment policy and eligibility issues
  • secondments of fund managers’ staff 

Management of Luxembourg funds on a cross-border basis by UK fund managers

In order to retain their passporting rights, all funds domiciled in Luxembourg must appoint an EU fund manager by 31 December 2020.  Any past notification of cross-border management of funds will terminate on 31 December 2020. The EU fund manager must submit a new notification in accordance with Article 33 of AIFMD or Articles 16 to 21 of the UCITS Directive in its home state.

Subject to notifying the CSSF by 31 December 2020, under limited circumstances it might be possible for current UK managers to continue to manage Luxembourg AIFs (without passporting rights) in accordance with the rules described in CSSF press release 19/48.

Management of UK funds on a cross-border basis by Luxembourg fund managers

All Luxembourg fund managers currently managing funds established in the UK or operating in the UK through a branch who would like to continue to provide management services must give notice that they intend to participate in the UK Temporary Permissions Regime (“TPR”) and inform the CSSF accordingly[1].

After the end of the TIP, the CSSF considers that UK UCITS will be non-EEA AIFs, notwithstanding that in the UK, UK UCITS will be UCITS.  Accordingly the CSSF requires Luxembourg fund managers which want to continue to manage UK UCITS after 31 December 2020 to be authorised as AIFMs and the CSSF is further insisting that the contractual agreements between Luxembourg AIFMs and UK UCITS must include requirements on the UK UCITS to comply with AIFMD as necessary.

See our client briefing “FCA temporary permissions regime (TPR) notification window re-opens”.

Cross-border distribution of funds in Luxembourg

UK funds previously distributed in Luxembourg must:

De-register

Withdraw the current cross-border marketing notification indicating whether the fund will retain Luxembourg investors and whether a notification under the new marketing regime will be submitted.

New notification

The fund manager must re-register or request authorisation under the Luxembourg Law of 17 December 2010 related to undertakings for collective investments in transferable securities (“UCITS Law”) or the Luxembourg Law of 12 July 2013 on alternative investment fund managers (“AIFM Law”) taking into account that as of 1 January 2021: 

  • UK AIFs automatically and in all instances become third-country AIFs
  • provided they meet AIF criteria, all UK UCITS become AIFs
  • UK managers automatically and in all instances become third-country managers

Delegation of portfolio management and risk management activities to UK entities

There is a memorandum of understanding between the CSSF and the FCA[2] which covers supervisory cooperation, enforcement, and information exchange between regulators enabling delegation of portfolio or risk management functions to UK entities. A Luxembourg entity may delegate portfolio or risk management functions to a UK firm if it is:

  • authorised or registered for the purpose of asset management in the UK
  • subject to prudential supervision in the UK

Investment breaches and eligible assets

Following the end of the TIP it will no longer be possible to characterise non-compliance with investment rules or policies as a result of the withdrawal of the UK from the EU as circumstances beyond the control of a party for Art 49(2) UCITS Law.  From 1 January 2021 these will be considered active breaches.

The CCSF drew attention to two possible issues around eligible assets after the end of the TIP:

UK master-Luxembourg feeder structures  

A Luxembourg UCITS cannot invest more than 30% of its assets into a UK UCITS, which will be considered an “other UCI” for the purposes of the UCITS Law.

Money market funds (MMFs)

UK credit institutions will not be considered subject to prudential rules equivalent to European Union rules, so deposits with UK credit institutions will not be considered eligible investments for MMFs.  

Secondments of fund manager staff

The CSSF has confirmed that Luxembourg fund managers may second staff from their UK sister funds for the provision of collective portfolio management services provided:

  • the CSSF is notified in advance
  • the seconded staff are physically present in Luxembourg

The CSSF pointed out that in light of the end of the TIP it is necessary to reorganise functions (and in particular marketing functions) staffed with secondees from the UK who are not physically present in Luxembourg.  In principle, such reorganisation must occur before 1 January 2021, however, the current pandemic situation can be taken into account when doing so.



[1]  Please refer to CSSF press release 19/05 and CSSF press release 20/23 as well as the FCA website for more details.

[2]  Please refer to ESMA press release dated 17 July 2020 for more details.