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Loans as eligible assets for UCITS funds: Luxembourg and the UK compared

  • United Kingdom
  • Luxembourg
  • Financial services and markets regulation - UCITS V
  • Financial services - Asset managers and funds



UCITS funds in Luxembourg and the UK are currently subject to the same EU laws. Although the UK has formally left the EU and the Brexit transition period ends on 31 December 2020, the UK’s ‘onshoring’ of the relevant laws means that the current  EU UCITS regime will continue to apply in both jurisdictions until such time as the UK chooses to diverge from it.

That being said, it is already the case that certain distinctions between the two jurisdictions exist. For instance, following a policy decision of the CSSF published on 7 August 2020, it seems that loan instruments may be eligible for investment by UK UCITS but not by Luxembourg UCITS.

Policy developments in Luxembourg

The CSSF updated its FAQ on the Luxembourg law of 17 December 2010 on undertakings collective investment (the “UCI Law”) on 7 August 2010.  A new Q&A 1.13 of the FAQ indicates that loan instruments are neither transferable securities nor money-market instruments within the meaning of applicable law and guidance and so may not be treated as eligible assets under Articles 41(1) and 41(2)(a) of the UCI law.

As a consequence, Luxembourg UCITS that currently invest in loan instruments are obliged to divest these holdings by 21 December 2020 – though it should be noted that such divestment must be carried out in a manner which takes into account the best interests of investors.

Further, Luxembourg UCITS must updated the prospectuses by 31 March 2021 to remove any references to loan instruments as a permitted asset class.

What is the UK position?

While a UK UCITS cannot engage in lending, it may acquire interests in loan instruments provided that these are structured either as transferable securities or as approved money-market instruments.  While a UK UCITS may invest in loan securities and debentures, the analysis of the eligibility of such assets can be complex and depends on the particular terms of the relevant instrument.  Prospective investments must therefore be considered on a case-by-case basis.

How Eversheds Sutherland can help

Our experienced retail funds team is able to advise you on the consequences of the CSSF’s updates to its FAQ and on the eligibility of particular loan instruments for UK UCITS. For further guidance on the impact on your business, please get in touch.

Our Brexit Tracker

Our Financial Services Brexit tracker “Helping you through changing times - Our European Brexit tracker for financial services institutions” provides a quick overview of the current position in relation to UK funds and UK fund managers seeking to sell services into EU27 countries after Brexit.