European Union: ESMA And Luxembourg CSSF Updates: Multilateral MoU And Delegation Of Portfolio Management And Risk Management Activities In The Context Of Brexit

On 25 January 2019, Luxembourg's financial regulator, the Commission de Surveillance du Secteur Financier (the "CSSF"), issued a press release in relation to the delegation of portfolio management and / or risk management activities to undertakings in the United Kingdom ("UK")1.

The press release is a welcome development and provides reassurance to the fund industry in respect of existing and future delegation arrangements in light of the continuing uncertainty surrounding Brexit.

On 1 February 2019, additional relief in respect of existing and future delegation arrangements was provided when the European Securities and Markets Authorities ("ESMA") issued a press release confirming that ESMA and the European securities regulators have agreed a multilateral memorandum of understanding ("MMoU") with the Financial Conduct Authority (the "FCA"), thereby securing post-Brexit delegation of portfolio management and/or risk management activities to undertakings located in the UK.

Background

Following the UK's 2016 referendum, there was a concern that UCITS management companies and alternative investment fund managers ("AIFMs") may not be permitted to continue delegating certain key functions (typically the portfolio management function) to asset managers located in the UK.

This concern was primarily the result of various legislative provisions2 which only permit the delegation of certain functions to entities located in third countries under certain conditions, among which, the condition that cooperation between the CSSF and the competent authority of that third country is ensured. In practice, this requires a memorandum of understanding ("MoU") to be in place between the CSSF and the competent authority of the relevant third country.

Such cooperation in the form of a MoU does not exist between the CSSF and the FCA. However, the CSSF's press release confirmed that the CSSF and FCA are currently seeking to address and rectify this in order to ensure that the relevant cooperation arrangements are in place before 29 March 2019.

Provisions in Applicable Legislation

In its press release, the CSSF took the opportunity to remind the fund industry that Luxembourg law permits the delegation of portfolio management and / or risk management activities to undertakings in countries located outside the European Union ("EU"), provided the following conditions are satisfied:

a. the third country undertaking is authorised or registered for the purpose of asset management;
b. the third country undertaking is subject to prudential supervision; and
c. cooperation between the CSSF and the relevant third country's competent authority is ensured.

The CSSF also clarified that, in the event of a no-deal Brexit, in which case the UK will become a third country, Article 110 of the 2010 Law 3, Article 18 of the 2013 Law4 and Article 42b of the 2007 Law5 would apply to asset managers located in the UK. Therefore, on the basis that the UK satisfies and continues to satisfy the conditions set out in the preceding paragraph, UCITS management companies and AIFMs may continue to delegate these functions to entities located in the UK.

Cooperation Between the CSSF and the FCA

The press release suggested that the CSSF had already started discussions with the FCA in order to have the necessary MoU in place by 29 March 2019, with the CSSF confirming that it will endeavour to have "...the required cooperation between the UK FCA and the CSSF...in place on 29 March 2019 in the event of a "no deal" Brexit.".

ESMA Press Release

As noted above, on 1 February 2019, ESMA issued a press release confirming that a MMoU has been agreed with the FCA but that it will only take effect in the event of a no-deal Brexit.  The MMoU covers supervisory cooperation, enforcement and information exchange between individual European regulators and the FCA and will allow them to continue sharing information relating, but not limited, to market surveillance, investment services and asset management activities.

Conclusion

Asset management firms will take comfort that, in the case of a hard Brexit, they will continue to be able to delegate certain core functions to their FCA regulated UK entities which means, in essence, that current operating models will remain in place.  Please note, however, that a no-deal Brexit would preclude UK asset managers from, among others, acting as management companies to UCITS and to Luxembourg RAIFs and would have negative consequences in relation to marketing arrangements. 

Footnotes

1 CSSF press release 19/05 of 25 January 2019.

2 Specifically, Article 110 of the law of 17 December 2010 on undertakings for collective investments, Article 18 of the law of 12 July 2013 on alternative investment fund managers and Article 42b of the law of 13 February 2007 on specialised investment funds.

3 The law of 17 December 2010 on undertakings for collective investments.

4 The law of 12 July 2013 on alternative investment fund managers.

5 The law of 13 February 2007 on specialised investment funds.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions