1. Mandatory CSSF Brexit notifications
The Brexit Laws aim to address certain potential consequences of a situation whereby the UK leaves the EU in an uncoordinated manner on 31 October 2019, i.e. without concluding a withdrawal agreement based on Article 50(2) of the Treaty on the EU ("Hard Brexit").
These laws notably granted the CSSF the right to provide for a transitional regime, which would apply to firms providing management, investment and/or more general financial services in Luxembourg.
Indeed, in the case of a Hard Brexit, these firms will become "third-country entities" for the application of the EU legislation and they will lose the benefits derived from passporting rights provided for under the relevant EU Directives as from the date of the Hard Brexit.
On 15 July 2019, the CSSF published two press releases advising UK firms to take the necessary steps to benefit from the transitional regime provided in the Brexit Laws.
- - CSSF Press Release 19/34 targets undertakings for collective investment ("UCIs") and alternative investment fund managers ("AIFMs")/UCITS management companies ("UCITS ManCos") established in the UK that are currently providing services in Luxembourg under a valid EU passport;
- - CSSF Press Release 19/33 details the regime that will apply to firms that are currently authorised under CRD2, MiFID II3, PSD 24 or EMD5 in the UK ("UK Investment and Finance Firms").
2. UCIs and their managers in the context of Brexit
According to CSSF Press Release 19/34 and 19/43, all affected entities were required to notify the CSSF by 15 September 2019 of their intention and way forward to continue to provide services in Luxembourg in the case of a Hard Brexit through a dedicated notification portal, the eDesk Portal.
The targeted entities are firms licensed under the AIFM or the UCITS Directive and/or the related regulated Luxembourg AIFs that are currently providing services in Luxembourg under a valid EU passport and that are planning to continue to provide services under the relevant passports of the AIFM or the UCITS Directive.
In addition, by 31 October 2019 at the latest, these entities must submit to the CSSF:
- - the corresponding application for authorisation or, as the case may be,
- - the corresponding notification or information on any action taken otherwise, depending on the nature of the activities they intend to pursue after the occurrence of a Hard Brexit and/or the steps undertaken to address the loss of passporting rights.
Based on the information submitted, the CSSF may on a case-by-case basis grant affected UCIs and/or their manager, the possibility to continue their activities in Luxembourg for a limited period of 12 months after the occurrence of a Hard Brexit ("Transitional Regime"). Affected UCIs and/or their managers will be informed of their right to benefit from the Transitional Regime within 10 business days of the submission of the aforesaid application/notification.
Access to the Transitional Regime is subject to the condition that the Brexit notification and the subsequent application(s) and/or notification(s) have been submitted by the deadlines indicated.
Entities that are currently authorised in the UK under both the UCITS Directive and the AIFM Directive will be required to proceed with a Brexit notification for both licences.
Entities that have already submitted an application for authorisation with the CSSF in anticipation of a Hard Brexit are nevertheless required to submit a Brexit notification to the CSSF.
A dedicated CSSF email address is also provided for any other situation to be dealt with (firstname.lastname@example.org).
3. UK AIFMs of Luxembourg AIFs that have not completed the required Brexit notification by 15 September 2019
On 11 October, the CSSF published a new Press Release (CSSF Press Release 19/48) where it refers to UK AIFMs, which have not "as of date"6, submitted a Brexit notification through the eDesk portal ("eDesk Brexit Notification").
In that Press release, the CSSF recalls that in the event of a Hard Brexit, those UK AIFMs will not be entitled to benefit from the Transitional Regime, and as of 1 November 2019, they will be considered as third-country managers and they will lose the benefit of their existing passporting rights under the AIFM Directive.
The CSSF also highlights the fact that in order to be entitled to act as a third-country manager after the occurrence of a Hard Brexit, those UK AIFMs are required, before 31 October 2019, to seek the approval of the investors (and, as the case may be, of the bondholders) of the AIFs that they manage. However, this possibility is limited to AIFs whose investors are Professional Investors or Other Well-Informed Investors7.
In addition, before 31 October 2019, those UK managers will have to send to the CSSF (i) the documents evidencing the fact that they have obtained the approval of the investors, and (ii) the confirmation that all investors qualify as Professional Investors or Other Well-Informed Investors.
UK managers which do not comply with these requirements will be considered by the CSSF as operating in breach of the applicable requirements in Luxembourg as of the day of the Hard Brexit. The CSSF has threatened to publish a list of those non-compliant UK managers.
The possibility to act as a third-country manager is also given to UK AIFMs which have submitted the eDesk Brexit Notification in due time. Those managers are required in that case to comply with the requirements provided in the second part of the Press Release 19/48.
4. Specific case: Delegation of portfolio management by a UCITS ManCo/AIFM
No notification or any action is required for UK managers that manage or advise Luxembourg UCITS or AIFs under a delegation agreement entered into with the Luxembourg (or other EU 27) UCITS ManCo or AIFM of the relevant UCITS or AIFM. Indeed, these delegated management or advisory activities are not based on passporting rights, but on the specific delegation provisions of Article 110 of the UCI Law8 (Article 13 of the UCITS Directive) or Article 18 of the Luxembourg AIFM Law9 (Article 20 of the AIFM Directive).
1. The new laws in relation to the Luxembourg financial sector which were adopted on 8 April 2019 and will enter into force in the event that the UK leaves the EU without a withdrawal agreement.
6. On 14 October 2019, the eDesk Brexit Notification form (which was due on 15 September 2019) was still available on the CSSF website.
7. "Professional Investors or Other Well-Informed Investors" refer to professional investors as defined in the AIFM Directive and/or well-informed investors as defined in the Law of 15 June 2004 on investment companies in risk capital, the Law of 13 February 2007 on specialised investment funds, the Law of 23 July 2016 on reserved alternative investment funds or any other equivalent local law standard, when applicable.
8. "UCI Law" refers to the Law of 17 December 2010 on undertakings for collective investment, as amended.
9. "AIFM Law" refers to the Law of 12 July 2013 on Alternative Investment Fund Managers, as amended.
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.