Answer ... Alternative investment funds (AIFs) may be governed by one of the following ‘product laws’, depending on the structuring options and regime to which they are subject:
- Part II of the Law of 17 December 2010 relating to undertakings for collective investments (UCIs), as amended (‘UCI Law’);
- the Law of 15 June 2004 on investment companies in risk capital (société d’investissement en capital à risque), as amended (‘SICAR Law’);
- the Law of 13 February 2007 on specialised investment funds (fonds d’investissement spécialisé), as amended (‘SIF Law’); and
- the law of 23 July 2016 on reserved alternative investment funds (fonds d’investissement alternative réservé), as amended (‘RAIF Law’).
AIFs structured in a corporate form or a partnership are also subject to the Law of 10 August 1915 on commercial companies, as amended (‘Companies Law’).
AIFs can also be set up in the form of common or special limited partnerships without being subject to any product laws.
The Law of 12 July 2013 on alternative investment fund managers (‘AIFM Law’), which transposed Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on alternative investment fund managers (AIFMD) into Luxembourg law, is a cornerstone statute for the AIF industry, even though it does not directly regulate AIFs themselves, but only their managers.
Circulars and regulations issued by the Commission de Surveillance du Secteur Financier (CSSF), the Luxembourg supervisory authority, may also apply to AIFs which are subject to the prior and ongoing supervision of the CSSF.
Answer ... The following special regimes are available in Luxembourg, depending on the structuring requirements of the AIF (eg, types of assets, types of investors, investment restrictions or no limitations, regulated or non-regulated):
- Part II of the UCI Law;
- the SICAR Law - suitable for AIFs with a private equity and venture capital investment strategy. SICARs must invest in assets that qualify as ‘risk capital’ and are subject to the prior authorisation and ongoing supervision of the CSSF;
- the SIF Law - suitable for all types of asset classes (including private equity and venture capital). SIFs are subject to risk-spreading requirements and the prior and ongoing supervision of the CSSF; and
- the RAIF Law - this combines the advantages of the SICAR Law and the SIF Law without submitting the AIF to the prior authorisation and ongoing supervision of the CSSF. However, it is reserved to AIFs that have designated a fully authorised AIFM.
Other pan-EU special regimes may be available to some AIFs (and their managers), subject to the fulfilment of specific requirements as to their investment policy, portfolio composition, diversification and type of assets:
- EU Regulation 345/2013 of 17 April 2013 on European venture capital funds, as amended (‘EuVECA Regulation’);
- EU Regulation 346/2013 of 17 April 2013 on European social entrepreneurship funds, as amended (‘EuSEF Regulation’); and
- EU Regulation 2015/760 of 29 April 2015 on European long-term investment funds (‘ELTIF Regulation’).
Answer ... The purpose of the AIFM Law is to ensure that AIFs can be managed and marketed by AIFMs on a cross-border basis, while ensuring that there is always a nexus with the territory of Luxembourg.
The AIFM Law applies to:
- Luxembourg AIFMs which manage AIFs, irrespective of whether these AIFs are Luxembourg AIFs, EU AIFs or non-EU AIFs; and
- non-EU AIFMs which manage and/or market one or more AIFs established in the European Union or in a third country, where Luxembourg is defined as the member state of reference of the AIFM.
Answer ... The AIFMD has established a comprehensive legal framework for the authorisation, supervision and oversight of managers of AIFs. Although the AIFMD regulates AIFMs and not AIFs, its provisions are of relevance to the structuring of AIFs.
The AIFMD framework has been complemented by EU Commission Delegated Regulation 231/2013 of 19 December 2012 supplementing the AIFMD with regard to exemptions, general operating conditions, depositaries, leverage, transparency and supervision (‘AIFMD Level 2 Regulation’). Additional AIFMD Level 2 measures have also been adopted - in particular, EU Commission Regulation 447/2013, EU Commission Regulation 448/2013 and EU Commission Regulation (694/2014.
The following pan-European special regimes are directly applicable across all EU member states, including Luxembourg:
- the EuVECA Regulation, which provides a voluntary EU-wide passport for qualifying venture capital funds and their managers;
- the EuSEF Regulation, which provides a voluntary framework and label for social entrepreneurship funds at EU level; and
- the ELTIF Regulation, introducing a pan-European passport to managers of ELTIF funds allowing to market them to professional and retail investors.
Answer ... The CSSF is the Luxembourg supervisory authority of the financial sector, operating under the authority of the minister responsible for the financial sector.
As part of its mission with respect to AIFs, the CSSF is responsible for the authorisation and ongoing prudential supervision of regulated AIFs (ie, SICARs, SIFs and funds subject to Part II of the UCI Law), as well as AIFMs established in Luxembourg and authorised under the AIFM Law, irrespective of whether such AIFM manages and/or markets AIFs in another member state.
The CSSF has the power to make regulations and has supervisory and investigatory powers for the exercise of its functions. The CSSF may impose certain sanctions or administrative measures with respect to AIFMs and AIFs which are subject to its supervision, such as the following:
- to access documents and request additional information (including existing data records and telephone conversations);
- to carry out on-site inspections and investigations;
- to request the cessation of any illegal practice;
- to request the freezing or sequestration of assets;
- to temporarily prohibit the exercise of professional activities with respect to persons subject to its prudential supervision;
- to withdraw the authorisation granted to AIFMs and AIFs subject to its supervision; and
- to transmit information to the state prosecutor for criminal prosecution.
The CSSF may also impose on AIFMs:
- administrative fines of between €250 and €250,000; and
- a temporary or definitive prohibition on carrying out operations or activities.
It may further disclose such penalties to the public.
Answer ... The CSSF must cooperate with the competent authorities of other member states, as well with the European Securities and Markets Authority (ESMA) and the European Systemic Risk Board, in view of the accomplishment of their respective duties and powers under the AIFMD and AIFM Law, as applicable.
The CSSF shall provide the competent authorities of other member states and ESMA with the information required for the purpose of carrying out their respective duties under the AIFMD.
The CSSF is further authorised to transfer and retain personal data and exchange information with competent authorities of other member states when such information is relevant for them in monitoring the activities of AIFMs within the territory of the European Union.
The CSSF may also be required to cooperate with other competent authorities of member states in the conduct of their supervisory mission, or for an on-the-spot verification or an investigation in Luxembourg.