In our Winter Bulletin, we summarised some of the key developments relevant to our clients doing business in Europe. In this edition, we revisit some of those developments that either have attracted renewed regulatory attention or that are at a key stage in their implementation. We also review certain other important developments with a market-wide impact.

There are a few areas, which are not discussed in this note, but we anticipate will be at the forefront of regulators' priorities in the coming months. These include firms dealing with systems and controls in relation to money laundering, financial crime and suspicious transactions, market abuse, and issues around supervisory convergence and oversight.

In the US, a significant development will be the introduction of the California Consumer Privacy Act ("CCPA") from 1 January 2020. The CCPA will apply to private fund managers doing business (which is defined broadly) in California that have gross annual revenue in excess of $25 million, and collect, process, use or share "personal information" from consumers. See our recent KirklandAIM, which examines the impact of the CCPA to fund managers.


There have been significant political changes in the past few weeks in the UK but as things stand, unless a deal or an extension is agreed to by the leaders of the European Union ("EU") and the UK's new Prime Minister, Boris Johnson, there is a possibility that the UK will leave the EU on31 October 2019 without a deal (a "hard"or no-deal Brexit) and without a transitional period. In such a scenario, UK-regulated firms currently benefitting from a passport will lose their ability to provide cross-border services into EU countries on a passported basis with immediate effect. This will include any services or activities currently carried out by the firm in one or more EU countries that are licensable under the Alternative Investment Fund Managers Directive ("AIFMD") and the revised Markets in Financial Instruments Directive ("MiFID II").

Regulators in the EU and the UK have signed memoranda of understanding in an effort to mitigate the effect of a hard Brexit on the financial services industry. Various EU regulators have also issued guidance on any temporary relief that may be available to UK firms in the event of a hard Brexit.


Recently, the Luxembourg regulatory authority, Commission de Surveillance du Secteur Financier ("CSSF"), issued further guidance for UK firms providing cross-border services into Luxembourg in a hard Brexit scenario. It notes that UK alternative investment fund managers ("AIFMs") currently providing services in Luxembourg under an AIFMD or MiFID II passport (as well as under passports introduced by certain other EU directives) will first need to notify (through a dedicated portal) the CSSF no later than 15 September 2019 of their 'intentions and way forward' to address any consequences of a hard Brexit. As a second step, UK managers will need to submit an application for authorisation, notification and/or submit other required information (depending on the nature of activities they wish to pursue in Luxembourg) before 31 October 2019 to benefit from the 12-month transitional regime following the date of a hard Brexit.

The difficulty arises with the post-Brexit options the CSSF presents for UK AIFMs making the notification. These are:

  1. another legal entity will apply for authorisation/an additional license under the AIFMD in Luxembourg and will be appointed as the AIFM;
  2. another legal entity will apply for/already has an authorisation under the AIFMD in another EU country and will be appointed as the AIFM; and
  3. the Alternative Investment Fund ("AIF") will be liquidated before the end of the transitional period.

The current market practice in Luxembourg is that non-EU AIFMs may manage unregulated Luxembourg funds (not including Reserved Alternative Investment Funds) without needing authorisation under the AIFMD. We understand that the CSSF has distinguished the Brexit scenario on the basis that investors who had invested in the fund pre-Brexit had invested with the full protections of the AIFMD. For funds managed by other third country managers, investors had never enjoyed those protections. In particular, the key question is if UK AIFMs make the notification by 15 September 2019 to benefit from the transitional regime, then would it imply that after a hard Brexit, a UK AIFM may not manage the Luxembourg fund as a non-EU AIFM?

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