Luxembourg's financial regulator, the Commission de Surveillance du Secteur Financier, published on August 23 CSSF Circular 18/697 on organisational requirements applicable to depositaries of funds that are not subject to the UCITS rules set out in Part I of the investment fund legislation of December 17, 2010 and to their branches.
The circular amends Circular CSSF 16/644 regarding the provisions applicable to banks acting as UCITS depositaries under Part I of the 2010 legislation or their management companies, as well as Circular IML 91/75 (in turn amended by Circular CSSF 05/177) regarding the revision and remodelling of the rules governing Luxembourg funds under the law of March 30, 1988.
The new circular, which will come into force on January 1, 2019, is applicable to all non-UCITS Luxembourg depositaries, as well as EU banks and investment firms or their branches that are currently providing depositary services in Luxembourg, or intend to apply for an authorisation to do so in the future, to three categories of non-retail funds.
These comprise alternative investment funds managed by an authorised management company or alternative investment fund manager; Luxembourg Part II funds managed by a fully authorised or registered AIFM that stipulate in their constitutive documents that they are not distributed to retail investors established in Luxembourg; and specialised investment funds (SIFs) and risk capital investment vehicles (SICARs) that do not qualify as AIFs or that do so and are managed by a registered AIFM.
Most of the rules set out in the circular supplement the AIFMD transposition legislation of July 12, 2013 and the Commission’s level 2 delegated regulation (EU) 231/2013 regarding depositaries, clarifying the organisational requirements of the categories of depositary covered.
These include the eligibility criteria for AIF depositaries, segregation rules, depositary rights of pledges, and the rules to be followed when providing services to funds that invest in assets including real estate, private equity, tangible assets and financial derivatives.
The circular also requires the alternative fund to ensure that on its appointment and on an ongoing basis the depositary has access without undue delay to all the relevant information it needs to comply with its obligations regarding depositary services for the AIF in question.
If the AIFM is not established in Luxembourg, the depositary must conclude a written agreement with it setting out the flow of information necessary for it to perform its functions, notably regarding the safekeeping of assets, monitoring of the fund, and the legislative, regulatory and administrative provisions applicable to the depositary. The parties to the contract appointing the depositary may agree that all or part of the information required may be transmitted electronically.