On 27 November 2015, the Luxembourg supervisory authority for the financial sector (Commission de surveillance du secteur financier – CSSF) released its Regulation No. 15-03 (Regulation) laying down detailed rules for the application of Article 46 of the law of 12 July 2013 on alternative investment fund managers (AIFM Law) regarding the marketing of foreign alternative investment funds to retail investors in Luxembourg. Foreign AIFs covered by the Regulation Foreign AIFs within the meaning of the CSSF Regulation are AIFs established in another Member State of the European Union or in a third country. The Regulation applies to the marketing to retail investors located in Luxembourg of foreign AIFs managed by: • a Luxembourg based authorised AIFM; • an AIFM based and authorised in another Member State of the European Union; or • an AIFM based and authorised in a third country upon extension of the AIFMD to third countries. Scope of investors • The Regulation does not apply to the marketing of foreign AIFs to the following types of investors: • well-informed investors within the meaning of the Luxembourg SIF and SICAR laws; • eligible investors within the meaning of the EU Regulation on European Venture Capital Funds (EuVECA); 30 November 2015 Luxembourg regulator issues rules applicable to the distribution of foreign AIFs to Luxembourg-based retail investors Newsflash 2 • eligible investors within the meaning of the EU Regulation on European Social Entrepreneurship Funds (EuSEF); and • eligible investors within the meaning of the EU Regulation on European long-term investment funds (ELTIF). Prior CSSF authorisation required Foreign AIFs must obtain authorisation from the CSSF prior to commencing marketing to Luxembourg-based retail investors, following which they will be registered on a dedicated CSSF list. Any authorisation from the CSSF for marketing the foreign AIF to Luxembourg-based retail investors will only be granted after the AIFMD notification procedure for marketing to professional investors has been completed. Information required The request for authorisation to be filed with the CSSF has to be supplemented with the following: • a confirmation issued by the supervisory authority of the home Member State of the foreign AIF to the effect that the AIF has been authorised and is subject to permanent supervision in its home Member State; • an addendum to the AIF’s issuing document or prospectus containing information specific to the marketing in Luxembourg; • the last annual report of the foreign AIF; • biographies of the members of management of the foreign AIF; • draft agreement to be entered into between the foreign AIF and a Luxembourg-based paying agent; and • to the extent the foreign AIF is a feeder AIF, information on the master AIF, including the country where the latter is established, its constitutional documents, and its issuing document or prospectus. The Luxembourg-specific addendum mentioned above shall, in addition to any other information the CSSF may request in connection with the authorisation request, include the information necessary for Luxembourg investors to enable them to make an informed judgment of the investment proposed, including: • appropriate risk disclosures in respect of the foreign AIF’s investment policy; • information on the fees and commissions that investors may be charged; • contact details and role of the Luxembourg-based paying agent from whom investors can request the subscription, redemption or conversion of their interests or shares; • where the latest issuing document or prospectus of the foreign AIF, as well as its constitutional documents and latest financial reports are available; • how the NAV of the foreign AIF will be published; and • the name of the Luxembourg newspaper in which investor notices will be published. 3 Requirements for marketing authorisation In addition to requiring that the foreign AIF be in its home State subject to regulation providing investors guarantees of protection, and be subject to supervision considered by the CSSF to be at least equivalent to those provided by or in Luxembourg laws governing AIFs authorised to be marketed to retail investors in Luxembourg, the CSSF requires that: • the AIF be managed by a single AIFM, either a Luxembourg-based AIFM authorised under the AIFM Law, or an AIFM authorised under the AIFMD and located in another home Member State or in a third country; • to the extent the foreign AIF is a feeder AIF, the master AIF must in its home State be subject to a permanent supervision by a competent supervisory authority (the cooperation between such authority and the CSSF must be ensured) providing investors guarantees of protection; and • the foreign AIF shall communicate to the CSSF any material change in the documents or information filed with the CSSF in connection with the authorisation request. Types and investment restrictions of foreign AIFs eligible for marketing to Luxembourg-based retail investors Subject to any derogation granted expressly in consideration of a specific investment policy, the CSSF requires that the following rules be complied with: Subscription and redemption price: the foreign AIF must calculate its subscription and redemption price at least once monthly. Risk diversification: the foreign AIF must be sufficiently diversified and at least comply with the following: Securities • not more than 10% of the assets can be invested in non-listed securities or not subject to any dealing on another recognized regulated market; • not more than 10% of securities of the same type and issued by the same issuer can be acquired; • not more than 20% of the assets can be invested in securities of the same issuer; provided that these restrictions do not apply in case of investment in securities guaranteed by a Member State of the OECD or its regional or local authorities or by EU, regional or global supranational institutions and bodies, or investments in target UCIs that are subject to risk-spreading requirements at least comparable to those applicable to UCIs governed by part II of the law of 17 December 2010 on undertakings for collective investment (2010 Law). Leverage The borrowings of the foreign AIF shall not exceed 25% of its net assets, subject to the aggregate leverage of a foreign AIF investing in real estate on average not exceeding 50% of the aggregate value of all real properties. 4 Financial derivatives When using financial derivative instruments, the foreign AIF must ensure, via appropriate diversification of the underlying assets, a similar level of risk-spreading. In addition, the foreign AIF shall be subject to risk-spreading requirements and investment restrictions at least comparable to those applicable to UCIs governed by part II of the law of 2010 Law adopting an alternative investment strategy. Real estate The foreign AIF cannot invest more than 20% of its assets in a single real property. Rules for subscriptions and redemptions; distributions; documentation A foreign AIF authorised for marketing its securities to retail investors in Luxembourg must: • appoint a credit institution to ensure that any payments to investors, as well as the subscription and redemption of interests or shares, are being made in or out from Luxembourg; and • take any measure so as to ensure that any information or documents it is required to make available will be made available to investors in Luxembourg in either English, French, German or Luxembourgish (such information could e.g. be made available via a specific web site). Local marketing rules Any foreign AIF marketing its interests or shares to retail investors in Luxembourg must also abide by the Luxembourg law of 8 April 2011 introducing a consumer code. Cessation of marketing To the extent a foreign AIF decides not to market its interests or shares anymore to retail investors in Luxembourg, the CSSF will need to be informed and thereupon such AIF will be removed from the relevant CSSF list. Publication and entry into force of Regulation The Regulation will enter into force on the first day of the month following its publication in the Mémorial, the Luxembourg official gazette. Foreign UCIs other than UCITS, which have been authorised to market their shares to retail investors in Luxembourg are by operation of law authorised under this Regulation once it enters into force. www.loyensloeff.lu Although this publication has been compiled with great care, Loyens & Loeff Luxembourg S.à r.l. and all other entities, partnerships, persons and practices trading under the name “Loyens & Loeff”, cannot accept any liability for the consequences of making use of this issue without their cooperation. The information provided is intended as general information and cannot be regarded as advice. Disclaimer For further information, please contact your regular adviser at Loyens & Loeff or: Marc Meyers T: +352 466 230 306 E: firstname.lastname@example.org Thibaut Partsch T: +352 466 230 233 E: email@example.com Loyens & Loeff Luxembourg S.à r.l. Avocats à la Cour 18-20, rue Edward Steichen L-2540 Luxembourg tel: +352 466 230 fax: +352 466 234 www.loyensloeff.lu Loyens & Loeff is a leading Luxembourg law firm providing comprehensive and fully integrated legal and tax advice on corporate and commercial law, banking and finance, investment management, M&A, private equity, real estate, tax law and litigation. Our clients include private and public companies, financial institutions, investment funds and family offices. Our office is part of a worldwide network of 13 offices with around 800 legal and tax experts.