Earlier this year, the Luxembourg regulator adopted a series of measures to allow the continuation of cross border business in the case of a “hard Brexit,” aimed specifically at UK-based fund managers managing Luxembourg based vehicles. Further certainty has now been provided on this regime, allowing UK managers to take advantage of this transitional period for 12 months following the date of a hard Brexit.
UK AIFMs Managing a Luxembourg AIF In two recent press releases published on 15th July 2019 (Press Release 19/33 and 19/34), the CSSF has outlined the mandatory notifications required to be made by UK firms operating in Luxembourg, and by investment funds and their managers in the context of Brexit. These notifications apply to managers currently authorised under the AIFM Directive 2011/61/EU (“UK AIFMs”) that are managing Luxembourg domiciled vehicles.
In order to continue operating in the case of a hard Brexit, such authorised managers should notify the CSSF of their intention to continue to provide services to a Luxembourg fund by 15th September 2019. This should be followed by a corresponding application for approval to the CSSF by 31st October 2019.
On satisfactory review, the CSSF will give UK firms, on a case-by-case basis, access to management rights with respect to Luxembourg funds for a transitional period of 12 months. After the transition period, it is likely that UK managers will need to apply directly for authorisation by the CSSF, and those that are not authorised will be required to cease all business.
It is important to note that this regime will only be available to managers of existing funds, not for funds proposed to be launched within the 12 month transition period following a hard Brexit.
Marketing in the European Union While the CSSF in Luxembourg can unilaterally provide the permission for the management of Luxembourg AIFs, an open-ended Luxembourg fund managed by a UK AIFM will lose its marketing passport in the case of a hard Brexit. New funds coming to market will also have to revert back to the National Private Placement Regime, as UK AIFMs will not be able to take advantage of the marketing passport in the European Union once the UK becomes a third country.
To avoid this scenario, managers are able to appoint a host-AIFM in Luxembourg, with portfolio management delegated back to the UK. The delegation model has been secured following the FCA’s agreement of a Memorandum of Understanding with ESMA.
If you would to discuss operational considerations for a Luxembourg domiciled investment fund, please do get in touch with a member of our team.
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