Potential impacts of the new Luxembourg law on alternative investment fund managers adopted on 10 July 20131, effective since 15 July 20131, and implementing the Directive 2011/61/EU of the European Parliament and of the Council of 27 May 2011 regarding alternative investment fund managers (the “AIFM Law”) on the Luxembourg Banking & Finance as well as the Capital Market sectors:
1) Private Placements
The AIFM Law impacts, inter alia, a so-called private placement in Luxembourg. A private placement consists in marketing of securities to a relatively small number of selected investors as a way of raising capital and, as such, does not principally fall within the scope of the Luxembourg law of 10 July 2005 on prospectuses for securities, as amended. In this respect, the Luxembourg supervisory authority of the financial sector (Commission de Surveillance du Sector Financier - the “CSSF”) confirms in its recently published Frequently Asked Questions (dated 19 July 20132) that both EU and non-EU alternative investment fund managers (the “AIFM”) may continue to market both their EU and non-EU alternative investment funds (the “AIFs”) in Luxembourg under the existing Luxembourg private placement rules while remaining unaffected by the provisions of the AIFM Law until 22 July 2014 (being, however, uncertain as to whether this applies only to existing placements and/or also to new placements of existing AIFs). Thereafter, the EU AIFMs will have to comply with the provisions of the AIFM Law, being an authorisation by or registration with the CSSF as an AIFM (if other criteria are met and/or relevant exemptions are not applicable). In addition, further to ESMA’s approval of centrally-negotiated co-operation arrangements with 34 non-EU securities regulators, the CSSF announced via press release on 31 May 2013 that it has signed a memorandum of understanding with each of these non-EU authorities such as, inter alia, Hong Kong, USA, Singapore, and Switzerland. As a consequence, those non-EU AIFMs may continue their marketing activities for EU and non-EU based AIFs in Luxembourg under the private placement regime until July 2015 (but after 22 July 2014 subject to the compliance of some requirements of the AIFM Law) and potentially with a passport thereafter.
2) New PSF
By amending the Luxembourg law of 5 April 1993 regarding the financial sector as amended (the “PSF Law”) the AIFM Law (laying down the mandatory appointment of an independent depositary by the AIFs) provides for a new category of professional in the financial sector (the “New PSF”), which will enable non-credit institutions to act as a depository for AIFs (new article 26-1); being the status of the “professional depositary of assets other than financial instruments.” This New PSF is allowed to act as depositary for Luxembourg SIFs, SICARs, and other AIFs governed by the AIFM Law which (i) have a lock-up period of five years as from the date of the initial investments, and (ii) in accordance with their investment policy, do not invest in assets which need to be held in custody or in non-listed entities or companies (e.g. investment capital funds or companies, venture capital funds or companies, real estate funds or companies) in order to eventually take their control. Depositaries of AIFs can also delegate to this New PSF the safekeeping of non-liquid assets or assets other than financial instruments. Only corporate entities having a minimum subscribed and paid-up share capital of EUR 500,000 can be authorised to act as professional depositary of assets other than financial instruments. This New PSF status can be combined with other PSF status, for example fund administrator or transfer agent, as long as the administrative and the depositary functions within the same entity are duly segregated in order to avoid any potential conflicts of interest. The AIFM Law also provides for the abolition of the PSF status of “managers of non-coordinated UCIs” effective as of 22 July 2014. This status is currently governed by article 28-8 of the PSF Law. The activity of this PSF is limited to the management of foreign non-UCITS funds. As the main part of such funds is qualified as AIFs under the AIFM Law, their management shall now only be entrusted to an AIFM duly authorised under the AIFM Law. As a consequence thereof and in order to continue their activity, managers of non-coordinated UCIs shall comply with the provisions of the AIFM Law and, in particular, shall apply for an authorisation to act as an AIFM prior to 22 July 2014. After this deadline, any existing manager of non-coordinated UCIs who has not been authorised as an AIFM will no longer be authorised to manage non-coordinated UCIs.
The AIFM Law generally does not apply to “securitisation special purpose entities”; however, as it refers to entities whose sole purpose is to carry on a securitisation within the meaning of article 1 (2) of Regulation (EC) 24/2009 of the European Central Bank of 19 December 2008 on statistical reporting. Compared to the Luxembourg law of 22 March 2004 on securitisation, as amended (the “Securitisation Law”), this European Central Bank regulation provides a much more detailed definition of securitisation and therefore it is not broad enough to cover the entire securitisation and structured finance business in Luxembourg. The Securitisation Law indeed provides a very broad definition of securitisation, which allows for almost any asset producing a regular flow of income or any risk to be securitised and consequently in light of this broad concept of securitisation, Luxembourg has become an attractive jurisdiction for structured finance and securitisation transactions over the last years. However, based on this broad concept of securitisation under the AIFM Law, certain vehicles may not necessarily, or at least not automatically, fall within the AIFM Law exemption on securitisation and thus there is a risk that such vehicles may indeed be classified as an AIF.