Luxembourg Draft Law No. 8628 (the “Draft Law”) transposes Directive (EU) 2024/927 into the law of 17 December 2010 on undertakings for collective investment (the “UCI Law”) and the law of 12 July 2013 on alternative investment fund managers (the “AIFM Law”), focusing on delegation, liquidity risk management, supervisory reporting, depositary and custody services, and lending by AIFs. The Draft Law amends both regimes to harmonise with the EU framework and strengthen investor protection.
The following summarises the key changes being proposed to the UCI Law.
Depositary and custody services
The Draft Law inserts a definition of "central securities depository" (“CSD”) by reference to the Regulation 909/2014 on improving securities settlement and central securities depositaries (“CSDR”) and clarifies that issuer CSD services are not a depositary delegation whereas investor CSD services are a delegation.
Liquidity management tools (LMT) framework
The Draft Law introduces a comprehensive LMT regime for UCITS:
it creates a new Chapter 5bis (Article 52-1) requiring UCITS to select at least two appropriate LMTs from Annex III (other than suspension and side pockets), provided that money market funds may select one.
annex III lists and defines LMTs: suspension; redemption gates; extended notice; redemption fees; swing pricing; dual pricing; anti-dilution levies; redemption in kind and side pockets.
redemption in kind when used as an LMT is limited to professional investors and if the redemption in kind corresponds to a proportion of the assets held by the UCITS (subject to narrow exceptions).
policies/procedures for activating/deactivating selected LMTs and operational arrangements are required and should be communicated to the CSSF.
Supervisory powers and cross-border coordination
The Draft Law updates Article 12 to authorise UCITS to activate/deactivate suspension and other LMTs and empowers the CSSF, in exceptional circumstances and after consultation, to require activation/deactivation of suspensions when needed for investor protection or financial stability.
If suspension is activated, the CSSF is to be informed without delay. Similarly, if any of the other LMTs (other than side pockets) are activated outside of the normal course of business, the CSSF is to be notified.
In the case of side pockets, the CSSF is to be informed prior to activation or deactivation.
The Draft Law further introduces cross-border request/refusal processes for suspension of UCITS by regulatory authorities and notification flows to home and host regulators.
Updates related to Management Companies
The Draft Law proposes material amendments to Chapter 15 (Management Companies) of the UCI Law, strengthening substance requirements, delegation oversight and supervisory reporting obligations:
UCITS Management Companies will now be allowed to carry out the ancillary services of reception and transmission of orders (bringing the regime into line with that applicable to AIFMs), any other function or activity already carried out by a management company in relation to a UCITS it manages or in relation to the services it provides and administration of benchmarks (except in relation to the UCITS they manage).
The conduct of the Management Company’s business must be determined by at least two natural persons who are either employed full-time by the Management Company or are dedicated full-time to the management of the Management Company or are executive members or members of the management body and are domiciled in the EU. Article 27 relating to self-managed SICAVs contains similar provisions. The requirement for two full time persons was already generally required by Luxembourg practice therefore will be of limited impact.
The UCI Law is to be amended to provide specifically for what has to be included in the programme of activities to be submitted with a request for authorisation and to stipulate the information that the management company must provide regarding the arrangements made to delegate and sub-delegate functions to third parties.
A new provision has been added requiring Management Companies to notify the CSSF, prior to its implementation, of any substantial change in the conditions of the initial authorisation.
Article 110 of the UCI Law is modified to provide for similar provisions as apply pursuant to the AIFM Law to delegation. A Management Company shall notify the CSSF prior to delegation taking effect and must be able to objectively justify its entire delegation structure to the CSSF.
It is now clarified that if distributors are acting on their own behalf when distributing UCITS this is not a delegation from the Management Company.
The Management Company is now obliged pursuant to a new Article 110 (4) to ensure that the functions listed in annex II to the UCI Law as well as the ancillary services are provided in accordance with the provisions of the UCI Law, regardless of delegation.
With regard to third party management companies a new Article 111 (2) provides that such management companies, where they intend to manage a UCITS on the initiative of a third party, use the name of a third party initiator or appoint a third party initiator as a delegate shall take account of any conflicts of interest and provide the CSSF with detailed explanations and evidence of its compliance with the delegation rules.
Reporting and cooperation
The Draft Law adds a new Article 117-1 imposing on UCITs Management Companies periodic reporting on markets/instruments, liquidity arrangements, risk profile, stress testing, delegation details, and marketing geography. The reporting is to be done to the home regulator of the UCITS who, in turn must share with EU authorities, the European Systemic Risk Board (“ESRB”) whenever necessary for the performance of their tasks and the European System of Central Banks for statistical purposes.
CSSF can require additional reporting if necessary, in which case ESMA shall be informed.
New provisions have been added throughout the UCI Law to ensure cooperation not alone between the CSSF and other competent regulatory authorities but also with ESMA and the ESRB.
Other UCITS updates
In derogation of the law of 10 August 1915 on Commercial Companies, the Draft Law provides that the governing body of a UCITS SICAV is not required to have an auditor’s report drawn up in case of issuance of shares in exchange for a contribution in kind. This will ensure complete consistency between FCPs and SICAVs.
A new Article 41-1 is introduced specifying that when a management company or self-managed SICAV is exposed to a securitisation transaction that no longer complies with the requirements set out in the Regulation 2017/2402 relating to securitisation, it must act and, if necessary, take corrective measures in the best interests of investors.
Amendments to Article 49 specify that when a UCITS activates a side pocket the segregated assets are excluded from the calculation of the investment limits.
The UCITS name will be considered as key information to be fair, clear and not misleading.
Conclusion
Draft Law No. 8628, while still subject to change as it goes through the legislative process, delivers a faithful transposition of Directive 2024/927 insofar as it relates to UCITS. Most of the above changes are intended to enter into effect on 16 April 2026 while the provisions relating to periodic reporting under Article 117-1 are due to take effect on 16 April 2027.
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