On 21 December 2020 draft law No. 7736 was presented before the Luxembourg Parliament (the “Draft Law”). The scope of the Draft Law includes, inter alia, an amendment to the law of 17 December 2010 relating to undertakings for collective investment (the “UCI Law”).
The Draft Law amends the UCI Law by prolonging until 31 July 2021 the transitional arrangements set out in the law of 8 April 2019 relating to measures put in place in the financial sector in the context of Brexit. The aim of this additional six months prolongation is to avoid any legal insecurity for Luxembourg investors holding units in UK UCITs.
Pursuant to the law of 8 April 2019 on the measures to be taken in relation to the financial sector in the event of the withdrawal of the UK from the EU, the CSSF is authorised to apply, for a maximum period of 21 months after 1 February 2020 (date of withdrawal of the UK from the EU) the provisions of article 119 of the UCI Law (freedom to provide services or establish a branch) to UK management companies authorised pursuant to Directive 2007/65/EC (“UCITS Directive”) which carry out activities in Luxembourg at the time of such withdrawal.
The Draft Law now provides that any UK UCITS that markets its units in Luxembourg as of 31 January 2021 (by virtue of the above) is authorised to market to retail investors in Luxembourg until 31 July 2021 on the basis of article 100, paragraph 1 of the UCI Law, as long as that UCITS is managed, as at 31 December 2020 (end of the transitional period), by a management company authorised, in accordance with the provisions of the UCITS Directive, by the UK authorities.
Article 100, paragraph 1 of the UCI Law sets out the conditions pursuant to which UCIS other than the closed-ended type established under foreign laws and which do not benefit from the UCITS passport may market to retail investors in Luxembourg. CSSF Regulation No. 20-10 published on 21 December 2020 sets out further detail on compliance with article 100, paragraph 1.
Those UK UCITS that are managed by a UCITS management company authorised in another EU jurisdiction may only continue to market their units to retail investors in Luxembourg on condition that the management company is, at the end of the transitional period, also authorised as an Alternative Investment Fund Manager. Such funds are authorised to market to retail investors in Luxembourg until 31 July 2021 on the basis of the provisions of article 46 of the AIFM Law (marketing of AIFs to retail investors).
In its opinion of 12 January 2021 the Conseil d’Etat noted that the European Commission in its Q&A on the EU-UK Trade and Cooperation Agreement has stated that the parties aim to agree by March 2021 a Memorandum of Understanding establishing a framework for regulatory cooperation on financial services. If such a framework is put in place the Conseil d’Etat raises the question as to whether Luxembourg will unilaterally be able to fix this cut off date of 31 July 2021.