On 10 June 2021, the Commission de Surveillance du Secteur Financier (the “CSSF”) published an updated version of its Frequently Asked Questions concerning the Luxembourg Law of 17 December 2010 relating to undertakings for collective investment schemes (the “UCITS FAQ”) and an updated version of its Frequently Asked Questions concerning the Luxembourg Law of 12 July 2013 on alternative investment fund managers (the “AIFM FAQ”).
With this update CSSF clarifies the application of the Directive 2014/65/EU ( “MIFID II”) to Luxembourg UCITS management companies and alternative investment fund managers (the “IFMs”), their third party delegates and their investment advisers.
The CSSF confirmed that the management of collective funds by IFMs is not a service under MiFID II. IFMs and their UCIs are therefore exempted from the scope of MiFID II when performing the functions included in the collective portfolio management themselves. However, the exemption does not cover the functions of collective portfolio management:
- undertaken by an authorised IFM under a delegation arrangement from another authorised IFM or,
- delegated by an authorised IFM to a third party.
Marketing of funds is part of the functions included in the collective portfolio management. Therefore, if the authorisation of an IFM includes the marketing function, the IFM can perform the marketing for the funds under its management and this activity will benefit from the exemption.
However, if the IFM does not perform the marketing function itself, the exemption foreseen above does not apply and MiFID II rules may apply to the entity undertaking the marketing function depending on where and to whom the funds are distributed.
Where a Luxembourg IFM markets funds that are not under its management, as a delegate of another IFM, authorisation under Article 101 (3) of the Law of 17 December 2010 or Article 5 (4) of the Law of 12 July 2013 will be required (authorisation to provide discretionary portfolio management and non-core services), depending on the fund type and services offered.
Third parties that provide investment advice relating to financial instruments are in principle subject to MiFID II rules to the extent such advice enables the IFM to take an investment decision and qualify as personal recommendations issued to a client under MIFID II.
IFMs are expected to comply with the CSSF FAQ as soon as possible and by 31 December 2021 at the latest, considering the best interests of investors. Therefore, IFMs should as soon as possible analyse their organisation model in order to assess:
- the need for an authorisation to provide services under Article 101 (3) of the Law of 17 December 2010 or under Article 5 (4) of the Law of 12 July 2013;
- appropriate compliance, by any third country entity acting as their delegate or undertaking services on their behalf, with the third country regime.