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CMS - Focusing on Funds – Luxembourg Brexit

This Focusing on Funds is an alert with respect to the Brexit reminders issued by the Luxembourg regulator ("CSSF") to all firms currently authorised under CRD, MiFID II, PSD 2 or EMD in the United Kingdom and to UCIs and/or their managers, also established in the UK, that are currently authorised entities under Directive 2009/65/EC (“UCITS Directive”) and/or Directive 2011/61/EU (“AIFM Directive”).

Firms which are affected and wishing to pursue their activities in Luxembourg, in the event a no-deal Brexit occurs on 31 October 2019, are invited to notify the CSSF in line with its previous press releases 19/33 and 19/34 published in July. They have until 15 September 2019 to submit their notifications via the CSSF eDesk portal.

Future Background

In the event of a so-called “Hard Brexit”, the firms and entities mentioned above will be considered as “third-country entities” meaning they will lose the benefit from passporting rights and therefore be exposed to sanctions if they pursue regulated activities in Luxembourg without a proper authorisation.

To address this issue, the Luxembourg legislator and the CSSF have decided to set a transitional period of 12- months following the date of a hard Brexit. To benefit from this period, all firms and entities that intend to continue their activities in Luxembourg are required to notify the CSSF via the notification portal opened on the CSSF website.

It is worth noting that this notification does not concern delegation of investment management/portfolio management and/or risk management activities to UK firms and entities.

For such delegations, the CSSF already reminded that specific provisions of Luxembourg law apply which allow for such delegations to undertakings in the United Kingdom, which would gain the status of a third country in case of a hard Brexit, provided that (i) these undertakings are authorised or registered for the purpose of asset management, (ii) are subject to prudential supervision and that (iii) cooperation between the FCA as supervisory authority of these undertakings and the CSSF is ensured. The CSSF endeavours that the required cooperation between the FCA and the CSSF shall be in place on 31 October 2019 in the event of a hard Brexit.

On this basis, delegation of investment management/portfolio management and/or risk management to UK undertakings shall continue to be possible without any disruption post-Brexit, under the condition that the UK delegatee continues to fulfil all applicable requirements.

UCIs and/or their managers

Notifications will have to be made no later than 15 September 2019.

These entities will then be required to submit to the CSSF before 31 October 2019 either:

  • the corresponding application for authorisation;
  • the corresponding notification or information on any action taken otherwise, depending on the nature of the activities they intend to pursue after the occurance of a hard Brexit;
  • the steps undertaken to address the loss of passporting rights.

Within 10 business days of the submission of the required information, the CSSF may, on a case-by-case basis, grant impacted entities the possibility to continue their activities in Luxembourg during the transitional period.

Entities that are currently authorised in the United Kingdom under both the UCITS Directive and the AIFM Directive will be required to proceed with a Brexit notification for both licenses.

Entities that have already submitted an application for authorisation with the CSSF in anticipation of a hard Brexit are also required to submit a Brexit notification.

Firms currently authorised under CRD, MiFID II, PSD 2 or EMD

Notifications will have to be made no later than 15 September 2019. The CSSF will assess each notification received and verify that the conditions of the Brexit laws are met, notably that the firm has duly passported its services to Luxembourg in the past and that the information on their activities is coherent and sufficiently detailed.

The CSSF expects that UK firms and entities have already taken the necessary steps to prepare and anticipate the consequences of a possible hard Brexit. Should it not be the case, CMS Luxembourg Investment Funds and Regulatory teams are at your disposal to answer any questions you may have on this process.

For further updates on developments please subscribe to our Law-Now and RegZone articles.

Authors

Amanda Howard
Amanda Howard
Partner
London
Photo of Andre Lebrecht
Dr André E. Lebrecht, LL.M.
Partner
Zurich
Darren Stolzenberg
Darren Stolzenberg
Partner
London
Daniel Voigt
Dr. Daniel Voigt, MBA
Partner
Frankfurt
Picture of Jérome Sutour
Jérôme Sutour
Partner
Paris
Picture of Matthew Nortcliff
Matthew Nortcliff
Partner
Singapore
Aurélien Hollard
Aurélien Hollard
Partner | Avocat à la Cour
Luxembourg
Picture of Paolo Bonolis
Paolo Bonolis
Partner
Rome
Picture of Vivian Walry
Vivian Walry
Partner | Avocat à la Cour
Luxembourg
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