Alert November 08, 2019

With New Brexit Deadline, UK Managers Managing Luxembourg Funds Have Options to Consider

The UK’s exit from the European Union is now postponed to 31 January 2020, and whilst there is still significant uncertainty regarding the occurrence of Brexit on that date, the CSSF set out a new deadline on 6 November 2019 for (i) UK undertakings for collective investment and/or managers that are currently authorised entities under UCITS Directive 2009/65/EC and/or AIFM Directive 2011/61/EU (UK Managers) and (ii) UK firms that are currently authorised under CRD, MiFID II, PSD 2 or EMD in the UK (UK Firms) to decide whether they want to benefit from the transitional period or whether they prefer be considered from that time as a provider from a third country.

Any UK Manager currently managing a Luxembourg fund may therefore complete steps for one of these options by 15 January 2020 and any UK Manager reconsidering its option chosen to date can notify the CSSF to that effect by 15 January 2020.

Onshore Option

Concrete steps to be taken by UK Firms and UK Managers are detailed in our client alert dated 22 July 2019.

These steps should have been completed in September by the deadline originally set out by the CSSF. If these were missed, now is the time to proceed so that in a hard Brexit scenario, you will be benefitting from the transitional regime that will end on 31 December 2020. The deadline to proceed to this mandatory notification to the CSSF is 15 January 2020 for UK Managers and UK Firms who failed to notify CSSF to date.

Over the transitional period, UK Firms and UK Managers will continue to be able to benefit from their existing passport rights into the EEA after the occurrence of Brexit, subject to receiving from the CSSF the confirmation that they benefit from the transitional period. It is worth noting that UK Firms and UK Managers who filed to that effect in September 2019 by the set deadlines required by the CSSF receive that confirmation from the CSSF very quickly.

Offshore Option

Some UK Managers already requested the CSSF to consider the continuation of their activities after the occurrence of Brexit. Others who have been granted the benefit of the transitional period have now reconsidered the appointment of an on-shore AIFM by the expiry of the transitional period. That option means that from the occurrence of Brexit, these UK Managers will be characterized as managers from a third country.

An offshore solution may be considered to the extent that the following conditions are satisfied by 15 January 2020:

  • With respect only to UK Managers who have received confirmation from the CSSF that they benefit from the transitional period, such UK Managers shall notify the CSSF that they wish to opt out from the transitional period; and
  • UK Managers shall obtain consent from their investors for continuing to manage the Luxembourg fund(s) from the UK. The CSSF clarified that these UK Managers must provide to the Luxembourg regulator the following documents:
    • A signed confirmation from the UK Manager that all direct and indirect investors in the relevant Luxembourg fund qualify as professional investors; and
    • A copy of the relevant resolution(s) evidencing the approval of the Luxembourg fund’s investors (and, as applicable, bondholders in that fund).

We understand that the CSSF is happy to hear as soon as possible from all UK Managers who would prefer an offshore solution even if investors’ consent is not yet obtained, which we believe is a good opportunity to get a smooth process with the Luxembourg regulator, especially if these UK Managers expect delays from their investors for reverting back on that specific consent. In case of inability to meet that new deadline, it will be necessary to justify the reason for the delay and the CSSF will have to receive a copy of the documents sent to investors to obtain their consent.