Luxembourg adopts two Brexit-related draft bills
The Luxembourg parliament adopted the draft bills n°7401 (the “First Brexit Law”) and n°7426 (the “Second Brexit Law”) on 26 March 2019 and 28 March 2019, respectively, in respect of Brexit-related measures to be taken in connection with the financial sector.
As regards the First Brexit Law, the newly adopted rules grant special powers to the Luxembourg supervisory authority for the financial sector (CSSF) with a view to maintaining the good functioning / stability of the financial markets and guarantee the protection of investors in case of withdrawal of the United Kingdom (UK) from the European Union (EU) without any deal (so-called “Hard Brexit”). Based on such new powers, the CSSF will have the ability, for a maximum duration of 21 months following any Hard Brexit, to allow UK-based authorised AIFMs to continue the management of Luxembourg AIFs (and marketing of AIFs in Luxembourg), provided such management/marketing was already effective prior to the UK’s withdrawal. Agreements entered into after Hard Brexit could also be eligible to the relief, provided they are closely linked to services already in place ahead of the UK’s departure from the EU. The First Brexit Law also includes similar provisions in respect of UK-based UCITS management companies and investment firms.
With respect to the Second Brexit Law, one of the purposes is to introduce a 12-month grace period to address any breach of investment restrictions triggered by the UK’s withdrawal from the EU. Fund managers would benefit from a one-year relief to rearrange their portfolio and dispose their UK assets, to the extent required. The Second Brexit Law also applies both to Luxembourg UCITS, Part II UCIs and specialised investment funds (SIF). Some provisions of the Second Brexit Law also clarify applicable rules to the marketing and management of British UCITS. In fact, the newly adopted rules provide that British UCITS management companies managing British UCITS and marketing them to retail investors in Luxembourg can continue to do so for a period of 12 months under article 100 of the law of 17 December 2010 on collective investment funds, as amended (the “UCI Law”). Where non-British management companies manage UK UCITS and market them to retail investors in Luxembourg, they can also continue to do so for a period of 12 months under article 100 of the UCI Law, but only if they are authorized as AIFM by the time of Brexit. In this context, it is important to note that the Second Brexit Law does not specify how the CSSF is to be informed about whether a foreign UCITS management company holds an AIFM License. Unlike the First Brexit Law, the Second First Brexit Law would apply both in a deal or no-deal (Hard Brexit) scenario.