Loyens & Loeff

Additional flexibility with respect to the minimum requirements for depositaries of part II-funds

Funds subject to part II of the law of 17 December 2010 on undertakings for collective investment (Part II-Funds respectively the 2010 Law) always qualify as alternative investment funds (AIF) as per the law of 12 July 2013 on managers of alternative investment funds (the 2013 Law)1.

As of to date, the minimum requirements applicable to depositaries of Part II-Funds are identical to those of UCITS funds subject to part I of the 2010 Law.2 Depositaries were able to delegate their safe-keeping functions to a third party but could not discharge themselves of their liability on the basis that the third party is not be subject to efficient supervision etc.3

On 1 March 2018, a law was published (the 2018 Law)4, which modifies various laws, inter alia the 2010 Law. The change of the 2010 Law applies without transitional provision and it results in a more differentiated and more flexible regulation of the minimum requirements applicable to depositaries of Part II-Funds. The 2010 Law now distinguishes the following:

1) Part II-Funds which permit marketing to retail investors in their prospectus5: the UCITS depositary obligations provided for in part I of the 2010 Law continue to apply.6

2) Part II-Funds which exclude the marketing to retail investors in their prospectus and which are managed by an authorized AIFM: the depositary obligations can now be aligned to the AIFMD, article 19 of the 2013 Law and the Commission Delegated Regulation (EU) 231/2013.

3) Part II-Funds which exclude the marketing to retail investors in their prospectus and which are merely managed by a registered/de-minimis AIFM: the depositary obligations of the law of 13 February 2007 on specialised investment funds can now be chosen.

Part II-Funds may hence now chose to exclude retail investors, amend their fund documents and depositary agreement accordingly and provide for the relevant discharge of liability in accordance with applicable law.

1 This results from article 88-1 of the 2010 Law. AIFs are defined in article 4 para 1. (a) of Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 respectively in article 1 (39) of the 2013 Law.

2 This results from the law of 10 May 2016 about the implementation of Directive 2014/91/EU, which inserted references to the provisions of part I into part II of the 2010 Law. (Article 88-3 second paragraph, article 90 (1) and article 95 (1) of the 2010 Law in its version before 1 March 2018).

3 When an AIF is managed by an authorised AIFM, article 21 para 14. of the AIFMD respectively article 19 (14) of the 2013 Law allow this subject to certain conditions.

4 The Law of 27 February 2018 relating to the implementation of the Regulation (EU) 2015/751 of the European Parliament and of the Council of 29 April 2015 on interchange fees for card-based payment transactions and to the modification of: 1. the amended law of 5 April 1993 of the financial sector; 2. the amended law of 23 December 1998 about the creation of a supervisory commission of the financial sector; 3. the amended law of 5 August 2005 about contracts on financial guarantees; 4. the amended law of 11 January 2008 on transparency obligations of issuers; 5. the amended law of 10 November 2009 about payment services; 6.the amended law of 17 December 2010 about undertakings for collective investment; 7. the amended law of 12 July 2013 about managers of alternative investment funds; 8. the amended law of 7 December 2015 about the insurance sector; 9. the amended law of 18 December 2015 about the insolvency of credit institutions and investment firms; and 10. the law of 23 December 2016 relating to market abuse.

5 The 2010 Law does not define the term “retail investor“. From the legislative materials of the 2018 Law (Projet de Loi N° 7024 of 3 November 2016, page 18) it can be understood that this refers to investors that are no professional investors as defined in Article 4 (1) (ag) of AIFMD. Professional Investors in the sense of article 4 (1) (ag) AIFMD are investors which are considered to be a professional client or may, on request, be treated as a professional client within the meaning of Annex II to Directive 2004/39/EC.

6 The 2018 uses the term „issuing document“ although the 2010 Law requires a “prospectus” for Part II-Funds.