Yesterday, the Luxembourg parliament approved with an almost unanimous vote the recent draft bill of law introduced in March and which aims at modernising the Luxembourg fund legislation (see our Newsflash March 2023 – New Draft Bill modernising the Luxembourg Fund Toolbox).
What is it about ?
The law that was voted concerns amendments to all existing Luxembourg investment fund laws: the law on specialized investment funds (SIF), the law on investment companies in risk capital (SICAR), the law on reserved alternative investment funds (RAIF) and the law dated 17 December 2010 on undertakings for collective investment (which includes UCITS, the so-called part II funds as well as management companies and alternative investment fund managers (AIFM)).
Are there any radical changes ?
There are no fundamental changes to these sectoral laws. The intention is rather to introduce more flexibility and some clarifications that result from the practice of the past years, and thus increase the competitiveness of the Luxemborg fund rulebook.
What are the most relevant changes that are introduced ?
The amendments can broadly be categorised in those that concern the investment funds themselves, and those that are relevant for their management companies or AIFMs. In the following, we are highlighting the most interesting ones.
A) Changes relating to investment fund products
The deadline to reach the minimum capital for a fund, previously set at 12 months, is extended to 24 months after the approval or establishment (this concerns RAIFs, SIFs and SICARs).
The threshold to automatically qualify as well-informed investor is lowered from currently € 125,000 to now € 100,000.
More flexibility for Part II UCIs: Similar to RAIFs, SIFs and SICARs, these retail funds with the possibility to invest into alternative asset classes are no longer confined to the corporate form of an S.A. (when established as an investment company / SICAV), but can now also adopt the form of a corporate partnership limited by shares (SCA), a common limited partnership (SCS) or a special limited partnership (SCSp).
The conditions for a withdrawal of the depositary are clarified. The agreement with the depositary must provide for an appropriate notice period to find a replacement (rectifying the previous uncertainty around the two months provisions), and the resigning bank is obliged to continue as depositary until a replacement has been made. Part II funds, SIFs and SICARs must be struck from the CSSF’s official list when the depositary definitely resigns, enacting an existing practice from the regulator.
Concerning RAIFs, some much needed corrections include the clarification that a notarial confirmation for the establishment is only necessary for those RAIFs that are not incorporated with a notary (mainly FCPs or SCS/SCSp). Also, it is clarified that RAIFs can be marketed to non-professional investors in Luxembourg if they qualify as well-informed investors.
ELTIFs and PEPP (pan-European Personal Pension Products) are exempt from the subscription tax.
B) Changes relating to management companies and AIFMs
AIFMs can now appoint so-called tied agents, just as UCITS management companies already can. The tied agent has to comply with the same obligations as credit institutions and investment firms. That also means that pre-marketing or marketing of alternative investment funds through tied agents no longer requires the appointment of an investment firm.
The rules on voluntary liquidation set out in the sectoral laws, applying by way of derogation from the usual Luxembourg insolvency laws, are extended also to management companies and AIFMs. This should significantly simplify the winding-down of such companies and reduce costs.
What are the next steps ?
The bill of law still has to go through some formalities of the legislative process (exception from a second vote, enactment by the Grand Duke, signature by the ministers). As it appears not to be controversial, it can be expected that the changes to the relevant legislation will be published shortly in the Luxembourg gazette (Mémorial), and will then enter into effect three days afterwards.