Luxembourg adopts Bill of Law clarifying certain Brexit

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BREXIT: Luxembourg adopts Bill of Law clarifying certain Brexit related implications for UCITS and Specialized Investment Funds

29 March 2019

Regulatory News Alert

On 28 March 2019, the Luxembourg Parliament adopted the Bill of Law n°7426 (the “Law”) in respect of transitional measures for UCITS and Specialized Investment Funds (SIFs) in the context of Brexit.

Its core aim is to introduce into Luxembourg legal framework provisions that might mitigate disruptions caused by the exit of the UK from the EU. Proposed measures concern possible passive breaches of the UCIs’ investment limits that might arise once the United Kingdom becomes a third country, while another set of measures deals with the marketing of UK funds in Luxembourg in the post-Brexit environment, regardless if such exit is taking place with or without an agreement.

Indeed, in order to ensure the smooth functioning and stability of the financial markets and the protection of the investors, the Law grants the relevant UCIs a transitional period for the adjustment of non-compliance concerning their respective investment policies and investment rules. One of the basic tenets of Brexit is that the United Kingdom will become a third country, whatever the scenario.

The law foresees three scenarios:

  • The fund is a UCITS or part II fund managed by a Lux ManCo with delegation or outsourcing to the UK. The law proposes a grandfathering period to adapt the fund investment policies governance to the Luxembourg compliance regime as soon as possible and within 12 months from the Brexit date to mitigate potential adverse impacts from markets on investors.
  • UK UCITS marketed to Luxembourg based clients benefit from a 12 months grandfathering period after which they might not be eligible anymore as UCITS for retail investors.
  • UK UCITS managed by another Member State ManCo, they will be authorized for marketing/sales in Luxembourg provided that the ManCo has an AIFM license as these funds will de facto be AIFs from the date of Brexit. This principle might apply for SIF funds to remedy the adverse impact on their compliance stemming from brexit.

Finally, on 26 March 2019, the Luxembourg parliament also adopted the first of a series of Brexit related laws (the law n°7401) in respect to Brexit-related measures to be taken in connection with the financial sector. As mentioned in our previous alert on a topic, the law n°7401 aims to apply a form of EU passport for UK financial service providers currently operating in Luxembourg by an introduction of a transitional period of 21 months in line with EU contingency plans.

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