BREXIT: Luxembourg Takes Additional Steps To Mitigate Brexit Effects

Yesterday, a second draft law was released aiming at mitigating Brexit effects for the investment fund sector. It follows the first draft law on Brexit, which introduced among others a grand-fathering period of up to 21 months during which UK management companies of Luxembourg undertakings for collective investment in transferable securities (UCITS) and UK alternative investment fund managers (AIFMs) would be able to respectively continue managing Luxembourg UCITS funds and continue managing/providing services to Luxembourg AIFs in case of "hard" Brexit.

The second draft law released yesterday aims at modifying the law of 17 December 2010 on undertakings for collective investment (UCIs), as amended (the UCI Law) and the law of 13 February 2007 on specialised investment funds (SIFs), as amended (the SIF Law) to mitigate the following two additional Brexit effects:

UK UCITS becoming AIFs

Irrespective of the final outcome of Brexit ("soft" or "hard" Brexit), UK UCITS within the meaning of the EU UCITS Directive will become alternative investment funds (AIFs) after UK's departure from the EU.

The draft law sets out that UK UCITS authorised for placement to retail investors in Luxembourg will benefit from a transitory period of 12 months enabling them to keep on marketing their shares to retail investors during that period. After the end of the transitory period, marketing will only be authorised according to the marketing rules applicable to third countries (if applicable) under the alternative investment fund managers Directive (AIFMD) or based on national private placement rules.

The 12 month transitory period will be introduced by means of a new article to be included into chapter 25 (Transitional provisions) of the UCI Law.

The draft law reminds that if a UK UCITS is currently managed by an EU (non-UK) UCITS management company, such UCITS management company will only be able to benefit from the transitory period if it has an...