Luxembourg Clarifies The Depositary Regime For UCI 'Part II' Funds

On 6 February 2018, the Chambre des Députés (Luxembourg Parliament) adopted the draft bill 7024 which, besides implementing EU Regulation 2015/751 on interchange fees for card-based payment transactions, amends the UCI Law of 17 December 2010 (UCI Law) to clarify the depositary regime applicable to Luxembourg Undertakings for Collective Investment (UCIs) that are subject to the Part II of the UCI Law ("Part II funds"). Part II funds are alternative investment funds (AIF) that can be sold to retail investors.

Background

On 29 July 2016, the draft bill 7024 was submitted to the Luxembourg Parliament to clarify the depositary regime of Part II funds as introduced by the Law of 10 May 2016 transposing the UCITS V Directive.

Before the UCITS V transposition law, Part II funds were subject to a dual depositary regime: Part II funds managed by an authorised AIFM were subject to the depositary regime prescribed by the AIFM Law, whereas Part II funds managed by a registered AIFM were subject to the depositary regime of the UCI Law.

Considering that those funds may be distributed to retail investors and with a view to providing those retail investors with the same level of protection than retail investors under the UCITS regime, the Luxembourg legislator seized the opportunity of the transposition of UCITS V to extend the UCITS depositary regime to all Part II funds, without making any distinction whether they were distributed to retail investors or not. Since the UCITS depositary regime is more protective for investor than the AIFM depositary regime - it does not foresee any possibility for the depositary to discharge from its liability - this led to a situation where Part II funds were subject to a stricter depositary regime than other AIFs, although some of them did not address retail...