New CSSF Circular 18/697 On Non-UCITS Depositaries

By way of preamble and as a reminder, a depositary of a Luxembourg fund may currently fall under either (1) the regime of the UCITS Directive and Regulation ("UCITS Depositary Regime"), (2) the regime of the AIFM Directive and Regulation ("AIFM Depositary Regime"), or (3) the distinctive regime provided for by Luxembourg Law ("Luxembourg Depositary Regime"). Unregulated Luxembourg funds which are not managed by an authorised AIFM are simply not required to appoint a depositary.

Back in October 2016, the CSSF published Circular 16/6441 in order to provide clarification on the UCITS Depositary Regime. On 23 August 2018, the CSSF published Circular 18/697 which is applicable to non-UCITS depositaries. This new circular provides clarification on both the AIFM and Luxembourg Depositary Regimes.

To quite a large extent, the structure and content of Circular 18/697 match those of Circular 16/644. The two circulars even now share their Annex I listing the information to be provided by depositaries to the CSSF. The differences between the two circulars are mainly sourced by the type of entities which are eligible as depositaries, by the type of funds and assets to be safe-kept, and -of course- by diverging applicable laws and regulations.

Circular 18/697 first provides clarifications and additional precisions in relation to non-banking entities which, under certain conditions, are eligible to act as depositaries under both the AIFM and the Luxembourg Depositary Regimes (but not under the UCITS Depositary Regime). Namely, these are certain qualified investment firms, the professional depositaries of assets other than financial instruments, and the entities designated as per Article 37(a) of the 2013 AIFM Law.

Circular 18/697 appropriately confirms the CSSF's views on the existing Luxembourg Depositary Regime by incorporating most of Chapter E of IML Circular 91/75. As a matter of sound practice and, where relevant, it nevertheless recommends depositories governed by the Luxembourg Depositary Regime to comply with the AIFM Depositary Regime which entails a higher level of investor protection.

All non-UCITS depositaries, whether governed by the AIFM or Luxembourg Depositary Regime, are subject to the provisions of Circular...