Updated CSSF UCI FAQ: Policy Change Regarding Investments In Non-UCITS ETFs

On 5 January 2018, the CSSF updated its Frequently Asked Questions (FAQ) document on the Law of 17 December 2010 (the "UCI Law") in relation to investment by UCITS in other UCIs as per Article 41(1)(e) of the UCI Law on the UCITS' investment policies.

This update is accompanied by a Press Release explaining the CSSF's change in policy.

In this respect FAQ 1.4 which used to explain the requirements allowing UCITS to invest in non-UCITS ETFs has been deleted.

The FAQ 1.4 used to state that:

"Non-UCITS ETFs are eligible investments for UCITS if they effectively comply with all criteria of Articles 2(2) and 41(1)(e) of the Law 2010, notwithstanding that the offering documents of non-UCITS ETFs grant possibilities which are not equivalent to requirements applicable to UCITS.

Given the specificities of each other ETF, an eligibility analysis must be carried out on a case-by-case basis and the UCITS must continuously ensure that the investment rules applied are equivalent to the investment rules applicable to UCITS, for example, via a system of compliance control or a written confirmation of the ETF or of the manager".

As of today, this implies that the CSSF will not accept simple compliance controls or a written confirmation of the ETF or of its manager as eligibility analysis anymore.

The CSSF recalls that under article 50(1)(e) of UCITS Directive, the other UCIs, in order to be eligible for investments by a UCITS:

"(i) shall be prohibited from investing in illiquid assets (such as commodities and real estate) in line with Article 1(2)(a) of the UCITS Directive;

(ii) shall be bound by rules on asset segregation...