Background
On 17 March 2023, the Chambre des Députés issued a first draft of a new bill amending the five sectoral laws regulating funds in Luxembourg:
- Luxembourg law of 13 February 2007 on specialised investment funds (SIF), as amended (the SIF Law)
- Luxembourg law of 23 July 2013 on reserved alternative investment funds (RAIF), as amended (the RAIF Law)
- Luxembourg law of 15 June 2004 relating to the Investment company in risk capital (SICAR), as amended (the SICAR Law)
- Luxembourg law dated 17 December 2010 relating to undertakings for collective investment, as amended (the UCI Law)
- Luxembourg law dated 12 July 2013 on alternative investment fund managers (AIFM), as amended (the AIFM Law)
The aim of the bill is to improve and modernize the Luxembourg toolbox for investment funds and increase the attractiveness and competitiveness of Luxembourg as a financial centre.
General updates
The bill updates all references to domestic laws and European texts that have been amended or updated since first being published. The bill also aims to correct some clerical errors and provides wording clarifications.
Amendments applicable to SIF, RAIF and SICAR
- Amendment of the definition of well-informed investors
The threshold to determine whether an investor that’s not a professional investor – within the meaning of Annex II of the MiFID Directive – can be accepted into a fund has been reduced from EUR125,000 to EUR100,000. This is to reinforce the coherence between the different laws and to align the Luxembourg regime with the European standard. The amendment reflects the definition of professional investors set out in the European laws and regulations (such as ELTIF).
- Marketing to retail investors
The bill clearly provides that the SIF, SICAR and RAIF can be marketed to retail investors in Luxembourg.
- Extension of the period during which the minimum capital must be reached
The period to reach the minimum capital set out by the laws has been extended from 12 months initially to 24 months. This is to bring more flexibility in light of market needs and reflect a market practice aiming at optimising the use of financial resources.
- Additional prohibitions on the issuance and the redemption of units
The bill provides that issuing and redeeming units is prohibited where the fund has no depositary and upon liquidation of the depositary.
With respect to SICAR, the bill also provides for the possibility for Luxembourg financial supervisory authority (Commission de Surveillance du Secteur Financier; CSSF) to suspend the redemption of units if it doesn’t comply with the SICAR law and regulations.
- Amendment of the notice period applicable to the depositary
The bill removes the reference to the two-month notice period applicable to the replacement of the depositary if it’s removed. It also provides that the replacement of the depositary must occur within the notice period as provided under the depositary agreement.
- Definition of “directors” (dirigeants)
The bill corrects the definition of “directors” (dirigeants) to properly reflect the different legal forms of funds. With respect to SICAR and SIF, the bill also says that the appointment of “directors” (dirigeants) is subject to prior authorisation from the CSSF and the relevant rules applicable to it.
- Amendment of the wording pertaining to capital
In addition to the concept of subscribed capital as increased by share premium, the bill introduces the possibility to determine a fund’s capital by taking into account the initial value of the interests (valeur constitutive des parts d’intérêts).
- Amendment to the rules applicable in case of liquidation
Among other updates pertaining to liquidation, the bill clarifies the rules applicable to the appointment and the duties of the supervisory commissioner if the fund is liquidated. The bill also specifies that issuing units is prohibited when the event triggers the liquidation of a fund. The bill clarifies that the withdrawal of the authorisation pertaining to a compartment of a SICAR does not result in the withdrawal of the authorisation of the SICAR itself.
Specific amendments to the SIF, RAIF or SICAR
- RAIF: Amendment to the rules of registration of the fund
The bill amends Article 34 of the RAIF Law pertaining to the rules applicable to the recording of a RAIF incorporation with the Luxembourg notary and the Luxembourg trade and companies register. It differentiates funds that are incorporated by notarial deed and funds that are established under private seal.
- SICAR: Delegation
The bill implements the practice developed by the CSSF in relation to the conditions of delegation by a SICAR which replicates the provision of the SIF Law.
- SIF and RAIF: Subscription tax (taxe d’abonnement)
The bill introduces a tax incentive in relation to ELTIFs or money market funds through the exemption of the subscription tax. The bill also clarifies the conditions to benefit from the exemptions on the subscription tax subscription tax (taxe d’abonnement).
Amendments applicable to the AIFM
- Introduction of tied agents
The bill introduces the possibility for AIFM to use tied agents within the meaning of Article 1(1) of the Luxembourg law of 5 April 1993 on the financial sector, as amended. It aligns the legal framework applicable to AIFMs with the framework of management companies authorized under Chapter 15 of the UCI Law and the possibility offered in other European countries.
- Amendment to the rules applicable in case of liquidation
The bill complements the rules applicable to liquidation. It extends the possibility to use the non-judicial liquidation regime, which currently applies to undertakings for collective investment regulated by the UCI Law. It also reforms the supervisory commissioner regime in case of withdrawal from the official list by the CSSF.
Amendments to the UCI Law
For the UCITS and UCI Part II, the bill aligns the changes in relation to:
- the depositary;
- issuing and redeeming units, which is prohibited if the fund has no depositary and if the depositary is liquidated;
- the rules applicable to the appointment and the duties of the supervisory commissioner if the fund is liquidated; and
- the exemption on the subscription tax.
In relation to UCI Part II, the bill includes additional amendments:
- the period to reach the minimum capital threshold applicable to the fund is extended to 12 months; and
- the possibility for SICAVs subject to Part II of the UCI Law to adopt, the form of a corporate partnership limited by shares, a common limited partnership, a special limited partnership, a limited liability company or a cooperative society organized in the form of a public limited company.
Finally, the bill also amends the provision to management companies regulated by the UCI Law to reflect the changes made in relation to the liquidation of AIFM.
Next steps
The bill was submitted to the Luxembourg Conseil d’Etat on 17 March 2023 and will now be reviewed and changes are to be expected.
Conclusion
The proposed amendments are in line with the ongoing regulatory update of the European and national framework, such as the ELTIF regime or the UCI Law. They’re aimed at making the market more accessible to retail investors and developing private financing in real economy projects while public financing is lacking.
DLA Piper’s Investment Funds teams in Luxembourg are happy to assist with any queries you may have.
Catherine Pogorzelski
Country Managing Partner
Caroline Pimpaud
Partner
Marceau Visano
Senior Associate
Marine Pouzoulet
Associate
1- Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU, as amended
2- European long-term investment funds
3- A tied agent is defined as a natural or legal person who, under the full and unconditional responsibility of only one credit institution or investment firm on whose behalf it acts, (i) promotes investment and ancillary services to clients and prospective clients, or (ii) canvasses clients or potential clients, or (iii) receives and transmits instructions or orders from the client in respect of investment services or financial instruments, or (iv) places financial instruments, or (v) provides advice to clients or potential clients in respect of those financial instruments or services.
