ESAs release final drafts on DORA: advancing ICT risk management for EU financial entities

On 17th January 2024, the European Supervisory Authorities (ESAs) (i.e. the EBA, EIOPA and ESMA) published their first set of final drafts of regulatory technical standards (RTS) under the Regulation (EU) 2022/2554 on Digital Operational Resilience for the Financial Sector of 14 December 2022 (also known as Digital Operational Resilience Act (DORA)). DORA introduces a standardized regulatory framework designed to improve the digital operational resilience of financial entities in the European Union’s (EU) financial sector, specifically addressing disruptions and threats related to information and communication technology (ICT) (focusing mainly on ICT risk management, reporting, risk monitoring). DORA entered into force on 16 January 2023 and will apply to in-scope financial services entities as from 17 January 2025.  

The joint final draft technical standards include: 

  • RTS on ICT risk management framework and on simplified ICT risk management framework: 

The RTS on the ICT risk management framework aim to identify additional elements that relate to ICT risk management, seeking to standardize tools, methods, processes, and policies complementing those outlined in DORA. The RTS specifically highlight essential components that financial entities under the simplified regime and of smaller scale, lower risk, size, and complexity should implement, presenting a simplified ICT risk management framework. The intention is to harmonize ICT risk management requirements across various financial sectors. 

  • RTS on criteria for the classification of ICT-related incident: 

These RTS outline the criteria for categorizing ICT-related incidents, the methodology for their classification, the materiality thresholds for each classification criterion, the criteria and materiality thresholds for identifying significant cyber threats, and the guidelines for competent authorities to evaluate the importance of incidents for authorities in other Member States and the details of incidents to be shared in this context. The major criterion are  

  • The Clients, financial counterparts and transactions affected;  
  • The reputational impact; 
  • The duration and service downtime;  
  • The geographical spread;  
  • The data losses; 
  • The critical services affected 

The objective of these RTS is to establish a uniform and straightforward process for classifying incident reports across the financial sector.  

  • RTS to specify the policy on ICT services supporting critical or important functions provided by ICT third-party service providers (TPPs): 

The objective is to guarantee that financial entities maintain control over their operational risks, information security, and business continuity throughout the entire life cycle of contractual arrangements with these ICT third-party services.  Indeed, the use of ICT service providers does not absolve financial entities and their management bodies of the responsibility to oversee risk management and compliance with legislative requirements. This holds particularly true when ICT third-party service providers support critical and essential functions. These RTS incorporate clauses to guarantee that financial entities distinctly designate internal responsibilities, especially when these services support critical or essential functions, for approving, managing, controlling, and documenting contractual arrangements related to the utilization of ICT services offered by third-party providers. These provisions are designed to enhance accountability within the relevant business areas of financial entities.  

  • Implementing Technical Standards (ITS) to establish the templates for the register of information:  

Finally, the ITS define the templates that financial entities must maintain and regularly update concerning their contractual agreements with ICT third-party service providers. The information registry will hold a pivotal role in the ICT third-party risk management framework of financial entities, serving as a tool for competent authorities and ESAs in monitoring compliance with DORA. The ITS aims to:  

  • capture minimum and necessary information concerning the contractual arrangements and the assessment of the related risks stemming from them for the financial entities; 
  • capture the ICT service supply chain with a focus on material subcontractors (i.e. supporting critical functions);  
  • identify unambiguously and consistently the ICT third-party service providers and the financial entity by using the Legal Entity Identifier (LEI)2 to enable an efficient aggregation of relevant information; and 
  • identify the (critical or important) functions supported by the ICT services provided by ICT third-party service providers following the steps listed below: (i) the entity shall identify all their operational and business functions; (ii) the entity shall identify which functions are critical or important according to their internal assessment considering the definition in Article 3(22) of the DORA; (iii) the financial shall identify the ICT services provided by ICT third-party service providers supporting the functions, (not only the critical or important functions); (iv.) In the context of groups, the financial entities shall focus on contract between entities within the group only and the contracts between an entity within the group and an external ICT service provider and (v) facilitate the collection of the registered information by competent authorities. 

You can explore the detailed RTS on the ESMA website.

Feel free to reach out to our investment management team if you have any questions. 

 


Bahamas, Belize, Seychelles, and Turks and Caicos Islands removed from EU Council Non-Cooperative Tax Jurisdictions List

The Council of the European Union recently updated its list of non-cooperative jurisdictions for tax purposes on 20 February 2024, which saw the removal of the Bahamas, Belize, Seychelles, and the Turks and Caicos Islands. These changes reflect each jurisdiction’s commitment to adhering to international standards for tax transparency, fair taxation, and the implementation of measures to prevent tax base erosion and profit shifting (BEPS).

A crucial aspect of these jurisdictions’ compliance efforts has been their enhancement of Anti-Money Laundering (AML) regulations. AML measures are vital for combating financial crimes and ensuring the integrity of the international financial system. By strengthening their AML frameworks, these countries have addressed the EU’s concerns regarding the prevention of money laundering and terrorist financing, which are closely linked to tax evasion and avoidance practices.

The updated list of non-cooperative jurisdictions highlights the ongoing global effort to maintain global tax governance standards, transparency, and fairness. The European Union continues to work with international partners to promote compliance and cooperation in the field of taxation.

As of this latest update, the EU’s list now comprises 12 countries that are still under scrutiny for their tax practices and AML frameworks. These jurisdictions include:

  1. American Samoa
  2. Anguilla
  3. Antigua and Barbuda
  4. Fiji
  5. Guam
  6. Palau
  7. Panama
  8. Russia
  9. Samoa
  10. Trinidad and Tobago
  11. US Virgin Islands
  12. Vanuatu

These developments encourage other jurisdictions to continue improving their regulatory frameworks to meet international standards and avoid being listed as non-cooperative by the EU and other global entities. The next revision of the list is scheduled for October 2024.

Should you have any inquiries or require expert guidance pertaining to the information provided, our investment management team is available to assist you. Please feel free to contact us.  


Availability of CSSF FAQ on submission of closing documents and financial information in English

The CSSF frequently asked questions (the “FAQ”), published for the first time on 29 June 2021 in French, is now available in English following its publication by the CSSF on 30 November 2023. This FAQ clarifies the submission of closing documents and financial information by managers solely by electronic means in accordance with CSSF Circular 19/708 on the electronic transmission of specific documents to the CSSF using an accepted secure infrastructure (the “Circular“). The update of the French version, only for questions B1 and B2, provides, inter alia, clarification on how to complete the template (G2.1), by referring to the following link on the CSSF’s website: CSSF guidelines on the IFM reporting – G2.1 – CSSF

For a comprehensive understanding of the submission of closing documents and financial information by managers, you can explore the FAQ on the CSSF website: SUBMISSION OF CLOSING DOCUMENTS AND FINANCIAL INFORMATION BY INVESTMENT FUND MANAGERS – FAQ (cssf.lu)

Feel free to reach out to our investment management team if you have any questions.


Update of CSSF FAQ on UCITS Law

On 30 November 2023, the CSSF released its latest update of the FAQ regarding the Law of 17 December 2010 on undertakings for collective investment (the “2010 Law), originally published on 8 December 2015. This 16th version aims to clarify key aspects of UCITS from a Luxembourg perspective, addressing management companies and UCITS established in Luxembourg.

The updated FAQ delves into the “ancillary liquid assets” concept, assets that UCITS are permitted to hold under Article 41(2)b) of the 2010 Law. Notably, it includes updates to Questions 1.14 and 1.15.

The FAQ outlines that ancillary liquid assets for UCITS should be limited to bank deposits at sight, such as cash held in current accounts that are accessible at any time. These assets are meant to cover current or exceptional payments, or for the time necessary to reinvest in eligible assets under Article 41(1) of the 2010 Law, or for a period strictly necessary during unfavorable market conditions.

The FAQ reiterates the 20% limit of a UCITS net assets for holding ancillary liquid assets. However, this limit may be temporarily breached for a strictly necessary period when, due to exceptionally unfavorable market conditions, circumstances require it, and where such breach is justified in the interests of investors (e.g., in extremely serious circumstances such as the September 11 attacks or the collapse of Lehman Brothers in 2008).

Furthermore, regarding feeder UCITS as per Article 77(2)(a) of the 2010 Law, it is specified that ancillary liquid assets can include highly liquid assets such as deposits at credit institutions, money market instruments, and money market funds. In this context, feeder UCITS are allowed to allocate 15% of their total assets to such ancillary liquid assets.

Finally, the FAQs clarify that bank deposits, money market instruments, and money market funds, unless they meet the criteria of Article 41(1), cannot be considered ancillary liquid assets under Article 41(2)(b) of the 2010 Law.

For a comprehensive understanding of these updates, you can explore the detailed FAQ on the CSSF website: FAQ Law 17 December 2010 (cssf.lu)

Feel free to reach out to our investment management team if you have any questions.


ESMA publishes final report on draft RTS for ELTIFs

The European Securities and Markets Authority (ESMA) published on 19 December 2023 its final report on the draft regulatory technical standards (RTS) under the revised European Long-Term Investment Fund (ELTIF) regulation. The RTS cover aspects like the compatibility of the ELTIF’s life with the life cycles of individual assets, features of the redemption policy, use of the matching mechanism, and cost disclosure.

The report includes the following proposition from ESMA, while allowing ELTIF managers to deviate from these under specific circumstances if justified to the relevant authority:

  • Minimum holding periods

ELTIF managers should have the discretion to set the minimum holding period for each ELTIF, tailored to its specific needs.

  • Maximum redemption frequency

ESMA suggests implementing a standard redemption frequency, ideally quarterly, for ELTIF managers.

  • Choice of liquidity management tools:

The recommendation includes a requirement for ELTIF managers to implement at least one anti-dilution mechanism, such as redemption gates, in addition to the notice period.

  • Maximum percentage of liquid assets that can be redeemed.

Beyond setting minimum liquid asset percentages based on the notice period length, there are also varying maximum limits for the amount of liquid assets that can be redeemed.

ESMA has submitted the RTS to the European Commission for endorsement and final approval. From the date of submission, the European Commission shall take a decision on whether to adopt the RTS within three months. The Commission may extend that period by one month.

For a comprehensive understanding of these changes, you can explore the detailed report on the ESMA website: ESMA34-1300023242-159_Final_report_ELTIF_RTS.pdf (europa.eu)

Feel free to reach out to our investment management team if you have any questions.


FATF’s positive assessment of Luxembourg’s AML/CFT measures: Enduring commitment advised

The Grand Duchy of Luxembourg recently received a positive evaluation in the 4th mutual evaluation report conducted by the Financial Action Task Force (FATF) and published on September 27, 2023. The report acknowledges the quality of Luxembourg’s framework for the fight against money laundering and the financing of terrorism (AML/CFT) while also providing recommendations for further improvements. As a result, Luxembourg will be under regular monitoring by the FATF, which is considered a good outcome. The report specifically praised Luxembourg’s financial sector and its supervision by the CSSF, highlighting the effectiveness of AML/CFT supervision. The CSSF’s supervisory approach was commended for being well-developed and risk-based. The report also noted improvements in the AML/CFT supervisory regime and the robustness of controls during licensing and registration processes. However, there is room for improvement in addressing terrorism financing risks, enhancing communication about sanctions against deficient professionals, and reporting suspicious activities to the Financial Intelligence Unit. Overall, the report acknowledged that professionals in the financial sector have solid controls and a good understanding of their AML/CFT obligations and related risks. However, the FATF’s report suggests a need for a better understanding and response to this risk, building on the information provided by the 2022 vertical risk assessment report on terrorism financing adopted in Luxembourg. The report also suggests that the CSSF should improve the way it communicates sanctions imposed on professionals found deficient. More detailed press releases could help make information about the nature of deficiencies and sanctions more accessible to the financial sector. In summary, Luxembourg’s 4th mutual evaluation report by the FATF acknowledges the country’s strong efforts in combating money laundering, with particular praise for its financial sector supervision and regulatory framework. While there are areas for improvement, the overall evaluation result is positive, leading to regular monitoring by the FATF, which is a desirable outcome. 

Please feel free to reach out to our investment management team if you have any questions.  


Law of 21 July 2023: Modernizing Luxembourg's Investment Fund toolbox and its impact on RAIF, SIF, SICAR, AIFM & UCI

Luxembourg has taken a significant stride towards modernizing its investment fund laws with the entry into force of the law of 21 July 2023 on 28 July 2023. It adopted Bill 8183 by the Luxembourg Parliament. This law introduces amendments to several pivotal fund laws, including the Law of 2010 on Undertakings for Collective Investment (UCI Law), the Law of 2007 on Specialized Investment Funds (SIF Law), the Law of 2004 on Investment Companies in Risk Capital (SICAR Law), the Law of 2013 on Alternative Investment Fund Managers (AIFM Law), and the Law of 2016 on Reserved Alternative Investment Funds (RAIF Law). These amendments are designed to update and strengthen the country’s fund-related regulations, bolstering the competitiveness and attractiveness of Luxembourg’s financial centre. 

The adopted amendments encompass several significant changes, including inter alia:

1.  Undertakings for Collective Investment (UCITS and UCI Part II)

New regime introduced by the law of 21 July 2023 Previous regime under UCI Law
Timeframe for reaching the minimum capitalThe period for achieving subscribed capital has been extended to 12 months for UCIs Part II.The period for achieving subscribed capital was 6 months for UCIs Part II.
Replacement of depositaryThe depositary agreement must include prior notice provisions, and a replacement depositary must be appointed before the expiry of this notice period. During this transition period, outgoing depositaries are still required to safeguard the interests of investors. This change mitigates the risk of automatic de-listing, considering the necessary time for conducting due diligence and onboarding a new depositary.  A 2-month maximum period was previously foreseen to replace a depositary.
Suspension of subscription and/or redemption Subscriptions and/or redemptions of a SICAV are prohibited:

- for the period during which there is no depositary; or

- when the depositary is in liquidation, declared bankrupt or undergoing a suspension of payments, an arrangement with its creditors or some other type of management supervision.
The prohibition of subscription and/or redemption of a SICAV for the period during which there was no depositary or when the depositary was in liquidation, declared bankrupt or undergoing a suspension of payments, an arrangement with its creditors or some other type of management supervision was not foreseen under the previous regime.
Formation UCIs Part II opting for a corporate form as SICAV may take the form of a public limited liability company (SA), corporate partnerships limited by shares (SCA), common and special limited partnerships (SCS/SCSp), private limited liability companies (SARL), as well as cooperatives organized as public companies limited by shares (SCoSA). UCIs Part II opting for a corporate form as SICAV may take the form of a public limited liability company (SA).
Issuance share/interests Closed-ended UCIs Part II may issue shares/interests at a price other than the NAV, provided it is stated in the constitutive documents. Closed-ended UCIs Part II may issue shares/interests at a NAV price.
Taxi. UCIs Part II authorized as ELTIF are exempted from subscription tax

ii. UCIs Part II reserved to PEPPs are exempted from subscription tax

iii. UCIs Part II may benefit from the reduced subscription tax of 0.01% provided that certain conditions are met.

2. Specialized Investment Funds (SIFs)

New regime introduced by the law of 21 July 2023Previous regime under SIF Law
Eligibility of well-informed investorThe investment threshold has been lowered to EUR 100,000, and the list of entities authorized to certify the experience of other well-informed investors has been aligned.  The investment threshold was set at EUR 125,000.
Timeframe for reaching the minimum capitalThe period for achieving subscribed capital has been extended to 24 months for SIFs.The period for achieving subscribed capital was 12 months for SIFs.
Replacement of depositaryThe depositary agreement must include prior notice provisions, and a replacement depositary must be appointed before the expiry of this notice period. During this transition period, outgoing depositaries are still required to safeguard the interests of investors. This change mitigates the risk of automatic de-listing, considering the necessary time for conducting due diligence and onboarding a new depositary.  A 2-month maximum period was previously foreseen to replace a depositary.
Suspension of subscription and/or redemptionSubscriptions and/or redemptions of a SICAV are prohibited:

- for the period there is no depositary;

- the depositary is in liquidation, declared bankrupt or undergoing a suspension of payments, an arrangement with its creditors or some other type of management supervision
The prohibition of subscription and/or redemption of a SICAV for the period during which there was no depositary or when the depositary was in liquidation, declared bankrupt or undergoing a suspension of payments, an arrangement with its creditors or some other type of management supervision was not foreseen under the previous regime.
MarketingMarketing of AIFs in the form of a SIF to well-informed investors in Luxembourg is permissible (see further point E below).Marketing of AIFs in the form of a SIF was permissible only to professional investors.
TaxSIFs authorized as ELTIF are exempted from subscription tax as well when they are authorized as MMFs considering some certain conditions apply.

3. Investment Companies in Risk Capital (SICARs) 

New regime introduced by the law of 21 July 2023 Previous regime under SICAR Law
Eligibility of well-informed investorThe investment threshold has been lowered to EUR 100,000, and the list of entities authorized to certify the experience of other well-informed investors has been aligned.  The investment threshold was set at EUR 125,000.
Timeframe for reaching the minimum capitalThe period for achieving subscribed capital has been extended to 24 months for SICARs.The period for achieving subscribed capital was 12 months for SICARs.
Replacement of depositaryThe depositary agreement must include prior notice provisions, and a replacement depositary must be appointed before the expiry of this notice period. During this transition period, outgoing depositaries are still required to safeguard the interests of investors. This change mitigates the risk of automatic de-listing, considering the necessary time for conducting due diligence and onboarding a new depositary.  A 2-month maximum period was previously foreseen to replace a depositary.
Suspension of subscription and/or redemptionSubscriptions and/or redemptions of a SICAV are prohibited:

- for the period there is no depositary;

- the depositary is in liquidation, declared bankrupt or undergoing a suspension of payments, an arrangement with its creditors or some other type of management supervision.
The prohibition of subscription and/or redemption of a SICAV for the period during which there was no depositary or when the depositary was in liquidation, declared bankrupt or undergoing a suspension of payments, an arrangement with its creditors or some other type of management supervision was not foreseen under the previous regime.
MarketingMarketing of AIFs in the form of a SICAR to well-informed investors in Luxembourg is permissible (see further point E below).  Marketing of AIFs in the form of a SICAR was permissible only to professional investors. 
TaxAll in-kind contributions in a SICAR should be backed up by a valuation report drawn by an auditor.
Under the previous regime, there was no explicit obligation for the contributions in kind to be backed up by a valuation report drawn by an auditor.

4. Reserved Alternative Investment Funds (RAIFs) 

New regime introduced by the law of 21 July 2023 Previous regime under RAIF Law
Eligibility of well-informed investorThe investment threshold has been lowered to EUR 100,000, and the list of entities authorized to certify the experience of other well-informed investors has been aligned.  The investment threshold was set at EUR 125,000.
Timeframe for reaching the minimum capitalThe period for achieving subscribed capital has been extended to 24 months for RAIFs.The period for achieving subscribed capital was 12 months for RAIFs.
Formation formalitiesThe formation formalities for RAIFs have been streamlined. The requirement for a Luxembourg notary to acknowledge the establishment and appointment of an external Alternative Investment Fund Manager (AIFM) within five business days has been eliminated for RAIFs established through a notarial deed, though it still applies to RAIFs established through a private deed. Luxembourg notary shall acknowledge the establishment and appointment of an external Alternative Investment Fund Manager (AIFM) within five business days for RAIFs established through a notarial deed or a private deed.
MarketingMarketing RAIFs to well-informed investors in Luxembourg is permissible (see further point E below).  Marketing of RAIFs was permissible only to professional investors.
Replacement of depositaryThe depositary agreement must include prior notice provisions, and a replacement depositary must be appointed before the expiry of this notice period. During this transition period, outgoing depositaries are still required to safeguard the interests of investors. This change mitigates the risk of automatic de-listing, considering the necessary time for conducting due diligence and onboarding a new depositary. 
A 2-month maximum period to replace a depositary was previously foreseen.
Suspension of subscription and/or redemptionSubscriptions and/or redemptions of a SICAV are prohibited:

- for the period there is no depositary;

- the depositary is in liquidation, declared bankrupt or undergoing a suspension of payments, an arrangement with its creditors or some other type of management supervision
The prohibition of subscription and/or redemption of a SICAV for the period during which there was no depositary or when the depositary was in liquidation, declared bankrupt or undergoing a suspension of payments, an arrangement with its creditors or some other type of management supervision was not foreseen under the previous regime.
TaxRAIFs authorized as ELTIF are exempted from subscription tax.

5. Alternative Investment Fund Managers (AIFMs) 

New regime introduced by the law of 21 July 2023 Previous regime under AIFM Law
Tied AgentsAuthorized alternative investment fund managers are permitted to utilize tied agents as defined by article 1, point 1 of the law of 5 April 1993 on the financial sector.

Where an AIFM decides to use tied agents, the AIFM shall, within the limits of the activities permitted under this law, comply with the same rules as those applicable to investment firms under Article 37-8 of the amended law of 5 April 1993 on the financial sector.
The appointment of tied agents was foreseen under the previous regime for pre-marketing purposes.
MarketingAIFMs may market shares/units of AIF SIFs, RAIFs and AIF SICARs to well-informed investors established or residing in Luxembourg even if they do not fall in the scope of the definition of a professional investor. AIFMs may market shares/units of AIF SIFs, RAIFs and AIF SICARs only to professional investors.

Should you have any inquiries or require expert guidance pertaining to the information provided, our investment management team is available to assist you.  

 


AIFMD II – European Parliament and Council reach provisional agreement on the alternative investment fund managers directive

The press release relating to the Provisional Agreement on new rules for alternative investment fund managers (“AIFMs”) was published on 20 July 2023. The Provisional Agreement pertains, inter alia, to the amendment of the alternative investment fund managers directive as amended from time to time (“AIFMD”) with the aim to improving the European capital market and bolstering investor protection within the EU.

The European Parliament and the Council have agreed to enhance the availability of liquidity management tools (“LMTs”) with new requirements to be provided when activating these LMTs. This measure is designed to ensure that AIFMs can handle significant outflows during periods of financial turbulence or turmoil.

Additional requirements have been agreed upon for loan origination funds. These requirements aim to address risks associated with financial stability and investor protection.

In the Provisional Agreement, the rules about the delegation by AIFMs to third parties have been expanded to further strengthen supervision and maintain market integrity.

Moreover, the European Parliament and the Council have agreed, among other things, on enhanced data sharing and cooperation between the national competent authorities and the EU authorities. They have also established new rules to identify undue costs that might be charged to alternative investment funds and rules against names that could be potentially misleading to investors.

Please note that the Provisional Agreement has not yet been published and is subject to further negotiations and confirmation by the Council and the European Parliament before the formal adoption and publication.

Access the press release related to the Provisional Agreement here.

Discover our AIFMD II timeline here.

Should you have any inquiries or require expert guidance pertaining to the information provided, our investment management team is available to assist you. Please feel free to contact us.


Bill of Law 8183 adopted: Examining the impact on Luxembourg's RAIF, SIF, SICAR, AIFM, and UCI Laws

Luxembourg has taken a significant stride towards modernizing its investment fund laws with the recent adoption of Bill 8183 by the Luxembourg Parliament. This bill introduces amendments to several pivotal fund laws, including the Law of 2010 on Undertakings for Collective Investment (UCI Law), the Law of 2007 on Specialized Investment Funds (SIF Law), the Law of 2004 on Investment Companies in Risk Capital (SICAR Law), the Law of 2013 on Alternative Investment Fund Managers (AIFM Law), and the Law of 2016 on Reserved Alternative Investment Funds (RAIF Law). These amendments are designed to update and strengthen the country’s fund-related regulations, bolstering the competitiveness and attractiveness of Luxembourg’s financial centre.

On March 24, 2023, a bill of law proposing amendments to the Luxembourg fund laws was submitted to the Luxembourg Parliament. The first constitutional vote, held on July 11, 2023, resulted in the adoption of Bill 8183, with an overwhelming majority of 55 votes in favour out of 60. To expedite the implementation of the law, a request was made to dispense with the second vote, which was accepted on 14 July with unanimity.

The adopted amendments encompass several significant changes, including:

Definition of “Well-informed Investor” and marketing RAIFs to well-informed investors in Luxembourg

The definition of a “well-informed investor” has been harmonized across the SIF, SICAR, and RAIF Laws as well as the possibility to market shares or units of such vehicles to retail investors within the meaning of “well-informed investor”. The investment threshold has been lowered to EUR 100,000, and the list of entities authorized to certify the experience of other well-informed investors has been aligned.

Time limit for reaching minimum capital

The period for achieving subscribed capital has been extended to 24 months for SICARs, SIFs, and RAIFs and to 12 months for UCIs (Part II). This extension grants fund managers increased flexibility in meeting the minimum capital requirement.

Harmonization of legal form for Part II UCIs

The available legal forms for Part II SICAVs have been aligned with the legal forms permitted under the SIF, SICAR, and RAIF Laws. This harmonization ensures consistency among various types of investment funds.

Simplification for RAIFs

The formation formalities for RAIFs have been streamlined. The requirement for a Luxembourg notary to acknowledge the establishment and appointment of an external Alternative Investment Fund Manager (AIFM) within five business days has been eliminated for RAIFs established through a notarial deed, though it still applies to RAIFs established through a private deed. Furthermore, the amendment clarifies that marketing RAIFs to well-informed investors in Luxembourg is permissible.

Amendments to the AIFM Law

Authorized managers of alternative investment funds are now permitted to utilize tied agents, as defined by the 1993 law on the financial sector. This amendment provides them with additional operational flexibility.

Replacement of a depositary 

Previously, SICARs, SIFs, UCITS, and Part II funds had an automatic two-month period to replace a depositary in the event of resignation or termination. However, under the new rules, this automatic de-listing provision has been eliminated. Instead, the depositary agreement must now include prior notice provisions, and a replacement depositary must be appointed before the expiry of this notice period. During this transition period, outgoing depositaries are still required to safeguard the interests of investors. This change mitigates the risk of automatic de-listing, considering the necessary time for conducting due diligence and onboarding a new depositary.

Main tax amendments

The newly introduced exemptions from the subscription tax, as part of the Bill of Law 8183, offer benefits to specific structures. These include (i) Part II UCIs, SIFs, RAIFs and their respective sub-funds, provided they are authorized as ELTIFs under the ELTIF Regulation, and (ii) UCITS/Part II UCIs and their sub-funds that cater specifically to investors saving under a pan-European Personal Pension Product (PEPP) established as per the PEPP Regulation. This is a concerted effort to stimulate the creation and growth of ETIFs and PEPPs.

The adoption of these amendments by the Luxembourg Parliament signifies a momentous development in the country’s investment fund legislation. The reforms aim to modernize and enhance the toolbox for Luxembourg funds, fostering a more consistent and practical approach. These changes not only strengthen the regulatory framework but also contribute to the competitiveness and allure of Luxembourg’s financial center. The anticipation is that the legislation will soon be published in the Luxembourg Official Gazette. It will become effective on the fourth day following its publication in the Luxembourg Official Gazette.

Should you have any inquiries or require expert guidance pertaining to the information provided, our investment management team is available to assist you. Please feel free to contact us.


ESMA launches consultation paper on draft regulatory technical standards (RTS) under the revised ELTIF Regulation

On 23 May 2023, the European Securities and Markets Authority (ESMA) initiated a consultation process on draft regulatory technical standards (RTS) under the amended European Long-Term Investment Funds (ELTIF) Regulation.

The consultation is part of ESMA’s mandate to provide the European Commission with RTS further clarifying the revamped ELTIF Regulation. The proposed provisions are comprehensive, encompassing:

  • Criteria for establishing circumstances where the use of financial derivative instruments serves solely for hedging purposes;
  • Circumstances that align the life of an ELTIF with the life-cycles of each of its individual assets, as well as different features of the ELTIF’s redemption policy;
  • The circumstances for the utilization of the matching mechanism, allowing for full or partial matching of transfer requests of units or shares of the ELTIF by exiting investors with transfer requests by potential investors;
  • Criteria to be used for certain elements of the schedule for the orderly disposal of the ELTIF assets; and
  • Cost disclosure.

Interested stakeholders are invited to provide input by 24 August 2023. ESMA aims to submit the final report and draft RTS to the European Commission by 10 January 2024.

A copy of the ESMA consultation paper dated 23 May 2023 can be accessed here.

Additional details about the revised ELTIF regulation can be found in our publication titled “ELTIFs and Luxembourg ELTIF structures“.

Please feel free to reach out to our investment management team if you would like further information regarding the ELTIF regulation or wish to establish an ELTIF.