Further to its press release on 3 November 2021, the Luxembourg Regulator (Commission de Surveillance du Secteur Financier, CSSF) published an updated version of its Frequently Asked Questions (the FAQ)  concerning the Luxembourg Law of 17 December 2010 relating to undertakings for collective investment (the 2010 Law) whereby it provides the following clarification regarding the holding of ancillary liquid assets by UCITS foreseen under article 41 (2) b) of the 2010 Law:

  • Ancillary liquid assets should be limited to bank deposits at sight, such as cash held in current accounts with a bank accessible at any time, in order to cover current or exceptional payments, or for the time necessary to reinvest in eligible assets provided under article 41(1) of the 2010 Law or for a period of time strictly necessary in case of unfavourable market conditions.
  • The 20% limit in deposits made with a same body under article 43(1) of the 2010 Law applies to ancillary liquid assets, as ancillary liquid assets are limited to deposits at sight with banks.
  • The holding of such ancillary liquid assets is limited to 20% of the net assets of a UCITS. The 20% limit shall only be temporarily breached for a period of time strictly necessary when, because of exceptionally unfavourable market conditions, circumstances so require and where such breach is justified having regard to the interests of the investors.
  • Bank deposits, money market instruments or money market funds should not be included in the ancillary liquid assets under article 41(2) b) of the 2010 Law. Additionally, a UCITS cannot invest in bank deposits, money market instruments or money market funds if it is not indicated in its investment policy and it should specify the purposes, i.e. for investment purpose, cash management or in case of unfavourable market conditions.
  • Margin accounts do not qualify as bank deposits nor as ancillary liquid assets. Initial and variation margins relating to financial derivatives shall be considered as collateral received or posted. Regarding margin accounts, the CSSF considers that the 20% limit in deposits made with a same body under article 43(1) of the 2010 Law does not apply. However, in order to avoid undue exposure to a single body, margin accounts shall be taken into consideration in the 20% global limit applicable to an issuer under article 43(2) of the 2010 Law.

The CSSF expects UCITS to comply with the above-mentioned conditions as described in the FAQ as soon as possible and by 31 December 2022 at the latest, considering the best interests of investors.

You may access the FAQ here.

For more information, please get in touch with our Investment Management Team.