Luxembourg’s legislation of July 21, 2021 on cross-border distribution of investment funds has come into force on August 2 following its publication in the Mémorial, Luxembourg’s official gazette, on July 26.

The legislation, which transposes into Luxembourg law Directive (EU) 2019/1160 on Cross-Border Distribution of Collective Investment Schemes, the so-called CBDF Directive, amends Luxembourg’s investment fund law of December 17, 2010 and its law on alternative investment fund managers of July 12, 2013.

The legislation, along with the directly applicable CBDF Regulation, which also took effect on August 2, aims to enhance the cross-border distribution of UCITS and alternative investment funds by harmonising rules governing the launch and discontinuation of marketing, retail marketing and the content and supervisory review of marketing communications.

It notably creates a new harmonised regulatory regime defining and implementing a notification process for pre-marketing of AIFs throughout the EU. Pre-marketing was not defined in the original AIFMD and was left to rules and guidance applicable in individual member states, leading to inconsistencies and uncertainty.

The legislation – which is not being implemented by the UK – restricts third-party pre-marketing to certain authorised EU financial institutions comprising MiFID-authorised firms and their tied agents, banks, UCITS management companies and other EU AIFMs, restricting the possible use of non-EU distributors or placement agents.

Any subscription made within 18 months of pre-marketing activity will be considered to be the result of marketing, which requires marketing notification, effectively barring reliance on reverse solicitation for that period.

The CBDF legislation requires EU managers to notify their home regulator within two weeks of starting pre-marketing, a notification to its home member state, specifying the member states and the periods during which pre-marketing is taking place and a brief description including information on investment strategies. This is separate from the notification procedure required to use the AIFMD marketing passport.

ESMA guidelines issued on May 27, 2021 require AIFMs to ensure that all marketing communications aimed at EU investors in the EU can be identified as such, describe prominently the risks and rewards of investing in an AIF and contain information that is fair, clear and not misleading. They will become applicable six months after their publication in all EU languages.

How the CBDF rules apply to non-EU AIFMs is down to the implementation of the directive by member states, which should ensure that especially the pre-marketing requirements should not disadvantage EU AIFMs, including in the event that passporting rights are extended to non-EU managers through revision of the AIFMD.

In Luxembourg, the CSSF has published Circular 21/778, updating its Circular 11/509 to incorporate amendments relating to the CBDF legislation, notably the process of de-notification of Luxembourg-domiciled UCITS.

The regulator has also published on its website a frequently-asked questions document detailing changes in notification rules and procedures for management companies of UCITS and AIFs as a result of implementation of the CBDF Regulation. It has also created a new dedicated web page regarding the pre-marketing notifications of AIFMs.

For more information, please contact Olivier Sciales at oliviersciales@cs-avocats.lu