Entry into force of the law transposing the UCITS V Directive into Luxembourg law and amending certain provisions of the AIFMD.

Today, on 1st June 2016, the Law of 10 May 2016 that transposes the UCITS V Directive into Luxembourg law comes into force, bringing several other amendments to the amended Law of 17 December 2010 on undertakings for collective investments (the 2010 Fund Law) and the amended Law of 12 July 2013 on Alternative Investment Fund Managers (the 2013 AIFM Law).

The changes introduced by the UCITS V Directive that apply to UCITS funds and their management companies can be summarised as follows:

1. A new depositary regime applies to UCITS and their depositaries

The new depositary regime closely reflects the rules established by the 2013 AIFM Law with the main difference that contractual discharge of the depositary and certain reuse of fund assets permitted by the 2013 AIFM Law are not possible in the context of UCITS. It should be considered together with the provisions of the Level 2 Depositary Regulation that will apply as from 13 October 2016 and the provisions of CSSF Circular 14/587 which already anticipated certain changes that the UCITS V Directive has introduced. This CSSF Circular is expected to be updated in September 2016 before the Level 2 Depositary Regulation comes into force.

The 2010 Fund Law also introduces stringent requirements on independence and avoidance of conflicts of interest between the management body of a UCITS Management Company or a UCITS-SICAV and the depositary of the UCITS. The level 2 Depositary Regulation provides for additional clarifications on the principles contained in that respect in the 2010 Fund Law.

2. Rules on remuneration policies and practices need to be applied by UCITS Management Companies and self-managed UCITS-SICAVs

• The rules on remuneration policies under UCITS V are closely derived from similar rules under the AIFMD. They should be considered together with the ESMA Guidelines on sound remuneration policies that will apply as from 1 January 2017.
• Disclosure requirements: (i) the UCITS’ prospectus shall contain information on the remuneration policy of the UCITS management company (either in detail or summarised), (ii) the UCITS’ annual report shall provide information on financial aspects of the remuneration policy of the UCITS management company. The UCITS’ annual report shall also indicate material changes to the remuneration policy of the UCITS Management Company, (iii) the UCITS’ key investor information (KIID) shall contain a statement that the remuneration policy of the UCITS Management Company is available to investors via a specified website that shall be indicated in the KIID.
• On 18 May 2016, the CSSF published a Questionnaire on the key aspects of the revised remuneration policies that UCITS Management Companies and self-managed UCITS-SICAVs will implement in order to comply with the requirements of the UCITS V regime.

3. Administrative sanctions and other administrative measures applicable to the CSSF are subject to harmonisation

The principal additional changes to the 2010 Fund Law and the 2013 AIFM Law can be summarised as follows:

1. 2010 Fund Law

• The 2010 Fund Law extends the new depositary regime to funds that are subject to Part II of the 2010 Fund Law (“Part II Funds”), hence superseding the rules on depositaries currently provided for under the 2013 AIFM Law for such vehicles. There are, however, currently discussions on whether the 2010 Fund Law should be amended again in the near future so that the AIFMD depositary regime will become applicable to certain Part II Funds.

2. 2013 AIFM Law

• An oversight in the initial version of the AIFMD was corrected, now allowing an authorised AIFM to provide portfolio management and non-core services on a cross-border basis.
• Each AIFM authorised under the 2013 AIFM Law, even if not licensed as a management company under Chapter 15 or 16 of the 2010 Fund Law, is required to appoint an approved statutory auditor.

For any further questions, please contact: 

Jacques Elvinger or your usual contact lawyer at the firm.