Flexibility in the wake of a potential hard Brexit: CSSF Luxembourg press release 19/48

Introduction

On October 11, 2019, Luxembourg’s financial regulator (the CSSF), issued a press release in relation to the UK leaving the EU without an agreement on October 31, 2019 (Hard Brexit) and relates to both:

1. UK AIFMs of alternative investment funds established in Luxembourg (AIFs), whether regulated or not (UK Managers), which did not submit a Brexit notification (a Required Brexit Notification) to the CSSF by September 15, 2019.
2. UK Managers which have submitted the Required Brexit Notification.

UK managers who did not submit the Required Brexit Notification

UK Managers who did not submit the Required Brexit Notification will not be entitled to continue their activities under the transitional period provided for under the laws of April 8, 2019 on Brexit (the Brexit Laws) and will be considered “third country managers” from the date of Hard Brexit. Accordingly they will, from the date of a potential Hard Brexit, lose the benefit of their existing passporting rights.

If they wish to continue their activities from the date in the event of a Hard Brexit, such UK Managers must now:

1. Seek, prior to October 31, 2019, the approval of the investors (and, as the case may be, the bondholders) in their AIFs that such UK Manager remains a “third country manager” after the date of a potential Hard Brexit.
2. Confirm that the direct or indirect investors of these AIFs are professional investors (the Professional Investors¹)
3. Provide the CSSF with:

• A duly signed confirmation that all direct and indirect investors in the relevant AIF qualify as Professional Investors
• A copy of the appropriate resolution(s) evidencing the approval of the Professional Investors (and, as the case may be, of the bondholders), duly signed, or
• When circumstances justify a delay, an explanation of such circumstances together with a copy of the appropriate convening notice (or draft consultation) duly sent to the shareholders/limited partners, and, as the case may be, to the bondholders.

The CSSF reserves the right to publish, in due course, a list of the UK Managers who do not comply with these requirements.

UK managers who already submitted the Required Brexit Notification

UK Managers who submitted the Required Brexit Notification, have, instead of remaining subject to the transitional regime as a result of such notification, been granted the possibility of opting to remain as “third country managers” for each AIF, subject to:

1. Recalling their Required Brexit Notification
2. Seeking the approval of the investors (and, as the case may be, the bondholders) in their AIFs, prior to October 31, 2019
3. Confirming that the direct or indirect investors of these AIFs are Professional Investors²
4. Providing the CSSF with:

• A duly signed confirmation from the UK Manager that the notification submitted through the dedicated Brexit portal should be rescinded
• A duly signed confirmation that all direct and indirect investors in the relevant AIF qualify as Professional Investors
• A copy of the appropriate resolution(s) evidencing the approval of the Professional Investors (and, as the case may be, of the bondholders), duly signed, or
• When circumstances justify a delay, an explanation of such circumstances together with a copy of the appropriate convening notice (or draft consultation) duly sent to the shareholders/ limited partners, and as the case may be, to the bondholders.

Whilst the statements made by the CSSF in the press release are based on the assumption of a Hard Brexit occurring on October 31, 2019, and the CSSF does not preclude the possibility of future legislative or regulatory modifications of the third country regime, the introduction by the CSSF of an option for those UK Managers having made the Required Brexit Notification to become, subject to fulfillment of certain conditions, third country managers, rather than remaining within the transitional regime, is welcome.