By Olivier Sciales, Chevalier & Sciales – Luxembourg's financial regulator, the Financial Sector Supervisory Authority (CSSF), has published a series of Frequently Asked Questions (FAQs) regarding the draft legislation that will implement the European Union's Alternative Investment Fund Managers Directive into national law and the European Commission's implementing regulation.
The CSSF has decided to publish the FAQs to provide managers with greater clarity on the impact of the directive, and especially provisions regarding the transitional period of a year up to July 22, 2014, even though Luxembourg's Chamber of Deputies has not yet voted the draft legislation into law.
The CSSF says the FAQs will be regularly updated and that it may if need be change its approach to some of the issues they deal with. This emphasises that the document is purely designed to provide guidance and does not offer managers legal certainty, especially before the draft bill is enacted into law.
The Commission's 'Level 2' delegated regulation, No 231/2013, was issued on 19 December, 2012 and will have effect from July 22 this year, the deadline for transposition of the directive into the national law of EU member states.
Bill of law no. 6471, which transposes the AIFM Directive and also introduces the new Special Limited Partnership into Luxembourg law, was placed before parliament on 24 August, 2012. The regulator says it expects the legislation to be adopted "in a near future", which is understood to mean before 22 July, 2013.
When can managers start applying for authorisation under the AIFMD?
The CSSF has announced that it has been open to the submission of applications for authorisation as an alternative investment fund manager under the directive since 1 March. It has provided details on its web site of the procedure for submission of an authorisation file at http://www.cssf.lu/en/forms/ . Managers in activity before 22 July this year have until 22 July, 2014 to submit an application for AIFMD authorisation to the CSSF.
Who qualifies for the CSSF's transitional provisions?
The regulator says in its FAQs that transitional provisions apply only to managers in existence and carrying out management of alternative funds before 22 July, 2013. Managers that have not yet launched management activities must complete authorisation (or registration, if they are below the asset thresholds set out in the directive) before doing so.
Existing managers are required to take "all necessary measures" – that is, "expend their best efforts" – to comply with the provisions of the Luxembourg draft law regarding general principles, operating conditions, organisational requirements, conflicts of interest, remuneration, risk management, liquidity management rules, securitisation rules, valuation and delegation rules by 22 July, 2014, or from the moment of authorisation by the CSSF if earlier.
Do the transitional provisions work differently for managers and funds?
The regulator draws a distinction with regard to the transitional provisions between the regime applicable to managers and the impact of this on alternative investment funds set up under one of Luxembourg's 'product laws' – the 2010 (UCITS IV) investment fund legislation for Part II funds, the SIF law of 2007 and the SICAR law of 2004.
From the moment a manager is authorised under the AIFMD implementation law, it must ensure that the funds it manages take all necessary measures to comply with the rules introduced by the respective product law regarding the annual report, valuation rules, disclosure to investors and depositary rules.
Luxembourg's AIFMD implementation law modifies these product laws to bring them into line with the requirements of the directive. All funds set up under one of these laws before July 22, 2013 and that qualify as alternative investment funds under the directive, and any such funds established over the subsequent 12 months to 22 July, 2014, can appoint a manager that benefits from the transitional arrangements ñ that is, they do not need to seek authorisation before 22 July, 2014.
Once a fund has appointed a manager authorised as AIFM by the CSSF, it must take all necessary measures to comply with the product law rules on the annual report, valuation rules, disclosure to investors and depositary rules.
When do funds covered by the transitional arrangements have to comply in full?
All qualifying alternative funds benefiting from the transitional provisions must submit to the CSSF by 1 April, 2014 information regarding its compliance with the AIFMD product rules as of 22 July, 2014, as opposed to the previously applicable product law rules.
The transitional rules also apply to any new sub-fund created as part of an umbrella fund established under one of the product laws before 22 July, 2013.
What is the situation regarding private placement distribution in Luxembourg?
The CSSF also notes that managers established in both EU and non-EU countries will remain able to market their funds in Luxembourg under the country's existing private placement regime, unaffected by the provisions of the AIFMD implementation law, until 22 July, 2014.
After this date, all managers and funds must comply with the directive from the moment of their establishment. The directive excludes EU managers marketing in member states through private placement arrangements from this point on.
What does all this mean for Luxembourg-based managers and funds?
- Alternative managers that already exist and are managing funds as of 22 July this year, including self-managed alternative funds, have a further 12 months to apply for authorisation from the CSSF.
- Any such managers or alternative self-managed funds established or beginning activity after 22 July this year must be authorised and comply with the directive immediately.
- Regulated alternative funds with an external manager – SIFs, SICARs and Part II Funds – in existence and regulated before 22 July are only required to comply with the AIFMD product rules once their manager has obtained authorisation under the AIFM Directive, or by 22 July, 2014 at the latest.
- Funds established on or after 22 July but that have external managers in existence and active before that date need to comply with the product rules only once the manager is authorised, or by 22 July, 2014 at the latest.
- All other externally managed alternative funds established after 22 July – i.e. those whose managers do not enjoy an extra year's transitional period to obtain authorisation ñ must comply with the AIFMD product rules immediately.
In our AIFM Directive blog on our website , we will continue to track and analyse progress toward the full implementation of the AIFM Directive, following the publication of the Level 2 regulation by the European Commission at the end of last year, including the progress of EU member states toward adoption of the primary legislation and the process of drafting technical guidance. You may also find a library of all the main documents related to the AIFMD.