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CSSF issues eighth update to AIFMD law Q&A

February 2015 - Finance. Legal Developments by Chevalier & Sciales .

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The CSSF is continuing to update its Frequently Asked Questions document on the grand duchy's law of July 12, 2013 implementing the AIFMD and the European Commission's Level 2 regulation on implementation of the directive, most recently on December 29, 2014.

The FAQ document has now run to eight versions over the past year and a half. The CSSF's aim is to highlight aspects of the AIFMD rules from a Luxembourg perspective, for the benefit primarily of alternative funds and managers established in the grand duchy. It complements Q&A documents on the AIFMD published by ESMA, most recently updated earlier this month, and by the European Commission. 

The FAQs cover issues including the scope of the law, the authorisation and registration regimes applicable to alternative managers, delegation requirements, entry into force of the law and duration of transitional provisions, the scope of authorised managers' activities, depositary requirements, the application of the AIFMD passport to Luxembourg managers and funds and for foreign managers marketing in Luxembourg, reporting, valuation, transaction costs, managers' capital requirements, and co-operation agreements signed by the CSSF with non-EU regulators.

The new version primarily updates information regarding reporting requirements for managers authorised in the final quarter of 2014, requirements governing the marketing without a passport in the grand duchy of non-EU funds by Luxembourg or other EU managers, and notification to the CSSF of the acquisition of major holdings and control of non-listed companies by both Luxembourg-authorised managers and non-EU firms carrying out marketing in the grand duchy.

The CSSF says that managers established before July 22, 2014 and authorised between October 1 and December 31 of last year are required to submit their first report to the regulator, covering the final quarter of 2014, for January 31, 2015, of February 15 in the case of a fund of funds), even if they are normally subject to half-yearly or annual reporting. The standard deadline for transmission of information is one month following the end of the reporting period for ordinary funds, and the 15th of the following month for funds of funds.

The update Q&A also sets out the rules for the marketing of funds domiciled outside the EU to professional investors in Luxembourg without a passport by Luxembourg or other EU-based managers, as set out in Article 37 of the legislation. The rules apply to all authorised EU managers seeking to market in Luxembourg the shares or units of one or more non-EU funds, or of EU feeder funds where the master fund is not EU-domiciled or not managed by an authorised EU manager.

Managers in question must inform the CSSF when they start (or stop) carrying out marketing activity for such funds in the grand duchy, providing the information required on a form downloadable from the regulator's web site. They must ensure the appointment of one or more entities to carry out the so-called Depositary Lite services of cash monitoring, safekeeping of assets and oversight of certain operational functions described in Article 21 of the AIFMD, and indicate the identity of the providers to the CSSF.

The regulator says the safekeeping of assets for non-EU fund may be carried out by a single depositary or several entities, such as multiple different prime brokers, but a single provider must be appointed for cash monitoring and for oversight of operational functions. There are no requirements regarding geographical location for Depositary Lite service providers.

The only general rule applicable to EU managers marketing non-EU funds to professional investors is that they should not contravene to the Luxembourg Consumer Code. Managers that were marketing non-EU funds to professional investors under Luxembourg's existing private placement regime before July 22, 2013, must submit the required information to the CSSF in order to continue to market the funds under Article 37 of the Luxembourg legislation.

The Q&A also covers details of how authorised Luxembourg alternative managers authorised under Chapter 2 of the 2013 legislation as well as non-EU managers conducting marketing activities in the grand duchy without a passport under Article 45 are required to notify the CSSF whenever the proportion of voting rights held by their funds in unlisted companies reaches, exceeds or falls below the thresholds of 10%, 20%, 30%, 50% and 75%.

Managers must also notify the CSSF when one or more of the funds they manage, either individually or jointly, or under an agreement with other managers, acquires control of an unlisted company, defined as holding more than 50% of the voting rights. This applies to companies whose registered office is in the EU and whose shares are not traded on a recognised market.

Notification to the CSSF is not required for unlisted companies that are defined as small and medium-sized enterprises: employing fewer than 250 people, with an annual turnover no larger than €50m, and/or an annual balance sheet total not exceeding €43m. Nor does it apply to SPVs created to purchase, hold or manage real estate.

The form for notification of major holdings in or control of unlisted companies can be downloaded from the CSSF website. This must be completed and submitted as soon as possible, and not later than 10 working days after the date on which the fund reached or passed a stipulated ownership threshold or took control of the unlisted company. Compliance with these rules is required from the date of authorisation for Luxembourg managers, and from the date of starting marketing activities for non-EU managers.

The January 9 update to the ESMA AIFMD Q&A also deals with reporting requirements. The authority says alternative managers should report the value of subscription and redemption orders rather than their number, reporting should be for the month when cash flows in or out rather than when the orders are placed, unless they are the same.

Reports on changes in NAV from month to month should reflect the net impact of subscriptions, redemptions and investment performance. If no official NAV is available, managers should provide estimates for the NAV. In some cases, such as where funds are investing in illiquid assets, the best estimate may be the previous NAV, ESMA says. The same applies to information on gross and net investment returns per month.

The authority has also clarified that managers of both single-manager funds and funds of funds should provide information on the single-manager funds within a month of the end of the reporting period, and on the funds of funds as well as manager-level reporting within 45 days.

The FAQs deal with by the CSSF can be consulted at http://www.cssf.lu/fileadmin/files/AIFM/FAQ_AIFMD.pdf, those posted by ESMA at http://www.esma.europa.eu/system/files/2015-11_qa_aifmd_january_update.pdf, and those published by the European Commission at http://ec.europa.eu/yqol/index.cfm?fuseaction=legislation.show&lid=9.