Highlights:

The CSSF has issued a Thematic Review on the implementation of the sustainability-related provisions in the investment funds industry. The CSSF thematic review consists in observations and expectations across five different aspects of the sustainability-related provisions:

1. Organisational arrangements of IFMs, including the integration of sustainability risks by IFMs
2. Compliance of precontractual disclosures, including product website disclosures
3. Compliance of periodic disclosure information
4. Fund documentation and marketing communications
5. Portfolio analysis

Luxembourg Market Update:

The aggregate assets of Luxembourg-domiciled alternative investment funds stood at €960.7bn at the end of May, with net outflows during the month amounting to €1.73bn, according to the European Fund and Asset Management Association. The aggregate assets of UCITS funds domiciled in the grand duchy totalled €4,201.7bn, with net outflows during the month of €9.38bn. Net outflows for AIFs across Europe as a whole totalled €5.90bn in May, while UCITS recorded outflows of €7.49bn.

Regulatory Developments in and beyond Luxembourg:

21 July 2023: Amended subscription tax provisions - Luxembourg law amending investment fund laws

The new Luxembourg law of 21 July 2023 (available only in French) was adopted. It will amend the laws on UCIs, SIFs and RAIFs with view to modernise some of their provisions including on subscription tax aspects.

The law introduced new subscription tax exemption regimes for European Long Term Investment Funds (ELTIFs) in the UCI, SIF, and RAIF laws and for pan-European Personal Pension Product (PEPP) in the UCI law in order to encourage the emergence and development of these new EU products.

In addition, the subscription tax regime applicable to money market funds has been aligned with Regulation (EU) 2017/1131 of 14 June 2017 on money market funds. Consequently, the existing Grand Ducal Decrees of 14 April 2003 and 27 February 2007 have been repealed.

Finally, the conditions for the subscription tax exemption for pension funds established under the UCI Part I law has been aligned with the more flexible rules that already apply to SIFs and RAIFs.

The law entered into force on 29 July 2023.

On 26 July 2023, the Luxembourg tax authorities published Circular N° 818. The Circular gives several indications concerning the practical implementation of some of the provisions of the law of 21 July 2023, and in particular:

• As regards the first tax returns for the new subscription tax regimes, considering that subscription tax returns are filed on a quarterly basis, these new regimes can be applied, for the first time for the third quarter of 2023, when the tax base is next determined, i.e. as at 30 September 2023.
• For the "fund of funds" exemption regime to apply, it should be noted that UCIs, SIFs or RAIFs in which the SIFs invest must pay the subscription tax on the value of the assets represented by the units held by the SIF.
• For the pension fund exemption regime to apply, the units or shares of the fund must be "reserved for" certain categories of investors. In particular, the prospectus of the UCI or its sub-fund must contain an unequivocal provision stating that only the categories of investors described in Article 175, paragraph c), (i), (ii) and/or (iii) may invest in the UCI, its sub-fund or the share class concerned.

24 July 2023: Changes to Luxembourg fund laws: publication of law in the Official Journal

A new law introducing certain changes to the Luxembourg fund laws was published in the Official Journal of Luxembourg (Loi du 21 juillet 2023, available only in French).

The changes impact five sectoral laws, namely the laws on SICARs, SIFs, RAIFs, UCIs, and AIFMs. They include an extension of the deadlines to reach the respective minimum capital, additional structuring options of UCI Part II funds, the possibility for AIFMs to use tied agents, a reduction of the minimum investment capital requirement from EUR 125,000 to EUR 100,000 to qualify as well-informed investor, and administrative simplifications.

From a tax perspective, new provisions introduce subscription tax exemption regimes in the UCI, SIF, and RAIF laws for ELTIFs and in the UCI law for PEPP funds. In addition, amendments to the existing sectoral laws clarify the subscription tax exemption regimes applicable respectively to funds of funds and to money market funds. The new provisions also align the subscription tax exemption for pension funds established under the UCI Part I law with the more flexible rules that already apply to SIFs and RAIFs.

The law entered into force on 28 July 2023.

1 August 2023: Communication on the launch of a Standardised Model Articles of Incorporation for UCITS

Further to the implementation  of a Standardised Model Prospectus (communication on 17 November 2022), the CSSF announced the availability of Standardised Model Articles of Incorporation that applicants can use when submitting an application for approval of a new UCITS set up in corporate form (SICAV).

The Model Articles of Incorporation has been developed with the aim to facilitate the drafting of Articles of Incorporation for a SICAV project of average complexity and to facilitate through standardisation its examination by the CSSF during the processing of the application file.

The Standardised Model Articles of Incorporation is not a new regulatory requirement nor a guarantee for approval. The current authorisation process, from the submission of a request, the exchange of comments where relevant and the approval process of a UCITS, remains unchanged as described on the webpage “Authorisation of a UCITS”.

While the Model Articles of Incorporation is set up to reflect current and up-to-date practice, the content is composed of information of a universal nature and may need customisation to suit the context and circumstances of any specific SICAV project.

The Standardised Model Articles of Incorporation provides certain freedom to add or alter text, however limited to the extent to not override the benefit of standardisation.

Please refer to the dedicated page in relation to the Standardised Model Articles of Incorporation on the CSSF website for further information on the scope, conditions of use and practical guidance in respect to the proposal.

3 August 2023: Sustainable Finance: the CSSF issues a Thematic Review on the implementation of sustainability-related provisions in the investment fund industry

The CSSF has issued a Thematic Review on the implementation of the sustainability-related provisions in the investment funds industry. The CSSF thematic review consists in observations and expectations across five different aspects of the sustainability-related provisions:

1. Organisational arrangements of IFMs, including the integration of sustainability risks by IFMs
2. Compliance of precontractual disclosures, including product website disclosures
3. Compliance of periodic disclosure information
4. Fund documentation and marketing communications
5. Portfolio analysis

This initiative follows the Supervisory Briefing on sustainability risks and disclosures in the area of investment management published by ESMA in May 2022 and the communiqué of the supervisory priorities in the area of sustainable finance published by the CSSF on 6 April 2023.

The thematic review is the resulting report of both on-site inspections by the CSSF on the integration of sustainability-related provisions in the governance of IFMs, initiated in 2022 as well as the off-site thematic assessment performed in Q2 2023 on a sample of IFMs on their implementation of sustainability-related provisions. The CSSF expects IFMs to consider these observations and recommendations in their ongoing assessment of their compliance with the sustainability-related requirements.

4 August 2023: CSSF Communiqué on discontinuation of fax services

The CSSF has informed that the CSSF stopped using fax as a means of communication to send and receive documents.

The other contact details are unchanged:

• Email: direction@cssf.lu
• Email for customer complaints: reclamation@cssf.lu
• Email addresses for specific requests: Directory and email addresses
• Address:

Commission de Surveillance du Secteur Financier
283, route d’Arlon
L-1150 Luxembourg
B.P. L-2991 Luxembourg

Specific channels to be used by professionals in the context of the CSSF’s missions, such as MFT (Managed File Transfer) CSSF and the eDesk Portal, remain unchanged.

17 August 2023: CSSF publishes FAQ on Virtual Asset Service Providers

The CSSF has published an FAQ on Virtual Asset Service Providers. This document is of interest for entities being already registered in the CSSF register as a virtual asset service provider (“VASP”), as defined in Article 1 (20c) of the Law of 12 November 2004 (“AML/CTF Law”) or wishing to be established or to offer virtual asset (“VA”) services in Luxembourg. Please note that the document has been drafted based on the current legal AML/CTF framework applicable to VASPs and does not take into account the evolution of the framework related to VA at European level (i.e. the Regulation on Markets in Crypto-Assets (“MICA”)).

23 August 2023: CSSF issues fund marketing recommendations

The CSSF has published the general findings and observations of its thematic review of the marketing communications of Luxembourg investment fund managers ("IFMs" for short, including UCITS management companies and AIFMs), which started in 2022.

As part of these findings and observations, the CSSF provides its interpretation of EU regulations, in particular on the ESMA Guidelines 34-45-1272 on marketing communications, as well as specific recommendations.

Below is an overview of the key interpretations and recommendations we have identified:

• In terms of what exactly constitutes marketing communications, the CSSF states that it is up to the IFMs to assess this matter based on the guidance provided by ESMA.
• Regarding description of the features of the investment, the CSSF mentions leverage, type of eligible assets and recommended holding period as examples of key elements of said features.
• When it comes to specific terms and acronyms, the CSSF expects these to be properly defined.
• Where IFMs target a specific type of investors with a marketing communication, the CSSF recommends clearly identifying the target investor group, especially when the fund is open to e.g. the public.
• In terms of labels, ratings or certifications, the CSSF recommends indicating the concerned product, date and the granting entity. The CSSF further recommends providing a hyperlink to a website where further information is provided.
• The CSSF furthermore expects hyperlinks to be used sparsely in marketing communications and those present to lead to the exact place where information is available instead of e.g. a homepage. To avoid issues with broken links, the authority expects IFMs to maintain these links over time.
• Regarding risks related to the investment, the CSSF expects this to be tailored to the product and to include a prominent indication where complete information is available. The CSSF points out that this is also expected when the marketing communication is addressed to professional investors only.
• For a fair, clear and not misleading disclosure of costs, the CSSF is of the view that the marketing communication should show the periodicity of the costs and include as applicable a prominent indication that not all costs are present and further information may be found in the prospectus.
• As regards performance, the CSSF is of the view that the 10-year period of performance disclosure foreseen in the ESMA guidelines for “funds establishing a KIID” also applies to funds establishing (PRIIPs) KIDs. Such funds are thus not to be considered as “other funds” by the authority which should only show performance for the preceding 5 years.

Moreover, the CSSF expects IFMs to:

• prominently disclose any changes which significantly affect the past performance of the promoted fund, and;
• ensure consistency with the fund’s documents and include the same information present in those documents concerning benchmarks in the marketing communications.

The CSSF is also of the opinion that the following practices are non-compliant:

• showing performance for the current year updated at the end of the most recent month instead of quarter, and;
• showing simulated performance for newly launched funds based on a related group strategy (or equivalent).

The CSSF asks IFMs to take the findings, observations and recommendations into consideration in the preparation of fund marketing communications.

For further information, please contact:

Tobias Ettlin #ONEteam
#onewithyou‍

Disclaimer: This regulatory update has been prepared for clients of ONE group solutions and its subsidiaries for informational purposes and is not intended to be relied upon as professional advice. Please visit: https://www.one-gs.com/‍