On 10 June 2021, the Commission de Surveillance du Secteur Financier (CSSF) published an updated version of (i) its frequently asked questions (FAQ) on the Luxembourg Law of 17 December 2010 relating to undertakings for collective investment schemes, as amended (the “Law of 2010”) and (ii) its FAQon the Luxembourg Law of 12 July 2013 on alternative investment fund managers, as amended (the “law of 2013”).
The changes pertain to the application of the directive on markets in financial instruments 2014/65/EU (MiFID) to investment fund managers (“IFM”), their third-party delegates and their investment advisers.
IFMs are required to comply with these FAQs as soon as possible and at the latest by 31 December 2021, considering the best interests of investors.
Please find below a brief summary of the main points detailed in the FAQs.
MiFID and the activity of collective portfolio management
General exemption (art 2 (1) (i) of MiFID):
Functions included in the collective portfolio management of an authorized IFM are not considered as an investment service under MiFID.
Exemption to the principle:
However, this exemption does not cover the delegation of the collective portfolio management either to another authorized IFM or to a third-party.
a) Delegation to a third-party
In such circumstance, the IFM becomes a client of the third-party and falls under MiFID regulation if the following cumulative conditions are complied with:
- the service rendered qualifies as an investment service (Annex I of MiFID); and
- the service relates to transactions on financial instruments (Section C Annex 1 of MiFID); and
- the service is rendered by a third-party established in the EU or is considered to be rendered in Luxembourg by a third party established outside of the EU (Part III of Circular CSSF 19/716).
b) Delegation to another authorised IFM
In such case, the authorised IFM must, in principle, hold an authorisation to provide discretionary portfolio management and non-core services (article 101 (3) of the Law of 2010 or under article 5 (4) of the Law of 2013). In such case a limited number of MiFID rules are applicable. Failure to hold an authorisation should prevent these authorised IFMs to carry out such activities.
MiFID and the specific case of marketing
As marketing is part of the functions of the collective portfolio management, if the relevant IFM holds an authorisation which includes the marketing function, the IFM may market the funds under its management. If the IFM does not perform the marketing function itself, the MiFID exemption does not apply. The relevant entity performing the marketing function will therefore need to be either an authorised IFM with a MiFID top-up or another regulated entity authorised to carry out the investment services which may be used for the distribution of funds.
MiFID and the service of investment advice
Investment advice is not included in the functions covered by the activity of collective portfolio management. Consequently, third parties that provide investment advice relating to financial instruments (Section C Annex 1 of MiFID) to IFMs are in principle subject to MiFID rules, subject to the general MiFID exemption (e.g. intragroup service exemption).
In light of the above, IFMs should review their organization model in order to assess whether they comply with the aforementioned requirements. Third country delegates or service providers should also analyse whether they comply with the third country regime as set out under the Circular CSSF 19/716.
Aurélien Hollard, Luxembourg Partner | Avocat à la Cour
Benjamin Bada, Luxembourg Partner | Avocat à la Cour
Aurélia Viémont, Luxembourg Senior Counsel | Avocat à la Cour