Today, the Luxembourg financial supervisory authority (the CSSF) released a communication on Brexit1 which follows up on previous communications issued by the CSSF regarding the transitional regime under the laws of 8 April 2019 on Brexit, as well as the mandatory notifications process.
As a bit of history, on 15 July 2019, the CSSF published two press releases2 directed at (i) UK firms and (ii) UCITS management companies and AIFMs, clarifying the actions to be taken by UK entities in anticipation of a hard Brexit. Following the decision of the European Council of 30 October 2019 extending the period under Article 50(3) relating to the United Kingdom’s withdrawal from the European Union, the CSSF announced on 7 November 2019 that the reference date for a potential hard Brexit should be read as 31 January 2020.
Pursuant to these communications, the CSSF was willing to grant UK entities facing the risk to lose their passporting rights under relevant EU directives, the benefit of a transitional regime, ensuring both the stability of financial markets and the protection of investors. UCIs and/or their managers wishing to continue to provide services in Luxembourg after a no-deal Brexit had to apply for a transitional regime by introducing a Brexit notification via the dedicated eDesk portal of the CSSF.
However, following the formal adoption of the withdrawal agreement by the Council of the European Union on 30 January 2020, the UK will be leaving the EU with a withdrawal agreement today at midnight (Brussels time). According to the terms of the withdrawal agreement, a time-limited transition period will last until 31 December 2020. During such transition period, EU laws and regulations shall continue to apply in the UK and UK entities will be able to continue to work in Luxembourg on the basis of their passporting rights.
Therefore, the scenario of a hard Brexit, under the assumption of which the previous communications have been issued by the CSSF, is no longer relevant and the CSSF’s individual decisions granting the transitional regime to UK entities and all notifications made in that context are lapsing.
Far from putting an end to Brexit, this opens a new era of uncertainty for UK firms, UCIs and their managers, who are now dependent on the coming negotiations between the UK and the EU, while during 2019 Luxembourg strengthened its position as the first fund centre in Europe (EUR 4.7 trillion of assets under management in Luxembourg domiciled funds, 68 new managers licensed, and 19 of the 20 leading private equity firms with operations in Luxembourg as per the latest figures communicated by Luxembourg for Finance3).
1 Press release 20/03
2 Press releases 19/331 and 19/342