Firms that are currently authorised under CRD, MiFID II, PSD 2 or EMD in the UK (UK firms) will be considered as “third-country firms” and will lose the benefit from their existing passporting rights under the relevant EU Directives from the date the UK leaves the EU without concluding a withdrawal agreement based on Article 50(2) of the Treaty on European Union (hard Brexit). in that scenario, the CSSF has established a specific regime for UK firms by distinguishing new contracts and existing activities.
a) New contracts - submission of an application as soon as possible
UK Firms that intend to continue their business and conclude new contracts in Luxembourg following a hard Brexit are (when that activity requires an authorisation) required to submit an application for an authorisation to the CSSF as soon as possible. In its press release, the CSSF states that the granting of an authorisation can take up to 12 months following the reception of a complete application file and that UK firms that have not received the necessary authorisation are required to cease all business as of the date of a hard Brexit.
b) Existing activities - mandatory notification and transitional regime
To ensure the orderly functioning and the stability of the financial markets or the protection of depositors, investors and consumers, the Luxembourg Laws of 08 April 2019 (the Brexit Laws), empower the CSSF to allow UK firms that are currently providing financial services in Luxembourg under the EU passport to continue their activities for a limited period after the occurrence of a hard Brexit. At the time of the publication, the Brexit laws had entrusted the CSSF the power to grant a maximum of 21 months grandfathering post-Brexit for services provided to Luxembourg funds and clients by UK financial services providers.
The CSSF has finally decided to set the transitional period at 12-months following the date of a hard Brexit. Such transitional regime is limited in scope as it applies only to the scenario of a hard Brexit and only to contracts that have entered into force before Brexit as well as to contracts concluded after Brexit with close links to existing contracts.
UK firms that are planning to continue to serve existing contracts in Luxembourg under the transitional regime will be required to notify the CSSF accordingly. Notifications will have to be made no later than 15 September 2019. A dedicated notification portal will be opened on the CSSF website in the coming weeks.
The CSSF will assess each notification received and inform UK firms individually as to whether they can benefit or not from the transitional regime. The CSSF will verify that the conditions of the Brexit Laws are met, in particular that a UK firm has duly passported its services to Luxembourg in the past and the information on their activities is coherent and sufficiently detailed.
a) Transitional regime
To ensure the continuity of existing contracts and the protection of undertaking for collective investments (UCI) investors, the CSSF may, on a case-by-case basis, grant impacted UCIs and/or their manager, the possibility to continue their activities in Luxembourg for a limited period after the occurrence of a hard Brexit. the CSSF has decided to set the transitional period to 12 months following the date of a hard Brexit.
The transitional regime may only be granted under the condition that the Brexit notification and the subsequent application(s) and/or notification(s) have been submitted within the established timeframe.
Impacted UCIs and/or their managers will then be informed of the granting of the transitional regime within ten business days of the submission of the required information.
The CSSF will communicate additional information regarding any notification requirement applicable in relation to the possibility granted to UCIs to rectify any Brexit related investment breaches under the transition provisions applicable under the Brexit Laws.
b) Mandatory notification and application
UCIs and/or their managers established in the UK that are currently authorised entities under Directive 2009/65/EC (UCITS Directive) and/or Directive 2011/61/EU (AIFM Directive) (together the EU Directives) respectively, will be considered as “third-country entities” and will lose the benefit from passporting rights under the EU Directives as from the date of the hard Brexit.
All impacted entities will be required to notify the CSSF of their intention and way forward to continue to provide services in Luxembourg after the occurrence of a hard Brexit no later than 15 September 2019.
These entities will then be required to submit to the CSSF, as soon as possible but no later than 31 October 2019, the corresponding application for authorisation, or as the case may be, the corresponding notification or information on any action taken otherwise, depending on the nature of the activities they intend to pursue after the occurrence of a No Brexit and/or the steps undertaken to address the loss of passporting rights.
Entities that are currently authorised in the UK under both the UCITS Directive and the AIFM Directive will be required to proceed with a Brexit notification for both licenses.
Entities that have already submitted an application for authorisation with the CSSF in anticipation of a hard Brexit are required to submit a Brexit notification to the CSSF.
For more information please see our previous elexica articles on the draft law 7401 and draft law 7426 .