Brexit: the CSSF made a positive statement regarding delegation of investment/portfolio management to UK investment managers

On 25 January 2019, the Luxembourg supervisory authority (Commission de Surveillance du Secteur Financier - CSSF) has issued a positive statement with respect to delegation of investment management/portfolio management and/or risk management activities to UK investment managers in the event of a “no deal” Brexit.

Overview

Luxembourg UCITS and AIFM legislations permit the delegation of investment management/portfolio management and/or risk management activities to investment managers located in countries outside the European Economic Area (EEA) under certain conditions.

Article 110 of the Law of 10 December 2010 on undertakings for collective investments (with respect to the delegation of investment management of UCITS), Article 18 of the Law of 12 July 2013 on alternative investment fund managers (with respect to the delegation of portfolio management of AIFs managed by authorized AIFs) allow such delegation provided that the following conditions are fulfilled:

  1. the EEA firm is authorised or registered for the purpose of asset management
  2. the EEA firm is subject to prudential supervision, and
  3. that cooperation between the third country supervisory authority and the CSSF is ensured.

Hence, in the event of a “no deal” Brexit, UK based investment managers would have to comply with the above conditions to be delegated investment management of UCITS and/or portfolio management of AIFs managed by authorized AIFMs. It is therefore essential for the continuity of delegation arrangements to UK investment managers that the cooperation be ensured between the FCA and the CSSF.

Essential Content of the CSSF Press release

The CSSF endeavours that the required cooperation between the UK FCA and the CSSF shall be in place on 29 March 2019 in the event of a “no deal” Brexit. On this basis, delegation to UK investment managers shall be possible without any disruption post-Brexit provided that the UK delegate remains authorized and subject to supervision by the FCA. It is notable that the CSSF does not refer to the signature of a memorandum of understanding (MoU) between the CSSF and the FCA by 29 March 2019 but endeavours that cooperation will be in place by that date. This approach will give additional comfort to market players should a MoU not be effectively signed by the eve of the 29 March.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.