PLACE FINANCIÈRE & MARCHÉS — Fonds

Quels sont les facteurs de compliance et de regulatory qui permettent à l’écosystème des fonds à Luxembourg de maintenir son leadership?

“Luxembourg funds – innovative and reliable”


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With roughly €4.2 trillion assets under management, approximately 300 management companies/AIFMs selling 70% of European Ucits funds within the EU and in places as far away as Chile and Japan, the Grand Duchy provides today a proven safe environment for investing in funds. Luxembourg funds are “tried and tested”; buying a Sicav is something many institutional investors have grown familiar with. How did this develop, how does Luxembourg maintain its leading position?

A first-mover advantage in Ucits has set the tone for a measured approach to regulation. In the early 80s – when directives still allowed European member states a large discretion on implementation – Luxembourg consciously refrained from overly burdensome gold plating of the directive. 

Over time, this, amongst others, lead to the development of the cluster of service providers existing on the ground in Luxembourg today – ranging from large foreign asset managers and their management companies or alternative investment managers (AIFM) to many depositary banks, administrators, and auditors, allowing investors and initiators a wide variety of choice for every service required at every stage of the investment funds life cycle.

In alternative investment vehicles, the measured approach to regulation spurned the creation of the specialised investment fund or the Sif-regime.

Unlike in other (at least continental European) fund domiciles, Luxembourg never intends to direct or even ‘patronise’ initiators or investors.

Arne BolchArne Bolch, Partner (GSK Stockmann)

Very much like in Ucits, with an effort to be innovative yet staying reliable, Luxembourg refrained from an overly burdensome or detailed approach to regulation and essentially allowed these funds to invest in any asset, which could – in a diversified way – viably be made to function in an investment fund. Only the principal actors of the relevant Sif, i.e. the managing body, the depositary and administrator as well as the investment policy, were supervised by the Luxembourg financial markets regulator, the Commission de Surveillance du Secteur Financier, the CSSF.

Unlike in other (at least continental European) fund domiciles, Luxembourg never intends to direct or even “patronise” initiators or investors by e.g. requiring the investment in only a certain type of (ever-changing) eligible assets but kept the regulation at the aforementioned level. 

Driven requirements could be implemented on an as-needed basis, thereby fostering an image of reliability of the Sif regime.

Arne BolchArne Bolch, Partner (GSK Stockmann)

This in turn created a passe-partout effect of Luxembourg Sifs. (Almost) any investment policy could be made to work in a Sif and also more burdensome foreign investor driven requirements could be implemented on an as-needed basis, thereby fostering an image of reliability of the Sif regime.

As Sifs, at least in their early days, often chose a corporate legal form, such as an SA or an SCA, which had to add the suffix Sicav-Fis to their name, Sicav sometimes became a shorthand for a Luxembourg S(C)A, Sicav(–Fis). 

These broad lines of Luxembourg fund regulation have stayed largely intact to this day.

Luxembourg maintained an eye for investors’ and initiators’ needs.

Arne BolchArne Bolch, Partner (GSK Stockmann)

Luxembourg maintained an eye for investors’ and initiators’ needs as lately demonstrated by the Raif, a Luxembourg fund vehicle within the AIFMD framework enjoying all the perks of Lux funds from Sicav to sub-funds. The Raif came into being to make up for perception that the Sif now – through the AIFMD implementation – became unnecessarily regulated at two levels, i.e. (i) on the Sif level by the CSSF, as well as (ii) at the manager level by the AIFMD.

Luxembourg therefore chose to do away with the Luxembourg leg of supervision, i.e. the CSSF, for as long as, in terms of investor protection, the required European standard, i.e. the AIFMD, would be met. Other than that, the Raif closely mirrors the Sif law’s innovative features (such as the requirement for risk diversification, the well-informed investor, the “taxe d’abonnement” rules and the possibility to create umbrella funds).

The measured approach also seems to be largely followed by the new circular 18/698 on the authorisation and organisation of Luxembourg investment fund managers (management companies and AIFMs).

While the circular is in a first instance a heavy pill to swallow, [...] its intention is mostly to provide an update of best practice rules.

Arne BolchArne Bolch, Partner (GSK Stockmann)

While the circular is in a first instance a heavy pill to swallow, with its 101 pages, its applicability with immediate effect and more detailed rules on processes and documentation generally, its intention is mostly to provide an update of best practice rules, which the CSSF either already applied in its review process or which recently came into force at a European level such as rules stemming from the AML IV and Mifid II directive.

The circular therefore does not create something completely new in substance. At the same time European regulations – which market participants were also mostly already aware of such as new Esma’s guidelines and recommendations (like the Brexit opinion) – were implemented in a sensible way, as i.e. its rules on delegation now contained in circular 18/698. 

Although it remains to be seen what the effect of the circular in practice will be, it too demonstrates the Luxembourg efforts to combine innovation and reliability in fund regulation.