While the Brexit outcome is still uncertain, the Luxembourg Parliament (“Chambre des députés”) has adopted two bills of law establishing transitional measures for the financial sector in case of the UK leaving the EU. Bill of Laws 7401 and 7426 aim to ensure the financial stability, the operational continuity of the financial markets and the protection of depositors and investors through the introduction of a transitional period during which UK firms carrying out financial activities may continue to operate in Luxembourg following the exit date.
Bill of Law 7401: A 21-month grandfathering period for the financial services and the management passport
The first bill of law (7401) adopted by Luxembourg Parliament on 26 March 2019 sets out the regulatory framework applicable to UK companies in case of a no-deal Brexit scenario. This applies to UK credit institutions, UK investment firms, UK payment institutions, UK electronic money institutions, UK insurance and reinsurance companies, management companies of UK UCITS and UK AIFMs which will lose the EU passport regime.
It covers the following activities:
- activities of credit institutions and investment firms covered by the amended law of 5 April 1993 on financial sector
- activities of payment and securities settlement systems covered by the amended law of 10 November 2009 on payment services
- activities of UCITS management covered by the amended law of 17 December 2010 on undertaking for collective investment ( “UCI Law”)
- activities of AIF management covered by the amended law of 12 July 2013 on alternative investment fund managers
- activities of insurance and reinsurance covered by the amended law of 7 December 2015 on the insurance sector
The most striking element of EU Bill of Law No 7401 is the existence of a grandfathering period on the date of a no-deal Brexit for a maximum period of 21 months, during which the Luxembourg supervisory authority of the financial sector, the Commission du Secteur Financier (“CSSF”) and the Commissariat aux Assurances (“CAA”), on a case-by-case analysis, will have the possibility to ensure the status quo. The exemption regime only covers contracts concluded prior to the exit date and any new contract concluded after the Exit Date to the extent that it presents a close link with the relationship in place prior to the Exit Date.
Bill of Law 7426: A 12-month remedy period for the investments funds affected by Brexit
The second bill of law adopted by the Luxembourg Parliament on 28 March 2019, provides for specific transitional measures applicable to undertakings for collective investments in transferable securities (UCITS), undertakings for collective investment regulated by part II of the UCI Law (“Part II-Funds”) and specialized investment funds (SIFs). Unlike the bill of law 7401, this bill will apply in any scenario of withdrawal of the UK from the EU (whether or not a no-deal Brexit is reached).
This second bill grants a 12-month remedy period to redress any breach of the investment policy or investment restrictions in a UCITS, Part-II Funds or SIF resulting from Brexit. This requirement only covers positions taken prior to the exit date.
It sets out specific provisions for UK UCITS currently authorized by the UK authority in accordance with Directive 2009/65/EC on undertakings for collective investment in transferable securities (“UCITS Directive”) for marketing in Luxembourg with a UK management company also authorized in accordance with UCITS Directive or with a management company authorized by the competent authority of a member state other than the UK and also authorized as an AIFM at the time of the exit date. In that respect, this second bill provides that they may continue marketing theirs shares to retail investors in Luxembourg for a maximum period of 12 months from the Exit Date.