The Law of 13 February 2007 on Specialised Investment Funds as amended

On 6 March 2012, the Luxembourg Parliament adopted amendments to the law of 13 February 2007 on SIF (the "SIF law").

The objectives of this legislation were three-fold:

  • implementing part of the requirements of Directive 2011/61/EU on Alternative Investment fund Managers (AIFM);
  • improving the current supervisory framework for SIFs by strengthening the role of the Commission de Surveillance du Secteur Financier (CSSF) which is the Luxembourg supervisor for SIFs;
  • enabling SIFs to benefit from several provisions commonly referred to as the "efficiency package" which had been introduced by the law of 17 December 2010 on Undertakings for Collective Investment in Transferable Securities (UCITS).

The main amendments to the SIF law can be summarized as follows:

Amendments implementing part of the requirements of Directive 2011/61 on AIFM

Luxembourg will be one of the first countries of the European Union to adopt amendments to its legislation in order to bring SIF law in line with AIFM Directive. These provisions concern risk management, conflicts of interest and delegations made by the SIFs to third parties.

  • Risk management [1]

New rules of conduct have been introduced so that SIFs implement appropriate risk management systems to identify, measure, manage and monitor appropriately the risk inherent

o the positions and the contributions of these positions to the overall portfolio risk profile.

  • Conflict of interests [2]

SIFs should also adopt specific rules in order to manage potential conflict of interests and ensure at the same time that investors’ interests are safeguarded.

Detailed requirements concerning these new rules on risk management and conflict of interest would be laid down by means of a CSSF regulation.

  • Delegations [3]

The SIF law as amended establishes a set of rules to be followed by SIFs regarding the conditions under which they may delegate tasks and specific functions to third parties. Under these new legal provisions, the CSSF must be adequately informed and if the delegation concern portfolio management, the mandate can only be given to persons which are authorised or registered for the purpose of investment portfolio management and subject to prudential supervision. If this condition is not fulfilled or if the mandate is given to a person which is from a third country which is subject to prudential supervision however there is no cooperation between the CSSF and the supervisory authority of that country, the CSSF has to give its approval as to the choice of the person to whom the functions will be delegated.

In any cases, persons to which a mandate have been given have to be qualified and capable of undertakings for the functions they have been delegated. The directors of the SIF are responsible for having selected them with all due care.

Nonetheless, different functions have been delegated, it should not prevent the SIF from acting or from being managed in the best interests of the investors.

Amendments strengthening the role of the CSSF

Prior to carrying out their activities, SIFs will have to obtain approval from the CSSF on their constitutive documents, the choice of the depositary, the appointment and replacement of their directors or of the managers of the management company. This provision will have the effect to confirm what was previously done in practice [4].

A new provision also expressly requires the CSSF’s prior approval for material amendments of SIFs offering document [5].

Amendments to benefit from the “efficiency package” as introduced by the law of 17 December 2010 on UCITS

SIFs will be exempted from translating their articles of association/incorporation in German or French, if these documents are in English [6].

SICAV-SIFs will no longer be required to send paper version of their annual reports to shareholders, together with the convening notice.

The “record date” system will be applicable (i.e: SIFs could establish a registration date five days before an annual general meeting of shareholders to determine voting rights as well as what constitutes a quorum).

Cross investment (i.e. SIF investing in other compartments of the same SIF) will be allowed provided a certain number of conditions are fulfilled [7].

Entry into force

The amended law will come into force on the first day of the month following its publication in the Memorial.

However, SIFs which exist at the time of the entry into force of the SIF law as amended will benefit from a transitional period:

  • up to 30 June 2012, to comply with the requirements of article 2 (procedures ensuring that investors are well-informed investors) and article 3 (procedures related to risk management and conflict of interests);
  • up to 30 June 2013, to comply with the requirements of article 7 related to delegation, if applicable.

[1] Article 6(1) of the Bill amending the SIF law
[2] Article 6(2) of the Bill amending the SIF law
[3] Article 7 of the Bill amending the SIF law
[4] Article 5 of the Bill amending the SIF law
[5] Article 12 of the Bill amending the SIF law
[6] Article 3 of the Bill amending the SIF law
[7] Article 16 of the Bill amending the SIF law

For more information please contact Freddy Brausch, Hermann Beythan, Emmanuel-Frédéric Henrion, Francine Keiser, Josiane Schroeder or your usual Linklaters contact.

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