The CSSF updates its FAQ concerning the 2010 Law.

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1 September 2016 The CSSF updates its FAQ concerning the 2010 Law. On 24 August 2016, the CSSF published a new version of its Frequently Asked Questions concerning the 2010 Law (the FAQ ). This new FAQ not only adds new questions/answers but also amends the previous version of the document released in December The FAQ is especially of primary importance for UCITS funds. Content 1. Eligible assets 1 2. Diversification rules Delegation to third parties Audit reform 3 You will find below a summary of the most important topics which are addressed. 1 Eligible assets Investment of a UCITS fund into a UCI (Question 1.3) The table regarding the steps to be considered before a UCITS fund can invest into other UCIs has been updated and should now serve as a decision tree for investment managers prior to them deciding to invest into other funds. The following changes can be noted: - in order to be an eligible investment for UCITS funds, SIFs (that comply with article 2(2) and 41(1)e) of the 2010 Law and are AIFs) must be managed by an authorised AIFM (this condition is new and disqualifies sub-threshold managed SIF AIFs as eligible targets); - SICARs are no longer eligible targets. UCITS master funds investing in UCIs (Question 1.10) The CSSF confirms that a UCITS master fund can itself invest into other funds or be a fund of funds. The CSSF updates its FAQ concerning the 2010 Law 1

2 Conditions to be fulfilled by a counterparty to UCITS funds in the context of OTC derivatives or efficient portfolio management techniques (Question 1.12) The CSSF clarifies the conditions to be fulfilled in this particular context as follows: - being authorised by a financial authority; - being subject to prudential supervision; - either being located in the EEA or in a country belonging to the Group of ten or having at least an investment grade rating; - being specialised in such transactions. If the counterparty does not fulfil any one of the three first criteria, a UCITS has to demonstrate that the prudential rules applicable to such counterparty are equivalent to those laid down in the EU law. 2 Diversification rules Article 48(2) of the 2010 Law (Question 2.1) Please liaise with your usual contact listed below. Existence of an official list of admitted third countries with regards to articles 43(3) and 45(1) of the 2010 Law which refer to investments in transferable securities or money market instruments issued or guaranteed by non-eea countries? (Question 2.2) There is no official list, but the CSSF clarifies that (i) in the context of article 43(3) of the 2010 Law, any country may be acceptable and that (ii) with regard to article 45(1) of the 2010 Law, in principle member states of the EEA, OECD, the G20, Singapore and Hong Kong are acceptable. For the other countries, a case-by-case analysis must be conducted by the UCITS and be subject to the approval of the CSSF. In any case, a UCITS must assess the country risk of its investments made under articles 43(3) and 45(1) of the 2010 Law and such country risk must be adequately captured by its risk management process. Derogation from some of the risk diversification rules during the six months start-up period of a fund (Question 2.3) Pursuant to Article 49(1) of the 2010 Law, a UCITS may derogate from articles 43, 44, 45, and 46 for a period of 6 months following its date of authorisation however the starting point of this 6 month period can be unclear. The CSSF updates its FAQ concerning the 2010 Law 2

3 The date of authorisation should be understood as the date when the UCITS is registered by the CSSF on the official list. However, in practice, the date of authorisation of a UCITS (or its relevant sub-fund) may differ from its effective launch date. In that case, the derogation period starts from the date of the launch date of the UCITS (or its relevant sub-fund) provided that the latter date has been communicated to the CSSF. In addition, and in line with point 2 of Circular CSSF 12/540 the launch date must occur within eighteen months of the date of the authorisation of the UCITS (or its relevant sub-fund). Principle of risk spreading applicable to the underlying assets of transferable securities that do not embed a derivative (Question 2.4) UCITS must ensure that the underlying assets of transferable securities that do not embed a derivative comply with the principle of risk-spreading. It is therefore not allowed to have the portfolio of a UCITS consisting exclusively of structured transferable securities not embedding a derivative (i.e., delta 1 transferable securities) and issued by different issuers, but all linked to the performance of the same underlying asset. In this context, the CSSF requires to apply a 20% limit of the net assets to each underlying asset of such transferable securities that do not contain an embedded derivative. This limit may be raised up to 35% for a single underlying asset. 3 Delegation to third parties Delegation of the investment management function (Question 3.1) In relation to the delegation of investment management to investment fund managers located in a third country, the CSSF states that managers located in an EEA or an OECD country and subject to prudential supervision of an authority fulfil in principle the delegation criteria. Investment fund managers located in another country are in principle acceptable if the CSSF has signed with the relevant supervisory authority, a Memorandum of Understanding covering UCITS. 4 Audit Reform Definition and conditions for a UCITS to qualify as a PIE (Questions 4.1 and 4.2) The CSSF confirms that the units of a UCITS that are admitted to trading on a regulated market within the meaning of point 14 of Article 4(1) of MiFID are public-interest entities (PIEs). This is of relevance in the context of the audit reform where PIEs must appoint a statutory auditor or an audit firm for at The CSSF updates its FAQ concerning the 2010 Law 3

4 least one year and rotate their audit firm after a maximum duration of 10 years (except where a public tendering process for the statutory audit has been conducted). Moreover, the key audit partners of such PIEs may only carry out this audit for a maximum of 7 years. For more information, please read a compared version of the CSSF FAQ dated December 2015 and the CSSF FAQ dated 24 August Should you have any question on the above information, we invite you to liaise with any of the contacts provided or your usual Linklaters contact. Contacts For further information please contact: Emmanuel-Frédéric Henrion (+352) emmanuelfrederic.henrion@linklaters.com Silke Bernard (+352) silke.bernard@linklaters.com Hermann Beythan (+352) hermann.beythan@linklaters.com Freddy Brausch (+352) freddy.brausch@linklaters.com Josiane Schroeder Counsel (+352) josiane.schroeder@linklaters.com The CSSF updates its FAQ concerning the 2010 Law 4

The CSSF clarifies the concept of independence under UCITS V

July 2017 The CSSF clarifies the concept of independence under V On 6 of July 2017, the CSSF updated its FAQ concerning the law of 17 December 2010 relating to undertakings for collective investment and