Luxembourg Undertakings for Collective Investment: Additional Prospectus Information for Investors

The Luxembourg law of 17 December 2010 on undertakings for collective investment (the "2010 Law") entered into force on 1 January 2011. The 2010 Law implemented the European Directive 2009/65/EC (the "UCITS IV Directive") into Luxembourg legislation, as well as introducing several non-UCITS IV related changes.

Article 151(1) of the 2010 Law (which applies to both undertakings for collective investment in transferable securities, governed by part I of the 2010 Law ("UCITS") and other undertakings for collective investment, governed by part II of the 2010 Law ("UCIs")) provides that "the prospectus must include the information necessary for investors to be able to make an informed judgment of the investment proposed to them, and, in particular, of the risks attached thereto." The prospectus is required to include, in addition to the disclosure on the fund's investments, a clear and easily understandable description of the fund's risk profile.

Article 151(1) was included in the former Luxembourg law regarding UCIs,1 although with a slightly different wording that still referred to the simplified prospectus. According to the UCITS IV Directive and the 2010 Law, UCITS should replace their simplified prospectus with a key investor information document ("KIID") by 1 July 2012. However, Article 151(1) does not refer to the KIID, but only refers to the (full) prospectus.

On the basis of Article 151(1), and since 23 November 2011,2 the Luxembourg supervisory authority, the Commission de Surveillance du Secteur Financier (the "CSSF"), requires a paragraph to be included in the prospectus of each UCITS and UCI, referring to the exercise of an investor's rights against the UCITS or UCI. The CSSF indicates that the required paragraph (text set forth below) should be included in the prospectus of each newly created UCITS or UCI. For all existing UCITS and UCIs, the required paragraph should be included in the next update of the prospectus, but in any event no later than 30 June 2012.

The required disclosure is as follows (and should be adapted according to the legal form of the fund in question):

The investment company,3 draws the investors' attention to the fact that any investor will only be able to fully exercise his investor rights directly against the UCI(TS), if the investor is registered himself and in his own name in the shareholders' register4 of the UCI(TS). In cases where an investor invests in the UCI(TS) through an intermediary investing into the UCI(TS) in his own name but on behalf of the investor, it may not always be possible for the investor to exercise certain shareholder rights5 directly against the UCI(TS). Investors are advised to take advice on their rights.

Although there is the grandfathering period as mentioned above, it is recommended to plan right away to have this new wording included in the next prospectus update of UCITS and UCIs, it being understood that this requirement does not apply to other types of Luxembourg funds (e.g., specialised investment funds).

Family Office Activities in Luxembourg

The Luxembourg Government in November 2011 proposed a bill of law (n° 6366) concerning the activities of family offices in Luxembourg (the "Bill"). If enacted, the Bill would amend the Luxembourg law dated 5 April 1993 on the financial sector (the "1993 Law") and the Luxembourg law dated 12 November 2004 on the fight against money laundering and terrorist financing.

Purposes of the Bill

The purposes of the Bill are to: (i) provide a specific legal framework for the activities that are offered by certain professionals under the denomination of "family office", as such activities are currently not specifically defined or regulated in Luxembourg; and (ii) restrict the exercise of such activities to certain categories of regulated professionals. According to the explanations accompanying the Bill, it aims to protect both clients and the integrity of the financial sector, as well as respond to a market need for the creation of a new category of professionals (with associated regulatory conditions) in the Luxembourg private banking industry.

Performance of Family Office Activities in Luxembourg

According to the Bill, "Family Offices" will be introduced as a new category of "financial professionals" in the 1993 Law and authorisation as a "Family Office" will only be granted to legal persons with a share capital of at least €50,000.

In addition to said "Family Office", a limited number of other professionals located in Luxembourg will be authorised to perform family office activities (i.e., "advice or services of a patrimonial nature" for natural persons, families or patrimonial entities related to these natural persons or families). These additional professionals include, among others, credit institutions, asset managers, domiciliation agents, lawyers, notaries and auditors.

The professionals performing family office activities will be subject to specified obligations related to, among other matters, professional secrecy, transparency of remuneration and the fight against money laundering and terrorist financing.

Next Steps and Grandfathering

The Bill is now subject to the Luxembourg legislative approval process and, if voted, will enter into force on the first day of the month following its publication in the Luxembourg official gazette.

Under the current draft of the Bill, any person located in Luxembourg who performs family office activities at the time the law enters into force, without then being one of the professionals authorised to do so, will have six months to comply with the terms of this new law and apply for an authorisation.

The Bill is yet another step in the direction of an increase of the regulatory protection system in order to ensure that financial services activities can only be performed after the obtaining of an appropriate license.

Footnotes

1 Article 110 (1) of the law of 20 December 2002 regarding undertakings for collective investment, as amended.

2 The date on which the CSSF's newsletter n°130 of November 2011 was published.

3 To be adapted depending on the legal form and structure of the fund.

4 This should refer to the "unitholders'" register if the fund in question is a mutual investment fund (fonds commun de placement, "FCP").

5 This should refer to the "unitholder" rights, if the fund in question is an FCP.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.