UCITS can no longer invest in loans – Financial services

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The CSSF, the Luxembourg financial sector supervisory authority, has announced that UCITS domiciled in Luxembourg will no longer be able to invest in loans. This decision extended to the public a new administrative practice that the CSSF had put in place in recent months with regard to investment in loans by UCITS.

The CSSF published the new approach on 7 August 2020 through an update of its FAQ on the Luxembourg law of 17 December 2010 relating to undertakings for collective investment (the “CSSF FAQ” on the “UCI Law”). Now, in the new Q&A 1.13 of the updated CSSF FAQ on the UCI Law, the CSSF specifies that loans cannot be treated as assets within the meaning of Article 41(1) and (2)(a) of the UCI Law, as loans neither qualify as money market instruments nor transferable securities within the meaning of the applicable law and the CESR guidelines (CESR being the predecessor of ESMA).

This new position is the result of a detailed assessment of loan eligibility by the CSSF, and reflects discussions held at ESMA level as well as regulatory practices in other EU Member States.

UCITS domiciled in Luxembourg which are invested in loans are required to divest from these positions by 31 December 2020. All such divestments must be carried out taking into account the best interests of investors. In addition, the prospectuses of these UCITS must be updated no later than March 31, 2021 so that they no longer allow investments in credits.

Note that the wording of the new Q&A 1.13 only covers direct investments in loans by UCITS; thus, indirect investments may still be permitted.

For more information, please contact your usual contact within the Fund Constitution team.

To read the updated CSSF FAQ on the UCI Law, click here_

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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