Article Post on 24 June 2021

Update of the CSSF FAQs Regarding the Application of MiFID to Investment Fund Managers

This article also exists in French and German

_On 10 June 2021, the Luxembourg Financial Supervisory Authority (Commission de Surveillance du Secteur Financier - "CSSF") issued updated FAQs concerning the Luxembourg Law of 17 December 2010 relating to undertakings for collective investments, as amended ("UCI Law") and FAQs concerning the Luxembourg Law of 12 July 2013 on alternative investment fund managers ("AIFM Law") on the application of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments ("MiFID") to Luxembourg investment fund managers ("IFMs").

The updates of the two FAQs are identical in wording, so this also reflects the continued effort to achieve harmonisation between the UCITS and AIF rules, which was initiated some time ago. 

As the name of this announcement already suggests, the core of the FAQs updated on 10 June  2021 is the application of MiFID to IFMs. 

> Reminder

MiFID is not directly applicable to the fund industry, unregulated and/or regulated investment funds/companies and/or their respective management companies, unless they provide services regulated by the law of 5 April 1993 on the financial sector, as amended ("1993 Law") (i.e. MiFID-related services, e.g. discretionary portfolio management). The 1993 Law (which includes MiFID) specifically excludes regulated investment funds as well as their management companies, including alternative investment fund managers ("AIFM"). 

However, the MiFID provisions affect funds indirectly in terms of cooperation with persons who are themselves affected by these MIFID provisions.

New provisions

The previous regulations are partially revised by the FAQs of the CSSF; namely in such a way that the present principle shall be legally extended also to third parties which do not fall under MIFID, in terms these portfolio management functions are transferred (i) by an authorised IFM to another authorised IFM by means of an outsourcing agreement or (II) to another third party. 

It is clarified that funds and their IFMs qualify as clients under the 1993 Law and thus under MiFID. The customer-contractor relationship that exists here means that third parties are then covered by MiFID.

In detail

Portfolio Management - The third party (non IFM) to whom functions are delegated by an IFM, who thereby becomes a client, is subject to MiFID provisions, provided that:

  • the services provided qualify as investment services or investment activities within the meaning of Annex II of the 1993 Law or Annex I MiFID, in each case including ancillary services;
  • the services relate to transactions in financial instruments as defined under the 1993 Law and MiFID; and 
  • the services are provided by an EU third party or, in accordance with CSSF Circular 19/716, a party that is classified as provided by a non-EU third party in Luxembourg.

In the case of outsourcing to an IFM, depending on the tasks taken over, the IFM must therefore have the appropriate authorisation to carry out these functions, i.e. in principle for discretionary portfolio management and ancillary services. 

However, not all MIFID provisions apply to the portfolio management function taker where it qualifies as an IFM.

"Only" Articles 15, 16, 24 and 25 MiFID or the related provisions in the 1993 Law, i.e. Articles 1-1, 37-1 and 37-3, apply. These provisions contain the requirements for initial capitalisation, organisational requirements and investor protection. Also, the receiving IFM may not offer MiFID services other than those provided for in Article 101 (3) of the Law of 17 December 2010 on UCITS, as amended (the "2010 Law") or Article 5 (4) of the Law of 12 July 2013 on AIFM, as amended (the "2013 Law"). 

Marketing - As marketing is part of the functions included in the collective portfolio management, an IFM whose authorisation includes marketing may market the funds it manages itself without falling within the scope of the MiFID provisions. Consequently, and in accordance with the above, since marketing is part of the portfolio management function, the aforementioned exceptions do not apply when marketing is outsourced. The person taking over this function is then subject to the MiFID provisions, depending on the place where and the persons to whom the funds are distributed. 

As noted, marketing is fundamentally a function of portfolio management but not an investment service. Therefore, the clarification of the CSSF regarding the question which MiFID investment services can be considered as marketing of investment funds is an extremely welcome clarification. According to this clarification, the following MiFID services can be used for the marketing of funds:  

  • receipt and transmission of orders in relation to UCIs;
  • execution of orders on behalf of clients;
  • trading for own account;
  • portfolio management;
  • investment advice;
  • underwriting and/or placement of UCIs on a firm commitment basis;
  • placement of UCIs without a firm commitment  

It is understood that any Luxembourg IFM marketing funds that are not also managed by the IFM, as well as any investment firm, is also considered as an intermediary under MiFID and as such must also have the relevant authorisation under the Article 101 (3) of the 2010 Law or Article 5 (4) under the 2013 Law.

Investment advice - Unlike marketing, investment advice is not a function of portfolio management under the 2010 Law or the 2013 Law (although, please note that marketing activities themselves may include an element of investment advice). Notwithstanding the above, the CSSF recalls Article 9 of Commission Delegated Regulation (EU) 2017/565 of 25 April 2016 supplementing MiIFD, according to which investment recommendations given to an IFM enabling him to make an investment decision are considered personal recommendations to a client under MiFID, as the recommendations are not exclusively addressed to the public. Consequently, third parties providing investment advice in relation to financial instruments within the meaning of Section B of Annex II of the 1993 Law / Section C of Annex I of MiFID to a UCI/IFM are in principle subject to the provisions of MiFID. With regard to the special constellation in which an IFM gives investment recommendations to another IFM, the investment advisor-IFM is not authorised to do so, unless it has a corresponding authorisation to provide this service under the 2010 Law (Article 101 (3) b)) or the 2013 Law (Article 5 (4) (b) (i)).  


The specific exceptions to the new regime are: (i) intra-group services; (ii) investment services provided only occasionally in the course of professional activity, where such activity is governed by laws, regulations or rules of professional conduct which do not preclude the provision of such service; and (iii) investment advice provided in the course of another professional activity not covered by MiFID/the 1993 Law, provided that such advice is not specially remunerated. The investment advice according to (iii) differs from the investment advice provided above by three aspects to be highlighted: 1. the investment advice here is only an ancillary activity to another activity, which is the core of the service provided; 2. this main activity is not a MiFID service; and 3. the investment advice is not remunerated separately.

To do

The CSSF now expects IFMs to implement these FAQs by 31 December 2021 at the latest with particular attention to the interests of investors. Therefore, IFMs should analyse whether (i) they have the required authorisation to provide services to another IFM in compliance with the 2010 Law, the 2013 Law / MiFID and (ii) they comply with the third country rules of Circular 19/716, as introduced by CSSF Circular 20/743 in the said Circular.

Our lawyers with particular focus on banking/regulatory remain at your disposal to discuss and implement any necessary steps.

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