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CSSF gives UK 12 months to wrap up business after hard Brexit

Richard_MarshallLuxembourg’s financial services regulator has given UK fund firms a year to carry on their existing operations after a hard Brexit.

Beyond this period – which currently stands at 12 months from October 31 this year - the firms will have to be authorised.

The Commission de Surveillance du Secteur Financier (CSSF) declared its one-year notice period this week and published a reminder to UK fund firms to get their Brexit paperwork in order and notify the CSSF if they intend to operate in the year-long “transitionary period” or longer.

UK fund managers with business in Luxembourg should have by now taken steps to prepare for a hard Brexit, the CSSF said.

The CSSF originally published its “Brexit laws” back in April, telling UK firms that act in Luxembourg under certain regulatory frameworks – including Ucits and the EU directives known as MiFID II and AIFMD – that they will be considered as “third-country firms” from the moment the UK leaves the EU if there is no withdrawal agreement.

The Brexit laws empower the CSSF to allow UK fund firms that are currently ‘passporting’ services through Luxembourg to other EU investors under these directives to continue their activities for 12 months after a hard Brexit. But this transitional regime is “limited in scope”, the CSSF said, as it applies only to the scenario of a hard Brexit and only to “existing contracts” – those that entered into force before Brexit - and to contracts concluded after Brexit if they are closely linked to existing contracts.

A dedicated notification portal will be set up in the “coming weeks” and notifications will have to be made no later than September 15 this year.

UK firms that intend to gain new contracts in Luxembourg following a hard Brexit are required to submit an application for an authorisation to the CSSF “as soon as possible”. Granting of an authorisation can take up to 12 months and UK firms that have not received the necessary authorisation for new business will be required to “cease all business as of the date of a hard Brexit”.

The CSSF did not say if its reminder to firms signalled a worrying lack of action.

Richard Marshall (pictured), head of product and network at Luxembourg’s FundRock Management Company, which provides regulatory services, said: “It’s difficult to tell, but my feeling is there are lots of managers who have adopted a ‘wait and see’ stance over some parts of Brexit, such as setting up an EU-based MiFID entity.”

On broader points, he said: “For existing activities, the main point is the CSSF have clarified that the period of time UK firms can carry on business-as-usual is one year from a no-deal Brexit. So as it stands, that would be until 31 October 2020.”

The CSSF portal is similar to the FCA's Temporary Permissions Regime, Marshall said, and assumes this would open in the next 2-3 weeks. 

He described the CSSF clarification as a “significant development” and that he expected Ireland’s financial regulator to do something similar.

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