Emmanuel Gutton, deputy CEO and general counsel at the Association of the Luxembourg Fund Industry, and Silke Bernard, global head of investment funds at Linklaters and chair of Alfi’s Eltif working group, discussed recent developments related to the European long-term investment fund during Alfi’s asset management conference, 20 March 2024. Photo: Lydia Linna/Maison Moderne

Emmanuel Gutton, deputy CEO and general counsel at the Association of the Luxembourg Fund Industry, and Silke Bernard, global head of investment funds at Linklaters and chair of Alfi’s Eltif working group, discussed recent developments related to the European long-term investment fund during Alfi’s asset management conference, 20 March 2024. Photo: Lydia Linna/Maison Moderne

During the Association of the Luxembourg Fund Industry’s Global Asset Management conference, Silke Bernard and Emmanuel Gutton discussed the European Commission’s recent proposals on the draft technical standards for Eltifs, related rumours and the readiness of Luxembourg’s financial regulator, the CSSF, to review applications.

The European Commission in early March published its proposed amendments to the draft technical standards for European long-term investment funds (Eltif). Following this publication, , global head of investment funds at Linklaters,  that with these proposals, the commission is asking “for a more flexible approach reflecting the large variety of investment strategies Eltifs can implement.”

In particular, it asks the European Securities and Markets Authorities to “move away from the proposed one-size-fits-all approach and to allow Eltif managers to adopt different options which may take into account various factors such as the investment style and strategy, redemption gates, leverage profile, investor base, etc.”

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As of February 2024, there were 101 Eltifs registered in the EU, with 65 of them domiciled in Luxembourg, noted Alfi’s deputy CEO during a discussion with Bernard--prepared together with the Financial Sector Supervisory Commission (CSSF)--at the industry association’s global asset management conference on 20 March 2024. That gives the grand duchy a market share of 65% and makes it a very relevant topic for the country.

And although the text of the rules is not yet final, it’s a “very important step in the right direction,” said Bernard. Many of the concerns voiced by the industry--including those shared by Alfi--have been taken into consideration. “The latest draft is definitely good news.”

CSSF team is “geared up”

There are some 40 new Eltifs in the pipeline, said Gutton. Does Luxembourg’s CSSF have the capacity to handle this inflow?

“The answer is definitely yes,” replied Bernard. “The CSSF has very much geared up their team,” they have put together working groups to make sure they’re speaking with “one voice” when it comes to Eltifs and they have set up a new application form. “We have seen approval times going down massively over the past few months, which is good news.”

When it comes to many of the “new features”--open-ended funds, semi-liquid funds, fund-of-funds--the CSSF is very aware of these fund structures, she added. Luxembourg has “decades of experience with semi-liquid funds, including for retail investors,” unlike other EU countries.

The CSSF is “ready,” said Bernard. With a sort of “variable geometry,” they have a team that can be easily expanded or reduced--depending on the amount of work--while always ensuring “quality.”

No 24-hour approvals

In that context, said Gutton, Ireland has recently come out with a “publicity” for Eltifs to be approved within 24 hours. Will that take place in Luxembourg as well?

“Sorry for the bad news,” answered Bernard, “but I don’t think we will get Eltif approvals in 24 hours.” Luxembourg’s position--and the CSSF’s position--has always been focused on “quality” and “investor protections.” Twenty-four hours is probably just too quick to properly read and think through a document.

But, she noted, “I’ve seen a 50% reduction in approval times over Christmas. So if you take away the two weeks of breaks, that was a really quick approval process--and that was on an open-ended, fund-of-funds Eltif, under the new features. So, very encouraging.” It took around eight weeks, and that was for a “pretty innovative product. I think that’s a time, operationally, sponsors need anyway to get a product up and running.”

“I think even fund sponsors, they won’t be ready in 24 hours, from submission to approval,” she said. Twenty-four hours is therefore not the goal for the grand duchy.

New application form: detailed but efficient

The CSSF issued an updated application form in December 2023, said Gutton. What are some of the changes in the form and how will they facilitate Eltif applications?

What’s really important about the new form is that it shifts some of the workload from “ex post discussions” with the CSSF (taking place after submission) to “up front,” explained Bernard. It has “pretty detailed questions” that do require some work before submission, but “it works and accelerates the process and you have guidance in that form.” Depending on your answers, for example, certain fields are greyed out.

It’s a helpful, detailed and “very efficient” tool that has been designed with Alfi input in order to ensure that it “matches the reality” of Eltif responses, she said.

No risk of retroactive loss of licences

But when it comes to Eltifs that already have a licence, asked Gutton, “is there a risk that they retroactively lose the licence when the final RTS are coming?”

“That is a rumour I have heard in the market, and which I was very concerned about because it spreads legal uncertainty,” said Bernard. And the answer is: “No, definitely not. Nobody will lose a licence or marketing passport across Europe because there are new RTS coming.”

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“If you have an Eltif licence and approval, it will not become invalid, it will not fall away somehow, and certainly not retroactively. You keep the licences and approvals, including marketing passport, etc,” she continued. When everybody had to adjust to the Alternative Investment Fund Managers Directive in 2013, for instance, licences were not lost just because AIFMD came into effect.

Adjustments may be required, said Bernard, but these will be handled “case by case” in a “pragmatic” manner by the CSSF. “You don’t need to be worried that something will get lost or that retroactively you’re losing marketing passports or licences.”

No “blackout” until final adoption of RTS either

There is “absolutely” not a “blackout” on Eltifs before the adoption of the RTS, Bernard continued. Files have not been blocked or suspended. Eltifs under the 2.0 regulation have been approved with the new features, “which are still subject to certain clarifications on the delegated act.”

“If you have questions, ask the CSSF and speak to them on anything that you may worry about,” she said. “It’s business as usual. You can go ahead, and the CSSF will be very happy to see all the numerous Eltif files coming in.”

Looking beyond European borders

When it comes to distribution, that has been checked with the CSSF, and so far, no notification issues have been faced, said Bernard. “So you can sell your Eltif according to the normal notification process across Europe.” She mentioned that in a recent talk with the European Commission, “they are very much focusing on distribution barriers, removing barriers” and ensuring that “Eltifs can be easily distributed across Europe.”

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“With Alfi, we are also trying to look even beyond European borders, and maybe once we have the final RTS, to go and see regulators in Asia, in the US and elsewhere to try and obtain recognition for local retail distribution,” she added. Possibilities in Asia include Japan, Singapore and Hong Kong.

CSSF open to dialogue

One of Bernard’s key takeaways was the helpfulness of the CSSF’s new application form. “It is really the key to a quick approval process,” she emphasised at the end of the panel discussion. “Don’t be afraid the first time. It looks cumbersome, but there is a column with footnotes explaining how to fill it in, and if you have questions, you can also ask Alfi or the CSSF.”

“The CSSF has told me and told us several times, that if you wish to talk to the CSSF, and if you have an innovative product or if you have specific questions, they are happy to enter a dialogue. I would encourage you to take up that offer. I myself ask many questions to the CSSF, which has helped me advising my clients.”

That’s not to say that anything goes, and “it is still a highly regulated and constrained product. But when you look at it in detail, many, many strategies--far more than before--are now possible under Eltif 2.0,” said Bernard. “The doors are open and Luxembourg is certainly very firmly standing behind the Eltif and the new proposal.”

This article was published for the Delano Finance newsletter, the weekly source for financial news in Luxembourg. .