The UCITS Directive was introduced in 1985 with the objective of creating a uniform regulatory framework for investment funds across Europe. Establishing a Luxembourg domiciled UCITS fund requires a number of steps and key decisions. Understanding the process can help asset managers avoid unnecessary delays. The most critical step in the launch process is getting the authorization and the Commission de Surveillance du Secteur Financier (CSSF) is the competent authority responsible for reviewing, authorizing and supervising the funds on an ongoing basis.
Selecting the Legal Structure
There are two legal structures available to UCITS in Luxembourg:
- Corporate: The Société d’Investissement à Capital Variable (SICAV) and the Société d’Investissement à Capital Fixe (SICAF) are the available corporate forms in Luxembourg. The SICAV may be self-managed or appoint a Luxembourg UCITS management company or an EU/EEA UCITS management company. The SICAV is an open-ended investment company with variable capital and is generally organized as a public limited company (S.A.) or a European Company (S.E.). Unlike the SICAV, the SICAF is an investment company with fixed share capital. Investors hold shares in a SICAV/SICAF.
- Contractual: The Fonds Commun de Placement (FCP) has no legal personality and, as such, must be managed by a UCITS Management Company. The FCP is a co-proprietorship and investors hold units in the fund.
Management companies: The management company is required to have initial capital of at least €125,000. Additional own funds will be required if the value of the portfolios managed by a management company exceeds €250 million, with a maximum total requirement not exceeding €10 million.
UCITS Funds: Minimum net assets of €1,250,000 must be attained within six months of authorization. For a self-managed SICAV, the minimum capital at date of authorization is €300,000.
Key Requirements - Service Providers
- The Sponsor and the Investment Manager are considered the initiators of the fund. The investment manager and the governing body of the fund require the approval of the CSSF.
- Where the UCITS appoints a management company, the management company is responsible for general investment management, administration and distribution. Management companies may retain all administration and portfolio management or can delegate these functions but must retain the oversight functions.
- If there is no management company, then the fund is considered to be “self-managed”. Under this structure, the board of directors takes responsibility for the management and governance of the fund.
- A SICAV will have a board of directors to oversee the fund. There is no restriction as to the nationality of the directors. The directors of a UCITS and/or its management company must be of sufficiently good repute and be sufficiently experienced to carry out their role.
- Two Conducting Persons (CPs) must be appointed. The CPs are the contact point for the CSSF and must, in principle, reside on a permanent basis in Luxembourg. The CSSF may nevertheless agree that only one of the CPs shall permanently reside in Luxembourg.
- The Custodian provides asset safekeeping, income collection, corporate action processing, fiduciary and oversight services relating to the review and supervision of fund and providers.
- The Administrator is responsible for day-to-day operational support to the fund and provides NAV calculation, distribution calculation, maintenance of books and records and financial reporting services.
- The Transfer Agent provides shareholder services to the fund; such as processing the capital activity, shareholder account opening, shareholder correspondence and queries.
- The fund also appoints other entities such as legal advisors,
auditors, tax advisors and domiciliation agent.
When setting up a UCITS in Luxembourg, the following key documents must be filed with the CSSF. The fund’s legal advisors manage the document drafting and application with the CSSF. The document review process is managed against the CSSF’s application questionnaire, which sets out the legal requirements, procedure to be followed and the list of documents to be submitted.
- Prospectus: The fund’s prospectus contains the particulars in relation to the fund’s investment objectives and policies, risks, distribution policy, dealing procedures, expenses, valuation and fund service providers.
- Key Investor Information Document (KIID): A two page document setting out all the pertinent details of the fund using a set template. It is typically provided for each share class but can be produced amalgamating a number of share classes into one.
- The Risk Management Process (RMP): Sets out the fund policies for managing the fund’s main risks with a particular focus on the detailed policies related to derivative risk monitoring and calculation methodologies.
- The Business Plan (for self-managed SICAVs only): Demonstrates how the fund will be managed and governed. It designates the individuals who will take on each of the specified management functions.
- The Articles of Incorporation (for SICAVs) or Management Regulations (for FCPs): Governing documents of the fund. Set out the rules under which the fund proposes to regulate its affairs.
- Custodian, Administration and Investment Management Agreements: Set out the legal terms and appoint the fund’s key providers.
- Curriculum Vitae of the directors of the fund: Curriculum vitaes must be dated and signed and accompanied by a copy of the director’s passport, a declaration of honour and an extract from criminal records.
- Letter of intent or engagement letter from the auditor.
- Documents to identify and assess the quality of the investment manager.
Final Filing and Authorization
The authorization process generally takes from 6 to 16 weeks from first document drafting to final fund authorization.
- The CSSF will acknowledge receipt of the application within 2 working days.
- Within 10 working days of its acknowledgment, it will provide its feedback to the applicant and this phase will be repeated until the CSSF is fully satisfied with the documentation and information.
- Once approved the fund is published on the CSSF website and the Luxembourg official gazette (Le Memorial). The fund’s shares may be marketed on the day the publication is made.