On 24 February 2026, the Council of State of the Grand Duchy of Luxembourg (the “Luxembourg”) granted an exemption from the second constitutional vote with respect to the Draft Bill No. 8628 amending (i) the amended law of 17 December 2010 relating to undertakings for collective investment (the “UCI Law”) and (ii) the amended law of 12 July 2013 on alternative investment fund managers (the “AIFM Law”). This law (the “New Law”) should thus be promulgated shortly by the Grand Duke, and published in the Official Journal before its entry into force as detailed in section 4. below.
The New Law aims to transpose into Luxembourg law Directive (EU) 2024/927 of the European Parliament and of the Council of 13 March 2024, also known as “AIFMD II” (the “Directive”) amending Directives 2011/61/EU (“AIFMD”) and 2009/65/EC (the “UCITS Directive”) as regards delegation arrangements, liquidity risk management, supervisory reporting, the provision of depositary and custody services and loan origination by alternative investment funds.
1. Key amendments specific to the UCI Law
Certain amendments are specific to the UCI Law. They relate in particular to:
- The report of the auditor: for undertakings for collective investment in transferable securities (“UCITS”) under the form of investment company with variable capital (“SICAV”), an exemption is introduced from the requirement for a report by an approved auditor for any issue of shares in consideration for contributions in kind.
- Investment policy: it is specified that when a UCITS activates side pockets through asset segregation, the segregated assets are excluded from the calculation of the limits set out in the chapter of the UCI Law relating to investment policy.
2. Key amendments specific to the AIFM Law
A. Recognition of the right of AIFs to grant loans
The right of AIFs to grant loans (with certain exceptions, particularly relating to consumers in Luxembourg) is recognized. The New Law also provides that the management of AIFs may include the activities of granting loans on behalf of the AIF and managing ad hoc securitization structures.
The main features are as follows:
- With certain exceptions, the notional value of loans granted to a single borrower by an AIF must not exceed 20 percent of the AIF’s capital when the borrower is either a financial undertaking, an AIF, or a UCITS.
- Loans granted by an AIF should be granted for the sole purpose of investing the capital raised by the AIF in accordance with its investment strategy and regulatory constraints.
- A closed-end structure is imposed on AIFs granting loans. An exception to this principle is possible provided that the manager can demonstrate that it has put in place an adequate liquidity management system for the AIF(s) it manages or intends to manage.
B. Access to cross-border depositary services
The New Law permits managers established in Luxembourg to manage an EU AIF whose depositary is established in a Member State other than the home Member State of the AIF. The third country where the depositary is established must not be (i) identified as a high-risk third country pursuant to Directive (EU) 2015/849 or (ii) mentioned in Annex I to the Council conclusions on the revised EU list of non-cooperative jurisdictions for tax purposes (i.e., this country must not be a “Prohibited Third Country”).
It is also specified that a Luxembourg depositary may be appointed as depositary of a non-domestic AIF if the home Member State of the AIF has exercised this option and if the competent authority of the home Member State of the AIF has allowed this appointment.
C. Management and cross-border marketing of AIFs
We considered it useful to provide a table to clarify the changes introduced by the New Law in this respect:
| Country of marketing | Passport | AIF | AIFM | New Law |
| EU | Yes | Non-EU AIF | Luxembourg alternative investment fund manager (“AIFM”) | The AIF must not be situated in a Prohibited Third Country. |
| Luxembourg | No | Non-EU AIF | Authorised EU AIFM | The AIF must not be situated in a Prohibited Third Country. In addition, the country in which the AIF is established must have signed, with the home Member State of the manager and with Luxembourg, an agreement which fully complies with the standards laid down in Article 26 of the OECD Model Tax Convention on Income and on Capital and must ensure an effective exchange of information in tax matters including any multilateral tax agreements (a “Tax Agreement”). |
| EU | Yes | Non-EU AIF | Non-EU AIFM, where Luxembourg is defined as the Member State of reference of the AIFM | The AIF must not be situated in a Prohibited Third Country. |
| Luxembourg | No | AIFs | Non-EU AIFM | The manager or third country AIF must not be situated in a Prohibited Third Country. Furthermore, the third country in which the manager or AIF is established must have concluded a Tax Agreement with Luxembourg. |
In addition, in the context of the authorization of non-EU AIFMs intending to manage EU AIFs and/or market AIFs managed by them in the European Union in accordance with Articles 39 and 40 of the AIFMD, where Luxembourg is defined as the home Member State of reference of the AIFM, the manager must not be located in a Prohibited Third Country. Furthermore, if after the manager has been authorized, the third country in which the manager is situated is listed as a Prohibited Third Country, the manager must, within a period not exceeding two years, take such measures as are necessary to rectify the situation in respect of the AIFs that it manages.
D. Marketing of an AIF as part of employee savings schemes or employee participation schemes
The New Law permits to market an EU AIF which invests predominantly in the shares of a particular company, to employees of that company or of its affiliated entities within the framework of employee savings schemes or employee participation schemes in Luxembourg. When such an AIF is marketed on a cross-border basis in Luxembourg to such employees, Luxembourg shall not impose any additional requirements beyond those applicable in the home Member State of the AIF.
3. Harmonization provisions for the UCI Law and the AIFM Law
A. Liquidity Management Tools (LMTs): flexibility and CSSF oversight
The most notable addition to the UCI Law and the AIFM Law is the inclusion of liquidity management tools (“LMTs”) in new annexes (the “LMT Annexes”), which provide a non-exhaustive list of such tools.
In principle, a UCITS or an AIFM managing an open-end AIF must select at least two LMTs from among those referred to in points 2) to 8) of the LMT Annexes. These LMTs must be included in the constitutive documents of the UCITS and may not relate solely to LMTs referred to as “swing pricing” and “dual pricing”. In any case, the New Law provides that ManCos of FCP, UCITS (if SICAV) and AIFMs are able to, where necessary, suspend subscriptions, repurchases and redemptions and activate side pocket mechanisms.
In addition, the Commission de Surveillance du Secteur Financier, the supervisory authority of the Luxembourg financial sector (the “CSSF”) must be informed of the use of these LMTs and of their framework.
The CSSF shall, in certain cases depending on various factors including the type of LMT, be informed of the activation or deactivation of LMTs.
In addition, it is specified that the CSSF, as the competent authority of the home Member State of the fund, may require the activation or deactivation of the suspension of subscriptions, repurchases and redemptions if necessary.
Provision is also made for cases in which the CSSF, after receiving a request from another relevant authority to exercise this power, refuses such a request, and the consequences thereof. The CSSF may also, in certain cases, request the competent authority of a third country to exercise the powers of suspension of subscriptions, repurchases and redemptions.
B. Clarification of substance requirements
The New Law provides that the CSSF will only grant the requested authorization (for a management company of UCITS (“ManCo”), a SICAV which has not designated a ManCo (“Self-managed SICAV”) or an AIFM) when the conduct of the business of (i) the Self-managed SICAV, (ii) the ManCo or (iii) the AIFM is carried out by at least two natural persons who are either employed full-time within each of the Self-managed SICAV, the ManCo or the AIFM (this requirement is already generally applied in Luxembourg administrative practice), or who are dedicated full-time to their management or are executive members or members of their management body. In all cases, these persons must be domiciled, in the sense of their habitual residence, in the European Union.
C. Services that may be provided by a ManCo or an AIFM
The New Law provides that the “reception and transmission of orders in relation to financial instruments” will be added to the UCI Law as an ancillary service. This ancillary service is already included in the AIFM Law.
It will also be specified, both in the UCI Law and in the AIFM Law, that ManCos and AIFMs (“IFMs”) (except for internally-managed AIFs) are authorized to perform, for the benefit of third parties, the same functions and activities as those they already perform in relation to the funds they manage, provided that:
- they manage any potential conflicts of interest;
- in the case of ManCos, they have authorization within the meaning of Article 101(3)(b), fourth indent, of the UCI Law, and in the case of AIFMs, they have authorization within the meaning of Article 5(4)(b)(iv) of the AIFM Law;
- they inform the CSSF when they start offering these additional activities, functions or services to third parties.
In addition, the prohibition whereby an IFM is not authorized to provide these ancillary services without also being authorized for portfolio management will be removed, and it will be possible for external AIFMs to provide credit servicing activities on an ancillary basis in accordance with Directive (EU) 2021/2167.
D. Application for authorization
- Changes will relate to the information to be provided by AIFMs and ManCos, in particular concerning the arrangements made for delegating and sub-delegating functions to third parties;
- In addition, the UCI Law will require ManCos to notify the CSSF, prior to implementation, of any material changes to the conditions for initial authorisation.
E. Consideration of conflicts of interest when an IFM manages or intends to manage a fund on the initiative of a third party
The New Law provides that when an IFM manages or intends to manage a fund on the initiative of a third party, it must provide the CSSF with detailed explanations and evidence that it is endeavoring to avoid conflicts of interest and, where these cannot be avoided, that it is ensuring that the funds it manages are treated fairly.
F. Delegation of depositary functions
Depositaries will be exempt from ex ante due diligence obligations when they intend to delegate custody functions to central securities depositories (“CSDs”) acting as investor CSDs.
G. Reporting obligations to the CSSF
These obligations will be reinforced overall, in particular with respect to the market on which and the instruments in which IFMs trade.
H. Enhanced investor disclosure requirements
The New Law provides that, with respect to AIFs:
- Before investors invest, they must be provided with the “name of the AIF”, the use that may be made of LMTs and a list of fees that are borne by the manager in connection with the operation of the AIF and that must be allocated to the AIF.
- managers must notably disclose, on an annual basis, all fees incurred by investors and, for loan-originating AIFs, the composition of the portfolio of loans granted.
The importance of the name of UCITS, which is part of the pre-contractual information to be provided to investors, will also be emphasized by the UCI Law. These amendments are in line with the AIFMD and the UCITS Directive, which aim to ensure that investors receive clear and comprehensive information in order to facilitate informed investment decisions. They reflect the same transparency requirement as that enshrined in the European Securities and Markets Authority (ESMA) guidelines on ESG fund names (ESMA34-1592494965-657), which are designed to prevent misleading presentations.
4. Next steps and transitional provisions
Transitional provisions are included for certain requirements applicable to AIFs granting loans and established before the adoption of the Directive. It is specified that a manager managing such AIFs may choose to be subject to the new requirements applicable to loan-originating AIFs provided that the CSSF is informed.
The date of entry into force of the New Law is 16 April 2026, with the exception of Articles 16 and 42, points 1 and 2, which will enter into force on 16 April 2027.
