LUXEMBOURG Law and Practice Contributed by: Claudia Hoffmann, Daniel Krauspenhaar, Stefanie Samosny and Sascha Wiemann, Luther
3.7 Outsourcing of Investment Functions/ Business Operations Luxembourg AIFMs are permitted to delegate some of their functions subject to strict regulatory require - ments. Most notably, the AIFMs must retain at least one of the core functions (portfolio or risk manage - ment). The AIFM further remains fully responsible for oversight of all delegated activities; it must ensure that the delegate has any required authorisations or registrations and sufficient resources to perform the delegated tasks, and that the persons who effectively conduct the business of the delegate are of sufficiently good repute and sufficiently experienced. Delegations to third-country undertakings addition - ally require that co-operation between the CSSF and the supervisory authority of such undertakings be ensured. Delegations to a depositary are prohibited. The AIFM’s liability towards the AIF and its investors shall not be affected by the fact that it has delegated functions, or by any further sub-delegation. The AIFM must not delegate its functions to the extent that, in essence, it can no longer be considered to be the manager of the AIF. Sub-delegation is possible but subject to equivalent requirements. 3.8 Local Substance Requirements Luxembourg AIFMs must maintain adequate financial, governance, technical and human resources. These requirements are set out in the AIFM Law and Circular CSSF 18/698. In particular, AIFMs must hold sufficient initial capital and own funds (minimum initial capital of EUR125,000 or EUR300,000 for self-managed AIFs) and keep them liquid and readily available. See 3.3 Regulatory Regime for Managers . Central administration – including decision-making and key administrative functions such as accounting, IT and compliance – must be in Luxembourg with ded - icated premises and generally at least three full-time employees performing key functions. Governance typically requires a governing body of at least three qualified members (in one-tier systems) and two conducting officers, responsible for the day- to-day management and effective conducting of the AIFM’s business.
Internal governance must, in particular, ensure sound and prudent business management; IT infrastructure must support secure operations. The CSSF applies these requirements proportion - ally based on the AIFM’s size, scale and complexity, emphasising real local substance to ensure effective management, oversight and operational resilience. Luxembourg law is already closely aligned with the substance requirements of AIFMD II, meaning that AIFMD II is expected to have minimal impact on the substance alignments of AIFMs. 3.9 Change of Control In Luxembourg, mergers, sales, restructurings or similar transactions involving an AIFM or its parent company may require CSSF authorisation or trigger notification obligations. Any acquisition or disposal of a qualifying holding pur - suant to the AIFM Law requires prior approval by the CSSF. Among other things, the CSSF assesses the suitability of the acquirer to ensure the sound and pru - dent management of the AIFM. Group restructurings affecting the shareholding structure may also require CSSF review. Consent of the AIF’s investors is not legally required unless stipulated in the fund documentation or side letters. However, material changes affecting control, governance or key personnel may be subject to prior investor approval or may trigger disclosure obligations to them. 3.10 AI and Use of Data Luxembourg AIFMs that use AI, predictive analytics or big data must comply with Regulation (EU) 2024/1689 laying down harmonised rules on AI (the “AI Act”) and with general data protection rules, in particular Regulation (EU) 2016/679 (GDPR). Depending on the AI system’s classification, requirements may apply in areas such as transparency, human oversight, risk management and governance, including the mitiga - tion of risks such as bias and cybersecurity. Currently, no Luxembourg-specific AI legislation is in force, but Draft Bill 8476 is progressing with the aim of
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