LUXEMBOURG Trends and Developments Contributed by: Claire Guilbert, Geoffroy Hermanns and Cyril Clugnac, Norton Rose Fulbright
Introduction As expected, 2024 proved as busy as the previ - ous year on the regulatory front. Several indus - try-shaping regulatory projects that were in the pipeline for some time reached fruition during 2024, so much so that we will only be able to focus on a few of those in this edition of Norton Rose Fulbright’s annual update. Many of these new regulations are set to come into full force (or close) in 2025. Although the industry has been preparing for these regulations ahead of their implementation, there is a big difference between theory and reality when it comes to applying EU-spanning regulatory frameworks in a fluid industry such as the investment funds industry. Hence, we expect to see interesting challenges for the industry and (hopefully) use - ful guidance on the regulatory front over 2025. Trends Farewell AIFMD, welcome AIFMD 2 Following several years of legislative process, the final legislative text of the long-awaited European Directive (Directive (EU) 2024/927 of 13 March 2024 – the Final Text), amending Direc - tive 2011/61/EU of 8 June 2011 on Alternative Investment Fund Managers (AIFMs) (AIFMD) and its associated annexes (the revised AIFMD, AIFMD 2) and Directive 2009/65/EC of 13 July 2009 on Undertakings for Collective Investment in Transferable Securities (UCITS) (UCITS Direc - tive), has been published in the Official Journal of the EU (on 26 March 2024) and subsequently entered into force (on 15 April 2024), proposing a series of targeted amendments to the AIFMD and the UCITS Directive. EU member states are required to implement such changes into their own laws within two years from the entry into force of the Final Text.
Focusing here on AIFMD 2, the key changes will be around the governance of AIFMs, loan origi - nating funds (LOFS; with, amongst others, rules around closed- versus open-ended funds, lever - age and risk retention), delegation, reporting and disclosure requirements, requirements around fund expenses, tax and AML requirements for third-country entities. The European Securities and Markets Authority (ESMA) has been tasked with drafting technical standards and guidelines to implement some of the new rules (eg, the AIFMD 2 expansion of the existing liquidity requirements for AIFMs man - aging open-ended alternative investment funds (AIFs)) (with deadlines spanning from April 2025 to 2027). One of the most discussed novelties of AIFMD 2 is the creation of a framework applicable specifi - cally to AIFs that originate loans as the principal investment strategy (LOFs), hence regulating the underlying product through their managers. The end goal of that new LOF regime is wor - thy, though: facilitating private credit activity in Europe by adding loan origination to the list of permitted ancillary activities an AIFM may undertake under its EU-wide AIFMD manage - ment passport. But while the recitals to the Final Text suggest the intention to create such a cross-border lending passport, it lacks explicit operative provision to this effect, and it remains to be seen throughout the transposition period of the Final Text how each member state’s leg - islator will effectively facilitate the activity in its jurisdiction. In the meantime, some of the complex require - ments under AIFMD 2 may already apply to funds qualifying as LOFs and may already raise question marks as to their interpretation and
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