The Luxembourg supervisory authority of financial sector (the “CSSF”) has published on 7 August 2020 its updated FAQ regarding the Luxembourg law of 17 December 2010 relating to undertaking for collective investment (the “UCI Law”).
In section 1.13) of the updated FAQ, the CSSF clarifies that loans do not qualify as transferable securities or money market instruments within the meaning of the respective provisions of the UCI law and are hence outside of scope of eligible assets of article 41 (1) and (2) (a) of the UCI Law.
Following this clarification, Luxembourg undertakings for collective investment in transferable securities (the “UCITS”) holding loans in their investment portfolios are required to disinvest from those positions by 31 December 2020. Furthermore, the UCITS prospectuses offering the possibility to invest in loans have to be updated by 31 March 2021 at the latest. It is understood that respective changes will be also expected in other fund documentation reflecting the loan investment possibilities, if any, e.g. KIID.
A cost efficient and straightforward alternative could be to repackage loans held by UCITS into Luxembourg securitisation vehicles (“SVs”). SVs governed by the Luxembourg securitisation law of 22 March 2004 (the “Securitisation Law”) are indeed authorised to hold (and originate) loans as securitised assets. Such securitised assets need to be acquired through the issuance of securities by the SV, that can be adjusted to replicate the economic terms of the units issued by the UCITS (i.e. same investors acquiring same exposure to the same underlying assets). SVs may issue securities to both professional and retail investors and would remain unregulated under certain conditions.