The CSSF updated its FAQ for UCITS and AIFs investing in virtual assets
On 22 February 2024, the Commission de Surveillance du Secteur Financier (“CSSF“) updated its FAQ on virtual assets{1} for UCIs by clarifying its position on the scope for UCITS and AIFs to invest in virtual assets.
UCITS investing in virtual assets
The CSSF reaffirmed its position for undertaking for collective investment in transferable securities (“UCITS”) investing in virtual assets. The CSSF asserts that direct and indirect investments in virtual assets are prohibited when targeting non-professional customers and pension funds{2}. This restriction reflects the need to safeguard investors from the inherent risks associated with virtual assets, which may not align with their risk profile.
Notwithstanding, this restriction does not apply to digital assets satisfying the criteria of MiFID financial instruments including shares of companies operating in the virtual asset ecosystem. The CSSF underlines that these assets may fall within the scope of eligible investments for UCITS, as these are not considered to be virtual assets.
It is therefore important to assess the types of instruments for the purpose of creating an investment portfolio or strategy.
AIFs investing in virtual assets
The CSSF clarifies the scope for alternative investment fund (“AIF”) investing in virtual assets. Indeed, an AIF is allowed to invest both directly and indirectly in virtual assets subject to the following cumulative conditions:
The investment in virtual assets should not impede the application of and compliance with the existing regulatory framework;
The units of the funds can only be marketed towards well-informed investors under the law on specialised investment funds{3};
Besides, the CSSF highlights that investment in financial instruments such as derivatives or transferable securities with underlying virtual assets are considered as indirect investments in virtual assets.
The CSSF asserts that when an AIF is managed by an alternative investment fund manager (“AIFM”) authorised in Luxembourg, the latter must procure an extension of its authorisation. For this new investment strategy, the AIF should complete a form through the eDesk Portal and discharge the administrative fees in accordance with the Règlement du grand-ducal of 23 December 2022.
Prudential and regulatory compliance
The FAQ of the CSSF underlines the importance of prudential supervision and regulatory compliance drawing attention to the integration phase of virtual assets in the investment policy of investment funds and reiterates the importance of having adequate internal control functions approving new products and investment strategies.
Investment managers are tasked with conducting comprehensive, case-by-case assessments to gauge the impact of these investments on the overall risk landscape of the investment fund.
Therefore, investment managers need to ensure that investors are adequately informed, maintain transparency and prompt communication. This involves providing clear and accessible information to investors regarding the implications of investment decisions, and the diligent upkeep and revision of fund documentation to accurately reflect any changes.
In a nutshell, the FAQ presents conditions for a more robust virtual asset market. For professionals, these updates represent an opportunity to refine and enhance investor trust.
For further information, please consult our previous publications and don’t hesitate to reach out to your usual Simmons contact.
Source :
{1}Defined as “a digital representation of value, including a virtual currency, that can be digitally traded, or transferred, and can be used for payment or investment purposes, except for virtual assets that fulfil the conditions of electronic money within the meaning of point (29) of Article 1 of the Law of 10 November 2009 on payment services, as amended, and the virtual assets that fulfil the conditions of financial instruments within the meaning of point (19) of Article 1 of the Law of 5 April 1993 on the financial sector, as amended” (Article 1 (20b) of the Law of 12 November 2004 on the fight against money laundering and terrorist financing, as amended.
{2}For more information, please click here.
{3}Article 2 of the Amended Law of 13 February 2007 on specialised investment funds
_11zon.jpg?crop=300,495&format=webply&auto=webp)
