Description
the CSSF published an update to its FAQ Virtual Assets – Undertakings for collective investment, initially published on 29 November 2021 . The FAQ covers the regulatory framework for investment in virtual assets by UCITS and AIFs in Luxembourg, with the aim of providing professionals with concise answers to the main practical issues they are facing. It outlines the restrictions on UCITS and the conditions under which AIFs may invest in virtual assets. The document also details the authorization requirements for investment fund managers, considerations for mitigating ML/TF risks and the AML/CFT due diligence expected from investment fund managers, and the role of depositaries for funds investing in virtual assets.
In its current Version 6, published on 22 February 2024, Q.1 and Q.2. were modified. Here are the questions, together with a brief a summary of the actual state of their corresponding answers:
Q.1 May a UCITS invest in virtual assets?
Entities subject to the prudential oversight of the CSSF should be mindful that the investment in virtual assets, as defined in Article 1 (20b) of the Law of 12 November 2004 concerning the prevention of money laundering and terrorist financing, as amended, referred to as the AML/CTF Law hereafter, may not be suitable for all types of investors or investment objectives. Consequently, UCITS, and UCIs targeting clients beyond well-informed investors and pension funds, are prohibited from directly or indirectly engaging in virtual asset investments. The definition of virtual assets, as stipulated in the aforementioned article, excludes digital assets meeting the criteria of financial instruments under the Law of 5 April 1993 pertaining to the financial sector. Assets qualifying as financial instruments, such as shares of entities operating within the virtual asset domain, are exempt from the aforementioned restriction and could potentially be considered eligible investments for UCITS.
Q.2 May an AIF invest in virtual assets?
Investments in virtual assets, as outlined in the AML/CTF Law, may align with funds targeting well-informed investors, provided they comply with regulatory requirements. AIFs are allowed to invest directly or indirectly in virtual assets, but only if marketed exclusively to well-informed investors. Financial instruments with virtual assets as underlying assets are deemed indirect investments, requiring an authorization extension from the CSSF if managed by a Luxembourg-authorized AIFM. Virtual assets’ unique characteristics, such as volatility and liquidity, can significantly impact investment vehicle risk profiles. The CSSF underscores the importance of integrating virtual assets into investment policies and ensuring robust internal control functions. Investment managers must thoroughly assess the impact of virtual asset investments on fund risk profiles, provide transparent information to investors, and maintain updated fund documentation to meet regulatory obligations.
