The Irish funds association in January 2024 published an on the revised European long-term investment fund (Eltif 2.0) regime, referring to key elements in the proposed Eltif chapter of the Irish central bank’s alternative investment fund rulebook and raising the possibility of approving Eltifs in 24 hours.
Following a on the Eltif chapter, the Central Bank of Ireland wrote in its published in March 2024: “Where a qualified investor Eltif meets the criteria set out in the definition within the Eltif chapter, and provides for a minimum subscription of €100,000, the central bank will permit it to avail of the central bank’s 24-hour approval process for QIAIFs [qualifying investor alternative investment fund] and such Eltifs will be subject to the retail requirements and limits set out in the Eltif regulation in the interests of ensuring appropriate investor protection.”
This led to some questions in the Luxembourg market as to whether such a quick approval would be feasible or appropriate in the grand duchy and whether it would allow investor protection to be ensured, as discussed during a at the end of March.
65 Eltifs for Luxembourg, zero for Ireland
It should be noted, however, that as of 10 April 2024, the European Securities and Markets Authority’s register of European long-term investment funds lists 101 funds. Nearly two-thirds–65–are domiciled in Luxembourg, while zero are domiciled in Ireland. The rest are domiciled in France (21), Italy (13) and Spain (2).
Delano caught up separately with , global head of Linklaters’ investment funds practice, and , conducting officer & head of alternative investments at Azimut Investments (which has several Luxembourg-domiciled Eltifs listed on Esma’s register) to hear more about the feasibility, advantages, risks and possibility of Eltifs shifting towards Ireland following the Irish central bank’s announcement.
Ireland’s 24-hour approvals: only for qualified investor Eltifs
When it comes to the feasibility of ensuring appropriate investor protection after 24 hours of review, Bernard told Delano: “I understand the Irish 24-hour approval process is reserved for non-retail (i.e., professional) funds only. The focus of the interest in Eltifs is to open up alternative funds to retail investors, hence I believe there may have been some confusion in the market around the press release and the actual scope of that quick approval process is limited to qualified investor Eltifs. I would think that, where funds are offered to European retail investors, a more comprehensive regulatory review and approval process would be required.”
This expedited approval raises concerns about the depth of regulatory scrutiny, potentially compromising investor safeguards
For Sberna, “The Central Bank of Ireland’s initiative to facilitate a 24-hour approval process for Qualified Investor Eltifs marks a pivotal step towards enhancing the regulatory framework for investment funds. This streamlined process presents distinct benefits, notably the acceleration of fund launches, making Ireland a more appealing jurisdiction for fund managers eager to enter the market swiftly. Yet, this expedited approval raises concerns about the depth of regulatory scrutiny, potentially compromising investor safeguards.”
“Balancing the need for rapid approvals with comprehensive investor protection is a delicate endeavour. The success of this initiative hinges on the stringent criteria set forth by the Central Bank and the efficiency of automated compliance assessments, which aim to mitigate risks associated with rapid approvals,” he added.
Need for proper assessments for retail funds
During the Alfi conference, Bernard mentioned that 24 hours is probably too quick to properly read and think through a document, and as Luxembourg prioritises “quality” and “investor protection,” we probably won’t see 24-hour approvals in Luxembourg.
I do indeed believe that for a retail fund that is sold to (sometimes unexperienced) retail investors, a regulator needs to conduct a proper assessment of fund documents and reflect on whether adequate investor protections are in place
In response to a question from Delano in April as to why 24-hour approvals aren’t the goal in Luxembourg, Bernard answered: “I think for a retail fund 24 hours is indeed not realistic to make sure proper investor understanding and protection can be achieved, however this may be different for a professional fund. Most of the Eltifs we have seen so far in Luxembourg are aimed at retail investors. I do indeed believe that for a retail fund that is sold to (sometimes unexperienced) retail investors, a regulator needs to conduct a proper assessment of fund documents and reflect on whether adequate investor protections are in place.”
“Deep and longstanding experience” in Luxembourg
With the number of Eltifs in Europe expected to increase in the near future thanks to the revised 2.0 regulation, is there a possibility that Eltif business shifts from Luxembourg–who currently has the majority of market share–to Ireland because of Ireland’s 24-hour approval process? What advantages does the grand duchy have in terms of Eltif expertise when compared to Ireland?
Luxembourg has the advantage of having a very deep and longstanding experience with semi-liquid retail funds and the regulator, service providers, law firms and auditors based in Luxembourg share that deep experience
“I understand that the quick approval is for professional funds only, while Luxembourg is more focused on retail Eltifs,” emphasised Bernard. “Luxembourg has the advantage of having a very deep and longstanding experience with semi-liquid retail funds and the regulator, service providers, law firms and auditors based in Luxembourg share that deep experience, placing Luxembourg at a real advantage when looking at retail Eltifs.”
Luxembourg’s established framework provides a wealth of technical knowledge and operational excellence in managing AIFs
“A shift in business flows from Luxembourg to Ireland could occur. This shift would be influenced by Ireland’s streamlined regulatory approach, offering a quicker route to market for fund managers,” said Sberna. “Despite this, Luxembourg’s longstanding dominance in the European investment fund sector, underpinned by its deep expertise and a robust ecosystem of service providers, remains a formidable advantage. Luxembourg’s established framework provides a wealth of technical knowledge and operational excellence in managing AIFs.”
That being said, “Ireland’s quick approval process, coupled with its attractive tax regime, positions it as a competitive alternative for fund initiations,” added Sberna. “The differential tax treatment between Luxembourg and Ireland, with the latter often presenting more favourable conditions for fund proliferation, might further drive funds towards Ireland. Nonetheless, the challenge for Ireland will be to ensure that its expedited approval process does not compromise investor protection, while also striving to match Luxembourg’s level of expertise and infrastructure.”
This article was published for the Delano Finance newsletter, the weekly source for financial news in Luxembourg. .
