It was recently announced that Luxembourg will introduce an automatic exchange of information with other EU member states to combat tax evasion. For many, it came as no surprise that banking and tax secrecy laws are being lifted (under certain circumstances). However, for most insiders, the announcement has raised concerns within the private banking community which fears a loss of attractiveness and competitiveness in this segment of the banking market. As a result a number of banks which have relied on banking secrecy will disappear and undoubtedly jobs will be lost.
Better news on investment funds
However, there is better news on the investment funds market front. Luxembourg is expecting legislative changes relating to the implementation of the alternative investment fund managers (AIFM) directive and related level 2 regulations. Most of the service providers are preparing to cope with the new wave of additional regulations and procedures that need to be complied with, in particular relating to risk management and depositary tasks functions.
These complex, and sometimes unclear, regulations will of course increase the cost of operations, but they will put Luxembourg in a favourable position to serve its existing clients who are required to comply with the AIFM directive as well as attract new asset managers whose structures and organisations will need to be changed and adapted to the new environment. Attracting EU investors will require full compliance with the AIFM directive sooner rather than later and Luxembourg will be ready to welcome existing and new players.
Improvements to partnership laws
Luxembourg is taking advantage of these regulatory changes and is proposing to improve its existing limited partnership law and introduce a new type of limited partnership (the special limited partnership) by revamping its company law. After enactment of this new legislation (which is expected to take place during the course of May) Luxembourg's limited partnership toolkit will be substantially improved and more attractive. It will be possible to establish limited partnerships with or without legal personality, with patterns almost identical to those being used by private equity, hedge and real estate players in the Channel Islands or in Cayman.
An alternative
Anglo-American investors will be able to use Luxembourg limited partnerships as an alternative to their presently used partnerships in offshore jurisdictions, either when required to attract EU investors or as a complement to their existing limited partnership agreements. The limited partnership agreement under Luxembourg law will look similar to the LP's existing well established limited partnership agreements, making it possible to regroup the fund vehicles in the same jurisdiction as where the intermediate acquisition companies are located.
Luxembourg is more than ever trying to improve its toolkit for investment structures. It should be able to compensate quickly for the potential loss of business in the private banking sector. Bubbles rather than troubles!
François Pfister is a partner at law firm Ogier Luxembourg. Ogier has offices in Cayman, BVI, Jersey and Guernsey. Ogier Fiduciary Services opened in Luxembourg earlier this year.
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