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A Luxembourg AIF can be fully exposed to crypto-assets. The AIFM, managing the fund, does NOT need to obtain a crypto-specific license.

Not because of a compliance lack, but because of how the framework is currently designed.

When approaching Crypto exposure in investment funds, the CSSF has drawn a clear line between direct and indirect exposure. In practice, that line might be more theoretical than real.

In this article, we continue to analyze the FAQ released by the CSSF on the February 2026 on Crypto-Assets – Undertakings for collective investments, in particular the case whether a “Other-Other Fund-Crypto-assets” license is required in case of management of AIFs investing in target funds with underlying crypto-assets.

In my opinion, the answer given by the CSSF leaves some room for interpretation in practice.

In Answer 3, the CSSF clarifies that no “Other-Other Fund – Crypto-assets” licence is required where an AIF gains exposure to crypto-assets through target funds. However, where such exposure exceeds 20% of the NAV, a fund-of-funds authorisation is required.

Let’s create a practical example: a Luxembourg AIF managed by an IFM raises €100 million. The fund invests €40 million in a target fund investing in Bitcoin, €30 million in a target fund investing in Ethereum, €30 million in a diversified crypto strategy fund. In this example, the AIF is invested 100% in Crypto Funds but only via targets funds.

In this case described above, the IFM does NOT need an “Other-Other Fund-Crypto-assets” license because there is no direct investment in crypto-assets. However, since more than 20% of the NAV is invested in target funds: the IFM must have a fund-of-funds authorization.

In practice, the distinction between direct and indirect exposure simplifies the framework, but does not change the underlying risk.

From a regulatory perspective, this is a fund-of-funds strategy and no crypto-assets licence is required. In reality, however, the exposure can be fully crypto. The IFM is still making crypto investment decisions, assessing crypto-related risks and constructing a crypto-driven portfolio, even without direct holdings.

As a results of what I have just described, this framework creates a potential gap between regulatory classification and economic reality. A fund may have full exposure to crypto-assets without falling within a specific crypto framework.

A fund investing directly in Bitcoin requires a dedicated framework, a license and strong control in place. The same fund investing Crypto assets but through target funds may not.

In my opinion, the CSSF is taking a more practical approach and not trying to open the door to crypto for everyone. If a crypto license were required even for indirect exposure, most AIFMs simply would not be able to invest in crypto-related funds, and the market would be effectively blocked. At the same time, treating every indirect exposure as if it were direct would make the framework overly complex and difficult to apply in practice. So the regulator has chosen a middle ground: no dedicated crypto license for indirect investments, but full responsibility on the IFM to understand and manage the risks. The AIFM is expected to ensure that the overall risk management framework reflects the nature of the exposure. From an AML/CFT perspective, the risks linked to crypto-assets must also be considered, even where the exposure is indirect. This means performing appropriate due diligence on the target funds, including their strategy, how crypto exposure is achieved, and assessing the expertise of the delegated investment manager in handling crypto-assets. Even if the exposure is indirect, the AIFM is expected to understand and manage the underlying crypto exposure.

Another point I would like to highlight is related to investors and their protection. With this framework, investors can be exposed to crypto-assets without clearly realising it. In a fund-of-funds structure, the link becomes less visible, and in practice an investor may gain exposure to a crypto-driven strategy without fully understanding it. This raises important questions around transparency and how clearly such exposure is disclosed in practice. While PPMs may describe the structure, they do not always reflect the true nature of the underlying exposure.It is also unclear how depositaries will approach these structures, particularly where the exposure is effectively fully crypto-driven.From an AML perspective, the situation is not neutral. Even where exposure is indirect, the underlying risks remain crypto-related.

To conclude, what really matters is the underlying risk, and the responsibility remains with the AIFM.

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The views and opinions expressed in this article are my own and do not reflect the official policy, position, or opinions of any financial institution, or other organization.
The content of this article is based on personal research of the author and understanding of AML (Anti-Money Laundering) and compliance topics.