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Circular CSSF 18/698 on the authorisation and organisation of investment fund management companies becomes law in Luxembourg – how self-managed funds and fund management companies must respond

Circular CSSF 18/698 on the authorisation and organisation of investment fund management companies becomes law in Luxembourg – how self-managed funds and fund management companies must respond

  • United Kingdom
  • Financial services and markets regulation
  • Financial institutions

28-09-2018

CSSF 18/698 relates to all Luxembourg fund management companies, whether UCITS, AIFM or Chapter 16 management companies, and provides further clarification on authorisation conditions and more importantly on organisational conditions. The purpose behind the circular is for the CSSF to consolidate and clarify its current supervision practice regarding fund management companies into a single document detailing all the reporting, documentation, due diligence and procedures fund managers must put in place in order to comply with the supervisor’ expectations.

The 100 page circular is of particular importance. In particular:

• management bodies

o at board level: fund directors may not hold more than 20 mandates and their total contractual hours may not exceed 1,920 per annum. Further details are provided on how to group mandates and on what bases the CSSF may grant derogations to the mandate cap. Boards should hold at least 4 meetings a year and the minutes should be easily available to CSSF

o senior management: a fund must have at least 2 full time executive directors. The circular set out details of possible derogations and a description of the duties of executive directors

• annual reports

o are to be sent within 5 months of the relevant year end

o to include sections on mandates for each board member and senior manager, risk management process, the derivatives used, compliance function, internal audit function, AML/KYC obligations, direct distributors, complaints handling, the list of third parties authorised to receive complaints and all delegates of collective management tasks

• periodic reporting and information flows to the CSSF

o description of changes that need to be communicated to the CSSF

• substance and organisational requirements

o a minimum of 3 employees on a full time basis

o back-up and replacements of key persons to be well managed

o keys functions described

o must have own secured office space

• AML/KYC requirements

o responsible person at board level with experience and effective availabilities, permanently in Luxembourg

o content of yearly AML report

o relationships with and control on distributors: different scenarios are provided with corresponding obligations

• management of delegation

o mandatory notifications to CSSF and yearly reporting

o details of the due diligence process in terms of content, criteria to be used for the selection, risk based approach, permanent monitoring, periodicity and follow-up

 

CSSF 18/968 repeals Circular CSSF 12/5461 and enters into force with immediate effect.

CSSF has orally declared that Fund management companies have 6 months to complete a due diligence comparison between their current internal organisation and that required under the new circular and a year to be fully compliant with the circular.

To read CSSF 18/698, click here.

Impact

Fund management companies as well as self-managed SICAVs need to review their management, procedures, internal processes, programme of activities and all internal management rules (including delegated activities, AML/KYC rules, their distribution network) in order to assess their compliance with the circular.

A deep gap analysis should be carried out. Any weakness highlighted during the gap analysis should be cured and procedures, documentation and processes updated accordingly. Monitoring of reporting and compliance with the circular will also need to be addressed.

How Eversheds Sutherland can help

Our team in Luxembourg currently advises management companies and self-managed funds on all aspects of Luxembourg Financial Services law. If you need any guidance or advice on this or other financial services matters, our team in Luxembourg will be pleased to assist you.


1. Circular CSSF 12/546 on the authorisation and organisation of Luxembourg management companies

For more information contact

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