Flash News - Luxembourg - Financial Supervision - CSSF issues extensive Circular 18/698 on authorisation and organisation of Investment Fund Managers entering into force on 23 August 2018

11/09/18

Start adding items to your reading lists:
or
Save this item to:
This item has been saved to your reading list.

Background

Until 22 August 2018, the Commission de Surveillance du Secteur Financier ("CSSF") applied its Circular 12/546 (available here) to authorise and organise the following types of Luxembourg management companies:
  • Management companies subject to Chapter 15 of the Law of 17 December 2010 relating to undertakings for collective investment ("Chapter 15 ManCos"); and
  • Investment companies, which have not designated a management company within the meaning of Article 27 of the Law of 17 December 2010 relating to undertakings for collective investment ("société d'investissement autogérée" or "SIAG").

On 12 June 2018, the law of 17 December 2010 relating to undertakings for collective investment (the "2010 Law", available here in French and here in English) and the law of 12 July 2013 on alternative investment fund managers (the "2013 Law", available here in French and here in English) were lastly amended. In particular, Articles 5 to 19 of the 2013 Law lay down the legal conditions, which must be met to be granted authorisation as alternative investment fund manager ("AIFM") by the CSSF. The Commission delegated regulation (EU) No 231/2013 of 19 December 2012 (the "Delegated Regulation", available here) further details how certain Articles of the 2013 Law shall be applied.

On 25 July 2018, the CSSF urged fund management companies (e.g., AIFMs and UCITS fund managers) to submit their Brexit-related applications as soon as possible (the "Press Release 18/25", available here).

Taking into account the rapid evolution of the EU and Luxembourg legislation concerning AIFs and the latest supervisory market practices, the CSSF has worked on a new circular to replace and extend the scope of the Circular 12/546 to "Investment Fund Managers" ("IFMs" or "gestionnaires de fonds d'investssement"), including UCITS management companies and AIFMs.

Who is concerned?

On 23 August 2018, the CSSF issued the circular 18/698 concerning the (i) authorisation and organisation of IFMs incorporated under Luxembourg law and (ii) specific provisions on the fight against money laundering and terrorist financing applicable to IFMs and entities carrying out the activity of registrar agent (the "Circular 18/698").

In this context, the Circular 18/698 applies to the following IFMs:

  • Chapter 15 ManCos;
  • Management companies incorporated under Luxembourg law subject to Article 125-1 or Article 125-2 of Chapter 16 of the 2010 Law ("Chapter 16 ManCos");
  • Luxembourg branches of IFMs subject to Chapter 17 of the 2010 Law ("Chapter 17 ManCos");
  • SIAG;
  • Authorised AIFMs under Chapter 2 of the 2013 Law; and
  • Internally managed AIFs within the meaning of Article 4(1)(b) of the 2013 Law ("fonds d'investissement alternatifs gérés de manière interne" or "FIAAG").

The CSSF notes that the Circular 18/698 also applies to branches and representative offices ("bureaux de representation"), as the case may be, which have been established by an IFM in Luxembourg and/or abroad.

However, the CSSF highlights that the Circular 18/698 does not apply to IFMs subject to Chapter 18 of the 2010 Law and entities that are subject to Article 3 of the 2013 Law and not mentioned in the above list of IFMs.

What's new?

The main purpose of the Circular 18/698 is to define the conditions for obtaining and maintaining the authorization for all IFMs presented within one single document. In addition, the Circular 18/698 aims at providing further clarifications on certain conditions for authorization, more particularly in the area of the shareholder structure, own fund requirements, management bodies of the IFM, arrangements concerning the central administration and governance, and rules of delegation.

With regards to the activity of registrar agent, credit institutions, investment firms, professionals of the financial sectors, and IFMs incorporated under Luxembourg law, as well as Luxembourg branches of foreign establishments shall refer to the Sub-Chapter 5.4. of the Circular 18/698 entitled "Organisation of the fight against money laundering and terrorist financing", most notably point 304 on page 48.

Besides, the Circular 18/698 incorporates, with reference to the CSSF Regulation N° 10-04 (available here) and the Delegated Regulation, the rules concerning the compliance and internal audit functions, as previously laid down in the CSSF Circulars 04/155 (available here) and IML 98/143 (available here).

The Circular 18/698 consists of the following 9 Parts and 3 Annexes:

  • Part I - Definitions and abbreviations;
  • Part II - Conditions for obtaining and maintaining the authorization of an IFM, which only engages in the management of Undertakings for Collective Investment ("UCIs"), as specified in Article 101(2) of the 2010 Law and Article 5(2) of the 2013 Law (main part from page 11 to 88);
  • Part III - Condition for obtaining and maintaining the authorization of IFMs, which engage in the management of UCIs and the management of investment portfolios in accordance with mandates given by investors on a discretionary client-by-client basis, as specified in Article 101(3) of the 2010 Law and Article 5(4) of the 2013 Law;
  • Part IV - The IFM and the right of establishment and the freedom to provide services;
  • Part V - Proportionality principle;
  • Part VI - Chapter 16 ManCos under Article 125-1 of the 2010 Law and Chapter 17 ManCos;
  • Part VII - SIAG and FIAAG;
  • Part VIII - Communication with the CSSF;
  • Part IX - Entry into force and other provisions;
  • Annex 1 - Risk management procedure to be communicated to the CSSF by AIFs (as defined under point 1.13 of the Circular 18/698);
  • Annex 2 - Summary table of the conditions of communication to the CSSF according to the nature of the change (the list is non-exhaustive); and
  • Annex 3 - Specific information applying to SIAG and FIAAG.
  • More specifically, the Part II of the Circular 18/698 contains the following changes:
  • Definition of a minimum substance standard for management companies for number of local conducting officers (subject to the Asset under Management, i.e. 1.5 bn EUR) and core administrative functions personnel (i.e. 3 FTE including the conducting officers);
  • Definition of a rule of conduct for independent directors in terms of hours (i.e. 1920 hours spent on professional activities p.a.) and number of mandates (i.e. 20 mandates in regulated entities and operational companies);
  • Outline of the AML requirements applicable to all management companies (distinct from the distribution delegation obligations as applicable to the management companies depending on their distribution set-up);
  • Formalization of the obligations relative to EMIR and MMF Regulation; and
  • Formalization of principles governing the use of "investment advisors".

The Circular 18/698 is available here (only in French at the time of this publication).

What's next?

The Circular 18/698 enters into force on 23 August 2018 and repeals the Circular 12/546 from this date.

Final provisions of the Circular 18/698 also amend certain provisions of other CSSF circulars (e.g., CSSF Circular 11/512 on risk management, available here, or CSSF Circular 17/671 on the out-of-court resolution of complaints, available here only in French, as described under points 619 and 620 of the Circular 18/698).

The CSSF notes that the Circulars 04/155 and IML 98/143 are no longer applicable for IFMs in scope of the Circular 18/698.

Existing authorised IFMs and companies applying for any IFM authorisation should carefully consider the content and new requirements introduced by the Circular 18/698.

PwC Luxembourg (www.pwc.lu) is the largest professional services firm in Luxembourg with 2,700 people employed from 58 different countries. PwC Luxembourg provides audit, tax and advisory services including management consulting, transaction, financing and regulatory advice. The firm provides advice to a wide variety of clients from local and middle market entrepreneurs to large multinational companies operating from Luxembourg and the Greater Region. The firm helps its clients create the value they are looking for by contributing to the smooth operation of the capital markets and providing advice through an industry-focused approach.

The PwC global network is the largest provider of professional services in the audit, tax and management consultancy sectors. We’re a network of independent firms based in 157 countries and employing over 223,000 people. Talk to us about your concerns and find out more by visiting us at www.pwc.com and www.pwc.lu.

Contact us

Xavier Balthazar
Partner, Advisory, PwC Luxembourg
Tel: +352 49 48 48 3299
Email

Follow us