CSSF publishes Circular 24/856 on the protection of investors at UCI level, repealing the CSSF Circular 2002/77

A. Responsibilities of the different stakeholders

In section 3, the Circular defines and clarifies the roles and responsibilities of those in charge with the governance of UCI and the Investment Fund Manager (IFM). The UCI’s governance must ensure that a good administrative and accounting organisation as well as adequate internal resources exist at the UCI level as well as at the level of its service providers.

Do not underestimate this fundamental change which is one of the key focuses of the Circular.

B. NAV error and Non-compliance with the investment rules

In section 4, with the extension of the scope to the alternative industry, new tolerance thresholds have been setup.

The tolerance thresholds will remain flexible for alternative UCIs up to a maximum of 5%.

Other minor changes appear in this section which remain in line with the market practice developed over two decades.

It is important to note that an internal policy surrounding the treatment of the NAV error and non-compliance with the investment rules must be implemented and be well documented. Do not miss this requirement.

In section 5, the requirements for treatment of non-compliance with the investment rules are very clearly defined.

C. Other errors at UCI level

The NAV error concept is extended to other types of errors which are in line with the market practice.

In section 6, the Circular details the corrective process to be implemented for four specific types of other errors that the CSSF has encountered in recent years:

1. Incorrect application of the swing pricing serving as protection for the UCI in capital transactions;

2. Fees not paid in accordance with the UCI’s sales documents (ex: Prospectus);

3. Incorrect application of cut-offs;

4. Incorrect accounting allocation of operations linked to investments.

Pay attention to the fact that no tolerance threshold applies to the above new types of errors, which is not harmless and might trigger the need for rethinking the existing controls in place to be on the safe side.

D. Involvement of the external auditor

In section 8, the Circular outlines the involvement of the external auditor. In this context, updates will be made to the samples from the separate report (Circular 21/790).

Furthermore, for the UCITS and UCI Part II, there have been changes to the thresholds that prompt the external auditor to issue a special report (previously known as the 1,2,3 report). This report has undergone a comprehensive reshaping. 

E. Other sections of the Circular

The other sections bring new features, for example: New rules related to investor compensations or the notification process.

In the regulatory landscape for 2024, this Circular will undeniably have a crucial impact for traditional and alternative investment managers.

We would be delighted to assist you in comprehending and interpreting the intricacies of the Circular.