ESMA: Update of the Q&As on the Application of the UCITS Directive and the Application of the AIFMD
July 20, 2022
The European Securities and Markets Authority (ESMA) published the updated Q&As on the Application of the UCITS Directive and the Application of the Alternative Investment Fund Managers Directive (AIFMD). The revised Q&As include two new questions on depositaries and one new question on the delegation, especially the marketing activities.
Regarding the reconciliation process, ESMA confirms that reconciliation depends on the dealing frequency of the investment fund and any trade that occurs, even outside the dealing frequency. If an Alternative Investment Fund (AIF) or UCITS with a weekly dealing frequency trades daily, daily reconciliations are required.
In addition, ESMA clarifies the reconciliation frequency in the case of a tri-party collateral manager who is not the depositary. First, the tri-party collateral manager appointed by the asset manager needs to be the delegate of the depositary. To allow the depositary to record the end-of-day positions and to comply with the safekeeping duties, the tri-party collateral manager must transmit the end-of-day positions on a fund-by-fund basis or, if applicable, on a compartment-by-compartment basis. The information provided allows the depositary to verify that the quantity of the identified financial instruments recorded in the financial instruments’ accounts opened in its books matches the quantity of the identified financial instruments held in custody by the third party.
Where the marketing function is performed by a third-party distributor, the investment fund manager is responsible for the compliance with Article 4 of the Cross-Border Distribution of Funds Regulation, whether there is a contractual arrangement or not.
CSSF: Clarification on the Completion and Submission of the Reports as per Circular CSSF 21/790
July 22, 2022
The Commission de Surveillance du Secteur Financier (CSSF) published a note clarifying the completion and submission of the below reports per the Circular CSSF 21/790, applicable to UCITS, Part II investment funds, SIF and SICAR (the funds):
- Self-assessment questionnaire (SAQ)
- Separate report (SR)
- Management letter (ML)
The CSSF highlighted that the dirigeants of the funds can rely on the support of service providers, such as an investment fund manager, to complete and submit the SAQ, but they are responsible for the content of the information disclosed in the SAQ. In addition, the dirigeants are responsible for the submission of the SR and ML prepared by the external auditor. In all cases, the use of the service provider for the completion and submission of the reports must be formalized ( via agreement or board resolution).
In addition, the CSSF confirmed that eDesk authorized user(s) of the investment fund manager now have automatic access to the applicable reports of the investment funds and can complete the SAQ. Authorized user(s) designated as "Conducting Officer" or "Board Member" can submit the SAQ. Nevertheless, the dirigeants of the fund can decide to perform the completion and submission of the SAQ themselves.
As of March 31, 2022, reports of funds with the financial year ending between June 30, 2022, and November 30, 2022, are currently available on the eDesk-CISERO module.
Read the article.
CSSF Regulation No. 22-04 of July 20, 2022, on the Equivalence of Certain Third Countries with Respect to Supervision and Authorization Rules for the Purpose of Providing Investment Services or Performing Investment Activities and Ancillary Services by Third-Country Firms
July 22, 2022
The CSSF published CSSF Regulation No. 22-04 of July 20, 2022, on the equivalence of certain third countries with respect to supervision and authorization rules for the purpose of providing investment services or performing investment activities and ancillary services by third-country firms.
The new regulation amends the CSSF Regulation No. 20-02 of June 29, 2020, by adding the People’s Republic of China and Australia to the list of equivalent countries, regarding investment services/activities and ancillary services. Therefore, the countries that shall be considered as applying LFS*-equivalent supervision and authorization rules to firms having their central administration or registered office in these third countries are:
- Hong Kong
- United Kingdom
- United States of America
- People's Republic of China
The new regulation went into effect on July 20, 2022.
Read the article.
CSSF: Communication on Regulatory Requirements in Relation to Regulation (EU) 2019/2088 on Sustainability-Related Disclosures in the Financial Services Sector and Upcoming Enforcement of SFDR Level 2 Provisions
July 27, 2022
The CSSF published a press release on the regulatory requirements relating to Sustainable Finance Disclosures Regulation (SFDR) and the upcoming entry into effect of SFDR Level 2 provisions on January 1, 2023.
The CSSF implemented a FastTrack procedure system to receive UCITS and/or AIF updated precontractual documents by October 31, 2022, at the latest. Similar to the new regulations that went into effect in December 2021, priority of the visa-stamp procedure will be given to UCITS and/or AIF updating their prospectus/issuing document to reflect only the changes required under SFDR and Taxonomy Regulation (TR). For any complete submission that is compliant under the SFDR and TR provisions and received by the CSSF by October 31, 2022, at the latest, the
Luxembourg regulator will endeavor to release the visa stamp prior to December 31, 2022. All prospectus/issuing documents submitted to the CSSF for visa-stamp must be accompanied by a Regulatory Technical Standards (RTS) confirmation letter.
In addition, the CSSF will launch a dedicated data collection exercise to collect the information disclosed in the precontractual and periodic disclosure templates of unsupervised AIFs managed by a Luxembourg- based AIFM.
Read the article.
CSSF: Regulation 22-05 of July 27, 2022
July 27, 2022
The CSSF published the CSSF Regulation 22-05 of July 27, 2022, which amends CSSF Regulation No. 10-04 of December 20, 2010, regarding organizational requirements, conflicts of interest, conduct of business, risk management and content of the agreement between a depositary and a management company. The new regulation requires investment fund managers to integrate sustainability considerations in the decision-making and risk-management processes, as well as in the structure and organization. For instance:
- Investment fund managers must take into consideration sustainability risks:
- when establishing and implementing their internal procedures and organizational structure and
- when managing investment funds while considering the principle of proportionality:
- The conflicts of interest arising from the integration of sustainability risks must be included in the processes, systems and internal controls.
- The risk-management policy must consider the exposure of each investment fund under management to sustainability risks.
- For the effective integration of sustainability risks, the investment fund manager must retain the resources and necessary expertise.
- The sustainability risks and the principal adverse impacts on sustainability factors (if these are considered in the investment decision process) must be part of the due diligence process in selecting and monitoring investments.
Read the article.
CSSF: Cross-Border Distribution of Funds—Q&A on Marketing Communications
September 27, 2022
The CSSF published a new Q&A on marketing communications. The purpose of the Q&A is to provide clarification on key aspects of the application of Article 4 of the Cross-Border Distribution of Funds (CBDF) Regulation and ESMA Guidelines on marketing communications (MC). The 12-page-document is divided into three sections:
- Governance and organizational requirements
- Information on MC to be provided to the CSSF
All Investment Fund Managers (IFMs) listed in Section 2 of the Circular CSSF 22/795 and all UCITS and AIFs (including EuVECAs, EuSEFs, ELTIFs and MMFs) managed by an IFM listed in the Circular CSSF 22/795 fall within the scope of Article 4 of CBDF Regulation.
MC of UCITS/AIFs addressed to existing and/or potential and to retail and/or professional investors fall within the scope of MC requirements. The CSSF highlighted that MC addressed to (potential) investors not located in the European Economic Area (EEA) are not within scope of MC requirements.
2. Governance and organization requirements
IFMs shall define and implement measures that allow them to identify and flag MCs as such. In addition, IFMs must be involved in the preparation and validation of MCs through their senior management and/or internal control functions.
In case the preparation of the MCs is delegated, IFMs must draw up an agreement with the delegate(s) to clarify the respective duties of all parties in relation to compliance with Article 4 of the CBDF Regulation. IFMs must perform an adequate oversight of the delegate(s).
3. Information on MC to be provided to the CSSF
As of September 16, 2022, IFMs must be able to provide the CSSF with the following information:
- Types of MC used
- EEA country of dissemination of the MC
- Targeted investors
Beginning April 1, 2023, IFMs must be able to link the above information to the relevant UCITS/AIFs under management and identify whether MCs require environmental, social and governance (ESG) information.
When requested by the CSSF, IFMs must be able to provide without delay a copy or reproduction of any MC linked to UCITS/AIFs under management and addressed to EEA (potential) investor(s) and any legal and regulatory fund documents, such as PRIIP key information document.
Read the article.