With a warning against excessive regulation, and a call to action on green investing, CSSF director-general Claude Marx, made a typically colourful intervention at Monday’s virtual ALFI conference. He also gave some details of planned local regulation of teleworking arrangements.
‘We have to look at this carefully, as I sometimes have the impression that maybe we are seeking to fix something that has never been an issue,’ Marx said, speaking about suggestions for reform of long-standing EU cross-border financial services outsourcing practices. He was being interviewed at the ‘ALFI Rentrée‘ online conference on Monday by ALFI chairperson Corinne Lamesch, who added the comment ‘will be music to the ears of our audience because I think the asset management industry feels the same’. The an ecosystem of Luxembourg asset management works very well, she said. ‘It’s just like building a car which assembles components from different countries.’
This discussion related to talk emerging from some EU decision-making circles about the need to reform the rules that underpin the Luxembourg cross-border fund market. This sees EU-based management companies being able to delegate portfolio management services to experts outside the EU. Resistance to this model has been circulating for a while amongst some member states and officials at the European Securities and Markets Authority (ESMA). Indeed some such ideas were alluded to in ESMA’s recent letter regarding reform of AIFMD .
As for other future rule changes, Marx said: ‘I don’t foresee any regulation specifically because of Covid, and we have tools that we used successfully during the crisis. But that is not to say the regulatory agenda won’t be busy.’ He noted the upcoming action areas in the asset management industry were already set in motion before Covid-19: liquidity stress testing (qualitative and quantitative), marketing through digital media, green investing, and the AIFMD review.
New CSSF teleworking circular
That said, Marx mentioned on-going work at the CSSF to clarify the rules around teleworking. ‘Our proposals are not specific to the crisis but will be a permanent framework for supervised financial services entities,’ said Marx, before listing some of the objectives of this move.
He said he wants to ‘ensure teleworking can be carried safely in terms of having sufficient skills in the office so that the office can function, such as in relation to IT security.’ He is also conscious that ‘small countries in particular have to be careful, as fund management companies making extensive use of teleworking could be seen as empty shells.’
He noted the risk that for smaller fund management companies there could be the temptation for the majority of staff to work permanently from abroad. It remains to be seen what extra details will be added to the current regulatory regime, as Luxembourg and EU regulation already specifies a range of rules from the CSSF that seek to ensure sufficient business ‘substance’ is located in the Grand Duchy.
ESG reputation
There has been increasing industry talk of seeking a delay to the implementation of the EU sustainable finance disclosure regulation (SFDR). Marx suggested this temptation should be resisted. Luxembourg is already the domicile for about a third of ESG funds in Europe, and Marx sees SFDR as an opportunity to build on this. Successful implementation would ensure that ‘Luxembourg will be on the map for contributing to the EU’s Green Deal, and this represents positive energy and a new incentive to keep the Luxembourg financial centre strong,’ he said.
The new green disclosure regulations will be required from 10 March 2021. ‘This is challenging from a technical point of view and the deadlines are extremely tight,’ noted Marx, particularly as the regulatory technical standards are yet to be published, being due by year-end. ‘The operational challenges are there but they are achievable,’ he said.
An indication that the SFDR is set to go ahead on time was given later in the conference, on Wednesday 16 September on an ESG panel. Martin Mager, an investment funds partner with the law firm Linklaters, said he had heard that the framework level-one measures would be implemented on schedule, but that the Commission is considering giving more time to implement the technical, level-two measures. ‘More will be revealed in the coming weeks,’ he said.