Fund administrators active in Luxembourg will be required to produce an annual report on their governance and internal organisation from next year onwards as part of a long-awaited effort by financial supervisor CSSF to modernise a 30-year old supervisory framework in this field.
The new requirements, as laid out in CSSF Circular 22/811, seek to modernise the supervisory framework for UCI administrators so that they can match changes that the field of UCI administration has seen in the past decades, particularly when it concerns technology and ICT. The previous rules dated back to 1991.
The modernisation of the UCI administration requirements also introduces new authorisation requirements and applies to management companies, alternative investment fund managers, foreign investment fund managers, regulated Luxembourg UCIs and credit institutions. CSSF, officially known as the Commission de Surveillance du Secteur Financier, said the new reporting requirement is applicable to all regulated and non-regulated administrators of undertakings for collective investments, known as UCIs, active in Luxembourg.
Modernisation in response to market demands
“Through this new circular, we try to respond to the market’s demand for a modernised, homogeneous and harmonised national framework,” said André Schroeder, deputy head of the CSSF UCI department International, Regulation and Enforcement.
”The main purpose of this circular is to specify the principles of sound governance and the CSSF requirements on internal organisation and good practice,” said Marco Zwick, director in charge of UCI supervision at CSSF, in a statement.
“Our objective was to modernise… and to provide the industry with a strong and comprehensive regulatory framework for this activity,” said Marie Lichterowicz, CSSF legal expert at UCI department International, Regulation and Enforcement.
New authorisation requirements take effect
The UCI administration, or UCIA, activity covers three main functions: the registrar function, the calculation of net asset values, accounting, and client communication.
The new requirements enter into force with immediate effect, said CSSF in its 16 May announcement. The circular can be found here.
“Of course, before acting as a UCIA for a given UCI, a UCIA must assess whether the carrying out of this activity is permitted, taking into account applicable legal provisions,” said CSSF’s Schroeder. “The same applies for UCIs which must refer to applicable laws and regulations to determine the eligibility of UCIAs.”
Grandfathering period until June 2023
Luxembourg law firm Arendt & Medernach said in a note for clients the new requirements clarify that regulated Luxembourg UCIs may only act as UCI administrator for themselves, and that they are not allowed to offer those services to other UCIs.
New administrative entities now need to request prior CSSF authorisation. Firms already active as UCI administrators are granted until 30 June next year to obtain authorisation under a grandfathering period, CSSF said.