The Commission de Surveillance du Secteur Financier (CSSF) is working relentlessly to further build a financial system that is safe, transparent, and reliable. To achieve this goal, the supervisors of the Luxembourg financial sector collaborate closely with their peers in the EU and globally.
As the largest third-party ManCo in the country and one of the largest in Europe, the thorough and flawless implementation of the regulations is at the top of the agenda of colleagues and management at Universal Investment. In Q1 2023, there are several initiatives under the surveillance of CSSF to be dealt with by our team in Luxembourg. We will take a closer look at the three key projects – all focussed on sustainability.
The Sustainable Finance Disclosure Regulation: Data Collection
In order to achieve their aim set in SFDR, i.e. to increase transparency and prevent greenwashing, the CSSF has started to collect data from investment fund managers. For this, all managers located in Luxembourg are required to complete a questionnaire called “SFDR-IFM disclosures”.
The paper was issued on 2 February 2023 and had to be submitted to the authority by 2 March. The focus of this collection is to gather information on the organisational arrangements of investment fund managers (IFMs) in the context of Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector (SFDR) and Commission Delegated Regulation (EU) 2022/1288 of 06 April 2022 supplementing the SFDR’s Regulatory Technical Standards (RTS), which apply from 1 January 2023. This will include sustainability risks with regards to topics such as human resources and corporate governance investment decisions and advice, remuneration, and risk management policies, as well as the management of conflicts of interest.
There are already plans to expand the current CSSF data collection to include information contained in the PAI statements (see next paragraph) and in the pre-contractual and periodic disclosure templates. Further details on the timing and practicalities of this initiative will be announced later this year.
Publication of Principal Adverse Impacts (PAIs) Reporting
From April 2021, investors must disclose PAIs of their portfolios under the SFDR. This means all financial market participants will have to submit reports on possible negative impacts of their investments on various sustainability factors. At product level, the regulation applies from the beginning of 2023, and at company level it will from mid-2023. These reports will be particularly challenging because the pursuit of individual ESG goals can have a negative impact on other, competing goals. For example, an investment in future technologies may be classified as sustainable, while at the same time deficits of the large tech companies in terms of working and manufacturing conditions may run counter to the ESG concept.
On 30 June 2023, the first PAI reporting at company level is to be published, referring to the reference period of the previous year.
Costs and Fees on UCITS
On 20 October 2022, the CSSF published a feedback report on the Common Supervisory Action (CSA) of the European Securities and Markets Authority (ESMA) on the supervision of UCITS costs and fees.
Based on the observations of ESMA and the CSSF, the CSSF requests all investment fund managers to carry out a comprehensive assessment of their portfolios by the end of the first quarter of 2023. This includes the compliance of their policies, approach, and arrangements with cost-related provisions in UCITS funds. With this report, fund managers are also put under the obligation not to impose unreasonable costs on investors, and to take the necessary corrective measures.
Martin Groos is member of the management board at Universal Investment Luxembourg, knowledge partner of Investment Officer Luxembourg.