Luxembourg’s financial regulator has issued a relatively small fine for a class of transgression with huge implications for the industry: valuations of funds, in particular for unlisted alternative investments.
With the CSSF having released its first update of its circular on rules for net asset valuations, or NAV, in 20 years, with lawyers and fund managers discussing its impact, the 23,000 euro fine the regulator issued to Vistra Fund Management S.A. is more interesting than such small fines tend to be.
The fine faults Vistra for its administrative and accounting procedures and internal control mechanisms, but also for violating provisions of a 2013 law regarding the independence of external valuers.
Vistra “failed to ensure that the valuation function for some AIFs it manages was performed independently” as stipulated in the 2013 law.
No independent valuation
The CSSF reports identifying “two cases where external valuers acted also as delegated portfolio managers or (sub)-investment advisers for the same fund(s) which could not guarantee the independent valuation of the AIFs’ assets.”
The regulator concluded Vistra “failed to establish an independent valuation of some of its AIFs’ assets”.
The fine also punished the firm’s failure to comply with the amended July 2013 law on alternative investment fund managers. Vistra had failed to implement sound administrative and accounting procedures and adequate internal control mechanisms.
One meeting in 18 months
The CSSF found that Vistra’s conducting officers met only once during 2021 and did not meet monthly during the first half of 2022. The firm also failed to implement a proper management information system “as no management information was prepared nor presented” during the meetings through 2021 and the first half of 2022.
The meetings failed to deal with all the topics listed in a CSSF circular on the authorisation and organisation of investment fund managers incorporated under Luxembourg law.
Vistra Group, in an email to Investment Officer from its Hong Kong offices, said the fine only applied to its Luxembourg subsidiary VFM as AIFM, and not to Vistra (Luxembourg) Sarl, which is responsible for computing net asset values. It also underlined that the fine «relates to the independence of the valuation function from the investment advisor or delegated portfolio manager, not to NAV computation errors.”
The CSSF said that Vistra had failed to take steps to prevent “the use of the accounting system for fraudulent purposes.”
Apart from its dealings with one delegated portfolio manager, the CSSF found that Vistra had not finalised any initial due diligence with these service providers prior to signing the agreements.
This article was updated on 23 January to include comment from Vistra Group.