Following 1.55 million euro in regulatory fines, Luxembourg investment firm Fuchs & Associés Finance SA is stepping up efforts to address internal compliance problems, adding additional directors and compliance staff to bring its governance back in line with legal requirements.
At the same time the firm is pushing harder to complete a major portfolio management IT project by the beginning of next year.
The fresh measures include the appointment of a third director next month and two additional independent directors by the end of the year, while the firm’s LinkedIn page shows that it began actively seeking a compliance officer on 2 September.
In a first statement reacting to the CSSF fines issued on 1 September, Fuchs said that by paying the fines, the regulator’s procedures were “brought to an end” and that the CSSF actions “did not reveal any illegal activity.” Luxembourg’s financial regulator was not amused with this first statement, a person familiar with the case said.
Remediation plan proposed
Fuchs has since issued a second statement, in the shape of a French-language Q&A available on its website. The firm here acknowledged that it is “continuing its remediation plan in close cooperation with the regulator in order to maintain its excellent reputation, as well as that of the country and its financial centre.”
Fuchs remains under CSSF scrutiny until all steps have been put in place, said the financial regulation specialist, who asked not to be identified. Saying that the case has been brought to an end is “not technically true” and Fuchs “seems to have a rather extensive definition of what is legal and what is illegal,” the person told Investment Officer Luxembourg.
The firm was created by Jean Fuchs in 2000. He still serves as managing partner. A 68-year old French native and avid hunter who barely speaks to the press, Fuchs is known as a staunch opponent of regulation in the financial sector. «The sector is over-regulated. It is not only excessive, but also unnecessary,” he said in a 2016 interview with Luxembourg business website Paperjam. “You don’t take away the risk factor, but you instil in people’s heads that the banking world is full of cheats.»
Big in alternative investments funds
For its size, Fuchs, whose name means «fox» in the German language, is a relatively large player in Luxembourg’s alternative investment market. Since 2016, acting as regulated AIFM, it has supported the creation of some 47 Reserved Alternative Investment Funds, known as Raifs, Luxembourg business registry data shows. In the first half of this year it was one of ten most active Raif issuers in Luxembourg.
The size of assets the firm has under management is not clear. Fuchs & Associés Finance SA booked 26.3 million euro in revenue last year, turning a profit of 80.000 euro, in a financial performance that was similar to 2020, according to its filing in the Luxembourg Business Register. In a separate filing, Fuchs Asset Management SA, led by Timothé Fuchs as CEO, has reported assets of 7.32 million euro at end 2021, with a profit of 743,160.80 euro.
No longer a CSSF board member
Fuchs Group’s website, at the time of writing on 16 September, still mentioned that Jean Fuchs serves as a member of the board of directors of the CSSF. A spokesperson for the regulator however said on Friday that his mandate expired 11 years ago, on 1 May 2011.
A month ago, Fuchs, which also has an office in Brussels, was pushed by regulators to withdraw its intended bid for troubled Belgian investment bank Merit Capital. Although Fuchs in July reached a preliminary agreement to take over Merit, the firm backed in August citing uncertain market conditions. An insider said its takeover was blocked by the supervisors.
Addressing its latest discussions with the Luxembourg regulator in its Q&A, Fuchs said the remediation plan “will be completed by the end of 2022 and will be fully effective from the beginning of 2023.” The plan is based on three pillars: management and control; policies and procedures; and the IT of its portfolio management system.
CSSF inspections
During two inspections on 4 and 17 May, a CSSF team discovered that Fuchs’ internal control functions were not in line with applicable law and that the firm was not in compliance with the requirements under the Markets for Financial Instruments directive, known as MiFID.
CSSF, in its 1 September announcement of the fines - which the regulator is legally required to make public - the regulator said that it had found problems with the firm’s internal governance arrangements, “notably to the responsibilities of the board of directors and the authorised management,” and the internal controls. For this reason CSSF fined a total of 1.02 million euro.
CSSF also concluded that Fuchs did not meet the requirements under the EU Markets in Financial Instruments Directive, known as Mifid. “More precisely to the organisation in relation to the provision of portfolio management services, the product governance framework, the assessment of the suitability of investment services, the reporting of significant losses, the management of conflicts of interest, the follow-up of personal transactions and the management of benefits received,” it said.
The Mifid violation led to a CSSF fine of 537.498,80 euro, bringing the total fines to 1.55 million.
Team expansions announced
Fuchs, according to its Q&A, said that a new chief compliance officer arrived in the month of the inspections and that a second person is still being sought. It said it also has appointed a new senior risk manager in its risk management department.
The firm, which employs about 100 people, said its internal governance is being strengthened with a third director who will join the company on 1 October and two new independent directors by the end of the year. A lawyer/data protection officer started in July covering, among other things, GDPR data protection aspects, as did a chief investment officer in April.
Furthermore, Fuchs said its board of directors has decided to enlist the support of two external consultants.
The firm is also in the process of upgrading its IT systems. It said that it has launched a large project to collect its clients› data from several custodian banks with “a recognised player in the Luxembourg market”. A portfolio management system, “also developed with a solution provider used to working with investment companies in Luxembourg”, should be operational at the beginning of 2023, Fuchs said in its Q&A.
The firm said the fines will not affect its financial soundness because they had been anticipated and provisioned “in the context of prudential financial management”.