REGULATORY CLIENT UPDATE / April 2024
Highlights:
The CSSF has published Circular CSSF 24/856 on investor protection in the event of a NAV calculation error, non-compliance with investment rules and other errors. It will be applicable as of 1 January 2025.
Luxembourg Market Update:
Luxembourg remains the leading domicile in Europe for funds aligned with environmental, social impact and governance factors, accounting for 45.7% of the aggregate assets of funds categorised under article 8 of the EU’s Sustainable Finance Disclosure Regulation and 60.8% of assets for article 9 funds, according to PwC Luxembourg. The professional services firm notes that the volume of assets held by article 8 and 9 funds increased by €1trn last year to €6.2trn, and forecasts that the total will increase to more than €9trn by 2027.
The number of discrete reserved alternative investment funds (RAIF) launched in Luxembourg has fallen from 41 in December to 32 in January and 20 in February, reflecting a growing trend toward establishing sub-funds within an umbrella structure, according to data from financial regulator CSSF. More than 600 RAIFs and their sub-funds were launched in Luxembourg last year, and nearly 1,000 RAIF sub-funds have been domiciled in the grand duchy since 2016.
Regulatory Developments in and beyond Luxembourg:
13 March 2024: EC adopts three RTS under DORA
The European Commission (EC) has adopted three Regulatory Technical Standards (RTS) under the Digital Operational Resilience Act (DORA). These RTS are part of the first batch of DORA level 2 policy mandates on which ESAs consulted over the summer of 2023 and cover the following:
This adoption follows the ESAs submission of the final drafts to the EC on 17 January, 2024. The most significant amendment made by the EC to this final draft was the revision of the articles concerning the proportionality principle in the RTSs on the ICT risk management framework and on the policy on ICT services. This revision aimed to comprehensively reflect Article 4 of DORA.
As next step, the European Parliament and the Council of the EU will review and adopt these acts. The adopted acts currently do not include the ITS setting the templates for the Register of Information. The EC is expected to adopt this final draft ITS in the coming weeks.
15 March 2024: PRIIPs: updated ESA Q&A
The European Supervisory Authorities (ESAs) have published an updated version of their Q&A document on Packaged Retail and Insurance-based Investment Products. The following questions have been added:
25 March 2024: ESMA publishes its third consultation package under MiCA
The European Securities and Market Authority (ESMA) has published the remaining consultation documents pertaining to the third package of proposed rules and guidelines under the Market in Crypto Assets regulation (MiCA). This ESMA consultation runs until 25 June and covers four sets of proposed rules and guidelines:
This consultation marks the completion of the third pack of level 2 regulations under MiCA. It follows the release of two Consultations Papers by ESMA on 29 January 2024, covering guidelines related to reverse solicitation and the classification of crypto-assets as financial instruments. The consultation period closed on 25 April.
25 March 2024: ESMA publishes first rules on crypto-asset service providers under MiCA
ESMA has issued the Final Report on the first proposed rules on crypto-asset service providers under the Market in Crypto Assets (MiCA).
The report includes rules covering:
As the next step of this regulatory process, ESMA has submitted the final report to the EC, following the regulatory agenda for the entry into force of MiCA Level 2 measures.
29 March 2024: New CSSF Circular on NAV calculation errors and investment breaches
The CSSF has published Circular CSSF 24/856 on investor protection in the event of a NAV calculation error, non-compliance with investment rules and other errors. The new circular replaces Circular CSSF 02/77 and will be applicable as of 1 January 2025. The new circular applies to UCITS, Part II Funds, SIFs and SICARs. Therefore, the rules will apply to UCITS, Part II Funds and SIFs that qualify as MMFs, as well as to Part II funds, SIFs and SICARs that qualify as ELTIFs, EuVECA, or EuSEF. The Circular also applies to unregulated alternative investment funds (including RAIFs) when they qualify as MMF, ELTIF, EuVECA, or EuSEF where the CSSF is the competent authority in accordance with the applicable regulations.
The new circular aims at providing guidelines to fund professionals in case of errors at the level of a UCI, besides clarifying and extending the scope of application following the regulatory and industry developments of the past years and the role and responsibilities of the various stakeholders concerned. In particular, concerning NAV calculation errors, the circular gives further precisions as to the concept of significant NAV calculation error, and the new tolerance thresholds applicable for the different types of UCIs (including those applicable to Part II UCIs and ELTIFs whose units/shares may be held by investors other than professional or well-informed investors) and possible derogations thereto. It also details correction procedures to be implemented and outlines how to determine the financial impact of the errors. It is to be noted that closed-ended funds are not subject to the obligation of notification of NAV calculation errors to the CSSF.
With regard to investment rules, the circular distinguishes between active and passive breaches and addresses the correction procedures as well as the different methods for the determination of the financial impact of non-compliance with these rules. Passive breaches are not subject to the same corrective measures as active breaches. In specific circumstances, the applicable regime for non-UCITS investing in less liquid assets may be adapted in the interest of investor protection. Passive breaches also do not require notification to the CSSF.
Besides NAV errors and non-compliance with investment rules, the circular also covers other errors, such as fees not paid in accordance with the UCI's sales documents, the incorrect application of swing pricing, the incorrect application of cut-off rules and the erroneous accounting allocation of operations linked to investments.
The text of the new circular includes specific sections dedicated to compliance with investment rules between two NAVs (Intra-day breaches), the specificities of compensation to investors in case of presence of financial intermediaries (including information to be provided to such investors via the prospectus or other channels in case such prospectus is not required or cannot be updated before the entry into force of the Circular), and the intervention of external auditors. In particular, the Circular provides for detailed rules regarding the external auditor’s separate and special report.
3 April 2024: CSSF updates FAQs on AIFMD and UCITS
The CSSF has published an updated FAQ covering the Luxembourg Law of 12 July 2013 on alternative investment fund managers (version 22) as well as the Luxembourg Law of 17 December 2010 relating to undertakings for collective investment (version 18).
17 April 2024: CSSF announces voluntary dry run exercise for the collection of the registers of information required by DORA
Under the Digital Operation Resilience Act (DORA) and starting from 2025, financial entities will have to maintain registers of information regarding their use of ICT third-party service providers. In this context, the CSSF would like to draw the attention to the announcement by the European Supervisory Authorities (EBA, EIOPA and ESMA – the ESAs) of the voluntary exercise for the collection of the registers of information of contractual arrangements on the use of ICT third-party service providers by the financial entities serving as preparation for the implementation and reporting of registers of information under DORA.
In this dry run exercise, the registers of information will be collected from participating financial entities through their competent authorities who will, in turn, provide those to the ESAs.
The press releases made by EBA and ESMA are available online at the following links:
The CSSF would like to underline the key elements of the ESAs announcements:
The CSSF invites the supervised entities to consider their participation to this exercise, being a good opportunity to test their readiness concerning the implementation and reporting of registers of information under DORA. The CSSF therefore encourages the supervised entities that are considering to participate:
29 April 2024: CSSF publishes Communiqué on new SFTR and EMIR procedures
Following the entry into force of the EMIR Refit regulation on April 29, 2024, the CSSF now enables financial and non-financial counterparties to complete and submit the “EMIR – notification form and request for intragroup exemption” and “SFTR – notification form” procedures either through eDesk or by using an API solution based on the submission of a structured exchange file via the S3 protocol. The “EMIR – notification form and request for intragroup exemption” procedure includes the following notifications and exemption requests:
The “SFTR – notification form” procedure includes the following notification:
A user guide on EMIR and SFTR procedures details the submission modalities for eDesk and API. The webforms and Excel files previously available for this data collection are no longer accessible and have been replaced by these new eDesk procedures. For further information related to the different forms, please visit the dedicated pages on the CSSF website on EMIR and SFTR.
For further information, please contact:
Tobias Ettlin
m: +352 691 111 931
Disclaimer: This regulatory update has been prepared for clients of ONE group solutions and its subsidiaries for informational purposes and is not intended to be relied upon as professional advice. Please visit: https://www.one-gs.com/
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