REGULATORY CLIENT UPDATE / OCTOBER 2022

REGULATORY CLIENT UPDATE / OCTOBER 2022

Highlights:

The Administration de l’enregistrement, des domaines et de la TVA (AED) has published new requirements for non-regulated AIFs (excluding RAIFs). Specifically, these funds will have to appoint an RR and RC, file an RR/RC identification form, and file an AML/CFT questionnaire for the year 2021.

Luxembourg Market Update:

The total net assets of Luxembourg investment funds, including specialised investment funds and SICARs, fell by 1.46% in August to €5,300.4bn billion from €5,379.0bn at the end of July, following a rebound the previous month, representing a year-on-year decline of 6.15%, according to the CSSF. The regulator says the sector saw net outflows of €4.28bn (0.08%), while the decline in financial market prices of fund assets amounted to €74.4bn (1.38%). The number of distinct fund entities, not considering umbrella fund compartments, fell from 3,422 to 3,413.

Regulatory Developments in and beyond Luxembourg:

4 August 2022: Publication of Grand-Ducal Regulation of 27 July 2022

The Grand-Ducal Regulation of 27 July 2022 was published in the Official Journal of the Grand Duchy of Luxembourg (Mémorial A426). It amends the Grand-Ducal Regulation of 30 May 2018 on product governance obligations further to the Commission Delegated Directive (EU) 2021/1269 of 21 April 2021 concerning the integration of sustainability factors into the product governance obligations.

20 September 2022: CSSF FAQ/Guidance on Marketing Communications

The CSSF has issued FAQs on cross-border distribution of funds with a focus on the application of article 4 of the CBDF Regulation and ESMA Guidelines with respect to marketing communications.

The FAQ clarifies that IFMs shall assess whether a document or advertising qualifies as a marketing communication on the basis of article 4 and the examples contained in the ESMA guidelines, and that marketing communications targeting professional investors are also in scope of these rules. It also details the extent to which IFMs shall be involved in the preparation and validation process of marketing communications, and under which conditions they can delegate the preparation of such communications. The FAQ also provides clarification regarding information on marketing communications to be provided upon request to the CSSF.

23 September 2022: ESMA publishes final Guidelines on MiFID II suitability requirements

The Guidelines integrate clients’ sustainability preferences according to the MiFID II Delegated Regulation:

• Information to clients on the sustainability preferences:

Firms will need to help clients understand the concept of sustainability preferences and explain the difference between products with and without sustainability features in a clear manner and avoiding technical language;

• Collection of information from clients on sustainability preferences:

Firms will need to collect information from clients on their preferences in relation to the different types of sustainable investment products and to what extent they want to invest in these products;

• Assessment of sustainability preferences:

Once the firm has identified a range of suitable products for the client, in accordance with the criteria of knowledge and experience, financial situation and other investment objectives, the firm shall identify the product(s) that fulfil the client’s sustainability preferences;

• Organisational requirements:

Firms will need to give staff appropriate training on sustainability topics and keep appropriate records of the sustainability preferences of the client (if any) and of any updates of these preferences.

The Guidelines apply six months from the date of publication of the Guidelines on ESMA’s website in all EU official languages.

23 September 2022: PRIIPs publication of EPT version 2.1

The FinDatEx working group has published version 2.1 of the European PRIIPs Template (EPT). It can be downloaded on FinDatEx’s website and includes additional considerations for the UK market in line with the new UK PRIIPs regime.

30 September 2022: Draft RTS on nuclear and gas investment disclosures under SFDR

The ESAs have published draft Regulatory Technical Standards (RTS) regarding the disclosure of financial products’ exposure to investments in fossil gas and nuclear energy activities under SFDR.

The proposal contains an additional yes/no question in the financial product templates of the SFDR Delegated Regulation to identify whether the financial product intends to invest in such activities; if the answer was yes, a graphical representation of the proportion of investments in such activities is required.

The draft RTS is currently under review by the European Commission.

4 October 2022: CSSF FAQ regarding the AML/CFT Market Entry Form

The CSSF has updated its FAQ regarding the AML/CFT Market Entry Form for Funds and IFMs. This publication contains a list of questions and answers in relation to the completion of the AML/CFT Market Entry Form on the CSSF eDesk.

12 October 2022: New publications from the AED with regard to AML/CFT supervision of non-regulated AIFs (excluding RAIFs)

The Administration de l’enregistrement, des domaines et de la TVA (“AED”) has published on its website a new section dedicated to the anti-money laundering and counter financing of terrorism (“AML/CFT”) supervision of non-regulated AIFs, excluding RAIFs. In this context, the AED has notified the market of the following:

• The publication of an FAQ regarding the RR and RC roles:

This FAQ is similar to the one previously published by the AED for RAIFs and imposes the appointment of both an RR and an RC for all AIFs.

• RR/RC identification form:

This form is similar to the RR/RC identification form previously issued by the AED for RAIFs.

This implies that that all AIFs need to appoint an RC and RR by its managerial body and draft an AML/KYC framework in accordance with the Law of 12 November 2004. All AIFs must file this identification form. More generally, this form will have to be transmitted without delay upon initial appointment of the RR/RC, and in the event of any change in the RR/RC functions.

• AML/CFT questionnaire:

This questionnaire is similar to the AML/CFT questionnaire previously issued by the AED for RAIFs. The AED sent a communication to certain AIFs on 12 October 2022, urging them to fill in and submit the RR/RC identification form, and the AML/CFT questionnaire covering the financial year ended in 2021 by 12 November 2022.

The AED verbally confirmed that other AIFs will receive similar communication in due course, but, in the meantime, they are not expected to file these documents.

However, the other AIFs should anticipate the AED’s formal request: they should start gathering relevant data to be able to complete the RR/RC identification form and the AML/CFT questionnaire when requested.

14 October 2022: CNPD Annual Report

The National Commission for Data Protection (CNPD) has published its annual report for 2021. In 2021, the CNPD issued its first decisions following investigations initiated since the entry into force of the GDPR (General Data Protection Regulation). In total, no less than 49 cases had been closed. 37 investigations resulted in corrective measures (e.g. issue warnings or reprimands, bring into compliance, impose a temporary or definitive limitation including a ban on processing, etc.), including 25 with fines.

In total, 48 decisions related to national cases, with an overall amount of 319,500 euros in administrative fines and one decision was taken within the European cooperation and consistency mechanism against Amazon Europe Core Sàrl, with an administrative fine of 746 million euros.

Most of the decisions (25 in total) were taken as part of the thematic campaign on the role of the Data Protection Officer. There were 20 decisions on video surveillance and geolocation. Finally, 4 decisions were on various topics, including one on the unlawful use of the JU-CHA database in the context of a procedure for the recruitment of a state employee in the judicial administration.

20 October 2022: ESMA Common Supervisory Action on the supervision of costs and fees of UCITS – CSSF Feedback Report

The CSSF has published its feedback report on ESMAs Common Supervisory Action (CSA) with national regulators on the supervision of costs and fees of UCITS across the European Union. The key results of the CSA flagged in the Report include:

• ESMA sees room for improvement (particularly on the part of smaller ManCos) in how firms apply ESMA’s June 2020 supervisory briefing on the supervision of costs in UCITS and AIFs;
• Some questions arose on compliance with delegation rules where portfolio managers (i.e., delegates) were found, in some cases, to exercise significant influence or even decide the level of costs;
• It was clear that there are divergent market practices as to what industry reported as “due” or “undue” costs;
• In some jurisdictions, NCAs found conflicts of interest at UCITS ManCos, in particular in the case of related party transactions;
• In some instances, ESMA found there was a lack of policies and procedures on EPMs and a lack of clear disclosure as required under ESMA’s Guidelines on ETFs and other UCITS issues;
• There was a continuing and widespread use of fixed fee splits arrangements for securities lending – this gave rise to unfavourable results for retail investors;
• When it comes to investor compensation, the Report stresses the importance of firms ensuring that investors are adequately compensated, both where they have been charged undue costs or fees, and where calculation errors led to financial detriment for investors.

26 October 2022: Updated Grand-ducal Regulation of 1 February 2010 on the amended Law of 12 November 2004 on AML/CFT

The regulation provides details on certain provisions of the Law of 12 November 2004, such as:

• Customer Due Diligence
• Obligations of branches and subsidiaries in foreign countries
• Appropriate internal management requirements
• Cooperation requirements with the authorities

27 October 2022: Circular CSSF 22/822 on FATF statements (only in French)

The Circular and its Annex reproduces the FATF statements concerning:

• high-risk jurisdictions on which enhanced due diligence and, where appropriate, countermeasures are imposed;
• jurisdictions under increased monitoring of the FATF.

For further information, please contact:

Tobias Ettlin:
+352 691 111 931
tobias.ettlin@one-gs.com

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/