REGULATORY CLIENT UPDATE / FEBRUARY 2023
Highlights:
The European Parliament has approved the proposed amendments to the ELTIF Regulation, which will come into force in 2024.
In an informal communication to Luxembourg industry groups, the CSSF has commented on regulatory updates planned for 2023. Notable regulations and circulars being updated by the CSSF include the following:
Luxembourg Market Update: new platform for fund data management
The European Fund and Asset Management Association has reported that alternative investment funds (“AIFs”) rebounded in November 2022 with net inflows of €9bn, following outflows of €69bn the previous month. Luxembourg AIFs represented 42% of the inflows with €3.65bn. UCITS funds reported net inflows of €44bn, down from €71bn in October, with 43% of the November inflows going into Irish-domiciled funds. Excluding money market funds, UCITS saw net inflows of €1bn, after €53bn of net outflows in October. Equity funds saw outflows of €1bn, down from €14bn in redemptions the previous month, while bond funds took in €8bn, after outflows of €21bn. Multi-asset funds experienced net outflows of €7bn, compared with €14bn in October, while net inflows into money market funds fell from €124bn to €43bn.
The aggregate assets of Luxembourg-domiciled investment funds – UCITS and Part II funds, SIFs and SICARs – amounted to €5,028bn at the end of last year, down from €5,166bn at the end of November and from the industry's peak of €5,859bn at the end of 2021, according to the CSSF. Despite net inflows of €7.65bn in December, fund assets declined in value by €145.6bn, reflecting the impact of persistent high inflation, fears of an economic recession, rising interest rates, the economic fallout of the war in Ukraine and the monetary tightening policy of the US Federal Reserve and the European Central Bank.
Regulatory Developments in and beyond Luxembourg:
19 January 2023: Circular CSSF 23/829 on exemptions from liquidity requirements
The purpose of the circular is to inform that the CSSF applies the Guidelines on the criteria for the exemption of investment firms from liquidity requirements in accordance with Article 43(4) of Regulation (EU) 2019/2033 (Ref. EBA/GL/2022/10) (the “Guidelines”) published on 29 July 2022.
The Guidelines specify that small and non-interconnected investment firms as defined in Article 12(1) of Regulation (EU) 2019/2033 (the “In-Scope Entities”) are eligible for the exemption if they fulfil the criteria set out in Sections 4.1 and 4.2 and point 20 of Section 4.3 of the Guidelines. In-Scope Entities that wish to be exempted from the liquidity requirements must receive prior authorisation from the CSSF.
24 January 2023: AIFMD II in the European Parliament
The European Parliament’s ECON committee has approved the AIFMD II report. At the same time, the ECON committee agreed on a mandate for MEPs to enter so-called interinstitutional negotiations (the negotiating mandate is still subject to a plenary approval). A vote on this will likely take place in the plenary session between 13 and 16 February 2023.
25 January 2023: CSSF publishes its findings on the 2022 review of IFMs’ obligations on MAR STOR
The CSSF published its findings and observations of the 2022 Thematic Review on STOR Obligations of IFMs under the Market Abuse Regulation (MAR) to establish and maintain effective controls to detect and report potential instances of insider dealing or market manipulation via Suspicious Transaction and Order Reports (STOR).
The CSSF was generally satisfied with its findings but reported certain potential shortfalls in individual cases. They include:
The CSSF reminded IFMs that MAR does not explicitly prescribe any automated monitoring.
31 January 2023: Transparency International releases its 28th annual Corruption Perceptions Index
Transparency International released its Corruption Perceptions Index (CPI), a global indicator of public sector corruption. It provides an annual comparative snapshot of 180 countries and territories based on the assessment of how they have responded to corruption over time, reviewing progress and failures over the last decades, as well as analysing the connection between conflict, security and corruption.
31 January 2023: CSSF publishes the results of the enforcement of 2021 financial and non-financial information published by issuers subject to the Transparency Law
The CSSF overseeing information published by issuers under its supervision in their financial reports has published the results of its enforcement activities carried out in 2022 on this topic. The results cover the CSSF’s main findings related to financial information as well as non-financial information published.
2 February 2023: CSSF Questionnaire on SFDR
As part of a new data collection exercise related to the Sustainable Finance Disclosure Regulation (SFDR), the CSSF requires all Luxembourg-domiciled UCITS management companies, Self-Managed Investment Companies, Authorised AIFMs, Managers of EuVECA funds and Managers of EuSEF funds, to complete an SFDR questionnaire on the eDesk. The deadline for submission is 2 March 2023.
After the initial response, IFMs will be required to notify the CSSF through a specific ‘update’ function in case of changes to the information initially provided.
The CSSF announced that it intends to collect information on the PAI statements, as well as the pre-contractual and periodic disclosures in the near future.
9 February 2023: AED filing deadlines of the RC Report and the AML/CFT Questionnaire for RAIFs covering year 2022
The Administration de l’Enregistrement, des Domaines et de la TVA (AED) acting as AML/CFT supervisory authority for non-regulated investment funds updated its website to set out the deadlines for Reserved Alternative Investment Funds (“RAIFs”) to submit the annual AML/CFT report of their RC and the AML/CFT questionnaire covering the financial year ending in 2022:
In both cases, the relevant dedicated sections of the AED’s website provide further details as to the practicalities for filing, particularly in terms of the naming convention and email address to be used.
Regarding other non-regulated AIFs (including those under the form of SCSp and SCS), the AED’s website does not contain any indications for either the AML/CFT Questionnaire for year 2022 or for the RC Report. However, it is likely that the AED will extend these filing requirements to those AIFs as well in the coming weeks. Non-regulated AIFs other than RAIFs should therefore anticipate and ensure that an RC report is drawn up for year 2022, and that relevant data covering year 2022 will be available in due course to populate the AML/CFT Questionnaire.
17 February 2023: Commission Delegated Regulation amending SFDR RTS regarding investments in fossil gas and nuclear energy
The Commission Delegated Regulation amending the SFDR Regulatory Technical Standards regarding disclosures on the exposure of financial products to investments in fossil gas and nuclear energy activities was published in the Official Journal of the European Union. It aims to aid financial markets participants to identify investments by financial products in environmentally sustainable fossil gas and nuclear related activities and foster the comparability of information disclosed to investors and will enter into force on the third day following its publication in the OJEU.
17 February 2023: CSSF publishes new notification template for critical ICT outsourcing
The CSSF has released a new notification template to be used as of 20 February 2023 to notify the CSSF of critical ICT outsourcing arrangements in accordance with points 59 and 60 of Circular CSSF 22/806 on outsourcing arrangements. This template replaces the previous template (Notification for outsourcing of material IT activities). The notification periods and communication channels remain unchanged. IFMs may introduce notifications using the previous template during a transitional period until 20 March 2023. After this date only notifications received with the new template will be considered as notified in line with the instructions and forms available in accordance with point 59 of Circular CSSF 22/806.
21 February 2023: European Parliament approves the proposed amendments to the ELTIF Regulation
The European Parliament has approved the proposed amendments to the ELTIF Regulation, which will come into force in 2024.
The new ELTIF Regulation will introduce many changes to this investment product, such as:
24 February 2023: CSSF urges users of 533 Microsoft Exchange servers to ensure vulnerabilities are patched
The CSSF has issued a security warning to users in the grand duchy of 533 servers running Microsoft Exchange that have not updated their systems with the latest patch provided by the software group to remedy issues identified as making them vulnerable to cyber-attacks. The Computer Incident Center Response Luxembourg, part of the Luxembourg House of Cybersecurity, says some servers have not been upgraded for 22 months.
24 February 2023: FATF suspends Russia’s membership for violating organisation’s core principles
The Financial Action Task Force (FATF) has suspended Russia's membership in the organisation, the first time it has done so. The FATF says Russia's invasion of Ukraine a year ago runs counter to the organisation's core principles of promoting security, safety and the integrity of the global financial system. Russia, which joined the FATF in 2003, may no longer attend meetings or obtain access to the agency's documents, but it remains bound by global anti-money laundering standards. Ukraine has pushed for Moscow to be added to the FATF blacklist, which currently comprises only North Korea, Iran and Myanmar.
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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