REGULATORY CLIENT UPDATE / JUNE 2024

10 July 2024

Highlights:

The CSSF has issued a Communiqué and timeline on the new Anti-Money Laundering Regulation (AMLR) and a revision of the Anti-Money Laundering Directive (AMLD6).

Luxembourg Market Update:

Luxembourg alternative investment funds enjoyed €5.17bn of net inflows in April, according to the European Fund and Asset Management Association, but UCITS domiciled in the grand duchy experienced €10.31bn of net outflows. Across the EU, UCITS attracted €34.93bn in net inflows, compared with €7.31bn for alternative funds.

Regulatory Developments in and beyond Luxembourg:

30 May 2024: CSSF publishes a communiqué concerning non-profit organisations and the fight against terrorism financing

The CSSF has published a communiqué concerning non-profit organisations and the fight against terrorism financing (TF). The communiqué states that vertical risk assessments on TF published by the Luxembourg Ministry of Justice in 2022 measure the level of TF risk exposure of certain non-profit organisations as high. The assessment particularly refers to the Luxembourg NPOs carrying out development and humanitarian projects abroad.

The CSSF emphasises the need for financial institutions to adopt risk-based approaches to identify high-risk NPOs and apply appropriate mitigation measures without stigmatising all NPOs. According to the FATF, in fact, improper de-risking could push NPOs towards unregulated financial services, increasing TF risks.

The communiqué also addresses the latest international and European updates in the sector. The FATF has recently amended its recommendations, guidelines, and methodologies to protect NPOs from TF abuse while maintaining their access to financial services. Additionally, the EBA has amended its guidelines to integrate the factors that financial institutions must consider when assessing the money laundering and TF risks related to a business relationship with NPOs.

Finally, the CSSF has drafted a non-exhaustive list of indicators that financial institutions could consider to determine if they are facing a TF risk situation through the abusive exploitation of an NPO.

13 June 2024: CSSF Reminder regarding the communication means applicable for AIFM reporting from 1 July 2024

The CSSF has issued a reminder to the attention of alternative investment fund managers (AIFMs): the CSSF press release published on 22 September 2023 enabled the alternative investment fund managers to transmit their AIFM reporting directly to the CSSF either via an API interface (S3 technology) – from 2 November 2023 – or via the dedicated eDesk approach – from 31 January 2024, free of charge. It also announced that the transmission of this reporting via external transmission channels would cease on 30 June 2024.

As a reminder, from 1 July 2024:

  • Only the API (S3) channel or the eDesk procedure will be authorised for the submission of AIFM reporting;
  • Any AIFM report submitted using the old transmission method (external channels) will not be processed by the CSSF.

The user guide detailing the two transmission methods for AIFM reporting is available at following the link.

18 June 2024: ESAs issue opinion to propose improvements on SFDR

The European Supervisory Authorities (ESAs) have issued a joint opinion regarding the assessment of the SFDR. In this opinion, the ESAs call for a coherent sustainable finance framework that caters for both sustainable finance transition and investor protection, taking into account the lessons learnt from the functioning of the SFDR. They also emphasize building on the objectives of the proposals of the Retail Investor Strategy to enhance retail investors' trust, confidence, and participation in financing the economy.

In their opinion, the ESAs recommend that the European Commission consider introducing a product classification system, based on regulatory categories and/or sustainability indicator(s) to help consumers navigate the broad selection of sustainable products and support the full transition to sustainable finance.

The categories should be simple with clear objective criteria or thresholds, to identify which category the product falls into. The ESAs encourage financial market participants to use at least two categories, 'sustainability' and 'transition,' to ensure consumers understand the purpose of the products. A sustainability indicator could refer to environmental sustainability, social sustainability or both, providing investors with a scale to illustrate the sustainability features of a product.

Financial market participants could apply the product categories on a voluntary basis, but the Commission could also consider testing a mandatory regime similar to the current operation of SFDR.

In addition, the opinion also covers the following areas:

  • Appropriate disclosures for products outside the two categories to reduce greenwashing risks,
  • Improvements to the definition of sustainable investments,
  • Simplification to the way disclosures are presented to investors,
  • Other technical suggestions include determining which products should fall under the scope of SFDR and how to enhance disclosures regarding the negative impact of investments on people and the environment, and;
  • The need for consumer testing before putting forward any policy proposals to review the SFDR, such as to introduce a categorisation system and/or an indicator.

19 June 2024: CSSF Communiqué on AMLR and AMLD6

The CSSF has issued a Communiqué on the new Anti-Money Laundering Regulation (AMLR) and a revision of the Anti-Money Laundering Directive (AMLD6).

On 19 June 2024, the Regulation of the European Parliament and of the Council on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (‘AMLR’) was published in the Official Journal of the European Union. AMLR will enter into force on the twentieth day following its publication and will apply from 10 July 2027. On 19 June 2024 was also published the Directive of the European Parliament and of the Council on the mechanisms to be put in place by the Member States for the prevention of the use of the financial system for the purposes of money laundering or terrorist financing and repealing Directive (EU) 2015/849 (‘AMLD6’). AMLD6 will enter into force on the 20th day following that of its publication in the Official Journal of the European Union. Member States have three years from its entry into force to transpose the AMLD6 in their national legislation.

25 June 2024: CSSF issues new notification templates for cross-border activities

The CSSF has issued a communiqué relating to new notification templates for cross-border activities. On 25 March 2024, the European Commission had published a set of new Regulatory Technical Standards (RTS or Commission Delegated Regulations (EU) 2024/911 and 2024/912) and Implementing Technical Standards (ITS or Commission Implementing Regulations (EU) 2024/910 and 2024/913) related to the notification of cross-border activities of Alternative Investment Fund Managers (AIFMs), management companies and Undertakings for Collective Investment in Transferable Securities (UCITS).

Following this publication, the CSSF informed the supervised entities concerned that they must use new templates of notification letters for their management and marketing cross-border activities within the European Economic Area (EEA) starting from 14 July 2024. The new templates are available on the CSSF website on the AIFM page and the management company page.

 

For further information, please contact:

Tobias Ettlin

m: +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/

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