Highlights:

The CSSF has published Circular 24/854 on the new format of the annual AML report submitted by the RC. With the new SRRC template on the eDesk, the CSSF is moving away from the open form report format. For IFMs with a fiscal year end of 31 December 2023, the CSSF is granting a two-month extension of the filing deadline this year to 31 July 2024. Otherwise the submission is due five months after fiscal year-end.

Reminder: CSSF Circular 23/846 adopting the ESMA guidelines on reporting under EMIR: 29 April 2024 deadline is approaching for Luxembourg counterparties to derivatives.

Luxembourg Market Update:

The aggregate net assets of Luxembourg-domiciled regulated investment funds – UCITS and Part II funds, SIFs and SICARs – amounted to €5,326.33bn at the end of January, up 0.78% from €5,285.01bn the previous month and 2.59% higher than 12 months earlier, according to the CSSF. The financial regulator says the monthly increase was due to rising valuations of financial market assets, which accounted for an increase of €47.15bn, although Luxembourg funds experienced net redemptions of €5.83bn. The number of fund structures stood at 3,269 at the end of January, down four from 3,274 the previous month, including 2,140 umbrella structures containing 12,827 sub-funds. The number of active fund portfolios declined from 13,981 in December to 13,956.

More than half (54.6%) of newly-established cross-border funds were registered in Luxembourg last year according to PwC, a significantly higher share of the market than Ireland with 36.4%, although the grand duchy's proportion was 0.4% lower than the previous year, according to the annual PwC Global Fund Distribution Poster. The report's authors note that Germany remains the preferred target market for Luxembourg’s cross-border funds, ahead of Switzerland, France and Austria.

The CSSF has stated that its priorities for 2024 include sustainable finance as well as transparency and management of environmental, social and governance risks. According to the regulator, its long-term goal is to foster the integration of sustainability considerations into financial strategies, while incorporating ESG requirements into a risk-based approach to supervision.

Regulatory Developments in and beyond Luxembourg:

15 February 2024: ESMA issues working paper on ESG funds during the 2020 COVID-19

The European Securities and Markets Authority (ESMA) has issued a working paper “ESG funds during the 2020 Covid-19 market turmoil: performance and flows”. It is based on data retrieved from Morningstar Direct and focuses on 2,581 equity active UCITS domiciled in the EU. Given there is no widely accepted definition or EU-harmonised label for ESG funds, ESMA used several variables reflecting different ways to identify ESG funds. The paper shows that ESG active UCITS outperform non-ESG active UCITS during the ten weeks of the first Covid-19 outbreak. It further reveals the positive role of sustainable attributes on the investment fund flows during the Covid-19 crisis by demonstrating that ESG funds are associated with higher net flows. ESMA states that a deeper analysis of the drivers behind investor choices and observed outcomes should be conducted in the future.

22 February 2024: CSSF updates its FAQ on virtual asset investments by UCIs

The CSSF has updated its FAQ virtual assets – undertakings for collective investment relating to eligible investors for UCIs investing directly or indirectly in virtual assets. Of note are the updated responses to questions 1 and 2 defining whether UCITS and AIFs could invest in virtual assets. AIFs are permitted to invest directly (and indirectly) in virtual assets, provided that their units are only marketed to well-informed investors. This update follows the publication of an ESMA consultation paper establishing criteria for the qualification of crypto-assets as financial instruments.

26 February 2024: Updated Annex of Circular CSSF 22/822 – AML/CFT

The CSSF has published an update of the Annex of Circular CSSF 22/822 on (i) high-risk jurisdictions on which enhanced due diligence and, where appropriate, counter-measures are imposed and (ii) jurisdictions under increased monitoring of the FATF.`

29 February 2024: Circular CSSF 24/854 – AML/CFT Summary Report RC and FAQs

The CSSF has published Circular 24/854 to provide guidance on the Summary report dedicated to AML/CFT (SRRC) to be prepared by the “Responsable du Contrôle” (RC) and submitted to the CSSF by the “Responsable du Respect” (RR) in accordance with Article 42(7) of CSSF Regulation No 12-02, as amended. With the new SRRC template on the eDesk, the CSSF is moving away from the open form report and focuses on key data points relevant for the CSSF’s supervision regarding the fight against money laundering and countering the financing of terrorism and is in line with its strategy of digitalisation and data driven supervision. In parallel, the CSSF has published FAQs on the SRRC. For IFMs with a fiscal year end of 31 December 2023, the CSSF is granting a two-month extension of the filing deadline this year to 31 July 2024. Otherwise the submission is due five months after fiscal year-end.

6 March 2024: Council Implementing Regulation concerning restrictive measures directed against certain persons, entities and bodies in view of the situation in Ukraine

The EU Council has implemented Regulation (EU) 2024/827 of 4 March 2024 implementing Regulation (EU) No 208/2014 concerning restrictive measures directed against certain persons, entities and bodies in view of the situation in Ukraine.

21 March 2024: Circular CSSF 24/855 on the application of ESMA Guidelines on transfer of data between Trade Repositories under EMIR and SFTR

The CSSF has published Circular CSSF 24/855 on the application of ESMA Guidelines on transfer of data between Trade Repositories under EMIR and SFTR applies the ESMA Guidelines on transfer of data between Trade Repositories under EMIR and SFTR published on 5 January 2024. The CSSF has integrated the Guidelines into its administrative practice and regulatory approach with a view to promoting supervisory convergence in this field at European level. The Circular enters into force as of its publication date.

22 March 2024: Communiqué on CSSF’s supervisory priorities in the area of sustainable finance

The CSSF has issued a communiqué with the objective of providing a general overview of the CSSF’s supervisory priorities for investment firms in the area of sustainable finance:

(i) Transparency and Disclosures

As regards the disclosure obligations applicable under SFDR to investment firms providing investment advice and portfolio management services, the framework of the long form report applicable to investment firms has been revised to realign it with the supervisory and prudential points of focus of the CSSF. In order to allow for a gradual implementation, the revised framework will become applicable in a staggered manner: for the financial year ending 31 December 2023, all Class 2 IFs incorporated under Luxembourg law, including their branches and certain Class 3 IFs will be required to submit the revised long form report, whereas all other investment firms will remain subject to Circular CSSF 03/113. For financial years ending after 31 December 2023, all investment firms will have to submit the revised long form report in accordance with Circular CSSF 24/853. Further information can be found in the communication dated 6 February 2024 relating to the publication of Circular CSSF 24/853 on the revised long form report for investment firms.

(ii) Risk management and governance

The CSSF will continue to implement a gradual approach to its supervision of ESG risks for investment firms, prioritising the recognition of ESG risks in investment firms’ strategies and governance arrangements. Circular CSSF 20/758 on administration, internal governance and risk management will be updated in due course.

(iii) MiFID rules related to sustainability

The CSSF’s supervisory priorities for investment firms will mirror those for credit institutions as described above for credit institutions.

22 March 2024: EU Council Implementing Regulation concerning restrictive measures against serious human rights violations and abuses

The EU Council has implemented Regulation (EU) 2024/952 of 22 March 2024 implementing Regulation (EU) 2020/1998 concerning restrictive measures against serious human rights violations and abuses.

22 March 2024: Communiqué on second stage of ESMA CSA on sustainability risks and disclosures in the investment fund sector

On 6 July 2023 ESMA had announced the launch of a Common Supervisory Action (CSA) with National Competent Authorities (NCAs) across the European Union on the integration of sustainability risks and disclosures. The aim of the CSA is to investigate how UCITS Managers and AIFMs comply with the relevant provisions in the Sustainable Finance Disclosure Regulation, the Taxonomy Regulation and relevant implementing measures, including the relevant provisions in the UCITS and AIFMD implementing acts on the integration of sustainability risks. The CSA also relates to the principles of the ESMA Supervisory Briefing on sustainability risks and disclosures in the area of investment management published in May 2022. The CSA is performed based on a common methodology developed by ESMA. This communiqué follows up on the CSSF communiqué published on 6 September 2023 announcing the launch of the ESMA CSA on sustainability risks and disclosures in the investment fund sector by the CSSF.

As a reminder, the CSA follows a two-stage process where:

In the first stage (which is now completed), NCAs have requested a sample of UCITS Managers and AIFMs to complete a questionnaire focusing more closely on greenwashing risks;

In the second stage, NCAs will request the same UCITS Managers and AIFMs to complete a questionnaire dedicated to the integration of sustainability risks and factors in the organisational arrangements of UCITS Managers and AIFMs and to the transparency disclosures at IFM and product level.

The purpose of this communiqué is to inform market participants that the CSSF has now launched the second stage of the CSA. In this context, on 19 March 2024, the CSSF contacted by email the Luxembourg-based UCITS Managers and AIFMs that are in scope of this CSA. The UCITS Managers and AIFMs that did not receive an email from the CSSF on 19 March 2024 on this subject matter are not involved in this exercise. It should be noted that the CSSF used the same sample of UCITS Managers and AIFMs for both stages of the CSA. Technical information and deadlines have been shared with the selected entities on a bilateral basis.

25 March 2024: Communiqué on DORA

The CSSF announced in a communiqué that has launched a new web page dedicated to the Digital Operational Resilience Act (DORA). The objective of the web page is to provide financial entities with an introduction to DORA, as well as continuous updates on the latest developments.

26 March 2024: CSSF Communiqué on EMIR REFIT reporting

In its Communiqué, the CSSF reminds all counterparties involved in derivatives transactions of the upcoming entry into force of the new EMIR REFIT reporting on 29 April 2024. In this context, the CSSF wants to draw the attention of counterparties to the following elements, with a particular emphasis on the importance of testing mentioned under point 8:

1. ESMA website which contains critical information for the proper implementation of EMIR REFIT: https://www.esma.europa.eu/data-reporting/emir-reporting;
2. Previous CSSF press release on EMIR REFIT: https://www.cssf.lu/wp-content/uploads/PR22_33_EMIR_Refit_reporting_standards_211222.pdf
3. Entities shall notify the CSSF of significant errors and omissions following Article 9 of the ITS on reporting.
4. The CSSF will monitor the volume of currently submitted trades, including variations in the volumes of reported transactions.
5. Should an entity cease to exist, it must close trades (i) from a contractual point of view and (ii) with appropriate termination messages to the relevant Trade Repositories.
6. Should another entity take over the reporting on behalf of one counterparty, that counterparty must ensure that no trades are either forgotten or reported twice.
7. Counterparties are required to monitor the reporting they submit, or the reporting submitted on their behalf and must ensure its accuracy. For illustration purposes, the CSSF reminds counterparties to implement internal controls in this regard;
8. Trade Repositories have made their platforms available for testing. The CSSF insists that all participants ensure their ability to submit their trades prior to the go-live date.

Finally, the CSSF reiterates that there has been sufficient time for stakeholders to implement the changes required for EMIR REFIT.

26 March 2024: Adoption of AIFMD II by Parliament and Council

The European Parliament and the EU Council have formally adopted the AIFMD II text, as well as changes to the UCITS Directive. Of note are:

• Extension of and clarifications to ancillary (non-core) service in both directives;
• Minimum information requirements that must be provided upon authorisation of AIFMs and UCITS management companies regarding (sub) delegation arrangements;
• Conflict of interest rules where funds (AIFs/UCITS) are managed at the initiative of a third party;
• A new loan-originating regime for AIFs;
• Requirements concerning the use of Liquidity Management Tools (LMTs);
• New supervisory reporting requirements, in particular also for UCITS.

The text will now be published in the Official Journal of the EU, will enter into force on 15 April 2024, and must be implemented by Member States into national law within 24 months of the date of entry into force of AIFMD II, i.e. by 16 April 2026 at the latest. The implementation date for the AIFMD II rules will be the date of implementation in the Member State of the relevant AIFM.

27 March 2024: CSSF Communiqué on new reporting procedure for ICT-related incidents

As announced in the CSSF communiqué published on 5 January 2024 related to ICT-related incident reporting, the CSSF has published further guidance related to the submission channels and procedures to be followed when submitting an ICT-related incident notification under Circular CSSF 24/847. The circular entered into force on 1 April 2024 and the new reporting methods and procedures described here came into effect. Notifications shall be submitted via one of the two below methods:

1. Dedicated procedure on CSSF eDesk Portal:

Notifications shall be submitted via the procedure “Major ICT-related Incident Notification”. The procedure is only accessible to the dedicated user role “IT Incident Notifier”. This role must be assigned by the “Advanced User” of the Supervised Entities in eDesk before ICT-related incident notifications can be accessed and submitted. The role shall be attributed to the person/s most suitable to draft and submit the notification to the CSSF, nevertheless no specific sign-off is required. For further details on how to assign this role refer to the on the eDesk Portal homepage.

2. Application Programming Interface (“API”) solution S3:

Notifications can also be submitted via an API solution based on the use of a structured exchange file (.json format) to be transmitted to the CSSF via the S3 (“simple storage service”) protocol, using the “IT Expert” role. This role must be assigned by the “Advanced User” of the Supervised Entities in eDesk before ICT-related incident notifications can be submitted through S3.

In terms of logistics, the “IT Incident Notifier” as well as the “IT Expert” must have an eDesk account, which requires a LuxTrust authentication. The CSSF invites all Supervised Entities to ensure they have set-up the relevant eDesk accounts and enrolled as necessary. The CSSF has published a related user guide.

For further information, please contact:

Tobias Ettlin #ONEteam
#onewithyou

‍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/‍