Highlights:

The CSSF has published its Annual Report covering 2023. The report highlights several key developments across various financial sectors, focusing on adapting to challenges posed by digitalisation, sustainability, and financial crime. A detailed summary is included in this update.

Luxembourg Market Update:

The aggregate net assets of Luxembourg-domiciled regulated investment funds – UCITS and Part II funds, SIFs and SICARs – amounted to €5.64bn at the end of August, up 0.35% from the previous month and 8.53% more than in the same month of 2023,but still below the peak of €5.86trn set at the end of 2021, according to the CSSF.

Aggregate assets under management in Luxembourg-domiciled private debt funds totalled€510bn at the end of June, up 21.5% from six months earlier, according to a study by consultancy KPMG commissioned by Luxembourg fund industry group ALFI.

Net inflows into Luxembourg-domiciled private equity funds amounted to €49bn in the first half of this year, compared with €60.9bn for the whole of 2023, according to PwC.

Regulatory Developments in and beyond Luxembourg:

7 August 2024: European Commission publishes FAQ on CSRD

The European Commission has published a set of FAQson the implementation of the EU Corporate Sustainability Reporting Directive(CSRD) rules. The FAQ addresses input received from companies and cover aspects regarding the scope, application dates and exemptions.

19 August 2024: ESMA publishes translations of fund naming guidelines

The CSSF has launched a DORA-readiness survey addressed to all entities subject to the Digital Operational Resilience Act(DORA) regulation and licensed as financial entities in Luxembourg. The results of this survey will provide the CSSF with a clearer understanding of the readiness of various financial market participants as the DORA implementationdeadline approaches on 17 January 2025. The survey consists of just 10questions. In addition to assessing the readiness level of financial entities, the CSSF seeks to identify the main challenges they have encountered during theDORA implementation process.

21 August 2024: CSSF - DORA readiness survey

ESMA has published translations of its fund naming guidelines. The timeline for application is as follows:

·       The guidelines will take effect three months after the publication of these translations, on 21 November 2024.

·       Funds existing before the application date will have a six-month transitional period, until 21 May 2025.

·       Any new funds created on or after the application date should apply these guidelines immediately.

29 August 2024: CSSF publishes Circular 24/860 updating Circular 12/552

This CSSF has published Circular24/860 which introduces several updates and clarifications to the earlier Circular 12/552, reflecting evolving regulatory expectations in internal governance, risk management, and controls. Key changes include:

·       Strengthened Governance Requirements: Circular 24/860 places increased emphasis on the responsibilities and oversight duties of the board of directors and senior management. It elaborates on the roles of independent directors, governance committees, and the need for a clearer separation between business and control functions.

·       Risk Management Enhancements: The new circular reinforces the integration of risk management into business strategies and decisions. It requires institutions to have more robust risk frameworks, particularly in managing new or evolving risks (e.g., cybersecurity, ESG). The risk control function has been given more precise directives, particularly regarding periodic risk reporting to the board.

·       Internal Control and Audit Functions: Circular 24/860 tightens the guidelines on internal control mechanisms and the internal audit function, insisting on independent, thorough assessments of control systems. It introduces more detailed requirements for periodic reviews, reporting lines, and coordination among control functions.

·       Regulatory Reporting and Communication: The circular provides clearer rules for external communication, including regular regulatory reporting to the CSSF. It also strengthens transparency requirements for institutions to ensure that shareholders and stakeholders are properly informed about governance structures.

·       Sustainability and ESG Integration: Reflecting recent trends, Circular 24/860 introduces provisions related to environmental, social, and governance (ESG) risks, urging institutions to incorporate these factors into their risk management frameworks.

2 September 2024: CSSF communiqué on eDesk PREPROD

The CSSF is setting up a new eDesk PREPROD platform enabling professionals to test specific procedures. The first procedure available for testing via this new platform is the collection of monthly “EBA ITS Reports” (ALM and LCRDA), from 2 September 2024. The following two collection methods will be available through eDesk PREPROD:

·       Filing of documents in the dedicated eDesk procedure

·       Automated submission of documents viaAPI (S3 protocol)

A user guide for this new platform is available.

5 September 2024: CSSF publishes Circular 24/861

This CSSF has published Circular24/861 amending Circular 19/732 of 20 December 2019 on the “Prevention of Money Laundering and Terrorist Financing: clarifications on the Identification and Verification of the Identity of the Ultimate Beneficial Owner(s).” Point 74 of the Circular amended with the following: “Where legal persons or arrangements are in between the customer and the natural person -beneficial owner, their identification, with its documentation and verification, has to be done according to a risk-based approach.”

11 September 2024: CSSF communiqué on UCITS and AIFs cross-border marketing notifications

In order to meet its obligations in relation to the reporting of cross-border marketing of AIFs and UCITS in accordance with Article 13 of Regulation (EU) 2019/1156 on facilitating cross-border distribution of collective investment undertakings, the CSSF would like to inform the supervised entities of the following:

New information (predominant AIF type and contact point(s) concerning the notification letter, invoices and facilities for investors) will be collected through marketing notification and de-notification requests from 11 November 2024.

Consequently, eDesk CBDF module and S3 API channel will be adapted. All the modifications, in particular concerning the JSON schema used for transmissions through the API channel, are listed in the new version of the user guide dedicated to the cross-border marketing.

16 September 2024: CSSF reminder of the procedures of transmission for Key Information Document (KID) and official documents (MR/AI)

As announced by the CSSF in a 5 April 2024 communication regarding the direct submission of filings to the CSSF, the collection procedures for the Key Information Document (KID) and the official documents (MR/AI) will change starting 15 November 2024. These documents will be collected exclusively through the following two methods:

·       Document upload via the dedicated eDesk procedure

·       Automated submission of the documents via API (S3 protocol)

Please note that from 15 November 2024,

·       Only the API (S3) channel or thee Desk approach will be authorised for submitting KIDs and official documents

·       Any KID or official document submitted using the old transmission method (external channels) will not be processed by the CSSF.

A user guide detailing the submission procedures for the Key Information Document and the official documents will be made available soon.

17 September 2024: CSSF reminder to the industry on specific communications between the CSSF and the Investment Fund Managers

On 31 January 2024, the CSSF had published a communiqué on interaction between the UCI Departments and the Investment Fund Managers (IFMs) – recipients of specific communications. In this context, the CSSF reminds the IFMs that they must keep the email addresses of eDesk users and their corresponding roles up to date, so that specific communications reach the persons concerned.

For example:

·       each board member’s and/or conducting officer’s email address must be referenced on eDesk if they wish to be included in the communications;

·       in the event of a departure of aboard member and/or a conducting officer, the IFM must update eDesk accordingly.

19 September 2024: CSSF publishes its annual report

The CSSF has published its annual report covering activities and initiatives in 2023. Of note is are the following non-exhaustive points:

·       Financial Innovation &Crypto-Assets: While traditional financial actors have shown limited interest in crypto-assets under the MiCA regulation, the CSSF continued to address risks in this area by increasing AML/CFT supervision of innovative services like crypto-asset service providers, highlighting the need for stronger control environments.

·       Sustainable Finance: The CSSF emphasized the importance of raising awareness around sustainable finance and educating the public on environmental, social, and governance (ESG)considerations. Various initiatives, including campaigns to educate younger populations about sustainable investments, were launched.

·       Anti-Money Laundering (AML/CFT): The CSSF ramped up its supervisory activities targeting sectors with heightened AML/CFT risks, such as payment institutions and digital service providers, while integrating upcoming European legislative changes into its approach to financial crime.

The CSSF performed 44 on-site and 457 off-site inspections of investment fund managers in 2023. Additionally, 17 on-site inspections and 4,042 off-site supervision measure were performed specifically on AML. The thematic reviews performed by the CSSF focussed on (i) conflicts of interest management policy  and records,(ii) the delegation of the portfolio management function, (iii) the Market Abuse Regulation, and (iv) risk management reports. The CSSF issued a total of€2.43 million in fines in 2023.

In 2024, the CSSF will continue the second stage of the CSA on sustainability-related disclosures and the integration of sustainability risks in the investment fund sector will be launched in 2024.This phase will focus on the review of sustainability-related disclosures and the integration of sustainability risks in the organisational arrangements of IFMs. The publication of the ESMA and CSSF reports will follow in due course; ESMA announced working  on a final report to be published at the beginning  of2025. The CSSF also plans a new thematic analysis on costs and fees charged to UCIs, based in particular on the information collected through the self-assessment questionnaires for UCIs, as provided for in Circular CSSF21/790.

 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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