Luxembourg investment fund managers: regulatory clarifications as to approval and organisation requirements
The CSSF issued on 23 August 2018 a new circular 18/698 regarding the authorisation and organisation of Luxembourg investment fund managers (the Circular). This Circular entered into force with immediate effect and replaced and superseded the CSSF circular 12/546.
The Circular sets out 3 types of requirements:
- those previously formalised in CSSF circular 12/546;
- those already applied by the CSSF, but not codified as yet; and
- new requirements.
As a result, existing investment fund managers as well as entities currently applying or intending to apply for a licence as an investment fund manager may have to review their organisation in order to comply with the requirements under the Circular.
The Circular sets out the conditions for obtaining and maintaining a licence as an investment fund manager and applies both to (i) management companies under the Law of 17 December 2010 relating to undertakings for collective investment, as amended and (ii) alternative investment fund managers under the Law of 12 July 2013 on alternative investment fund managers, as amended.
In addition, the Circular provides (i) certain requirements regarding management companies providing discretionary portfolio management services and (ii) specific provisions regarding the fight against money laundering and terrorist financing applicable to investment fund managers and entities acting as registrar agent.
Certain prerequisites regarding the application for a licence as an investment fund manager and a number of substance requirements are already well known as they reflect the current regulatory practice and have now simply been formalised by the CSSF.
As regards new requirements, some of the most important features relate to the following:
- Composition of the governing body (organe de direction/organe directeur)
The governing body may not include among its members a majority of conducting officers or other employees of the investment fund manager, unless their appointment is adequately justified.
A conducting officer may combine his mandate as a member of the governing body with the role of risk manager.
- Minimum frequency of the meetings of the governing body (organe de direction/organe directeur) and management committee (comité de direction)
At least 1 meeting per quarter for the governing body and 1 meeting per month for the management committee.
Maximum number of mandates to be held by the members of the governing body (organe de direction/organe directeur) and maximum number of hours dedicated to their professional commitments
- The maximum number of mandates is set at 20 and the maximum number of hours dedicated to their professional commitments is set at 1920 hours.
Please note that (i) these two thresholds may however be negotiated with the CSSF depending on the nature, scale and complexity of entities (to be) managed and (ii) the mandates held in various entities pertaining to the same group may be counted as a single mandate upon due justification.
- Number of conducting officers in Luxembourg and role
In principle, there should be at least 2 conducting officers in Luxembourg (this does not however prevent the conducting officers from having their domicile in a place permitting them, in principle, to come to Luxembourg every day).
For investment fund managers with more than EUR 1.5 billion of assets under management, the Circular further clarifies that conducting officers are not allowed to hold any other mandates as conducting officer of an investment fund manager. Below such threshold, conducting officers may hold up to 2 mandates as conducting officer of an investment manager and the CSSF may accept that only 1 of the legally required conducting officers is permanently in Luxembourg, provided that the conducting officers are supported in their daily work by enough qualified staff working in Luxembourg.
Additionally, it is important to note that the CSSF formalises a non-exhaustive list (Schedule 2) of items and/or changes which require either a prior approval by the CSSF (e.g., the initial decision by an investment fund manager to invest part of its non-regulatory capital in UCIs for seeding), or are simply subject to notification.
The Circular further contains a list (Schedule 3) of all the reports and documents to be filed with the CSSF within 5 months following the end of the financial year of any investment fund managers (except for the audited annual report and the management letter which must be filed within 1 month following the approval of the annual accounts of the investment fund manager and at the latest within 7 months following the end of the financial year of the investment fund manager).
For additional information, please see the Circular CSSF 18/698 (currently only available in French).