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On 16 May 2022, the CSSF issuedCircular 22/811relating to the authorization and organization of entities acting as UCI administrators (“Circular”), which rewrites and repeals Chapter D of theCircular IML 91/75laying down the rules relating to the central administration of Luxembourg undertakings for collective investment (“OPC”).
As announced in the CSSF’sPress release 22/10, the purpose of the Circular is to formalize the regulatory practice of the CSSF concerning the activity of administration of UCIs, taking into account the legal, regulatory, market and technological changes and developments of the last decades. In its circular, the CSSF also determines the principles of good governance and the requirements to be complied with by entities providing UCI administration services in terms of substance, internal organization (including, but not limited to, delegation models) and reporting.
I. SCOPE OF THE CIRCULAR
- The activity of OPC administration covers one, or two or all of the following three main functions, all as defined and detailed in the Circular: (i) function of registrar (TA), (ii ) NAV calculation and accounting function, and (iii) client communication function.
- The following entities are eligible to act as UCI administrator (“Eligible Entities”):
- Luxembourg investment fund managers (“MFIs”), such as UCITS ManCos and AIFMs;
- foreign IFMs carrying out the activity of UCI administrator for Luxembourg UCIs;
- UCIs governed by Luxembourg law (i.e. UCITS, Part II UCIs, SIFs and SICARs) which, however, can only act as UCI administrators for themselves ; and
- Luxembourg external service providers approved under the amended law of 5 April 1993 relating to the financial sector (“1993 Law”), such as credit institutions, registrar agents, client communication agents and administrative officers.
- Luxembourg non-regulated UCIs (i.e. RAIFs and other AIFs not regulated by the CSSF) remain, in principle, outside the scope of the Circular in the sense that they can continue to act as UCI administrator for themselves without being subject to the requirements of the Circular. However, they may be affected indirectly if they call on an external UCI administrator. This external UCI administrator will in turn be subject to the Circular as it applies to all Eligible Luxembourg Entities exercising the activity of UCI administrator (or part thereof) for regulated UCIs and unregulated.
- To act as a UCI administrator, an Eligible Entity is subject to prior authorization from the CSSF, but the scope of the procedure will vary depending on whether or not the entity concerned is already authorized by operation of law to exercise all or part of the functions of the OPC. administration activity (such as a TA authorized under the 1993 Act).
- The requirements of the Circular apply at the level of the administrator of UCIs, which means that any Eligible Entity, which exercises one or more of the three aforementioned functions encompassed by the activity of administration of UCIs, is subject to the provisions of the Circular as a UCI administrator. In this context, an IFM that has delegated these three functions to one or more other entities will not be subject to the provisions of the Circular as a UCI administrator, but these other entities will be. On the other hand, if an IFM retains, ie exercises itself, one or more of these functions, it will be subject to the Circular for this (these) function(s).
II. MAIN SELECTED POINTS OF ATTENTION AND PRACTICAL IMPACTS OF THE CIRCULAR
- Scope and control of UCI administration tasks:
- Inclusion by the CSSF in the administration activity of certain tasks, which in principle do not have to be regulated (for example, the establishment of prospectuses, the reception of customer complaints or the control of regulatory compliance). These inclusions may however be mitigated by the fact that the CSSF considers that “all the aforementioned tasks included in the scope of UCI administration when provided individually do not necessarily require authorization as a UCI administrator“.
- Processing client requests, monitoring regulatory compliance and archiving tasks must apply within the framework of the three main functions covered by the administration of the UCI, and there is an obligation for the administrator of the UCI and the UCI or its IFM to agree, in a written contract, on the exact roles and distribution of responsibilities of each party with regard to these tasks in order to ensure that adequate means and procedures are in place for the proper performance of their respective obligations. For example, in the event of delegation to the UCI administrator of all or part of the control of regulatory compliance of the investment policy and the investment restrictions with regard to a particular UCI, the CSSF expects (i) the restrictions and limits within the framework of this compliance monitoring delegation to be agreed between the administrator of the UCI and the UCI or its IFM in a contract, and (ii) the administrator of the UCI to establish procedures to detect and promptly notify the UCI or its IFM of any non-compliance with the investment policy and the investment restrictions.
- Secure backup: When the UCI administrator uses a system located outside Luxembourg, obligation for the UCI administrator to have a secure backup stored in the European Economic Area of all accounting positions and registrar in a readable format at the end of each NAV calculation day. It is hoped that the CSSF can grant derogations from this territorial requirement in justified special circumstances.
- Delegation of UCI administration tasks:
- In the event of delegation of the accounting function of the fund and of the calculation of the NAV by the administrator of the UCI, the administrator of the UCI is required to check and validate the final NAV calculated by the delegate.
- In the event of delegation by the UCI administrator, it is required that the latter have immediate and unlimited editor access to the system(s) linked to the delegate(s) allowing him to intervene directly in the processing of information. If this is not possible, the UCI administrator must have at least unrestricted and immediate reader access.
- Prohibition for the delegate of a UCI administrator to sub-delegate UCI administration tasks (excluding ICT delegation) outside the group to which the UCI administrator belongs to an entity not supervised by the CSSF.
- Replacement of the CSSF’s prior authorization by a notification in the event that a UCI administrator wishes to delegate a critical or important operational task, which will now only have to be notified to the CSSF three months before the envisaged delegation (this deadline notice being further reduced to one month in the event of delegation to certain regulated service providers in Luxembourg).
For the avoidance of doubt, the requirements mentioned above apply at the level of the UCI administrator itself, and not at the level of the IFM which has delegated the three administration functions to the administrator of the UCI.
- New extended reporting obligations for UCI administrators regarding their business activities and resources, to be filed annually with the CSSF within five months of the end of the UCI administrator’s financial year from 30 June 2023 .
III. ENTRY INTO FORCE OF THE CIRCULAR AND GRANDFATHERS
- The Circular entered into force and applied with immediate effect on May 16, 2022.
- Eligible Entities already acting as a UCI administrator on 16 May 2022 do not need to request the CSSF’s authorization to act as a UCI administrator and also benefit from a period of rights acquired until June 30, 2023 to comply with the other requirements of the Circular.
IV. WHAT TO DO NEXT?
- Luxembourg Eligible Entities carrying out UCI administration activities must review their policies and procedures as well as their delegation models and contracts to ensure that they comply with the requirements of the Circular.
- Luxembourg unregulated service providers carrying out (certain) UCI administration activities assess whether they can continue to carry out their activities without being authorized for this purpose by the CSSF.
- Luxembourg UCIs and IFMs assess whether the configuration of their UCI administration complies with the requirements of the Circular.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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