Luxembourg update

Market figures in Luxembourg

As at April 30, 2020, the total net assets of collective investment undertakings, including undertakings for collective investment (UCIs) subject to the Law of 17 December 2010 relating to undertakings for collective investment, specialized investment funds and SICARs², amounted to €4,403.683 billion against €4,149.916 as at March 30, 2020, which shows a total increase of 6.11 percent over one month³. Over the last twelve months, the volume of net assets decreased by 0.03 percent. The Luxembourg UCI industry therefore recorded a positive variation in January amounting to €253.767 billion.

The number of UCIs taken into consideration is 3,693 compared to 3,700 for the previous month. 2,422 entities have adopted a multiple compartment structure, representing 13,449 compartments. Adding the 1,271 entities with a traditional structure, a total of 14,720 units are active in the financial center⁴.

Disclosure of information by issuers of securities under the Transparency Law

Given the impact of the COVID-19 pandemic on issuers and their financial statements, the CSSF⁵ decided on March 27, 2020 that it will not prioritize supervisory action against issuers in respect of upcoming publication deadlines for periodic information. At the same time, the CSSF underlined the importance of keeping the market up-to-date with material information for investor protection and market integrity purposes.

With its risk-based approach, the CSSF mentioned that it aims to ensure investor protection as well as to maintain market integrity, while duly taking into account the practical difficulties issuers and their auditors may face in order to provide comprehensive and high quality financial information to investors.

Specifically, the CSSF will not take any administrative measures or sanctions in relation to issuers’ failure to comply with upcoming deadlines for the publication of periodic information required by Articles 3, 4 and 5 of the Law of 11 January 2008 on transparency requirements for issuers (the Transparency Law). Issuers may make use of an additional two months, if they feel it appropriate to do so, to publish the above mentioned upcoming periodic information. This temporary measure applies to issuers for which Luxembourg is the home Member State pursuant to the Transparency Law for reporting periods ending on December 31, 2019 or after that date but before April 1, 2020.

Although the CSSF temporary relief will give those issuers that need it additional time to provide comprehensive and high quality financial information, the CSSF expects them to take all necessary and reasonable measures in order to publish periodic information within, or as near as possible to, the deadlines set by the Transparency Law.

In order to ensure investor protection and preserve the integrity of markets, the CSSF also considers that:

• Issuers reasonably anticipating their financial reports to be delayed should inform the market thereof.
• Issuers and holders of securities must pay particular attention to compliance with ongoing disclosure requirements set by the Transparency Law and by the Market Abuse Regulation (MAR). This notably concerns issuers’ requirements to disclose inside information (Article 17 of MAR), the requirement to notify and publish major holdings (in case thresholds provided in Article 8(1) of the Transparency Law are reached or passed) as well as the requirement to notify and publish managers’ transactions (Article 19 of MAR).

Those issuers anticipating that their financial reports will be delayed should also inform the CSSF (via transparency@cssf.lu) as soon as possible and in any case before the expiry of the legal deadline in question and indicate the reasons leading to the delay as well as, insofar as possible, the expected publication date.

Launch of a new weekly questionnaire to investment fund managers – updates on financial data and governance arrangements

On April 9, 2020, the CSSF launched a questionnaire applying to investment fund managers established both in Luxembourg and abroad, managing at least one undertaking for collective investment in transferable securities (UCITS), alternative investment fund (AIF) and/or any other UCI (not qualifying as an AIF) (the IFMs).

The aim is to enable the CSSF to continue its ongoing supervision of the investment fund sector during the current period of market turbulence.

IFMs will have to provide the CSSF with weekly updates on the financial data of the funds managed (total net assets, subscriptions and redemptions) and an update on governance arrangements in relation to their activities. The collected information (on an aggregated basis) will also serve the CSSF in its discussions with other authorities at both the European and international level to identify issues at an early stage and to assist market players.

The questionnaire must be filed with the CSSF on a weekly basis by close of business (COB) Wednesday at the latest.

The first questionnaire had to be submitted to the CSSF by COB on April 22, 2020.

All filings must be submitted to the CSSF in accordance with the general principles outlined in the User Guide available in the eDesk portal.

The IFM must have a ‘LuxTrust authentication’ to submit the questionnaire via the eDesk portal. If not available, the IFM can mandate a Luxembourg-based service provider to deal with the submission of the questionnaire on its behalf.

CSSF communication regarding the approach to SFTR implementation

On April 9, 2020, the CSSF issued Circular 20/739 (CSSF Circular) on the application of the “Guidelines on the Reporting under Articles 4 and 12 SFTR⁶” (Guidelines), published on January 6, 2020 by the European Securities and Markets Authority (ESMA).

The purpose of the CSSF Circular is to inform market participants that the CSSF, as competent authority, applies the Guidelines and that the CSSF has integrated them into its administrative practice and regulatory approach with a view to promoting supervisory convergence at the European level. Hence, all persons and/or supervised entities falling within the scope of the Guidelines shall comply with them. The CSSF Circular also provides some additional guidance on the Guidelines.

The CSSF Circular also draws attention to the statement published by ESMA on March 26, 2020 on coordinated supervisory action on the application of the SFTR. With this statement, ESMA indicates that SFT reporting implementation is heavily impacted by the COVID-19 pandemic. Based on the considerations described in the ESMA statement, and taking into account the fact that concerned entities face serious difficulties in finalising the implementation of the SFT reporting requirements and in completing the necessary technical set-up before April 14, 2020, the CSSF decided that it will not prioritise its supervisory actions towards counterparties, entities responsible for reporting and investment firms in respect of their reporting obligations pursuant to the SFTR or MiFIR⁷, regarding: (i) SFTs concluded between April 13, 2020 and July 13, 2020, and (ii) SFTs subject to backloading under SFTR. The CSSF will monitor the evolution of the implementation by the relevant market participants and expects them to be sufficiently prepared ahead of the next phase of the reporting regime, i.e. July 13, 2020 in order to start reporting as of this date.

CSSF issues Circular 20/740 on financial crime and AML/CFT implications during the COVID-19 pandemic

On April 10, 2020, the CSSF issued Circular 20/740 on financial crime and AML/CFT implications during the COVID-19 pandemic (CSSF AML Circular). The CSSF AML Circular applies to those professionals that are subject to CSSF AML/CFT⁸ supervision. It covers the AML/CFT implications of the COVID-19 pandemic and should be read in conjunction with related guidance on COVID-19 by international, EU and national authorities.

The CSSF is committed to safeguarding the integrity of the financial sector and reiterates that the fight against financial crime remains a priority. It notes that as many economies experience a downturn, financial flows are likely to diminish. However, experience from past crises suggests that in many cases illicit financial flows will continue, and criminals and terrorists may seek to exploit temporary weaknesses in AML/CFT controls. The CSSF therefore requires that supervised professionals continue to put in place and maintain effective systems and controls to ensure that Luxembourg’s financial system is not abused for ML/TF⁹ purposes.

The CSSF AML Circular sets out several new and emerging ML/TF threats resulting from the COVID-19 pandemic and describes several possible areas of particular vulnerability for the financial sector. It also describes several mitigating actions that require particular focus from supervised professionals and outlines the CSSF’s approach to AML/CFT supervision during this period.

Launch of the IFM notification on fund issues and large redemptions via eDesk

On March 10, 2020, the CSSF implemented specific monitoring of the largest investment fund managers (IFM) in view of the specific circumstances and risks to which these companies are exposed to as a result of prevailing market conditions. Since then, these IFMs have had to notify the CSSF of significant developments and issues as well as on related decisions and measures taken by them.

The information collected helps the CSSF perform its daily supervision and supports its discussions with other authorities and market players to identify issues at an early stage and assist with the resolution of these. The CSSF also integrated the related notification process into its eDesk portal.

All IFMs concerned by the notification on fund issues and/or large redemptions (IFM Notification) have been contacted by the CSSF.

An IFM Notification has to be transmitted to the CSSF via eDesk only if the following events occur:

• Significant events/issues affecting the functioning of the investment funds managed by the IFM.
• Larger redemptions at the level of Luxembourg regulated investment funds (UCITS, Part II UCI, SIF) managed by the IFM (i.e. daily net redemptions exceeding 5 percent of the net asset value (NAV), net redemptions over a calendar week exceeding 15 percent of the NAV and/or application of gates/ deferred redemptions).

Further details on the IFM Notification, the scope of application and additional explanations assisting IFMs in filling it are outlined in the dedicated section of the CSSF eDesk portal homepage.

In order to give IFMs sufficient time to prepare, the IFM Notification applied as from June 2, 2020.

In order to support IFMs and to ensure a secured exchange platform, the response notification must be submitted by the IFM via the CSSF eDesk portal. For these purposes, the IFM must have an eDesk account with a ‘LuxTrust authentication’.