On May 16, 2022, the CSSF issued a new circular 22/811 regarding the authorisation and organisation of entities acting as UCI administrator (the Circular) replacing Chapter D of Circular IML 91/75. The Circular clarifies the activity of UCI administrators by specifying the principles of sound governance, the CSSF requirements on internal organisation, and good practices applicable to them.
What are the activities covered by the Circular?
The UCI administration activity may be split into three main functions:
- The registrar function
The registrar function encompasses all tasks necessary to maintain the UCI's unit-/shareholder register. The reception and execution of orders relating to units/shares subscriptions, redemptions, and income distribution (including the liquidation proceeds) are part of the registrar function.
- The NAV calculation and accounting
The NAV calculation and accounting function covers legal and fund management accounting services, valuation, and pricing (including tax returns).
- The client communication function
The client communication function is comprised of the production and delivery of the confidential documents intended for investors.
To whom does the Circular apply?
The Circular applies to all entities carrying out the activity, or part of the activity, of UCI administration as listed above.
It should be noted that the following UCIs (undertaking for collective investment) and IFMs (investment fund managers) are eligible to act as UCI administrator :
- Management companies incorporated under Luxembourg law and subject to Chapter 15 of the Law of 17 December 2010 relating to undertakings for collective investment, as amended (the 2010 Law);
- Management companies incorporated under Luxembourg law and subject to Chapter 16 of the 2010 Law;
- Alternative investment fund managers authorised under Chapter 2 of the Law of 12 July 2013 on alternative investment fund managers, as amended (the 2013 Law);
- Foreign IFMs pursuing the activity of UCI administrator for UCIs established in Luxembourg;
- Regulated Luxembourg UCIs, for themselves but not to other UCIs.
Luxembourg reserved alternative investment funds (RAIFs) and non-regulated alternative investment funds (AIFs) are not within the scope of the Circular if they have internalised the UCI administration unless they use an external UCI administrator which is subject to the Circular.
The UCI administration activity may further also be performed by the following external service providers established under the Law of 5 April 1993 on the financial sector, as amended (the 1993 Law):
- Credit institutions authorised under Part I, Chapter 1 of the 1993 Law;
- Luxembourg branches of credit institutions governed by foreign laws and authorised under Part I, Chapter 3 of the 1993 Law;
- Registrar agents authorised under Part I, Chapter 2 of the 1993 Law;
- Client communication agents authorised under Part I, Chapter 2 of the 1993 Law, but only for the client communication function as described in section 2.2.5 of the Circular; and
- Administrative agents authorised under Part I, Chapter 2 of the 1993 Law, only for the NAV calculation and accounting function and client communication function as described, respectively, in sections 2.2.4 and 2.2.5 of the Circular.
Before acting as an administrator for a given UCI, the preceding entities and service providers must assess whether the carrying out this activity by them is permitted, taking into account applicable legal provisions.
What are the requirements in terms of organisation?
The UCI administrator must have an adequate internal organisation (including an adequate and appropriate environment of control) and sufficient resources (e.g. human resources, technical infrastructure and IT means). The UCI administrator must act independently and be functionally and hierarchically separated from the depositary. Its name shall be disclosed in the offering documents of any UCI for which the UCI administrator acts in such capacity.
The UCI administrator's premises must be of sufficient size, adequate and secure. Access must be restricted to its staff and approved persons such as clients or visitors. To that effect, physical documents and records must be kept secure to warrant data confidentiality and protection. It is the responsibility of the UCI administrator to keep and safeguard physical records for the UCIs it services.
The data necessary to keep adequate records of the UCI's activity and encompassing the core UCI documentation shall be retained on a medium that allows for the storage of information in a way for it to be accessible for future reference by the UCI, the IFM when applicable, the statutory auditor of the UCI and the CSSF or any other national competent authority of the UCI. The UCI administrator must keep all accounting and other documents that constitute the core UCI documentation and are necessary to properly perform its obligations. The documents mentioned above of the UCI may be kept electronically by the UCI administrator. A UCI administrator must establish, implement and maintain systems and procedures that are adequate to safeguard the security (confidentiality, integrity and availability) of information, taking into account the nature of the information in question.
The UCI administrator must be organised so as to minimise potential or actual conflicts of interest. Where such conflicts of interest cannot be avoided, they must be disclosed to the management body of the UCI, its IFM, when applicable, and where appropriate and relevant, to investors in order to prevent them from adversely affecting the interests of those parties.
The UCI administrator may delegate to third parties (i.e. delegates) the performance of one or more of its UCI administration tasks (but is shall not create additional or increased risks for the UCIs, in particular legal or operational risks or be detrimental to it notably in terms of quality and/or costs). The delegation of tasks must be detailed in a dedicated written contract. The delegation of tasks does not relieve the UCI administrator of its responsibilities. In particular, with respect to the delegation in the area of the NAV calculation and accounting function, any final NAV, respectively its publication, must be controlled and validated by the UCI administrator.
A written contract must be concluded between the UCI administrator and the UCI and/or the IFM, when applicable. The agreement must clearly state each party's roles, responsibilities, rights and obligations. Such contract must not prevent the UCI or its IFM, when applicable, from giving instructions at all times to the entity to which UCI administration functions have been delegated or from withdrawing the mandate with immediate effect when this is in the best interest of investors. The UCI administrator must grant a right of access for the UCI and, when applicable, the IFM, the statutory auditor of the UCI, the liquidator, the CSSF or any other national competent authority of a UCI, where applicable, to the documents and data relating to its administration upon simple request. Moreover, the UCI administrator must allow the UCI or its IFM, when applicable, to conduct on-site visits at a frequency and under the terms to be laid down in the contract for exercising its due diligence and ongoing monitoring activities. The UCI administrator must communicate proactively the information, documents and data necessary to perform its duties to the UCI or its IFM, when applicable.
When does the Circular come into force?
The Circular entered into force with immediate effect on May 16, 2022. However, the requirement of authorisation set in section 2.2.1 of the Circular does not apply to entities already acting as UCI administrator at the date of entry in force of the Circular.
Additionally, a grandfathering period until June 30, 2023 has been granted to entities already acting as UCI administrators at the date of entry in force of the Circular to comply with the remaining provisions of the Circular. Starting from June 30, 2023, the UCI administrators must also file their annual reporting regarding their business activities and resources at the latest five months after their financial year-end.
The Circular is available by clicking on the following link: https://www.cssf.lu/wp-content/uploads/cssf22_811eng.pdf
Don't hesitate to contact our investment management team if you need our assistance to verify that your central administration set-up and your central administration agreement comply with the requirements of the Circular.
Chevalier & Sciales
Office: + 352 26 25 90 30
Fax: +352 26 25 83 88
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.