On 20 October 2022, the CSSF published its CSSF Feedback Report ("2022 Feedback Report") in which it presents its main observations and recommendations for improvements to the Luxembourg fund industry in the context of the ESMA Report on its Common Supervisory Action ("CSA") on costs and fees of UCITS and AIFs ("CSA Report").
In the CSA Report, ESMA stresses e.g. the importance of the investment fund managers' ("IFMs") pricing process to be structured and formalised in line with the characteristics of the funds managed and ESMA supervisory briefing on the supervision of costs in UCITS and AIFs.
In particular, ESMA stated that national competent authorities ("NCAs") should:
- require that IFMs develop and periodically review a structured pricing process addressing the specific aspects/elements listed in point 19 of the ESMA Supervisory Briefing on costs and fees (which sets out the principles of the notion of undue costs and the characteristics of a structured pricing process);
- incorporate the review of the IFMs' pricing processes in their activity at different stages and in the event of materialisation of undue costs charged to investors, NCAs should assess the possibility to request different actions including (but not limited to) investor compensation (where allowed under national provisions) or reduction of fees.
In its 2022 Feedback Report, among the recommendations addressed by the CSSF to IFMs is the requirement, by the end of the first quarter 2023, to conduct:
- a comprehensive assessment with regard to the compliance of their pricing process for both their UCITS and AIFs under management in relation to the observations and recommendations contained in the ESMA CSA Report, the CSSF 2022 Feedback Report and the ESMA Supervisory Briefing, and if applicable, to take the necessary corrective measures;
- a comprehensive assessment with regard to the compliance of the set-up of their efficient portfolio management (EPM) activities in relation to the observations made by ESMA and the CSSF, and if applicable, to take the necessary corrective measures.
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.