On 15 April 2011 the Luxembourg regulator of the financial sector (Commission de Surveillance du Secteur Financier – "CSSF"), issued a new circular reminding the Luxembourg fund industry of their obligation to adapt to the new regulatory regime, commonly referred to as "UCITS IV", within short.
The newly released CSSF circular 11/508 (the "Circular") highlights and clarifies the upcoming organizational requirements for Luxembourg located UCITS management companies and self-managed investment companies in accordance with the Directive 2010/43/EC, as transposed into Luxembourg law by the CSSF regulation 10-4 dated 17 December 2010.
As a quick reminder, the law of 17 December 2010 on undertakings for collective investments (the "UCITS Law 2010") has implemented the UCITC IV-Directive 2009/65/EC into Luxembourg law. One of the declared objectives of UCITS IV was the creation of a "level playing field" with regard to the substance and organizational requirements for all financial actors and service providers. The scope of the Financial Markets Directive (cf." MiFID Directive 2004/39/EC") introducing strict obligations vis-à-vis clients complaints, order executions, business conduct rules and more areas was limited to credit institutions and investment firms, management companies managing UCITS ("ManCos") were and are not covered by the MiFID Directive. UCITS IV now imposes similar rules and thereby harmonizes and aligns the diverse regulatory regimes for all players in the financial sector.
The grandfathering rules grant existing ManCos and investment companies ("SMICs") until 1 July 2011 to adapt to the new regulatory regime. However, in order to update its application files in time, the CSSF requires a set of written confirmations, descriptions and disclosures with regard to the UCITS IV – compliance from all ManCos and SMICs before 1 June of this year.
For ease of understanding please find hereinafter a table with the required actions and documents to be filed with the CSSF before 1 June 2011 together with the relevant regulatory context and the implementation work to be done (including any ongoing requirements).
I. Luxembourg ManCos

N° |
Area |
Key Issues |
Action |
Underlying regulatory obligation for ManCos |
Communication CSSF |
SMIC* |
1 |
General Organisation |
Procedure Handbook |
Drafting |
To establish a precise and clear handbook of procedures describing specifically
|
Confirmation |
|
" " |
Management Reporting and internal communication |
Implementation |
|
Description |
||
" " |
Information & Data protection |
Implementation |
|
Description |
||
" " |
Business continuity plan |
Drafting / |
establish, implement and maintain an adequate business continuity policy aimed at ensuring, in the case of an interruption to their systems and procedures, the preservation of essential data and functions, and the maintenance of services and activities, or, where that is not possible, the timely recovery of such data and functions and the timely resumption of their services and activities. |
Description |
||
" " |
Financial situation |
Nomination |
establish, implement and maintain accounting policies and procedures (i.e. procedure handbook) that enable them, at the request of the competent authority, to deliver in a timely manner to the competent authority financial reports which reflect a true and fair view of their financial position and which comply with all applicable accounting standards and rules. |
Disclosure of responsible person (name & CV) |
||
2 |
Human Resources |
Personnel / HR |
HR Management |
|
Description |
|
3 |
Complaints |
Policy on processing of clients' complaints |
Drafting |
|
Description |
X |
" " |
Appointment of complaints responsible / officer ** |
Nomination / |
Disclosure of responsible person (name & CV) |
X |
||
4 |
IT / Accounting |
IT Systems & Procedures and accounting policies |
Implementation |
|
Description |
|
" " |
Appointment of responsible accounting officer ** |
Nomination |
Disclosure of resp. person (name & CV) |
|||
5 |
Compliance& Audit |
Implementation of permanent compliance and internal auditfunction |
Implementation |
|
Description |
|
" " |
Appointment of compliance officer & internal auditor ** |
Nomination / Delegation |
Disclosure of resp. person (name & CV) |
|||
6 |
Risk Controlling |
Implementation of permanent risk controlling function |
Implementation |
Establish and maintain a permanent risk management function, implement the risk management policy and procedures; ensure compliance with the UCITS risk limit system, including statutory limits concerning global exposure and counterparty risk; provide advice to the board of directors as regards the identification of the risk profile of each managed UCITS; provide regular reports to the board of directors and, where it exists, the supervisory function, on: the consistency between the current levels of risk incurred by each managed UCITS and the risk profile agreed for that UCITS; the compliance of each managed UCITS with relevant risk limit systems; the adequacy and effectiveness of the risk management process, indicating in particular whether appropriate remedial measures have been taken in the event of any deficiencies; provide regular reports to the senior management outlining the current level of risk incurred by each managed UCITS and any actual or foreseeable breaches to their limits, so as to ensure that prompt and appropriate action can be taken; review and support, where appropriate, the arrangements and procedures for the valuation of OTC derivatives |
Description |
X |
" " |
Appointment of |
Nomination / |
Disclosure of resp. person (name & CV) |
X |
||
7 |
Personal transactions |
Policy |
Drafting |
establish, implement and maintain adequate arrangements aiming at preventing the following activities in the case of any relevant person who is involved in activities that may give rise to a conflict of interest, or who has access to inside information within the meaning of Article 1(1) of Directive 2003/6/EC or to other confidential information relating to UCITS or transactions with or for UCITS by virtue of an activity carried out by him on behalf of the management company () |
Confirmation |
|
8 |
Conflicts of Interest |
Policy |
Drafting |
establish, implement and maintain an effective conflicts of interest policy. That policy shall be set out in writing and shall be appropriate to the size and organisation of the management company and the nature, scale and complexity of its business and shall include the following: the identification of, with reference to the collective portfolio management activities carried out by or on behalf of the management company, the circumstances which constitute or may give rise to a conflict of interest entailing a material risk of damage to the interests of the UCITS or one or more other clients; procedures to be followed and measures to be adopted in order to manage such conflicts. |
Confirmation |
X |
9 |
Voting strategy |
Policy |
Drafting |
develop adequate and effective strategies for determining when and how voting rights attached to instruments held in the managed portfolios are to be exercised, to the exclusive benefit of the UCITS concerned. The strategy shall determine measures and procedures for: monitoring relevant corporate events; ensuring that the exercise of voting rights is in accordance with the investment objectives and policy of the relevant UCITS; preventing or managing any conflicts of interest arising from the exercise of voting rights. |
Confirmation |
X |
10 |
Rules of conduct |
Policy |
Drafting |
establish, implement and maintain effective and transparent procedures for ensuring that the management company
|
Confirmation |
X |
11 |
Risk management |
Policy |
Drafting |
establish, implement and maintain an adequate and documented risk management policy which identifies the risks the UCITS the management company manages are or might be exposed to. The risk management policy shall comprise such procedures as are necessary to enable the management company to assess for each UCITS it manages the exposure of that UCITS to market, liquidity and counterparty risks, and the exposure of the UCITS to all other risks, including operational risks, which may be material for each UCITS it manages. |
Confirmation |
X |
II. Specific requirements for Luxembourg ManCos
providing services under the European Passport
(via branch or on cross-border basis)
Risk management |
Policy |
Drafting |
Update program of activities |
Notification update |
X |
|
Policy |
Drafting |
Update program of activities |
Notification update |
X |
* Confirmations, disclosures & descriptions applicable to
self-managed investment companies are marked with a "X
** Outsourcing / delegation to third party service providers permitted
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.