Looking back at 2022
Content
- CSSF FAQ on the use of LMTs by investment funds
- New rules governing outsourcing arrangements
- Notification and de-notification procedures for pre-marketing and cross-border marketing
- Modernised framework for UCI administration
- SFDR clarifications from the ESAS
- New PRIIPS KID rules
- Level 2 disclosure requirements under SFDR
- ESAS’ report on PAI voluntary disclosures
- Application of sustainability preference under MiFID and integration of sustainability factors in product governance obligations
- Amendments to the requirements for professionals subject to the AML Law
- CSSF FAQ on cross-border distribution of funds
- Fossil gas and nuclear energy activities under the Taxonomy Regulation
- Standardised Model Prospectus for UCITS
- New ESAS’ SFDR Q&A
- CSSF FAQ on SFDR
- ESMA’s final report on draft technical standards on the notifications for cross-border marketing and cross-border management of AIFs and UCITS
- Other relevant topics
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CSSF FAQ on the use of LMTs by investment funds
On 31 March 2022, the Commission de Surveillance du Secteur Financier (CSSF) published new questions and answers (Q&A) on the application of liquidity management tools (LMTs) by investment funds in the context of the impact of the Ukraine crisis on financial markets, which, together with the restrictive measures taken by the European Union (EU) and other countries, rendered some assets illiquid or non-tradeable as a consequence of this crisis and the restrictive measures taken by both the EU and some other countries. In its Q&A, the CSSF addressed questions received from market participants regarding temporary and more structural measures, including on (i) the use of LMTs; (ii) the implementation of a segregation of assets; (iii) information to be provided to investors; and (iv) prior notification to the CSSF with a view to authorisation.
For more detailed information, please click here.
New rules governing outsourcing arrangements
On 22 April 2022, the CSSF published Circular 22/806 on outsourcing arrangements, which applies to (i) credit institutions, (ii) payment institutions and electronic money institutions, (iii) investment firms, and (iv) financial sector professionals (Full-scope Entities). It also applies to the following entities when performing ICT outsourcing: (i) investment fund managers, (ii) Part I undertakings for collective investment in transferable securities, (iii) central counterparties, (iv) approved publication arrangements and authorised reporting mechanisms, (v) market operators operating a trading venue, (vi) central securities depositories, and (vii) administrators of critical benchmarks (the Limited Scope Entities and together with the Full-scope Entities the Entities).
The Circular notably describes the outsourcing process and the requirements imposed upon the Entities, such as (i) a pre-outsourcing analysis including a risk assessment and a due diligence on the service provider,(ii) the written content of the outsourcing agreement, and of the sub-outsourcing arrangement, (iii) the control on confidentiality and integrity of data and system (ICT) throughout the outsourcing chain, (iv) the access to the information relating to outsourced functions by the internal audit function, the statutory auditor and the competent authority and (v) exit plans. The Circular is applicable from 30 June 2022 to all outsourcing arrangements entered into, reviewed or amended on or after this date. Entities must (i) review and amend existing outsourcing arrangements and (ii) complete the documentation of all existing outsourcing arrangements in accordance with the Circular following the first renewal of each existing outsourcing arrangement by no later than 31 December 2022.
To discover more on the content of Circular 22/806, please click here.
On 1 July 2022, the CSSF released a communiqué providing a notification template, together with explanation for outsourcing a critical or important business process (BPO – Business Process Outsourcing).
More information can be found by clicking here.
Notification and de-notification procedures for pre-marketing and cross-border marketing
On 12 May 2022, the CSSF issued Circular 22/810 on the procedures to be followed, inter alia, by Luxembourg-based undertakings for collective investment in transferable securities (UCITS) and alternative investment fund managers (AIFMs) to notify pre-marketing and cross-border marketing of units or the withdrawal of such activities, which shall eventually repeal Circular 11/509. Such procedures will be progressively made available on the eDesk portal and that the CSSF will continue to inform the entities that fall within the scope of the Circular on the evolution of the procedures available on the eDesk portal by separate communiqués.
Modernised framework for UCI administration
On 16 May 2022, the CSSF published Circular 22/811 on administrators of undertakings for collective investment (UCIs) with the aim of replacing and modernising Chapter D of Circular IML 91/75 in view of recent developments in UCI administration (legislative framework, technology, market evolution…), hence providing the UCI administrator industry with a strong and comprehensive regulatory framework, notably on (i) authorisation requirements; (ii) UCI administration functions; and (iii) organisational arrangements.
To find out more on the key takeaways, please click here.
SFDR clarifications from the ESAS
On 31 May 2022, the European Supervisory Authorities (ESAs) published a supervisory briefing aiming at providing guidance to National Competent Authorities (NCAs) regarding the supervision of sustainability-related disclosures and integration of sustainability risks, with the overall goal to increase transparency for investors as well as avoiding the practice of “greenwashing”.
On 2 June 2022, the ESAs also published clarifications on the regulatory technical standards (RTS) supplementing Regulation (EU) 2019/2088 of the European Parliament (EP) and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector (the SFDR), intending to give investment fund managers subject to SFDR some guidance on key areas of the RTS such as the principal adverse impacts (PAIs), the Taxonomy-alignment disclosures and the “do not significantly harm” (DNSH) disclosures.
To discover the key takeaways of the supervisory briefing and clarifications, please click here.
New PRIIPS KID rules
In 2021, ESMA performed a Common Supervisory On 24 June 2022, a new Delegated Regulation (EU) 2022/975, which was adopted by the European Commission (the EC) on 17 March 2022 and relates to the entry into force of certain rules on the Key Information Document (KID) for packaged retail and insurance-based investment products (PRIIPs), was published in the Official Journal. The aim was (a) to postpone the application of the rules laid down in Delegated Regulation (EU) 2021/2268 (the RTS Delegated Regulation), amending Delegated Regulation 2017/653 (the PRIIPs Delegated Regulation), to 1 January 2023; and (b) to prolong the application of the transitional arrangement contained in Article 14(2) of the PRIIPS Delegated Regulation until 31 December 2022 (instead of 30 June 2022), which enables PRIIP manufacturers to use the key investor information document drawn up in accordance with Articles 78 to 81 of Directive 2009/65/EC (the UCITS Directive), provided that at least one of the underlying investment options is a UCITS or non-UCITS fund as referred to in Article 32 of Regulation (EU) No 1286/2014 (the PRIIPs Regulation).
For more information on this topic, please click here.
On 16 December 2022, the CSSF published its updated Q&A on the law of 17 December 2010 on UCIs (the 2010 Law), whereby it notably confirmed that, as from 1 January 2023, manufacturers of Luxembourg UCITs have to provide a PRIIPS KID to retail investors in the European Economic Area (EEA), and that such PRIIPS KID must be filed with the CSSF before 31 January 2023. Non-compliance with this filing deadline will be considered to be a breach of the PRIIPs Regulation and the CSSF may impose sanctions accordingly.
If you want to discover the key elements of the Q&A, please click here.
Level 2 disclosure requirements under SFDR
On 25 July 2022, Commission Delegated Regulation (EU) 2022/1288 (the SFDR Delegated Regulation) laying down the RTS supplementing SFDR was published in the Official Journal of the EU, which applies as from 1 January 2023. On 27 July 2022, the CSSF published a new press release to remind the investment fund industry of the deadline of 1 January 2023 for specific update of UCITS’ and alternative investment funds’ (AIFs) pre-contractual and periodic documents under the SFDR Delegated Regulation, supplementing the SFDR and Regulation (EU) 2020/852 of 18 June 2020 on the establishment of a framework to facilitate sustainable investments (Taxonomy Regulation).
In that context, the CSSF reminds financial market participants which have not yet submitted to the CSSF the required updates to the prospectus/issuing documents of UCITS and/or AIFs to do so by 31 October 2022 at the latest, in which case the CSSF will endeavour to release the visa stamp prior to 31 December 2022.
ESAS’ report on PAI voluntary disclosures
On 28 July 2022, the ESAs have published, through the Joint Committee, a report to the EC on the extent of voluntary disclosure of PAIs, in accordance with Article 18 of SFDR. The ESAS’ findings show that level of compliance significantly varies across respondents and that generally when financial market participants (FMPs) belong to a larger group, this leads to a higher level of compliance. They have also put together a preliminary, indicative and non-exhaustive overview of best and less good practices for disclosures under Article 4(1) (a) and (b) SFDR, as well as some recommendations to the NCAs in their ongoing supervisory actions.
For more information on the report, please click here.
Application of sustainability preference under MiFID and integration of sustainability factors in product governance obligations
Delegated Regulation 2021/1253 relating to the integration of sustainability factors and sustainability risks and preferences into certain organisational requirements and operating conditions applicable to investment firms and credit institutions subject to MiFID, including alternative investment fund managers and management companies under Chapter 15, entered into force on 2 August 2022.
For more information on the key elements, please click here.
In connection therewith, Delegated Directive 2021/1269, which relates to the integration of sustainability factors into product governance obligations, has been implemented under national law by the Grand-Ducal Regulation of 27 July 2022, which entered into force on 22 November 2022. It aims at introducing sustainability factors (that are environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters) in the Grand-Ducal Regulation of 30 May 2018 on the protection of financial instruments and funds belonging to clients, product governance obligations and the rules applicable to the provision or reception of fees, commissions or any monetary or non-monetary benefits, thereby subjecting credit institutions and investment firms which manufacture and/or distribute financial instruments to certain new requirements in light of such sustainability factors.
For more information on this topic, please click here.
Amendments to the requirements for professionals subject to the AML Law
On 8 August 2022, the law of 29 July 2022 was published in the Official Journal of the Grand Duchy of Luxembourg, which notably amends the law of 12 November 2004 (the AML Law) to ensure coherence of the texts governing the fight against money-laundering and the financing of terrorism, their compliance with the international standards, and the proliferation of the Financial Action Task Force (FATF).
Want to know more on the key amendments? Please click here.
CSSF FAQ on cross-border distribution of funds
On 20 September 2022, the CSSF published a Q&A on the application of article 4 of Regulation (EU) 2019/1156 of the EP and of the Council of 20 June 2019 on facilitating cross-border distribution of collective investment undertakings (the CBDF Regulation), applicable since 2 August 2021, and the underlying guidelines of the European Securities and Markets Authority (ESMA) on marketing communication published on 2 August 2021, which have been implemented by the CSSF through Circular 22/795 and are applicable since 2 February 2022.
If you want to know more on the key takeaways, please click here.
Fossil gas and nuclear energy activities under the Taxonomy Regulation
Under the Taxonomy Regulation, a large range of economic activities may qualify as “environmentally sustainable” to the extent that they comply, inter alia, with scientific criteria provided by delegated acts.
With the adoption of Regulation (EU) 2020/852 of 18 June 2020 on the establishment of a framework to facilitate sustainable investment (the Complementary Climate Delegated Act) by the EP in July 2022, the environmentally sustainable economic activities aligned with the EU Taxonomy will include, under specific conditions, nuclear energy and fossil gas-related activities, as of 1 January 2023.
On 8 April 2022, the EC requested the ESAs to suggest amendments to the SFDR in line with the provisions of the Complementary Climate Delegated Act, which had just been approved by the EC.
Three months before the entry into force of the RTS, the ESAs published, on 30 September 2022, the updated RTS to include disclosures on gas and nuclear energy-related investments, which would meet the EU Taxonomy criteria.
Want to discover the key elements of the revised RTS, please click here.
On 31 October 2022, the EC adopted amendments to the SFDR Delegated Regulation, which are now subject to a three-month scrutiny period by the EP and the Council.
Standardised Model Prospectus for UCITS
The CSSF published a Standardised Model Prospectus for UCITS, together with a detailed User Guide, which is designed for the set-up of an undertaking for collective investment subject to Part I of the 2010 Law, in the form of an investment company with variable capital (SICAV), managed by a management company domiciled in Luxembourg or in another EU Member State, and set up with multiple sub-funds of low to average complexity.
For more information, please click here.
New ESAS’ SFDR Q&A
The ESAs have published a new Q&A on the SFDR Delegated Regulation. This Q&A gives further clarity on a few key topics, while answering to some of the questions by cross-referencing to their clarification document published in June 2022, notably on (i) the current value of all investments in PAIs and Taxonomy-aligned disclosures; (ii) PAI disclosures; (iii) financial product disclosures; (iv) multi-option products; (v) Taxonomy-aligned investment disclosures; and (vi) financial advisers and execution-only financial market participants.
For more information on the key features of the Q&A, please click here.
CSSF FAQ on SFDR
On 2 December 2022, the CSSF published a Q&A on the application of the SFDR and RTS, entering into force on 1 January 2023, a few weeks after the publication of a Q&A on SFDR by the ESAs, bringing additional clarification and certainty on key points for the application of SFDR by the FMPs, notably on (i) the materiality of changes in relation to SFDR; (ii) the use of an exclusion strategy; and (ii) sustainable investments during the life-cycle of Article 9 funds.
For more information on the key elements comprised in the CSSF FAQ, please click here.
ESMA’s final report on draft technical standards on the notifications for cross-border marketing and cross-border management of AIFs and UCITS
ESMA is empowered under the UCITS Directive and AIFMD to develop draft RTS and draft implementing technical standards (ITS) to specify the information to be provided, the content and format of notification letters to be submitted by management companies, UCITS and AIFMs to the NCAs to undertake cross-border marketing or cross-border management activities and to provide services in host Member States, as well as the procedure for the communication of the notification file by the relevant home NCA to the host NCAs of the Member States where these activities are envisaged. On 17 May 2022, ESMA published a consultation paper, which consultation closed on 9 September 2022. ESMA has submitted the RTS and ITS to the EC for adoption within three months, respectively in the form of a Commission Delegated Regulation and a Commission Implementing Regulation, which will then be subject to the non-objection of the European Parliament and of the Council.
Want to discover the key elements of the final report, please click here.
Other relevant topics
LuxSE enables issuers to register DLT Financial Instruments on the SOL
On 31 January 2022, the Luxembourg Stock Exchange (LuxSE) published new guidelines regarding the registration of certain distributed ledger technology (DLT) financial instruments (the DLT Financial Instruments) onto its Securities Official List (SOL) under the following criteria: (i) debt instruments are offered exclusively to qualified investors or issued in a denomination per unit that amounts to at least EUR 100,000; (ii) issuers have previously issued securities in capital markets or applicants have a proven track record in capital market transactions; and (iii) pricing is in FIAT currency. Such registration will enhance the visibility of DLT Financial Instruments and facilitate the dissemination of indicative prices and securities data in relation thereto.
For more information on this topic, please click here.
New Luxembourg Securitisation Law
On 9 February 2022, the Chamber of Deputies voted the law amending the Luxembourg law of 22 March 2004, bringing additional flexibility for securitisation vehicles while ensuring the protection of investors from the risks related to the investments in securitised pool of assets. The key features include (i) additional legal forms for SVs, (ii) a clarification of the definition of offer to the public on a continuous basis, (iii) the extension of the scope of borrowing settlements, (iv) the possibility of active management of assets and (v) the segregation of assets in several compartments.
For more details on the amendments, please click here.
CSSF notice to private consumers on virtual assets
On 22 July 2022, the CSSF published a notice to private consumers in the context of investment funds providing exposure to virtual assets, in which it outlines the growing importance of virtual assets within the financial sector, remind of the risks associated with such investment, and encourages consumers to get informed on the topic, notably by getting acquainted with the dedicated guidance published on 27 April 2022.
For more information on this topic, please click here.
New LuxSE’s fast-lane procedure for Euro MTF listings
As a result of consultations with international stakeholders, the LuxSE has launched a new fast-lane procedure for Euro MTF listings, which will not require the disclosure of certain information already available in other public sources when applying for a listing, nor the formal approval of a prospectus.
