SCANNING SEPTEMBER 2018

European Regulatory Watch Newsletter


Summary

EUROPE

From above
AML/CFT - Targeted Amendments to the Commission’s Proposal for a Regulation reviewing ESAs’ mandates

  • Background

    The fight against money laundering and terrorist financing ("ML/TF") is a priority for the European Commission ("Commission") and is an integral part of the risk-reduction actions pursued within the Banking Union (available here) and the Capital Markets Union (available here).

    The Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of ML or TF applies since 26 June 2017 ("4AMLD", available here). By 10 January 2020, Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with the Directive (EU) 2018/843 amending 4AMLD ("5AMLD", available here).

    Despite this strengthened legislative AML/CFT framework, some recent cases of ML in EU banks have given rise to concerns on the articulation between the prudential and AML rules for financial institutions. At present, supervision of compliance with AML rules follows a national approach, based on host country supervision, with only minimum harmonisation of supervisory competences, and no harmonisation of the powers of the supervisory authorities.

    On 20 September 2017, the Commission published its proposal for a regulation setting out revisions of the European Supervisory Authorities’ ("ESAs") founding Regulations and various related sector acts (COM(2017) 536 final - the "Proposal 1", available here).

    In May 2018, the Commission set up a working group bringing together the ESAs, the European Central Bank ("ECB") and the Chair of the AML Committee of the ESAs to reflect on possible actions to improve the current cooperation between AML and prudential supervisors.

    What's new?

    On 12 September 2018, the Commission issued targeted amendments to the Proposal 1 (i) to concentrate AML powers in relation to the financial sector within the European Banking Authority ("EBA"), and (ii) to strengthen its mandate to ensure that risks of ML/TF are effectively and consistently supervised by all relevant authorities and that the relevant authorities cooperate and share information (COM(2018) 646 final - the "Proposal 2").

    In this context, the Proposal 2 and a dedicated communication (COM(2018) 645 final – the "Communication") clarify the EBA's mandate in the context of AML in order to make it more explicit and comprehensive, accompanied by a clear set of tasks, corresponding powers and adequate resources.

    The main changes introduced by the Proposal 2 are summarised below:

    • The EBA should be able to request national supervisors to investigate cases where financial sector operators are alleged to have breached their obligations under 4AMLD/5AMLD and to request them to consider targeted actions/sanctions;
    • Under certain conditions, the EBA as a last resort should be able to adopt decisions and impose sanctions directly addressed to financial sectors operators, requiring them to comply with their legal obligations;
    • Enhancing the quality of supervision through common standards, EBA periodic independent reviews on AML issues (with information on serious AML shortcomings to be communicated to the European Parliament, the Council of the EU and the Commission) and risk-assessment exercises;
    • The EBA should become the "data-hub" on AML supervision in the EU and hence should be able to collect all the necessary information and data from AML and prudential supervisory authorities;
    • The EBA should take a leading role in coordinating cooperation with relevant 3rd countries in cases entailing a cross-border dimension; and
    • The current AML Committee of the ESAs should be transformed into a Standing Committee of the EBA, which should be composed of the heads of all national AML supervisory authorities.

    The Proposal 2 is available here.

    The Communication is available here.

    The Fact Sheet on the Proposal 2 is available here.

    The Press Release on the Proposal 2 is available here.

    The State of the Union 2018 Brochure is available here.

    What's next?

    The Commission encourages the European Parliament and the Council of the EU to reach swiftly an agreement on the Proposals 1 and 2.

  • BMR - ESMA updates its Benchmarks Register

  • Background

    The Regulation (EU) 2016/1011 of the European Parliament and the Council on indices used as benchmark in financial instruments and financial contracts applies since 1 January 2018 (the "BMR", available here). The BMR is relevant for any investment fund that uses any benchmark to assess its performance, to define asset allocation of its portfolio, or to compute its performance fees.

    In accordance with Article 36 of the BMR, the ESMA started publishing the list of benchmark administrators and third country benchmarks on 3 January 2018 (i.e. ESMA’s first working day of 2018). So far, the ESMA has published the latest register information on its website daily (i.e. on ESMA working days) and has made it available for download in csv format.

    On 17 July 2018, the ESMA last updated its questions and answers' document on the BMR (ESMA70-145-11, available here).

    What's new?

    On 7 September 2018, the ESMA moved its register for benchmark administrators and third country benchmarks to the ESMA registers database (the "Database") and made available the public register interface.

    The portal offers machine-to-machine services to large-scale organizations, including a set of web services for retrieval of data maintained in ESMA registers repositories.

    The press release on the Database is available here.

    The Database is available here.

    What's next?

    More information on the ESMA "Benchmark Reference Data System" is available here.

  • CSDR - RTS on settlement discipline published in the OJEU

  • Background

    The Regulation (EU) No 909/2014 of the European Parliament and of the Council on improving securities settlement in the EU and on central securities depositories ("CSDs") applies since 1 January 2015 ("CSDR", available here).

    CSDR aims to improve the safety and efficiency of securities settlement, in particular for cross-border transactions, by ensuring that buyers and sellers receive their securities and money on time and without risks. To achieve this objective, CSDR harmonises the timing and framework for securities settlement in the EU. It provides measures to prevent and address failures in the settlement of securities transactions ("settlement fails"), commonly referred to as settlement discipline measures.

    Articles 6(5) and 7(15) of CSDR empower the European Commission (the "Commission") to adopt regulatory technical standards ("RTS") further specifying settlement discipline measures to be taken by investments firms and CSDs.

    On 10 March 2017, the Commission delegated regulation (EU) 2017/389 supplementing CSDR as regards the parameters for the calculation of cash penalties for settlement fails and the operations of CSDs in host Member States was published in the OJEU (the "Regulation 2017/389", available here). The Regulation 2017/389 will apply as from 10 March 2019.

    On 25 May 2018, the Commission issued its draft delegated regulation supplementing CSDR with regard to RTS on settlement discipline (C(2018) 3097 final - the "Draft Regulation" and "Draft Annexes" are respectively available here and here). Against this background, the Draft Regulation specifies most notably the following areas:

    • Timing and content of communications between investment firms and their clients concerning trades that should be settled in the securities settlement systems operated by CSDs;
    • Measures to be taken by CSDs in order to limit the number of settlement fails and systems that enable monitoring the number, value and length of settlement fails;
    • Requirements to report planned and taken measures to improve settlement efficiency;
    • Rules for CSDs to charge cash penalties to users that cause settlement fails;
    • Rules concerning mandatory buy-in and the different steps in the execution of its process;
    • Cases where a buy-in is considered not possible and its process is considered ineffective;
    • Contractual arrangements and procedures between parties in the settlement chain to incorporate the requirements of the buy-in process;
    • Entities responsible for conducting buy-ins and responsibilities of the different parties;
    • Calculation and payment of the cash compensation for failed buy-ins;
    • Timeframes for the launch of the buy-in process and the following delivery of financial instruments;
    • Cases when CSDs may discontinue its services to users that consistently and systematically cause settlement fails; and
    • Settlement information that CSDs should provide to relevant central counterparties ("CCPs") and trading venues.

    What's new?

    On 13 September 2018, based on the Draft Regulation, the Commission delegated regulation (EU) 2018/1229 supplementing CSDR in relation to RTS on settlement discipline was published in the OJEU (the "Regulation 2018/1229").

    The structure of the Regulation 2018/1229 remains the same as the one used for the Draft Regulation, namely:

    • Chapter I - General (Article 1);
    • Chapter II - Measures to prevent settlement fails (Articles 2 to 11);
    • Chapter III - Measures to address settlement fails (Articles 13 to 41);
      • § Section 1 - Monitoring settlement fails;
      • § Section 2 - Cash penalties;
      • § Section 3 - Details of the buy-in process;
      • § Section 4 - Timeframes for buy-in process;
      • § Section 5 - Systematic delivery failure; and
      • § Section 6 - Settlement information.
    • Chapter IV - Final provisions (Article 42).

    Noteworthy are also the final version of the 3 Annexes to the Regulation 2018/1229, as follows:

    • Table 1 of the Annex I - General information on settlement fails to be reported by CSDs to the competent authorities and relevant authorities on a monthly basis;
    • Table 2 of the Annex I - Daily data on settlement fails to be reported by CSDs to the competent authorities and relevant authorities on a monthly basis;
    • Table 1 of the Annex II - Information on settlement fails to be reported by CSDs to the competent authorities and relevant authorities on an annual basis; and
    • Table 1 of the Annex III - Report on settlement fails to be made public on an annual basis.

    The Regulation 2018/1229 is available here.

    What's next?

    The Regulation 2018/1229 will enter into force on 14 September 2020 (i.e. 24 months after its publication on 13 September 2018).

    The Commission points out that measures to address settlement fails related to buy-in and penalties may require significant IT system changes, market testing and adjustments to legal arrangements between the parties concerned, including CSDs and other market participants.

  • MIFID II/MIFIR - ESMA renews prohibition on binary options

  • Background

    The MiFID II Directive (available here) and MIFIR Regulation (available here) encompass rules on governance, products, investor protection and information disclosure and are applicable since 3 January 2018.

    Under Article 40 of MiFIR Regulation, the ESMA is entitled to temporarily prohibit or restrict the marketing, distribution and sale of certain financial instruments or types of activity.

    On 1 June 2018, the ESMA has adopted two product intervention decisions in relation to contract for differences (CFDs) and binary options. The decision 2018/795 (available here) temporarily prohibited the marketing, distribution or sale of binary options to retail investors. The features of a binary option were clearly defined in Article 1 of the decision. The prohibition started on 2 July 2018 and was initially applicable for 3 months.

    What's new?

    On 24 August 2018, the ESMA renewed the prohibition of the marketing, distribution and sale of binary options to retail investors from 2 October 2018 for a further 3 months period. The ESMA considers that a significant investor protection concern related to the offer of binary options to retail clients continues to exist.

    However, certain binary options were found to have specific features, which mitigate the risk of investor detriment. Hence, ESMA agreed to exclude from the scope of the renewal the following binary options:

    • A binary option for which the lower of the 2 predetermined fixed amounts is at least equal to the total payment made by a retail client for the binary option, including any commissions, transaction fees and other related costs; and
    • A binary option that meets cumulatively the following three (3) conditions:

      a) The term from issuance to maturity is at least ninety (90) calendar days;
      b) A prospectus drawn up and approved in accordance with the Prospectus Directive is available to the public;
      c) The binary option does not expose the provider to market risk throughout the term of the binary option and the provider or any of its group entities do not make a profit or loss from the binary option, other than previously disclosed commissions, transaction fees or other related charges.

    The ESMA decision is available here.

    What's next?

    Following the adoption of the renewal measure in the official languages of the EU in the coming weeks, the measure will be published in the Official Journal of the EU and will start to apply from 2 October 2018 for a period of 3 months.

  • Securitisation - ESMA issues draft technical standards on the details to be made available by the originator, sponsor and SPPE

  • Background

    The Securitisation Regulation (Regulation (EU) 2017/240 ("SR"), available here) sets out a general framework for all securitisations - thus including due diligence, risk retention and transparency rules - and applies rules to identify Simple, Transparent and Standardised ("STS") securitisations.

    Under Article 7, the originator, sponsor and SSPE of a securitisation have to disclose specific information to holders of a securitisation position, competent authorities and, upon request, potential investors.

    In such context, the ESMA has been mandated to develop technical standards covering securitisation disclosure requirements.

    What's new?

    On 22 August 2018, the ESMA issued 2 draft technical standards: a draft of Regulatory Technical Standards ("RTS") and a draft of Implementing Technical Standards ("ITS") on the details to be made available as regards securitisation vehicles.

    First, the draft RTS specify information to be provided regarding:

    • The underlying exposures of the securitized instrument. In this regard, specific templates have been developed according to the type of securitisation and underlying exposure.
    • Investor report information. This encompasses details on the credit quality and performance of underlying exposures, on events that trigger changes in the priority of payments or the replacement of any counterparties, and, where applicable given the type of securitisation, on the cash flows.
    • Any inside information on insider dealing and market manipulation relating to the securitisation.
    • Information on significant events affecting the securitisation, including material changes in its structural features, changes to its risk characteristics and, for STS securitisations, where the securitisation ceases to meet the STS requirements or where competent authorities have taken remedial or administrative sanctions.

    Furthermore, the draft RTS distinguishes between non-ABCP securitisation and ABCP securitisation and between all securitisations and those securitisations that are required to make information available via a securitisation repository.

    Second, the draft ITS specify the format and templates that are expected to be used by originators, sponsors and SSPEs for making the previously mentioned information available.

    The ESMA technical standards are available here.

    In addition to the technical standards, the ESMA also published the following Excel reporting templates, which correspond to the annexes of the final report, ?Technical standards on disclosure requirements under the Securitisation Regulation’:

    Annex 2 - Underlying exposures - residential real estate

    Annex 3 - Underlying exposures - commercial real estate

    Annex 4 - Underlying exposures - corporate

    Annex 5 - Underlying exposures - automobile

    Annex 6 - Underlying exposures - consumer

    Annex 7 - Underlying exposures - credit cards

    Annex 8 - Underlying exposures - leasing

    Annex 9 - Underlying exposures - esoteric

    Annex 10 - Underlying exposures - add-on non-performing exposures

    Annex 11 - Underlying exposures - ABCP

    Annex 12 - Investor report - Non-ABCP securitisation

    Annex 13 - Investor reports - ABCP securitisation

    Annex 14 - Inside information - Non-ABCP securitisation

    Annex 15 - Inside information - ABCP securitisation

    Annex 16 - Significant event - information non-ABCP securitisation

    Annex 17 - Significant event - information ABCP securitisation

    What's next?

    These draft RTS have been submitted to the European Commission for endorsement. The ESMA purposefully published its technical standards ahead of the formal deadline of 19 January 2019. Indeed, the ESMA has taken notes of market participants’ concerns regarding potential disruptions due to changes in reporting requirements.

  • SFTR - ESMA publishes an opinion and letter to the EC on its amendments proposal

  • Background

    Regulation (EU) 2015/2365 ("SFTR" - available here) aims at increasing the transparency of Securities Financing Transactions ("SFTs") and requires all SFTs to be reported to trade repositories ("TRs"). The regulation also sets minimum transparency requirements towards investors on SFTs entered into by investment fund managers as well as collateral reuse.

    On 30 March 2017, the ESMA adopted draft Regulatory and Implementing Technical Standards (available here) on the details of SFTs to be reported to TRs as well as the frequency and format of such reports.

    On 24 July 2018, the European Commission ("EC") notified the ESMA of its intention to endorse and amend such Technical Standards ("TS") (amended TS available here). The EC is of the view that the responsibility to introduce changes to reporting requirements due to potentially forthcoming industry standards - such as the use of legal entity identifiers ("LEI") for branches and unique transaction identifiers ("UTI") for reporting to trade repositories - belongs to the EC and wants to amend the draft TS accordingly.

    What's new?

    On 5 September 2018, the ESMA published its response to the EC’s amendments proposal on the draft RTS and ITS related to SFTR in a letter and an opinion.

    The ESMA is of the view that the proposed amendments:

    • Will hinder the possibility to take into account international developments and reporting standards agreed at global level and risk timely alignment with international reporting standards;
    • Will deviate from and create inconsistency with the currently applicable EMIR reporting standards.

    The ESMA therefore decided to leave its draft TS unchanged.

    The ESMA’s letter is available here.

    The ESMA’s opinion is available here.

    What's next?

    Pursuant to the ESMA’s Regulation, the authority is required to adopt a formal opinion on proposed amendments to its draft technical standards. The EC may now decide to adopt the draft technical standards.

  • SRD - Commission Implementing Regulation 2018/1212 will apply from 3 September 2020

  • Background

    The Directive 2007/36/EC of the European Parliament and of the Council on the exercise of certain rights of shareholders in listed companies applies since 3 August 2009 ("SRD", available here). SRD gives the right to listed companies to identify their shareholders and requires intermediaries to cooperate in that identification process. SRD also aims to improve the communication by listed companies to their shareholders, in particular the transmission of information along the chain of intermediaries and requires intermediaries to facilitate the exercise of shareholders rights (e.g. the right to participate and vote in general meetings, or financial rights).

    The Directive (EU) 2017/828 of the European Parliament and of the Council amending SRD as regards the encouragement of long-term shareholder engagement shall be transposed in EU Member States by 10 June 2019 ("SRD2", available here).

    On 9 May 2018, the Commission services closed the consultation on a draft Commission implementing regulation laying down minimum requirements implementing the provisions of SRD as regards shareholder identification, the transmission of information and the facilitation of the exercise of shareholders rights (Ref. Ares(2018)194424007 - the "Draft Implementing Regulation", available here).

    Against this background, the Draft Implementing Regulation should ensure the efficient functioning of Union capital markets for shares with common formats of data and message structures in transmissions between intermediaries, issuers and shareholders.

    In order to facilitate and make the exercise of shareholders rights more efficient, particularly cross-borders, the use of modern technologies in communication between issuers and their shareholders, and by intermediaries, including other service providers which are deployed for these processed, should be encouraged. To the extent possible, any communication should be transmitted using machine-readable and standardised formats which are interoperable between operators and which allow straight-through processing. However, intermediaries should make accessible to shareholders, who are not intermediaries, information and the means to react in reasonable time using widely available modalities, which enable straight-through processing by intermediaries.

    As the Draft Implementing Regulation only includes minimum requirements, intermediaries and other market participants should be encouraged to further self-regulate these formats according to the needs of different markets and holding models for shares.

    What's new?

    On 4 September 2018, based on the feedback received to the Draft Implementing Regulation, the Commission implementing Regulation (EU) 2018/1212 of 3 September 2018 laying down minimum requirements implementing the provisions of SRD as regards shareholder identification, the transmission of information and the facilitation of the exercise of shareholders rights was published in the OJEU (the "Regulation 2018/1212").

    In particular, Article 9(2) of the Regulation 2018/1212 (entitled 'Deadlines to be complied with by the issuers and intermediaries in corporate events and in shareholder identification processes') now provides that: 'The first intermediary and any other intermediary receiving the information regarding a corporate event shall transmit such information to the next intermediary in the chain without delay and no later than by the close of the same business day as it received the information. Where the intermediary receives the information after 16.00 during its business day, it shall transmit the information without delay and no later than by 10.00 of the next business day'. The wording of the Article 10 of the Regulation 2018/1212 in relation to minimum-security requirements has been further detailed.

    Noteworthy are also the final version of the 8 following Tables contained in the Annex to the Regulation 2018/1212:

    • Table 1 - Request to disclose information regarding shareholder identity;
    • Table 2 - Response to a request to disclose information regarding shareholder identity;
    • Table 3 - Meeting Notice;
    • Table 4 - Confirmation of Entitlement;
    • Table 5 - Notice of Participation;
    • Table 6 - Voting Receipt;
    • Table 7 - Confirmation of the recording and counting of votes; and
    • Table 8 - Notification of corporate events - other than general meetings.

    The Regulation 2018/1212 is available here.

    What's next?

    The Regulation 2018/1212 will enter into force on 24 September 2018 and will apply from 3 September 2020.

  • LUXEMBOURG

    Investment Funds - ALFI Recommendations for the future development of the investment fund sector

  • Background

    The Association of the Luxembourg Fund Industry (the "ALFI") underlines 4 global trends and challenges affecting the fund industry:

    • Strong growth of the alternative funds’ sector;
    • Increased cost pressure in a persistently low interest rate environment;
    • Digitization and increasing automation at all levels of the value chain; and
    • Growing importance of passive management (indexed funds) and exchange-traded funds ("ETFs").

    What's new?

    On 17 September 2018, the ALFI issued its recommendations for the future development of the investment fund sector in Luxembourg (the "Recommendations").

    In this context, the Recommendations are divided into the following 3 axes:

    • Ecosystem and toolbox
      • Promote the development of socially responsible investment funds;
      • Develop a framework for real estate "REIT" funds;
      • Ensure that key European directives for the funds’ sector are transposed in time;
      • Encourage dialogue and optimal responsiveness of all private and public stakeholders; and
      • Set up a university risk management training.
    • Taxation
      • Conduct an in-depth analysis of the subscription tax system for funds (by rethinking the principles, taking into account the different types of funds, the categories of investors and the fundamental trend towards lowering the operational costs of funds);
      • Renegotiate some double taxation treaties; and
      • Continue to adapt the nominal tax rate in order to allow Luxembourg to remain competitive against competing financial centres (especially in the context of Brexit);
    • Financial education and long-term investment
      • Make every effort to enable the development of new pan-European personal retirement savings products ("PEPP"), particularly in terms of tax treatment; and
      • Make financial education an integral part of school programs, especially high schools.

    The Recommendations are available here (only in French).

    What's next?

    The ALFI has put forward the Recommendations ahead of the Luxembourg’s general election, which will take place on 14 October 2018.

  • AIMFD - CSSF updates its FAQ

  • Background

    The Directive 2011/61/EU of the European Parliament (the "Parliament") and of the Council of the EU (the "Council") on alternative investment fund managers (the "AIFMD", available here) and the Commission Delegated Regulation (EU) No 231/2013 supplementing the AIFMD with regard to exemptions, general operating conditions, depositaries, leverage, transparency and supervision (the "Delegated Regulation", available here) apply since 22 July 2013.

    The AIFMD is transposed in Luxembourg legislation by the Law of 12 July 2013 (the "Law", available here).

    In this context, the CSSF frequently asked questions document concerning the AIFMD, the Delegated Regulation and the Law, provides guidance on some of the key aspects of the AIFMD from a Luxembourg point of view since 18 June 2013 ("FAQ"). The FAQ shall be read in conjunction with the corresponding European Securities and Markets Authority's questions and answers' document most recently updated on 23 July 2018 (ESMA-34-32-352 — the "ESMA Q&A", available here).

    The Regulation (EU) No 1286/2014 of the Parliament and the Council entered into force on 29 December 2014 and applies since 1 January 2018 (the "PRIIPs Regulation", available here).

    The CSSF last updated its FAQ on 6 July 2017 (the "FAQ v11", available here). The FAQ v11 introduced a new Section 23 in order to specify the impact of the PRIIPs Regulation on Luxembourg AIFs.

    What's new?

    On 14 August 2018, the CSSF updated its FAQ v11 in order to update the Q&A 23.b as follows (the "FAQ v12"):

    • Question 23.b — "Can Luxembourg AIFs the units of which are being advised on, offered or sold to retail investors benefit from the exemption provided under Article 32(2) of the PRIIPs Regulation if they have issued a UCITS KIID?
    • Answer 23.b — Yes. Such AIFs may issue a UCITS KIID [deleted text: "before 1 January 2018"] in order to be exempted from the obligations of the PRIIPs Regulation until 31 December 2019, provided that the following conditions are complied with:
      • The UCITS KIID to be issued under the Law of 2010 should comply with articles 159 to 162 of the Law of 2010, as well as with the provisions of Commission Regulation (EU) n° 583/2010;
      • The UCITS KIID should be issued for each retail share class of the sub-funds of the relevant Luxembourg AIF [deleted text: "before 1 January 2018];
      • The offering document of the Luxembourg AIF in question should be amended in order to reflect the distribution of a UCITS KIID to all retail investors contemplating an investment in the AIF. The offering document should also mention that the UCITS KIID shall be published on the website of the Registered or Authorised AIFM of the Luxembourg AIF and that it shall be available, upon request, in paper form."

    The FAQ v12 is available here.

    What's next?

    The FAQ v12 is intended to be continually edited and updated by the CSSF, as and when new questions are received.

  • AML/CFT - 4AMLD Transposition Law on information to be obtained and kept by trustees enters into force on 25 August 2018

  • Background

    The Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing applies since 26 June 2017 ("4AMLD", available here).

    According to Article 31(1) of 4AMLD, EU Member States shall require that trustees of any express trust governed under their law obtain and hold adequate, accurate and up-to-date information on beneficial ownership regarding the trust.

    On 6 December 2017, the Luxembourg Minister of Justice submitted the bill 7216 establishing a register of express trusts and transposing Article 31 of 4AMLD to the Luxembourg Parliament (the "Bill 7216", available here only in French).

    On 18 February 2018, the Luxembourg law of 13 February 2018 transposing most of the provisions of 4AMLD (excluding Articles 30 and 31 of 4AMLD) entered into force (the "4AMLD Transposition Law", available here only in French). The coordinated version of the Luxembourg law of 12 November 2004 on the fight against money laundering and terrorist financing (the "2004 Law") is available here.

    On 19 June 2018, the Directive (EU) 2018/843 amending 4AMLD was published in the OJEU ("5AMLD", available here). In particular, Article 1(16) of 5AMLD modifies Article 31 of 4AMLD. 5AMLD entered into force on 9 July 2018.

    On 29 June 2018, the President of the Luxembourg Parliament sent a letter to the President of the Luxembourg Conseil d’État ("CE"), which explains the rationale behind the split of the Bill 7216 into the following two bills (the "Letter", available here only in French):

    ? "Bill 7216A" relates to the information to be obtained and kept by trustees and transposes Article 31 of 4AMLD; whereas

    ? "Bill 7216B" establishes a register of express trusts and transposes Article 31 of 4AMLD. Noteworthy is here that 5AMLD makes substantial amendments to 4AMLD concerning the scope and operational provisions of the central register. Article 1(45) of 5AMLD provides that registers mentioned under Article 31 of 4AMLD shall be set up by 10 March 2020 (and hence postpones the transposition deadline foreseen in 4AMLD).

    On 26 July 2018, the Luxembourg Parliament voted at 1st reading on the Bill 7216A, and on 27 July 2018, the CE waived the 2nd constitutional vote on the Bill 7216A. All the legislative steps in relation to the adopted Bill 7216A are available here (only in French).

    What's new?

    On 21 August 2018, based on the adopted Bill 7216A, the Luxembourg Law of 10 August 2018 concerning the information to be obtained and kept by trustees and transposing Article 31 of 4AMLD was published in the Memorial A N° 702 (the "Law").

    In this context, trustees shall obtain, update and keep (for 5 years after the termination of their involvement in the trust) "adequate, exact and actual" information on the beneficiaries of any trust for which they are trustees, as listed in Article 2 of the Law. Upon request from the "national authorities", trustees shall provide them with such information. In addition, trustees shall declare their status and provide the information referred to in Article 2 of the Law to the "professionals" when (i), acting as trustees, they enter into a business relationship with them, or (ii) perform, on an occasional basis, a transaction that exceeds the thresholds set in Article 3(1)(b),(ba) and (bb) of the 2004 Law.

    Pursuant to Article 9 of the Law, the "control authorities" (e.g. the CSSF and the Commissariat aux Assurances) may impose administrative sanctions in case of breaches to the new obligations laid out in Articles 2 to 6 of the Law (e.g. administrative fines of not more than twice the amount of the benefit from the breach, where it is possible to determine such amount, or up to EUR 1,250,000).

    The Law is available here (only in French).

    What's next?

    The Law enters into force on 25 August 2018.

  • AML/CFT - Law organising the FIU enters into force on 1 November 2018

  • Background

    The Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing applies since 26 June 2017 ("4AMLD", available here).

    According to Article 32(1) and (3) of 4AMLD, EU Member States shall establish an operationally independent and autonomous Financial Intelligence Unit ("FIU") in order to prevent, detect and effectively combat money laundering and terrorist financing ("ML/TF").

    At international level, the Financial Action Task Force regularly updates its ML/TF recommendations’ document since 16 February 2012 (the "FATF Recommendations", available here). In particular, Recommendation 20 provides that countries should establish a FIU that serves as national centre for the receipt and analysis of (i) suspicious transaction reports, and (ii) other information relevant to ML, associated predicate offences and TF, and for the dissemination of the results of that analysis.

    At Luxembourg level, the main piece of legislation in relation to the fight against ML/TF is the Law of 12 November 2004, which was lastly amended on 23 April 2018 (the "2004 Law", available here only in French). The latest CSSF coordinated version of the 2004 Law is available here in English.

    On 23 April 2018, the Luxembourg Minister of Justice submitted the bill 7287 concerning the organisation of the "Cellule de renseignement financier" ("CRF" in French or "FIU" in English), in compliance with certain provisions of 4AMLD and the FATF Recommendations, to the Luxembourg Parliament (the "Bill 7287", available here only in French). On 25 July 2018, the Luxembourg Parliament voted at first reading on the Bill 7287, as amended, and the Luxembourg Council of State waived the 2nd constitutional vote on such bill on 27 July 2018. All the legislative steps in relation to the adopted Bill 7287 are available here (only in French).

    What's new?

    On 12 September 2018, based on the adopted Bill 7287, the "Law of 10 August 2018 amending: 1° the Code of Criminal Procedure; 2° the Law of 7 March 1980 on the organisation of the judicial system, as amended; 3° the 2004 Law, as amended; 4° the Law of 25 March 2015 determining the salaries and the advancement conditions and rules for civil servants, as amended, for the purpose of organising the FIU" was published in the Memorial A N° 796 (the "FIU Law").

    In this context, "professionals" (as referred to under Article 2(1) and (2) of the 2004 Law) should mostly consider the following changes introduced by Article III of the FIU Law into the 2004 Law:

    • Introduction of the definition of "infraction sous-jacente associée" ("associated predicate offence(s)") under Article 1(1a) of the 2004 Law;
    • Various modifications to Article 5 of the 2004 Law; and
      • Professionals (their directors, dirigeants or employees) are required to inform promptly, on their own initiative, the FIU when they know, suspect or have "motifs raisonnables de soupçonner" ("reasonable grounds to suspect") that ML, an associated predicate office or TF is being committed or has been attempted, in particular in consideration of the person concerned, its developments, the origin of the funds, the purpose, nature and procedure of the operations;
      • All suspected operations, including attempts on suspected operations, shall be reported (to the FIU) regardless of their amount;
      • Professionals must refrain from carrying out a transaction which they know, suspect or have reasonable grounds to suspect to be related to ML, an associated predicate offence or TF before having informed the FIU and having complied with any specific instructions from the FIU;
      • The FIU may order the total or partial release of the instruction not to execute such transaction on an ex-officio basis and at any time; and
      • Information on suspicions that funds are the proceeds of ML, an associated predicate offence or TF, which are reported to the FIU, shall be shared within the group, unless otherwise instructed by the FIU.
    • Introduction of a new "Title I-II" (i.e. new Article 9-3 entitled "Appeal against instructions of the FIU" for both concerned individuals and professionals) into the 2004 Law.

    Besides, specific provisions concerning the functioning, powers and missions of the FIU, or the cooperation of the FIU with other national/international competent authorities are now to be found in the new Articles 74-1 to 74-6 of the Law of 7 March 1980 (available here only in French), as introduced by the Article II of the FIU Law.

    The FIU Law is available here (only in French).

    What's next?

    The FIU Law will enter into force on 1 November 2018, following which an updated consolidated text of the 2004 Law will be published on the CSSF's website.

    By 10 January 2020, Luxembourg shall bring into force the laws, regulations and administrative provisions necessary to comply with the Directive (EU) 2018/843 amending 4AMLD ("5AMLD", available here).

  • EMIR - CSSF Application Form Update

  • Background

    On 23 August 2018, the CSSF issued the circular 18/698 concerning the (i) authorisation and organisation of Investment Fund Managers ("IFM") incorporated under Luxembourg law and (ii) specific provisions on the fight against money laundering and terrorist financing applicable to IFM and entities carrying out the activity of registrar agent (the "Circular 18/698", available here only in French).

    In particular, the Section 5.5.11 of the Circular 18/698 details the obligations of the IFM concerning monitoring of the compliance with the Regulation (EU) No 648/2012 ("EMIR", available here) obligations.

    What's new?

    On 4 September 2018, the CSSF updated its application form entitled "IFM Questionnaire - EMIR" to be filled in by the following IFM (the "Form"):

    • Chapter 15 management companies;
    • Chapter 16 management companies; and
    • Alternative Investment Fund Managers ("AIFM").

    The Form is available here in Excel format and here on the CSSF’s website.

    What's next?

    The CSSF indicates that "in case of changes in either the EMIR classification or use of derivative contracts organisational model, the Form shall be updated and resubmitted to the CSSF without undue delay".

  • Financial Reporting - CSSF issues Instructions on Guaranteed Funds’ Table O 1.2

  • Background

    The CSSF "Schedule of Conditions" gives specifications for the tables that banks and undertakings for collective investment ("UCIs") have to report electronically to the CSSF and for which the CSSF is in charge of control (e.g. the Schedule of Conditions in relation to the "Table O 1.2" is available here).

    Initially published on 12 March 2008, the circular CSSF 08/344 entitled "provisions relating to the transmission of reporting files to the CSSF" is currently under review (the "Circular 08/344", available here).

    What's new?

    On 22 August 2018, the CSSF issued instructions concerning the "Table O 1.2" that UCIs, which offer a formal guarantee to their investors ("Guaranteed Funds"), have to report electronically to the CSSF on a monthly basis (the "Instructions").

    In this context, the CSSF highlights the following points:

    1. Content of the reporting (i.e. the Table O 1.2 has been attached as an annex to the Instructions);
    2. Electronic transmission of the reporting (according to the Circular 08/344);
    3. Reference date of the reporting (i.e. the last day of each month);
    4. Reporting deadline (i.e. within 10 calendar days after the end of the month);
    5. Base currency of the reporting (i.e. the same currency used in the constitutive and offering documents of the Guaranteed Fund); and
    6. Starting date of the reporting (i.e. from the 1st month following the launch of the Guaranteed Fund).

    The Instructions are available here (only in French).

    What's next?

    Further queries concerning the Instructions shall be submitted to the CSSF via email (i.e. opc@cssf.lu).

  • Financial Supervision - CSSF Annual Report 2017

  • Background

    The Commission de Surveillance du Secteur Financier (the "CSSF") supervises, regulates, authorises, informs and, where appropriate, carries out on-site inspections and issues sanctions on Luxembourg-based financial institutions.

    Its annual report provides an analysis of the financial environment with regards to growth, risks and technological developments in the industry. On 21 August 2017, the CSSF published its annual report for 2016 (the "2016 Annual Report", respectively available here in English and here in French).

    What's new?

    On 29 August 2018, the CSSF released its annual report for 2017 (the "2017 Annual Report"). Among other things, the 2017 Annual Report shows:

    • Assets under management reached a record EUR 4,159 billion at the end of 2017 and the number of persons employed in the financial sector subject to CSSF supervision increased slightly and exceeded 46,000, demonstrating a good vintage for the Luxembourg financial center; and
    • The main risks to be faced by the financial sector in the near future
      • The potential negative impact of the "Brexit" on the Luxembourg financial services sector;
      • The economic risk of banks defaulting in countries other than Luxembourg and the destabilisation this could start;
      • The profitability risk of declining revenues due to the rising costs paid by supervised entities;
      • The reputational and legal risk to the financial centre as a whole of a failure by some firms within the industry to comply with the investor and consumer protection rules put in place to prevent money laundering and terrorist financing;
      • The employment risk to those who may be outsourced in other countries; and
      • The risk of fraud through cybercrime.

    For further information, the 2017 Annual Report is available here in English and here in French.

    What's next?

    The 2018 annual report is expected at a similar stage in 2019.

  • Financial Supervision - CSSF issues Circular 18/697 on organisational arrangements for AIF depositaries entering into force on 1 January 2019

  • Background

    On 13 October 2016, the Circular CSSF 16/644 concerning provisions applicable to credit institutions acting as UCITS depositary subject to Part I of the law of 17 December 2010 relating to undertakings for collective investment ("UCIs") and to all UCITS, where appropriate, represented by their management company, entered into force (the "Circular 16/644", available here only in French).

    On 12 June 2018, the law of 17 December 2010 relating to undertakings for collective investment (the "2010 Law", available here in French and here in English) and the law of 12 July 2013 on alternative investment fund ("AIF") managers (the "2013 Law", available here in French and here in English) were lastly amended.

    In particular, Article 19 of the 2013 Law lays down the legal conditions for the appointment of a single depositary per AIF. The Commission delegated regulation (EU) No 231/2013 of 19 December 2012 supplementing Directive 2011/61/EU (the "AIFMD", available here) with regard to exemptions, general operating conditions, depositaries, leverage, transparency and supervision, further details how such article shall be applied (the "Delegated Regulation", available here).

    What's new?

    On 23 August 2018, the CSSF issued the circular 18/697 concerning organisational arrangements applicable to fund depositaries which are not subject to Part I of the 2010 Law, and, where appropriate, to their branches (the "Circular 18/697").

    In the Luxembourg context, the Circular 18/697 clarifies or provides additional clarifications in relation to certain aspects of the 2013 Law and the Delegated Regulation, and to a certain extent the 2007 Law on specialised investment funds (the "SIF Law", available here) and the 2004 Law relating to the investment company in risk capital (the "SICAR Law", available here), by laying down the principles of good governance and detailing the CSSF requirements for the internal organisation and good practices of Luxembourg "Entities" that perform depositary tasks for the following "Vehicles":

    • AIFs managed by specific investment fund managers (so-called "GFI" in French, as defined on page 8 of the Circular 18/697);
    • UCIs established in Luxembourg and subject to Part II of the 2010 Law ("Part II UCIs"), which are managed by an authorised GFI under Chapter 2 of the 2013 Law or Chapter 2 of the AIFMD and which have explicitly indicated in their issuing documents that the sale of the shares or units of the fund to retail investors established in Luxembourg is prohibited;
    • Part II UCIs, whose managers benefit from and use the exemptions set out in Article 3 of the 2013 Law, and which have explicitly indicated in their issuing documents that the sale of the shares or units of the fund to retail investors established in Luxembourg is prohibited; and
    • Where appropriate, SIFs and SICARs that do not qualify as AIFs, or SIFs and SICARs that qualify as AIFs and whose manager benefits from and uses the exemptions set out in Article 3 of the 2013 Law.

    The Circular 18/697 is addressed to the following "Entities":

    • Credit institutions, which are established in Luxembourg and subject to the 1993 Law on the financial sector (the "LSF", available here);
    • Investment firms, which are established in Luxembourg and subject to the LSF;
    • Professionals depositary of assets other than financial instruments, which are established in Luxembourg and subject to the LSF;
    • Luxembourg branches of EU/EEA credit institutions and investment firms, which act or intend to apply for authorisation or approval to act as depositories for the said Vehicles; and
    • Luxembourg branches of 3rd country credit institutions and investment firms, which act or intend to apply for authorisation or approval to act as depositaries for SIFs and SICARs that do not qualify as AIFs.

    In addition, the CSSF specifies that the Circular 18/697 shall also apply to the listed Vehicles themselves, where appropriate represented by their GFI, in their interaction with their depositary.

    Overall, it is to be noted that the structure of the Circular 18/697 (i.e. 8 parts and 1 dedicated annex) follows the structure of the Circular 16/644.

    Besides, the Circular 18/697 amends the "Circular IML 91/75" regarding the revision and remodeling of the rules to which Luxembourg undertakings governed by the Law of 30 March 1988 on UCIs are subject (as amended by the Circular CSSF 05/177, available here), and mostly the Circular 16/644 as follows:

    • Extension of the scope of the Circular 16/644, in order to apply to Part II UCIs, whose issuing documentation allows the sale of the shares or units of the fund to retail investors established in Luxembourg (regardless of the status of their GFI). In such case, any reference to a UCITS, or to its management company, in the Circular 16/644 is to be read as a reference to a UCI Part II or its GFI/ manager; and
    • The Annex I to the Circular 18/697 entitled "List of information concerning the depositary functions that must be updated and submitted to the CSSF on a regular, ad hoc or annual basis" replaces the Annex I to the Circular 16/644.

    The Circular 18/697 is available here (only in French at the time of this publication).

    What's next?

    The Circular 18/697 will enter into force on 1 January 2019.

    From 1 January 2019, the Chapter E of the Circular IML 91/75 will be repealed and the above mentioned-changes to the Circular 16/644 will come into force.

    The CSSF notes that the Circular 18/697 is subject to future clarifications and amendments at EU level (e.g., amendments to the AIFMD, further ESMA guidelines or recommendations, ESMA questions and answers’ documents on AIFMD, etc.) and shall be read in conjunction with the relevant EU framework for AIF depositaries, where appropriate.

  • GDPR - CNPD 2017 Annual Report and Strategy for 2018

  • Background

    The regulation (EU) 2016/679 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data applies since 25 May 2018 ("GDPR", available here).

    On 14 August 2018, the Commission Nationale pour la Protection des Données ("CNPD") issued guidelines on video-surveillance in the context of GDPR (the "Guidelines", available here only in French).

    On 20 August 2018, the Luxembourg law of 1 August 2018 implementing certain provisions of GDPR entered into force and repealed the Luxembourg law of 2 August 2002 on the protection of persons with regard to the processing of personal data ("Loi du 1er août 2018 portant organisation de la Commission nationale pour la protection des données et du régime général sur la protection des données" or the "GDPR Implementing Law", available here). In this context, Articles 12 to 14 of the GDPR Implementing Law give the CNPD new regulatory powers in relation to GDPR (most notably the powers defined in Article 58 of GDPR).

    What's new?

    On 13 September 2018, the CNPD issued its 2017 annual report (the "2017 Report") and its strategy document for 2018 (the "2018 Strategy").

    In particular, the CNPD indicates that the year 2017 was a pivotal preparation year towards the application of the GDPR framework from 25 May 2018, which replaced the previous notification system to the CNPD, based on ex-ante controls, by ex-post controls in accordance with the GDPR accountability principle.

    Noteworthy are the 6 following strategic areas that the CNPD is focusing on in 2018:

    • Strengthen GDPR awareness and guidance - The aim of the CNPD is to ensure a continuous increase in the level of maturity of data controllers and data processors and thus to obtain a high degree of accountability on their part;
    • Strengthen the CNPD methodology for controlling GDPR compliance and enhance transparency when executing its missions;
    • Implement "proactive" controls (on the CNPD’s initiative) that will focus on themes related to the new obligations of GDPR, esp. Data Protection Officer ("DPO"), register of processing and Data Protection Impact Assessment ("DPIA");
    • Carry out "reactive" controls on the basis of facts reported to the CNPD;
    • Strengthen cooperation with European supervisors for both guidance and advice, as well as for control missions; and
    • Strengthen the staff of the CNPD to implement its 2018 Strategy.

    The 2017 Report is available here (only in French).

    The 2018 Strategy is available here (only in French).

    What's next?

    In the 2018 Strategy, the CNPD indicates that it decided to launch a thematic survey on the DPO function to be conducted in 25 organizations.
    On-site investigations that have already taken place in the areas of video-surveillance, geo-tracking, advertising and marketing will continue in 2018.

  • IDD - Transposition Law will enter into force on 1 October 2018

  • Background

    The Directive (EU) 2016/97 on insurance distribution recast ("IDD", available here) entered into force on 23 February 2016. Initially planned to be transposed and applied before 23 February 2018, the Directive (EU) 2018/411 postponed the transposition date of IDD to 1 July 2018 and the application date of IDD to 1 October 2018 (available here).

    IDD provides updated rules applicable to the distribution of insurance and reinsurance products, including insurance-based investment products ("IBIPs"). It aims most notably at ensuring a greater transparency of insurance distributors with regard to the price and costs of insurance products, better and more comprehensible product information and improved conduct of business rules, in particular with regard to advice. The new rules will be applicable to all distribution channels, including direct sales by insurance companies to create a level playing field for all distributors and guarantee uniform high standards of protection for consumers.

    On 6 December 2017, the Luxembourg Finance Minister submitted the bill 7215 transposing certain provisions of IDD to the Luxembourg Parliament (the "Bill 7215", available here only in French). On 26 July 2018, the Luxembourg Parliament voted at first reading on the Bill 7215, and on 27 July 2018, the Luxembourg Council of State waived the 2nd constitutional vote on the Bill 7215. All the legislative steps in relation to the Bill 7215 are available here (only in French).

    On 4 June 2018, the Luxembourg Commissariat aux Assurances ("CAA") issued the latest consolidated version of the Luxembourg law of 7 December 2015 on the insurance sector (the "2015 Law", available here only in French).

    What's new?

    On 22 August 2018, based on the adopted Bill 7215, the law of 10 August 2018 transposing IDD and amending the 2015 Law was published in the Memorial A N° 710 (the "IDD Law").

    Pursuant to Article 1 of the IDD Law (introducing the new Article 2(1)(bbis) in the 2015 Law), the CAA shall monitor the market for insurance products, including the market for ancillary insurance products which are marketed, distributed or sold in, or from, Luxembourg.

    Noteworthy are the Articles 39 and 40 of the IDD Law (introducing the new Articles 295-7 to 295-20 in the 2015 Law) which detail the "MiFID II-like" requirements for insurance distributors and intermediaries to enhance transparency and consumer protection. Specific provisions concerning administrative sanctions in case of IDD breaches are laid out in the new Articles 304 and 304-1 of the 2015 Law (e.g., administrative fines up to EUR 5 million for legal persons or 5% of their consolidated annual turnover).

    The IDD Law is available here (only in French).

    What's next?

    The IDD Law will enter into force on 1 October 2018.

  • MiFID II/MiFIR - CSSF issues Circular 18/699 updating the table EI "Persons responsible for certain functions and activities"

  • Background

    The Directive 2014/65/EU on markets in financial instruments applies since 3 January 2018 ("MiFID II", available here).

    On 3 January 2017, the ESMA published its guidelines specifying the criteria for the assessment of knowledge and competence required under Article 25(1) of MiFID II (ESMA71-1154262120-153 EN recast - the "Guidelines", available here).

    On 31 March 2017, the CSSF issued the circular 17/665 implementing the Guidelines (the "Circular 17/665", available here). The Circular 17/665 is addressed to all the professionals under the CSSF’s supervision, which provide investment services, carry on investment activities, market structured deposits or give advice regarding these products to clients or provide ancillary services. Pursuant to point 3.a paragraph 5 of the Circular 17/665, the "management shall appoint one of its members as person in charge of monitoring the implementation of the provisions of the Guidelines and of this circular" (the "Member").

    On 4 June 2018, the MiFID II related 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 entered into force (the "Regulation", available here only in French). According to Article 6 of the Regulation, credit institutions and investment firms shall appoint a single agent, with the necessary powers and authority, specifically responsible for matters relating to compliance by the credit institution or investment firm with its obligations on the protection of financial instruments and funds belonging to clients (the "Agent").

    On 24 July 2018, the CSSF published the circular 18/695 updating the table B 4.6 entitled "Persons responsible for certain functions and activities" (the "Table 4.6") and the related instructions on its website (the "Circular 18/695", available here only in French). The Circular 18/695, which is addressed to all credit institutions, introduces the Member and the Agent in the Table 4.6.

    What's new?

    On 22 August 2018, the CSSF published the circular 18/699 updating the table EI entitled "Persons responsible for certain functions and activities" (the "Table EI") and the related instructions on its website (the "Circular 18/699").

    The Circular 18/699, which is addressed to all investment firms, introduces the Member and the Agent who cannot be a member of the authorised management of the investment firm ("membre de la direction autorisée") in the Table EI.

    The Circular 18/699 is available here (only in French).

    The clean version and the marked-up version of the Table EI are respectively available here and here (only in French).

    The clean version and the marked-up version of the instructions relating to the Table EI are respectively available here and here (only in French).

    What's next?

    The next Table EI shall be drawn up by investment firms for the situation as at 31 December 2018 and submitted to the CSSF in paper form by 20 January 2019 at the latest, as well as in case of any change that occurred during the year concerning the persons designated in the Table EI (available here only in French).

  • MMF Regulation - CSSF issues 1st FAQ

  • Background

    The Regulation (EU) 2017/1131 of the European Parliament and of the Council on money market funds ("MMFs") applies since 21 July 2018 (the "MMF Regulation", available here), with transitional provisions in relation to existing UCITS and AIFs laid out in Article 44 of the MMF Regulation.

    What's new?

    On 28 August 2018, the CSSF issues the first version of its frequently asked questions' document on the MMF Regulation, which is primarily addressed to managers of MMFs and MMFs that are established in Luxembourg (the "FAQ").

    In this context, the FAQ sheds light on the following areas:

    • General Provisions
      • All types of MMFs can have accumulating/distributing share classes. The type of MMFs is not determined by the distribution policy of its share classes, but by a number of specific rules as defined in the MMF Regulation, including valuation rules as laid out in Articles 29 to 33 of the MMF Regulation;
      • The Circular CSSF 08/356 on rules applicable to undertakings for collective instruments when they employ certain techniques and instruments relating to transferable securities and money market instruments (available here) shall no longer apply to MMFs authorised under the MMF Regulation;
      • Giving due consideration to the Circular CSSF 14/591 (available here), the CSSF will, on a case by case basis, distinguish updates initiated by existing funds to establish compliance with the MMF Regulation from updates involving material changes affecting the interest of the investors of the fund;
      • In accordance with Article 5(1) of the MMF Regulation, an AIF managed by a non-EU AIFM will have to appoint an EU authorised AIFM to manage the MMF (as the non-EU AIFM regime under AIFMD is currently not applicable);
      • A non-EU fund that is (i) managed by a non-EU investment fund manager delegating portfolio management to an investment firm or a bank established in the EU and (ii) not marketed in the Union does not fall within the scope of the MMF Regulation; and
      • The MMF Regulation applies to a Luxembourg AIF qualifying as MMF (pursuant to Article 1(1) of the MMF Regulation) that is marketed exclusively outside Luxembourg.
    • Obligations concerning the investment policies of MMFs
      • No other master/feeder structures than those outlined in Article 16(5) of the MMF Regulation is allowed;
      • The CSSF does not authorize Luxembourg MMFs to invest more than 10% of its assets in deposits with the same credit institutions under the conditions laid down in Article 17(1)(b) of the MMF Regulation;
      • Investment restrictions applicable to MMF, including the limits foreseen under Article 17 of the MMF Regulation, apply on the basis of the net assets;
      • In accordance with Article 18(1) of the MMF Regulation, the limitation applies on a single issuer basis; and
      • In relation to the disclosure requirements laid down in Article 21(3) of the MMF Regulation, the CSSF considers that the sale prospectus should provide information on the internal credit quality assessment procedure.
    • Obligations concerning the risk management of MMFs
      • Deposits with a 1 week or 1 month term can be considered as daily maturing assets pursuant to Articles 24(1) and 25(1) of the MMF Regulation when they can be withdrawn by giving prior notice of 1 working day;
      • Reverse repos with a fixed term that can be terminated by giving prior notice of 1 working day can be considered as daily maturing assets pursuant to Articles 24(1) and 25(1) of the MMF Regulation;
      • Non-compliance issues with Weighted Average Life ("WAL") and Weighted Average Maturity ("WAM") limits fall in the scope of the Circular CSSF 02/77 (available here); and
      • Non-compliance issues with the daily and weekly minimum liquidity thresholds fall in the scope of the Circular CSSF 02/77.
    • Valuation rules
      • With respect to the valuation rules laid down in Article 29 of the MMF Regulation, different sub-funds of the same MMF umbrella can use different methods to price the same security on the ground that those sub-funds are public debt Constant NAV ("CNAV") MMF, Low Volatility NAV ("LVNAV") MMF, or Variable NAV ("VNAV") MMF.
    • Transparency requirements
      • The information under Article 36(2) of the MMF Regulation (e.g., maturity breakdown of the portfolio of MMF, credit profile of the MMF) can be provided by means of a website indicated in the sales prospectus;
      • The manager/MMF can decide at its discretion on the timing (e.g., each Monday) for the weekly disclosure of Article 36(2) of the MMF Regulation – the MMF Regulation does only require to have at least a weekly disclosure with regards to the information laid down;
      • In relation to the information item 'the credit profile of the MMF' that has to be made available to investors pursuant to Article 36(2) of the MMF Regulation, the manager/MMF has to provide information relating to the internal credit quality assessment. However, the manager of a MMF may complement this information by external ratings provided by a registered and certified credit rating agency; and
      • The information disclosure requirement of Article 36(2) of the MMF Regulation shall only apply to the MMFs authorised in accordance with the MMF Regulation as of 21 July 2018 (not to the MMFs benefiting from the transitional provisions of Article 44(1) of the MMF Regulation).

    The FAQ is available here.

    What's next?

    The CSSF will occasionally update the FAQ and reserves the right to alter its approach to any matter covered by the FAQ at any time.

  • TAX UPDATES

    FATCA - Public comments requested on FATCA forms

  • Background

    The Foreign Account Tax Compliance Act ("FATCA") is a US tax regulation that aims to detect tax evasion by US persons. Based on an intergovernmental agreement signed between the US and Luxembourg, relevant provisions were introduced into the Luxembourg law of 24 July 2014.

    What's new?

    On 18 September 2018, the US Internal Revenue Service ("IRS") and the US Treasury Department published, in the Federal Register, a notice requesting comments on IRS forms for the implementation of FATCA (the "Notice").

    The Notice requests comments with regard to the following IRS forms:

    • Form 8957 (Foreign Account Tax Compliance Act (FATCA) Registration);
    • Form 8966 (FATCA Report);
    • Form 8966-C (Cover Sheet for Form 8966 Paper Submissions);
    • Form 8508-I (Request for Waiver From Filing Information Returns Electronically); and
    • Form 8809-I (Application for Extension of Time to File FATCA Form 8966).

    The link to the Notice is available here.

    What's next?

    The IRS requested that written comments be submitted no later than 19 November 2018. The mailing address and other contact information are given in the Notice.

  • This publication is produced by Legal and Compliance teams of CACEIS with the kind support of Communication teams and Group Business Development Support teams.

    Editors
    Gaëlle Kerboeuf, Group Legal Manager - Projects & Regulatory Monitoring

    Permanent Editorial Committee
    Gaëlle Kerboeuf, Group Legal Manager - Projects & Regulatory Monitoring
    Elisabeth Raisson, CACEIS Group Compliance
    Corinne Brand, CACEIS Group Communications Specialist
    Alice Broussard, CACEIS Compliance and Regulatory Watch

    Support
    Stefan Ullrich, Head of Legal (Germany)
    Isabella Guscetti, Legal and Compliance (Switzerland)
    Thibault Rhenter, Legal Fund Structuring (Switzerland)
    Robin Donagh, Legal Advisor (Ireland)
    Jérôme Slangen, Legal (France)
    Charles du Maisnil, Head Compliance, risk  and Legal (Belgium)
    Domitille Jeanson, Legal (Belgium)
    Jennifer Yeboah, Legal (Belgium)
    Michele Tuen, Head of Trustee and Legal (Hong Kong)

    Design
    CACEIS Group Communications

    Photos credit
    CACEIS, Adobe Stock

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