Investment fund reports of Circular CSSF 21/790 now available in eDesk

News

Investment fund reports of Circular CSSF 21/790 now available in eDesk

12 April 2022

Regulatory News Alert

Context

On 22 December 2021, the Commission de Surveillance du Secteur Financier (CSSF) published Circular 21/790 (“the Circular”) that introduced new regulatory reporting obligations for Undertakings for Collective Investments (UCIs).

The Circular aimed to:

  • Enlarge the scope of regulated entities that are under CSSF supervision;
  • Implement a new electronic reporting tool to enhance the prudential supervision of UCIs; and
  • Address up-to-date key controls at the regulated entity level.
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On 31 March 2022, a new section related to UCIs in the “Collective Investment Sector Reporting Tool” (CISERO) module was made available on the CSSF eDesk platform. Those concerned can use CISERO to prepare the reports referred to in the Circular and submit them to the CSSF: the self-assessment questionnaire (SAQ), the separate report (SR) and the management letter (ML). These apply to UCITS, UCIs subject to Part II of the Law of 17 December 2010 (“UCIs Part II”), specialized investment funds (SIFs), and investment companies in risk capital (SICARs) (hereafter “regulated UCIs”).

Currently, only the SAQ, the SR (for UCITS and UCIs Part II), and the ML for regulated UCIs with a financial year-end between 30 June 2022 and 30 November 2022 are available in CISERO.
 

Content of the SAQ and SR

The dirigeants of regulated UCIs complete the SAQ annually on their conformity and compliance with certain pre-defined elements.

The regulated UCI’s Réviseur d’Entreprise Agréé (REA) completes the SR annually. It aims to corroborate the answers given in the SAQ.

The structure of the two reports is similar and is divided into different sections.

 

In the SAQ, the UCI’s dirigeants will report on:

In the SR, the REA reviews:

Descriptive information
  • Functional information alongside descriptive information for each of its sub-funds/compartments (e.g., NAV frequency, materiality threshold, average net asset value, performance fees charged, etc.); and
  • Different types of assets held at year-end.

No review of the REA.

Organization of the fund
  • Management’s oversight;
  • Conflicts of interest;
  • Investors/shareholders; and
  • Annual report.

Reviews some elements of conflicts of interest for SIFs/SICARs managed by a registered AIFM or not qualifying as an AIF.

Investment compliance
  • The investment compliance control framework;
  • The legal/regulatory investment restrictions;
  • The contractual investment restrictions; and
  • CSSF Circular 02/77.

Reviews on a sample basis:

  • The existence of an ex-post control framework;
  • The existence of a documented eligibility assessment for certain types of assets;
  • The existence of the credit quality for Money Market instruments; and
  • The application of CSSF Circular 02/77 in relation to investment compliance breaches.

Valuation
  • The valuation’s oversight, policies, and procedures;
  • The legal and regulatory requirements with regards to valuation;
  • Specific questions related to valuation aspects; and
  • Arm’s length transactions with related parties.

Reviews on a sample basis:

  • The existence of a valuation policy covering all types of assets that the funds invest in;
  • The existence of a documented analysis for securities valued with price/valuation coming from a source that is not independent;
  • The existence of a documented back-testing control; and
  • The existence of a documented procedure for transactions with related parties, showing they are done at arm’s length.

NAV determination
  • Accounting policies and procedures;
  • Late trading and market timing;
  • Liquidity management tools (including redemptions in kind);
  • NAV calculation errors1 in relation to Circular CSSF 02/77; and
  • Contributions in kind.

Reviews on a sample basis:

  • The existence of a documented assessment related to market timing;
  • That the cut-off time is respected for capital transactions;
  • The existence and application of liquidity management tools (including redemptions in kind);
  • The application of CSSF Circular 02/77 in relation to NAV error policy; and
  • The conclusion of contribution-in-kind reports (if any).

Expenses and income
  • Expenses that can be charged to the fund in accordance with the prospectus/offering memorandum, the total expense ratio, performance fees/carried interests and transaction fees; and
  • Income from investments and those derived from efficient portfolio management (EPM)/securities financing transactions.

Reviews on a sample basis:

  • That the expenses charged to the fund are in accordance with the prospectus/offering memorandum; and
  • That the performance fee/carried interest is calculated and booked in the accounts of the regulated UCI in accordance with the methodology and the parameters described in the prospectus/offering memorandum, as well as based on accurate market and accounting data.

Relationship with depositary
  • The reconciliation and safekeeping of assets alongside questions linked to cashflow monitoring; and
  • Oversight duties of the investment fund manager (IFM)/UCI over the depositary.

Reviews on a sample basis:

  • The existence of a reconciliation process against the depositary's records concerning the assets in safekeeping at the depositary;
  • The existence of a reconciliation process against the depositary's records concerning the assets that are held at a third-party custodian on behalf of the regulated UCIs;
  • The existence of a process of ownership verifications or reconciliations for the other assets registered in the AIFM’s name on behalf of the fund or in the fund’s name (“other assets”) in the fund/(sub-)funds’ records qualifying as “financial assets” and “non-financial assets”; and
  • The existence of a process to ensure the consistency of the fund/(sub-)fund’s records with the depositary records for the other assets held by the fund qualifying as “financial assets” and “non-financial assets”.

Disclosures: annual report

No reporting from the regulated UCI.

Reviews, if applicable:

  • Disclosures required in relation to the EU’s Sustainable Finance Disclosure Regulation (SFDR);
  • Disclosures required in relation to European Securities and Markets Authority (ESMA) guidelines on exchange-traded funds (ETFs) and other UCIs issues (ESMA/2014/937);
  • Disclosures required in relation to the Securities Financing Transactions (SFT) Regulation; and
  • Disclosures required in relation to ESMA guidelines on performance fees in UCITS and certain types of AIFs (ESMA34-39-992).

 

Follow up on modified opinions issued by REAs (applicable for all regulated UCIs)

In the context of section 2.2 of the Circular, when an REA issues a modified opinion, the regulated UCI shall send, proactively, a letter to the CSSF within 1 month of the date of publication of the audited financial statements including the modified opinion, detailing the following:

  1. The underlying root causes of the modified opinion;
  2. The impact of this modified opinion on the regulated UCI and the concerned sub-fund(s), but also on the investors via an evaluation of the effect on the subscriptions, redemptions or distributions that occurred during the impacted period;
  3. The corrective actions taken by the management of the regulated UCI to resolve the causes of the modified opinion;
  4. A detailed explanation of the valuation method applied to investments (if applicable) concerned by the modified opinion;
  5. Qualitative and quantitative information regarding the concerned sub-fund(s)’s investors at the closing date, including a copy of the shareholder register as of this date;
  6. A list of the capital activity (subscriptions and redemptions) in Excel format for the sub-fund(s) during the year/period concerned by the modified opinion;
  7. For the investments concerned by the modified opinion, an ownership structure chart from the concerned investment to the final underlying investment, displaying information regarding the name, the country, and the ownership percentage of each level; and
  8. Any other relevant information allowing a complete and comprehensive understanding of the situation that led to the modified opinion.

A modified opinion is understood to be a qualified opinion, adverse opinion or disclaimer of opinion. Emphasis of matter paragraphs or information paragraphs are not in scope of this new requirement.

This letter, signed by the regulated UCI’s management, shall be sent to the CSSF at the email address opc_sp_courrier@cssf.lu. If there is a large volume of data, it is recommended to use the CSSF’s secured system, CSSF MFT “DropBox”. In this case, the CSSF requests that a list of people in charge of communicating this data is first transmitted to the email address opc_sp_courrier@cssf.lu for authorization purposes.
 

ML

The CSSF has also introduced a regulatory framework for the ML that REAs should prepare and issue annually as part of the annual accounts for regulated UCIs. REAs should issue and complete this ML using the eDesk platform portal (https://edesk.apps.cssf.lu).


Reminder of application dates and submission deadlines

 

First application date
For financial years ending on:

Submission deadlines

SAQ for regulated UCIs

30 June 2022

Part I of the 2010 Law: 3 months after the financial year-end

Part II of the 2010 Law, SIFs and SICARs: 4 months after the financial year-end

SR for regulated UCIs

30 June 2022 for Part I and Part II of the 2010 Law

30 June 2023 for SIFs and SICARs

Part I of the 2010 Law: 5 months after the financial year-end

Part II of the 2010 Law, SIFs and SICARs: 6 months after the financial year-end

ML for regulated UCIs

30 June 2022

Part I of the 2010 Law: 4 months after the financial year-end

Part II of the 2010 Law, SIFs and SICARs: 6 months after the financial year-end

Follow up letter on modified opinions

30 June 2022

Part I, Part II of the 2010 Law, SIFs and SICARs: 1 month after the publication date of the annual report including the modified opinion

 

How can Deloitte help you?

Deloitte’s subject matter experts can help you design and implement your business strategy in light of the evolution of regulatory frameworks and market trends.

Key Deloitte services include:

  • Assessment and guidance with updating compliance control framework and policies
  • Assistance, guidance and project management with completing the SAQ:
  • Completing the SAQ’s submission on CISERO
  • Gap analysis
  • Workshops and training

Deloitte’s Regulatory Watch service helps you stay ahead of the regulatory curve to better manage and plan upcoming regulation.


1 Not applicable to SICARs.

Contacts

Subject matter specialists

Virginie Boulot
Partner – Audit & Assurance
Tel: +352 45145 2990
vboulot@deloitte.lu

Anne Ricci
Partner – Audit & Assurance
Tel: +352 45145 2797
aricci@deloitte.lu

Sandrine Muller
Partner – Audit & Assurance
Tel: +352 45145 2906
smuller@deloitte.lu

David Kuborne
Manager – Audit & Assurance
Tel: +352 45145 2860
dkuborne@deloitte.lu


Regulatory Watch Kaleidoscope service

Simon Ramos
Partner – Investment Management
Tel: +352 45145 2702
siramos@deloitte.lu

Jean-Philippe Peters
Partner – Risk Advisory
Tel: +352 45145 2276
jppeters@deloitte.lu

Benoit Sauvage
Director – Risk Advisory
Tel: +352 45145 4220
bsauvage@deloitte.lu

Marijana Vuksic
Senior Manager – Risk Advisory
Tel: +352 45145 2311
mvuksic@deloitte.lu

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