Delegation, Oversight & Due Diligence

Executive summary

This white paper focuses on delegation, oversight and due diligence. The delegation of investment management functions by UCITS management companies and alternative investment fund managers has recently attracted increased scrutiny by EU regulators. This white paper aims to give an update on current industry standards with a particular focus on Circular 18/698 published by the Commission de Surveillance du Secteur Financier (CSSF) on 23 August 2018.

The objective of this white paper is to provide readers with some contextual insight into the concepts of delegation, oversight and due diligence, as well as further detail on the most important and challenging areas of the framework, with a focus on Circular 18/698.

This paper is divided into six sections. Section 1 starts with the history of due diligence over time, before detailing the types of due diligence that may be performed. Section 2 focuses on Circular 18/698, providing readers with an overview of the challenges that this circular represents in terms of delegation and oversight, followed by a description of the difference between delegating an activity and delegating the performance of an activity. Section 3 focuses on the delegated activities while section 4 on delegation policy and the corresponding procedures. Section 5 is dedicated to the due diligence process, including initial due diligence, periodic due diligence, the global delegation report and on-site visits. The final section is dedicated to the risk-based approach and the challenges it represents.