Article published on 24 November 2020 www.igniteseurope.com

The Luxembourg financial regulator has unveiled new requirements to compel asset managers to pay more attention to environmental, social and governance risks.

The new rules put Luxembourg market participants at the forefront of tackling sustainability risks as EU regulatory amendments on ESG integration have yet to be finalised.

The Commission de Surveillance du Secteur Financier published a new circular earlier this week compelling asset managers and other financial institutions to integrate sustainability factors into their governance procedures.

The circular applies to firms carrying out investment activities or services under Mifid II, such as managing segregated mandates or providing investment advice.

According to the CSSF, firms should give ESG factors the same prominence as liquidity and solvency risks when considering the “‘viability of [their] business model”.

The new obligations come as EU policymakers put the finishing touches to a number of new rules to compel senior managers to take account of ESG risks.

Amendments to the Ucits directive, Mifid II and the Alternative Investment Fund Managers Directive are expected to be finalised in the coming weeks, while firms must also contend with the sustainable finance disclosure regulation, which comes into force next March.

Sebastiaan Hooghiemstra, Luxembourg-based associate at NautaDutilh, says many firms have already begun integrating sustainability risks into their investment decision making processes in order to comply with SFDR.

SFDR, which requires firms to make disclosures on ESG factors at both a company and product level, is also leading firms to incorporate sustainability risks into other governance procedures such as remuneration policies, adds Mr Hooghiemstra.

Other EU regulators have also challenged firms to do more to meet their sustainability objectives.

Article published on 24 November 2020 www.igniteseurope.com

The Luxembourg financial regulator is to launch a fast-track procedure for environmental, social and governance disclosures as fund firms battle to meet impending EU rules.

The Commission de Surveillance du Secteur Financier says it will rely on fund boards to self-certify their compliance with the sustainable finance disclosure regulation ahead of the looming March deadline.

The implementation of SFDR, which requires asset managers with more than 500 employees to disclose the negative environmental and social impacts of their investments, has been beset with problems.

Although the European Commission recently announced that it will delay the imposition of the underlying technical standards for the regulation, the rules will still come into force in March, with asset managers required to produce “high-level and principle-based” disclosures from next year.

Fund houses complain that this vagueness over what exactly they have to disclose coupled with a lack of available data from investee companies make it difficult for firms to adequately comply with the regulation in time.

Marco Zwick, director at the CSSF, says the regulator is “mindful of the difficulties that the market may encounter” with SFDR compliance and will introduce a fast-track procedure for prospectus updates.

Mr Zwick, who was speaking yesterday at a conference organised by the Association of the Luxembourg Fund Industry, says asset managers should “limit their changes to the prospectus in particular” as otherwise the CSSF may not be able to process disclosures in time for the March deadline.

Fund boards will also have to self-certify that their funds are meeting the requirements of SFDR alongside any fast-track applications to the CSSF.

“We are not going to challenge everything from day one but we are going to do a number of checks and we are also going to do some ex-ante verifications,” says Mr Zwick.

Mr Zwick says these checks and verifications will be “on a sample basis” as the CSSF lacks the capacity to process documents for the some 15,000 funds and sub-funds under its supervision.

Lawyers have warned that the two-tier implementation stage for the underlying technical standards could also see asset managers having to submit a new set of more detailed updates to regulators within the next 12 months.

The three European supervisory authorities concluded a consultation on product disclosure templates that firms could use last month.

According to the ESAs, disclosure formats must be standardised but also be able to be deployed for various purposes, including prospectus updates and annual reports.

Article published on 16 September 2020 www.igniteseurope.com

Luxembourg’s finance minister has warned asset managers to brace themselves for a hard Brexit and told UK firms that they will need a physical presence in the EU if they wish to continue doing business in the single market.

Pierre Gramegna, who has been a public supporter of maintaining the EU’s links with the UK financial sector, says Prime Minister Boris Johnson’s plans to rip up parts of the Brexit deal mean an agreement between the two sides is highly unlikely.

Mr Gramegna was speaking at the Association of the Luxembourg Fund Industry’s virtual conference this week after Mr Johnson received initial backing in parliament to change aspects of the EU withdrawal agreement.

Many critics say any changes would break international law and the EU has said the agreement is a “prerequisite for the negotiations on the future partnership” between the bloc and the UK.

Mr Gramegna has previously said he hoped Luxembourg and the UK would still have a “footbridge left” after the UK formally leaves the bloc, but this is “in doubt right now”.

Whatever the UK’s motive, “the likelihood that we will have a wide comprehensive agreement for the future relationship with the [UK] is obviously not anymore likely, so in other words, you should all prepare for a situation where […] the UK becomes a third country like any other”, Mr Gramegna says.

UK firms with no presence in the EU currently will have to set up subsidiaries to continue operating in the single market after December 31, according to the minister.

“They will not be able to work remotely […] they will have to have more presence, which means setting up subsidiaries and so on,” he says.

The UK and EU have sought to secure an equivalence regime during Brexit talks to ensure that financial services firms can continue to access EU markets.

The deadline to reach an agreement was missed in June, raising fears that asset managers in the UK would have to access European markets through a diverse range of national-level rules.

Article published on 7 July 2020 www.igniteseurope.com

Luxembourg’s finance minister has warned that the UK’s plans to diverge from EU regulations for the financial services industry are threatening the country’s future access to the EU market post-Brexit, the Financial Times reports.

Pierre Gramegna, who has spoken out in favour of preserving the EU’s close links with the UK’s financial services industry, tells the publication that the UK government’s expectations of enhanced equivalence are “in contradiction” with its demand for sovereignty in terms of financial services rules.

Mr Gramegna says in the Financial Times interview that Luxembourg wants to “make sure that we still have a footbridge left” even if the links between the UK and the EU become looser, saying it “would be in the interest of both sides”.

He warns, however, that this “can only be achieved if both sides have the will to do so”.

Mr Gramegna believes the UK’s objectives are hard to reconcile, according to the Financial Times.

“The UK at the same time says ‘as soon as we will be out we will be 100 per cent sovereign again and be able to choose what we do with our own regulation’,” he tells the publication.

“That sounds to me in contradiction with the idea of having an enhanced equivalence. You cannot defend the two things in parallel.”

The EU and the UK last month missed a deadline to conclude equivalence assessments, with both sides blaming each other for failing to complete the assessments.

Michel Barnier, the European Commission’s chief Brexit negotiator, said in a speech last week that the UK had only completed four out of 28 questionnaires relating to areas of financial regulation where equivalence can be granted.

Mr Barnier noted the UK is demanding regulatory divergence from the EU while “trying to keep as many single market benefits as it can” to “make it easy to continue to run EU businesses from London, with minimal operations and staff on the continent”.

The Financial Times says Mr Gramegna’s warning shows that even sympathetic governments have lowered their expectations for their future relationships with the UK because of the UK government’s negotiating position.

The Grand Duchy has been at the forefront of EU governments demanding that the bloc adopt a pragmatic attitude towards market access for financial services.

Luxembourg is Europe’s largest investment fund domicile, with locally-registered funds being sold in over 70 countries globally and managing nearly €4.5 trillion in assets.

Article published on 6 July 2020 www.igniteseurope.com

Non-EU fund managers will be able to service professional investors in Luxembourg without requiring a licence under new regulations that could be a boon for UK firms after Brexit.

The Commission de Surveillance du Secteur Financier recently passed two measures to ease access for third-country funds to investors in Luxembourg.

The CSSF says authorised portfolio managers and investment advisers from countries including the US, Switzerland, Japan, Canada, Hong Kong and Singapore can passport their services to Luxembourg without requiring a presence in the Grand Duchy, provided their clients are defined as professional investors under Mifid II.

This could include investment services such as managed accounts, funds of funds, private banks and family offices.

The CSSF says firms from these jurisdictions will only be required to obtain a licence if the firm already has a Luxembourg branch, is servicing retail investors or the Grand Duchy is the principal location where the firm’s principal business activities related to Luxembourg clients is taking place.

Benoit Kelecom, Luxembourg-based counsel at law firm Van Campen Liem, says it is likely that this principal business location “will generally be deemed to be located where the portfolio management or advisory teams are”.

Mr Kelecom says that with portfolio management teams at non-EU firms unlikely to be located in the Grand Duchy, third-country funds will not be deemed to be rendering services in Luxembourg and so will not require a licence.

“This is rather good news for UK asset managers in the context of the continuation of their services post Brexit,” he says.

Augustin de Longeaux, partner at Simmons & Simmons, adds that the new circular puts forward “a very relaxed and flexible regime” for third-country firms.

“Firms are still able to access the Luxembourg market without needing to register. It is only a sub-set of the market but it is a large and important one,” he says.

Mr de Longeaux says that while it is very likely that the UK will be added to the CSSF’s list of equivalent financial regimes after Brexit, an acrimonious end to the UK’s negotiations with the EU would threaten that status.

“If the EU deemed the UK as not equivalent, it would be very difficult for Luxembourg not to follow suit,” he says.

Mr de Longeaux adds that the circular is “a useful clarification” as to which jurisdictions the CSSF recognises as equivalent to its own regime.

“Before applications were decided case by case, now we have clarification that you can still access professional clients on a ‘reach-in’ basis,” he says.

Delegation arrangements for Ucits and alternative investment funds distributed to investors in Luxembourg will continue to be subject to the measures in Ucits and the Alternative Investment Fund Managers Directive.

ALFI Newsflash: ‘As set out in Press Release 19/33, in the event of a hard Brexit, firms that are currently authorised in the UK will be considered as third country firms and will lose the benefit of their existing passporting rights in the EU. UK firms should already have taken the necessary steps to anticipate the consequences of a possible hard Brexit.

The CSSF has now announced that dedicated Brexit notification forms are available for all firms and investment funds through the CSSF eDesk portal.’

https://edesk.apps.cssf.lu/edesk-dashboard/dashboard

After one year of negotiations, the Cross-border Distribution Directive (CBDD) amends the Alternative Investment Fund Managers Directive (AIFMD) and introduces new rules for the pre-marketing of alternative investment funds (AIFs) in the European Union (EU).

The Directive ((EU) 2019/1160) and Regulation ((EU) 2019/1156) introduce a new regime for investment funds with the aim to: eliminate current regulatory barriers to the cross-border distribution of funds, improve transparency by aligning marketing requirements and fees, harmonise national rules for the verification of marketing material by national authorities, enable ESMA to monitor investment funds and allow to pre-market a fund.

One of the main criticisms of the existing AIFMD marketing framework has been the different interpretation of the term “marketing” across Member States. For example, the UK and Luxembourg interpret the marketing concept as applying at a relatively late stage, being when the offer of interests in an AIF is capable of being accepted by investors on final form subscription documents. Whereas in other countries AIFMD marketing activity is interpreted as taking place much earlier.

The new pre-marketing rules apply to authorised EU AIFMs in respect of which an AIF is: (i) established but not yet notified for marketing; or (ii) not yet established at all. There is a definition of pre-marketing that would allow EU authorised fund managers to market a new fund to potential professional investors without a marketing application provided that they comply with the requirements included in the Directive.

It should be noted, however, that where a professional investor in a Member State subscribes for units/shares in a pre-marketed AIF within 18 months of the AIFM starting to pre-market, this will be deemed the result of marketing and would be subject to notification. As such, reverse solicitation becomes potentially more problematic.

Ultimately, the European Commission hopes that, by removing perceived inefficiencies, the cost for cross-border distribution will be reduced and made simpler and quicker, thereby allowing for more marketing of funds across the EU. It remains to be seen whether this will be the case.

How this impacts UK managers and distribution of funds between the UK and EU 27 is still largely dependent on the outcomes to Brexit negotiations. The Regulation will apply from August 1, 2019 and the Directive will be fully transposed from 2 August 2021.

Effective 21 July 2019, the new Prospectus Regulation (“PR”) regime was published. The New Prospectus Act repeals the Luxembourg act dated 10 July 2005 on prospectuses for securities, as amended (the Old Prospectus Act) and, together with the Prospectus Regulation, which is directly applicable across the EU, has created new prospectus regimes in Luxembourg.

Prospectuses approved in accordance with the 2005 Law before 21 July 2019 will continue to be governed by such law until the end of their validity, or until 12 months have elapsed after 21 July 2019, whichever occurs first.

The new national prospectus regime does not substantially deviate from the previous one; the changes merely aim to simplify and align the previous national prospectus regime with the regime under the Prospectus Regulation. 

Some of the highlights amongst others are listed below:

The Luxembourg legislator has opted to exempt offers of securities to the public with a total consideration of less than €8,000,000 in the EU over a period of 12 months from the obligation to publish a prospectus in accordance with the Prospectus Regulation. The amount of such total consideration corresponds to the maximum amount that was allowed to be exempted pursuant to the option provided for by the Prospectus Regulation;

However, in case of an offering of securities to the public with a total consideration of at least €5,000,000, an information note is required. Such an information note will contain brief information about the issuer, the securities, the conditions, and reasons for the offering of the securities. An issuer wishing to make use of this exemption will notify the CSSF prior to making such an offer. No formal approval of the offering and the information note is required;

Offers of securities to the public falling outside of the scope of the Prospectus Regulation shall be made pursuant to the domestic prospectus regime as outlined in Part III of the New Prospectus Law. This domestic prospectus regime is in broad lines comparable to the simplified prospectus regime currently existing under the 2005 Law.

The Luxembourg national prospectus law regime is aligned with the exemption mentioned above, which means that a simplified prospectus will have to be drawn up and approved by the CSSF according to the New Prospectus Law in case of an offering of securities to the public with a total consideration of at least €8,000,000. However, in case of an offering of securities to the public with a total consideration of at least €5,000,000 an information note and a notification to the CSSF prior to making an offer to the public is required;

Following the notion of the voluntary prospectus regime introduced by the Prospectus Regulation, the New Prospectus Law will allow issuers otherwise exempted from the obligation to publish a simplified prospectus to draw up and publish such prospectus on a voluntary basis in accordance with the provisions of the New Prospectus Law. In case of any further information or if we can be of any assistance, please do not hesitate to contact us on prisma@prisma.lu.

In a context of increasing popularity of Environmental, Social and Governance (ESG) investments, the European Commission has published new guidelines on Tuesday, 18th June 2019, to improve the reporting of climate-related information in annual reports. The guidelines concern public interest entities and large companies with more than 500 employees operating in the EU whose development, performance, position and activities are related to climate in a material way.

The new guidelines suggest climate-related disclosures for five reporting areas:

• Business model
• Policies and due diligence
• Outcome of policies
• Principal risks and risk management
• Key performance indicators

The concerned companies should be able to use the new guidelines for reports published in 2020, covering financial year 2019.

Would you like some assistance concerning the production of your annual reports? Let Prisma help you.

We at Prisma are aware of the challenges involved in the production of financial reports and are here to take the workload off your shoulders by providing you with an accurate and timely delivery of your financial reports. Prisma is specialised in the production of Audited Annual Reports, Unaudited Semi-Annual Reports, Quarterly and Monthly Financial Accounts.

We offer report production including all creation stages ranging from planning to typesetting, translation, print, review management and distribution. Our experienced Project Managers collaborate with all parties involved throughout the entire process of the project.

For more information, please contact us at prisma@prisma.lu or 43 48 89-1

The CSSF is planning to issue a new portal which will allow for electronic fund applications as of autumn 2019 and is supposed to replace the current email and postal submission channels.

The new portal will facilitate the application process by offering an interface for the submission of all relevant documents and information to the Luxembourg regulator, but also for the exchange of queries and answers in relation to the application. More transparency will be provided through an indication of the status quo of the application – up to its approval notification.

Would you like some support with your fund applications? Let Prisma assist you.

Fund registrations can trigger a lot of challenges in producing and gathering all relevant documents in time, knowing that a quick market access is key to success.

Prisma has significant experience in the production of any fund documentation, such as prospectuses, UCITS KIIDs, Annual / Interim / Quarterly Reports, Articles of Association and Regulatory Forms. We build streamlined and personalised processes for our clients in order to master individual client expectations and ensure in-time productions of the relevant documents.

Our services

• Single point of contact
• Project management and coordination of the entire production cycle
• Communication with all involved parties
• Time management and regular updates
• Punctual delivery of your fund documentation

Smart documents

We also offer electronic documents with smart functionalities such as editable application and account opening forms. Instead of manually filling in the documents, you will be able to process the documents on screen and benefit from the automated transfer of the information onto the next copies. Additional functionalities such as extract reports from the forms can be added upon request.

For more information, please contact us at prisma@prisma.lu or 43 48 89-1.