On 24 November 2014, the CSSF published its Circular 14/597 (the "Circular") updating and amending CSSF Circular 12/552 on central administration, internal governance and risk management.
The main amendment resides in the addition of a new Chapter 6 to Part III (risk management) of CSSF Circular 12/552, implementing the recommendation (ESRB/2012/2) of the European Systemic Risk Board on funding of credit institutions, namely recommendation B on the implementation of a risk management framework as regards asset encumbrance.
According to the new Chapter 6, which only applies to credit institutions, the latter shall put in place risk management policies to define their approach to asset encumbrance as well as procedures and controls that ensure that the risks associated with collateral management and asset encumbrance are adequately identified, monitored and managed.
Credit institutions shall also conceive a general monitoring framework, with the aim of providing timely information, at least once a year, to the authorised management and to the board of directors on the level, type, evolution and amount of asset encumbrance.
Moreover, the Circular adjusts point 182 of CSSF Circular 12/552 in relation to the general outsourcing requirements, which stated previously that if an institution intends to outsource a material activity it should obtain prior authorisation from the CSSF.
The Circular now adds that where the institution outsources to a Luxembourg credit institution or a support PSF governed by Articles 29-1, 29-2, 29-3 and 29-4 of the Law on the financial sector of 5 April 1993 as amended, a notification to the CSSF stating that the conditions laid down in CSSF Circular 12/552 are complied with is sufficient.
The amendments adopted by the Circular to CSSF Circular 12/552 entered into force on 31 December 2014.