CSSF Annual report 2014: Selected items

The publication of its annual report always represents an opportunity for the CSSF to confirm and to clarify, where necessary, its position on certain points. In June 2015 (and July 2015 for the English version), the CSSF published its annual report for the year 2014.

Among the items addressed in this report, we have selected the following:


  • Eligible assets: The CSSF confirms that, despite the implementation of the new AIFMD framework, SIFs (1) do not qualify as “other UCIs” within the meaning of Article 41(1)(e) of the Law of 17 December 2010 (the “2010 Law”) even if they qualify as AIF and are managed by a full scope AIFM;
  • Prospectus transparency: The CSSF recalls the importance of investment and underlying risk policy transparency in UCITS prospectuses to comply with Articles 47 and 151 of the 2010 Law. After a similar position illustrated in its Annual Report 2012 regarding UCITS having a high level of leverage, the CSSF again insists on providing sufficiently granular detail of the information to be provided regarding (i) investment strategies, (ii) investment decision-making processes (including, in particular, aspects on selection, allocation, weighting, diversification and possible risk budget), (iii) the use of derivative financial instruments, and (iv) the risk profile for all UCITS. On the basis of the information contained in the prospectus, the investor must be able to anticipate and to understand the profile of the positions which will be taken by the manager, their purpose and the risks which arise therefrom. The transparency requirement is enhanced for UCITS which (i) use sophisticated strategies or intensively use financial derivative instruments, or (ii) invest in complex products;
  • Investments in Chinese markets: The CSSF confirms its position on investments on the China Interbank Bond Market and the Shanghai Hong Kong Stock Connect by UCITS. For a useful reminder (see also our article on the Shanghai Hong Kong Stock Connect, in our February 2014 Newsletter);

Counterparty risk (Art. 43(1) of the 2010 Law): The CSSF specifies that when a disinvestment in a UCITS resulting in a cash inflow causes the 20% limit in deposits placed with the same entity to be exceeded, it shall be deemed to constitute an active breach within the meaning of CSSF Circular 02/77 (due to the predictable character of a cash inflow following a disinvestment). This implies that the reporting requirements under the Circular apply, even if the UCITS has not, as is frequently the case in such situation, incurred any financial loss.
2. UCIs

  • Errors in the calculation of fees and costs and CSSF Circular 02/77: any surplus levied on the assets of a UCI must be reimbursed to the UCI in all cases and irrespective of whether or not the overpayment exceeds the tolerance threshold set in CSSF Circular 02/77. Recalculation of the net asset value (NAV) is necessary only if the reimbursed amount exceeds the materiality threshold applicable in accordance with CSSF Circular 02/77;
  • First annual and half-yearly report by newly created UCIs: the CSSF recalls that the starting date for the first reports must correspond (i) to the date of its incorporation before a notary in the case of a UCI incorporated in the form of a commercial company, and (ii) to the date of entry into force of the FCP (2) management regulation in the case of a UCI incorporated in the form of an FCP.

3. AIFMs

AIFM authorisation files: the CSSF highlights the fact that when carrying out the qualitative analysis of an authorisation file, it pays particular attention to the following points:

  • transparency of the direct and indirect shareholder structure of the AIFM;
  • quality of the shareholders that have a qualifying holding in the AIFM;
  • persons comprising the AIFM bodies;
  • internal organisation of the AIFM with the number of persons (including the managers, employed by the AIFM in Luxembourg, the setting-up of an administrative centre and a decision-making centre at the level of the AIFM, the internal governance framework of the AIFM);
  • extent of delegated activities in relation to portfolio management and risk management; and
  • risk management method.

The CSSF applies the rules on the authorisation and organisation of UCITS management companies contained in its Circular 12/546 to those of AIFMs.

The CSSF also insists on the importance for AIFMs established in Luxembourg (or which have to adapt to the AIFM Law(3)), to set up the necessary substance in order to enable them to assume their responsibilities and to deliver quality services to the AIF they manage.

For further information, see the CSSF Annual Report 2014.

(1) SIFs mean specialised investment funds within the meaning of the Law dated 13 February 2007, as amended.
(2) FCP refers to Fonds Communs de Placement (common fund).
(3) AIFM Law refers to the Law of 12 July 2013 on Alternative Investment Fund Managers.