CSSF Regulation 15-07 - SIFs- Risk management and conflicts of interest policy

Regulation 15-07 (the “Regulation”) of December 31st 2015 relates to article 42bis of the law of February 13th 2007 (“SIF Law”) relating to specialised investment funds (“SIFs”), as amended.

The Regulation only applies to SIFs (“Impacted SIFs”) which are not subject to part II of the SIF Law i.e. it only applies to SIFs which are not being managed by a fully authorised alternative investment fund manager (“AIFM”) subject to Chapter 2 of the law of July 12th 2013 on alternative investment fund managers (the “AIFM Law”) (both externally managed structures and internally managed structures are concerned).

"The purpose of the Regulation is mainly to abolish Regulation 12-01 of September 6th 2012 which applied to all SIFs regardless of their status under the AIFM Law."

The practical impact is that now SIFs which appointed a fully authorised AIFM are not required anymore to have their own risk management policy. The content of the Regulation (except for the scope) is nonetheless similar to the content of Regulation 12-01.

Article 42bis of the SIF Law requires Impacted SIFs to:

1. put in place appropriate risk management systems in order to identify, measure, manage and monitor the risks arising from positions and their contribution to the general risk profile of the portfolio; and

2. be structured and organised in such way as to minimise the risk of investors' interests being prejudiced by conflicts of interest.

The Regulation clarifies the requirements of article 42bis, as follows:

In respect to the risk management system, the SIF is required to:

  • Establish and keep operational a risk management function (the “RMF”);
  • Such RMF shall, in principle, be independent and have access to all relevant information for the fulfilment of its tasks;
  • Delegation of the RMF is allowed subject to the requirements of the Regulation but the managing bodies of the SIF remain liable in respect to the adequacy and the efficiency of the RMF;
  • The activities of the RMF shall be adequately documented and the CSSF shall be kept informed;
  • When establishing the RMF, the SIF shall pay attention to the nature, scale and complexity of the activities and structure of the SIF.

In respect to the conflicts of interest policy, the SIF is required to:

  • Have due regard to the criteria enabling the SIF to spot potential conflicts of interest while keeping in mind the interests of the SIF, the SIF’s group and services providers and the investors;
  • Establish and keep operational a conflicts of interest policy (the “CIP”);
  • Ensure that the procedures put in place for the prevention or management of conflicts of interest shall be designed to ensure that the relevant persons engaged in different business activities involving a risk of conflict of interest carry out these activities with an appropriate degree of independence;
  • Keep updated a register describing the type of investment management activities where conflicts of interest entailing a material risk of damage to the SIF have arisen or may arise ; and
  • Inform investors of conflicts of interest where organisational or administrative measures taken by the SIF were not sufficient to handle those conflicts.

The Regulation enters into force immediately as it does not substantially add new requirements.

The Regulation can be found on the CSSF’s web site at: Regulation 15-07.