New CSSF Circular on substance requirements of fund management companies in Luxembourg

The Commission de Surveillance du Secteur Financier (“CSSF”) has issued today circular 18/698 concerning (i) the approval process and organisation of Luxembourg fund management companies and (ii) specific requirements applicable to both fund management companies and transfer agents in the fight against money laundering and terrorist financing.

The objective of the CSSF when drafting the new circular was to set out in one single document all substance related aspects concerning both UCITS management companies and alternative investment fund managers. Until now, circular 12/546 of 24 October 2012 set out the regulatory practice of the CSSF concerning the substance of management companies; initially addressing UCITS management companies only. However, the increasing number of Luxembourg alternative investment fund managers, together with the efforts on regulatory convergence in a BREXIT context, has led to the creation of a new circular applicable to all Luxembourg fund management companies, whether UCITS, AIFM or even those known as “Chapter 16 management companies”. The provisions of the new circular mirror, to a large extent, the administrative practice developed by the CSSF in the recent past, but also includes some new requirements which will burden market players.

The main section of the circular sets out detailed rules concerning the shareholders of management companies, the minimum equity requirements, corporate bodies, administrative organisation, internal governance and internal controls. The provisions applicable to the delegation of key functions, including portfolio management, the fund administration and marketing are of particular interest. Further, the circular sets out the provisions applicable to management companies providing discretionary management services on an individual basis and those applicable to management companies providing services on a cross border basis or wishing to prevail of the European passport for the establishment of branches within the European Union.

The circular also includes provisions applicable to the fight against money laundering and terrorist financing. It is therefore also applicable to Luxembourg companies acting as transfer agent for investment funds.

The circular enters into force with immediate effect and repeals circular 12/546. Companies applying for a management company license will therefore have to take into account the requirements of the new circular in their applications. Existing management companies will have to carefully consider the content of the circular in order to ensure that they are compliant with the new requirements going forward.