CSSF Issues a New Circular on the Authorisation and Organisation of UCITS Management Companies and Alternative Investment Fun…

On 23 August, the Luxembourg supervisory authority, the Commission de Surveillance du Secteur Financier (CSSF), issued Circular 18/698 relating to the authorisation and organisation of investment fund managers incorporated under Luxembourg law (Circular).

This article is not a summary of all the items covered in the Circular but only mentions some of the key new requirements in relation to, among others, substance, corporate governance and delegation arrangements that Managers should take into consideration moving forward.

The Circular is a very welcome addition to the Luxembourg regulatory regime as, up to now, the CSSF had not issued any written guidelines with respect to the authorisation and organisation of authorized alternative investment fund managers (AIFMs). Meanwhile, undertakings for companies managing collective investments in transferable securities (UCITS) had to comply with CSSF Circular 12/546 dated 24 October 2012 regarding authorisation and organisation of Luxembourg management companies subject to Chapter 15 of Luxembourg law of 17 December 2010 relating to undertakings for collective investment, as amended, as well as investment companies which have not designated a management company within the meaning of Article 27 of such law, as amended (CSSF Circular 12/546).

To a large extent, the content of the Circular reflects the administrative practices of the CSSF in relation to the organisation of UCITS management companies and AIFMs (each a Manager and together the Managers). The Circular replaces the aforementioned circular 12/546 and includes in one single document the conditions with which Managers must comply. It is noteworthy that the Circular entered into force with immediate effect.

Finally, it should be noted that CSSF Circular 12/546 takes into consideration ESMA’s opinion dated 13 July 2017 to support supervisory convergence in the area of investment management in the context of the United Kingdom withdrawing from the European Union as well as the assessment by the International Monetary Fund.

Board Members

Whenever an application is filed with the CSSF for the approval of a new director to the Manager, the director needs to prove that she/he has sufficient capacity to appropriately carry out her/his duties. This means that the director should not only have a limited number of mandates but must also allocate enough time to accomplish all of these mandates.

One of the novelties of the Circular is that it limits to 20 the number of mandates that a director may have. The Circular does however include a caveat, as it provides that the CSSF may consider that numerous mandates within the same structure (e.g., a fund and a special purpose vehicle underneath it) or mandates with numerous funds having the same initiator or belonging to the same group constitute a single mandate.

In addition, the Circular limits to 1920 hours (or 240 working days) the time that a director may spend on her/his professional activities annually.

Even though it has long been considered good practice to have four board meetings a year, there were previously no specific guidelines as to how many board meetings should be held each year. The Circular mandates that the members of the board should meet at least once per quarter.

Although the Circular applies only to Managers, it is expected that the CSSF will take a similar approach with regard to directors of investment funds (whether UCITS or alternative investment funds).

The Circular also recommends that a majority of the boards of the Manager and of the investment funds are not made up of the same individuals.

Senior Management

The Circular provides that a Manager must employ at least two conducting officers on a full-time basis. For the avoidance of doubt, the conducting officers must be employed on the basis of an employment contract. The conducting officers must meet at least once per month.

Depending on whether the assets under management of a Manager are above or below EUR 1,500,000, different rules apply as to residency requirements and the number of mandates that each conducting officer may have.

Managers must employ at least three full-time persons (including the two conducting officers).

Fight against Money Laundering and Terrorist Financing

The Circular defines the general framework and the obligations to which a Manager is subject with respect to anti-money laundering and the fight against terrorism financing (AML/CFT).

As a reminder, each Manager must appoint an AML/CFT compliance officer at the management level as well as a person responsible for compliance with professional obligations with regard to the AML/CFT. The AML/CFT compliance officer at the management level must issue a summary report at least once a year on the Manager’s compliance with the professional obligations relating to AML/CFT. The Circular indicates which items must be covered in this report. The report is submitted to the board of directors for approval. The report covering the previous financial year must be filed with the CSSF.

It should be noted that the internal auditor must also report at least once a year to the board of directors and the conducting officers on compliance with the AML/CFT requirements.


The Circular also focuses on the delegation of certain functions by the Manager. In particular, the Circular indicates which functions may be delegated and which may not.

There are provisions regarding the framework applicable to delegation, including requirements to carry out initial and ongoing due diligence with regard to the delegates, having written agreements in place and the requirement for the Manager to receive reports from the delegates. The Circular includes some items that should be considered and taken into account when performing a due diligence.

It should come as no surprise that the CSSF went to such lengths, and is dedicating such an important part of the Circular, to delegation and due diligence. Indeed, the CSSF indicated in its 2017 annual report that one the main findings relating to the governance of Managers was that delegation was once more subject to deficiencies during the inspections carried out by the CSSF in 2017. The CSSF noted that some due diligence reviews (initial and continuous) were not sufficiently substantiated to allow appropriate identification and assessment of the risks related to the use of delegation. Consequently, the Circular allows for more robust procedures to ensure that there are no longer (or at least fewer) deficiencies down the road.

Investment Advisers

The Circular also includes a section dealing with the appointment of investment advisers, that is, entities that provide the Manager with non-binding advice, which the Manager is free to follow or disregard.

In particular, the Circular provides that certain conditions must be complied with in order for the Manager to appoint an investment adviser. These include the requirement for the Manager to:

  • define and implement a procedure describing the Manager’s independent and critical analysis of the transactions proposed by the investment adviser;
  • analyse and validate a precise, limited and detailed list of financial instruments in which the investment fund may invest (“white list”) in the case where the investment process is based on the investment adviser's proposal of an investment universe in which it has such a predetermined list;
  • analyse and validate in advance any investment model (e.g. including an algorithm) developed by the investment adviser that the Manager uses;
  • ensure that adequate disclosure is made in the prospectus/offering document of the investment funds which highlight the exact role of the Manager and of the investment adviser.

It is not uncommon for a representative of the investment adviser to have a seat on the portfolio management committee of the Manager. The Circular states that in such case, the role of the investment adviser on such committee should, in principle, be only consultative.


Pursuant to the Circular, a Manager should, within the performance of the management function, establish procedures and arrangements enabling it to ensure that the investment funds it manages fulfil their obligations under Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories and the various delegated acts and related implementing acts (EMIR).

In addition, the Manager’s risk management policy and the risk management process must include the procedures and arrangements necessary to comply with obligations under EMIR.

It should be noted that the fact that the Manager has delegated one or more of its obligations under EMIR to third parties does not affect the Manager’s liability. The provisions application to delegations (see Delegation above) also apply in the case of delegation of an obligation under EMIR.

Information to be provided to the CSSF

The Circular also includes an annexed list of the documents that must be provided annually to the CSSF. It should be noted that this list is much more extensive than the previous requirements under CSSF Circular 12/546.

The documents must be filed with the CSSF at the latest within five months following the end of the Manager’s financial year, with the exception of the audited annual report and management letter, which must be submitted within one month after the ordinary general meeting at which the annual accounts of the Manager are approved, and at the latest seven months after the closing date of the Manager’s financial year.


Finally, the Circular also includes a list of changes which are subject to prior CSSF approval and changes which only require informing the CSSF


Existing Managers should carry out a gap analysis between their current structure and the structure provided for in the Circular and then make the necessary changes.

The Circular will also impact applications that have already been filed for new Managers but are still pending with the CSSF.

Finally, any plans for relocation to Luxembourg as a result of Brexit will need to take into account the provisions of the Circular.