On 20 December 2019 the Commission de Surveillance du Secteur Financier (the “CSSF”) published circular 19/733 (the “Circular”) implementing the IOSCO recommendations for liquidity risk management in collective investment schemes into Luxembourg regulation applicable to various classes of investment fund managers (“IFMs”) managing open-ended undertakings for collective investment (“UCIs”):
- UCITS management companies (under chapter 15 of the Law of 17 December 2010 (the “2010 Law”);
- Other IFMs (under chapter 16 of the 2010 Law);
- Luxembourg branches of IFMs (under chapter 17 of the 2010 Law);
- Self-managed SICAVs under article 27 of the 2010 Law;
- Authorized AIFMs (under chapter 2 of the Law of 12 July 2013 (the “2013 Law”); and
- Self-managed AIFs.
It is also worth noting that the CSSF also “recommends open-ended UCIs subject to Part II of the 2010 Law which are not managed by an authorized [sic] alternative investment fund manager as defined in the 2013 Law to consider the provisions of [the] Circular.”
Effective liquidity management remains the responsibility of the IFM regardless of whether they have delegated portfolio management. However, delegated portfolio managers should also consider the IOSCO recommendations in order to assist their IFM in its compliance.
The IOSCO recommendations address the risk management process as it applies to: consider liquidity management in the design process of UCIs; the day-to-day liquidity management of UCIs; and contingency planning. The recommendations are included in the Circular (a link is provided below), and relevant IFMs will need to give careful consideration to these.
Of particular note is the contingency planning section to the IOSCO recommendations, as these were not included within the previous principles of March 2013. The CSSF requires that contingency plans should be implemented and periodically tested to ensure that any applicable liquidity management tools can be used where necessary and, if activated, can be used in a prompt and orderly manner. This is a timely requirement in the wake of the high-profile liquidity issues facing a number of firms including, most notably, Woodford Investment Management (the Financial Conduct Authority in the UK sent a letter to UK authorised Fund Managers on 4 November 2019 drawing their attention to its rules on liquidity management and also the IOSCO recommendations).
The Circular entered into force with immediate effect: https://www.cssf.lu/fileadmin/files/Lois_reglements/Circulaires/Hors_blanchiment_terrorisme/cssf19_733