REGULATORY CLIENT UPDATE / FEBRUARY 2022

REGULATORY CLIENT UPDATE / FEBRUARY 2022

Highlights:

Reserved Alternative Investment Funds (RAIFs) in Luxembourg are now required by the AED, as part of their regulatory obligations, to provide an annual RC report for AED's review no later than five months after the end of the financial year end of the RAIF.

This regulatory reporting obligation comes in addition to the already established obligation that RAIFs are required by the AED to submit an annual AML survey that is similar in scope to the one which the CSSF performs each year. 

The report is intended to be a summary of the RC’s activities and the operation of the AML/CFT framework of the RAIF.

Luxembourg Market Update:

As of 31 December 2021, net assets of Luxembourg investment funds reached an all-time high of EUR 5.9 trillion. This represents a year-on-year increase of EUR 886 billion or + 17.8%. With growth of 29.9%, private equity was the asset class with the greatest proportional increase in assets last year. Investment vehicles in the grand duchy held around 10% of the world's €56.6trn in fund assets in 2020, behind only the US with 46%.

Regulatory Developments in and beyond Luxembourg:

22 December 2021: Draft Anti Tax Avoidance Directive (ATAD) 3 released

The European Commission has published a Directive proposal setting out rules aimed at addressing the use of so-called shell companies. Member States are expected to implement the proposal into national law by 30 June 2023 with an effective date of 1 January 2024. The proposal targets EU entities involved in cross-border activities on an outsourced basis. The Proposal introduces specific reporting obligations in order to identify “shell entities” (listed companies and regulated financial undertakings, such as UCITS and AIFs are not is scope). Once qualified as a shell, an undertaking would be denied treaty benefits and EU directive access.

Companies will want to take a close look at their structure in order to anticipate potential impacts that may arise from the implementation of the new rules.

4 January 2022: CSSF published updated versions of the FAQs on virtual assets for UCIs and credit institutions

The updated FAQs address questions such as the eligibility of virtual assets in UCITS and AIFs, specific authorisations needed in order to manage virtual assets and specific AML considerations around such assets.

18 January 2022: New Luxembourg RCS submission rules applicable as of 31 March 2022

The Luxembourg Business Registers ("LBR") has issued a public notice concerning new requirements for all Luxembourg entities. In a first step, all natural persons willing to register with the RCS or to update their registration will have to communicate their Luxembourg national identity number ("NIN").  In a second step, all natural persons currently registered with the RCS will also have to communicate their NIN. The regulation will come into force as from 31 March.

20 January 2022: ESMA Common Supervisory Action on valuation of UCITS and open-ended AIFs

The ESMA has launched a Common Supervisory Action (CSA) working with member state regulators to collect data on the valuation of UCITS and open-ended AIFs. The aim of the CSA is to assess the compliance of supervised entities with the UCITS and AIFMD frameworks, respectively, with regard to the valuation of illiquid assets. The review will be conducted using a common assessment framework developed by ESMA. The CSSF is expected to launch its data collection exercise in March 2022 targeting selected IFMs with a data collection questionnaire. A CSSF press communiqué has been released.

25 January 2022: ESMA publishes a new FAQ on SFTR relating to settlement fails

ESMA amended its Q&A on SFTR with an updated response to Q2 on the reporting of settlement fails. In this update, ESMA deals with the case where the counterparties have been unable to modify the maturity date of an SFT due to a failed settlement that takes place after the day following the maturity date.

31 January 2022: ESMA Common Supervisory Action on valuation of UCITS and open-ended AIFs

The CSSF has issued Circular 22/795 on the application of the ESMA Guidelines on marketing communications. This Circular states that the CSSF will apply the Guidelines has integrated them into its regulatory approach. The CSSF intends to perform thematic reviews on compliance with the applicable requirements. It is expected that the CSSF will issue an FAQ on this topic in due course.

31 January 2022: Survey  related  to  the  fight  against  money  laundering  and  terrorism  financing

The CSSF has published its instructions for   the  annual  online  survey  for  the  year  2021 collecting  standardised  key information  concerning  money  laundering  and  terrorism  financing (ML/TF)  risks. The survey will  be launched on  15  February. In  substance,  the 2021  survey  remains  mostly  unchanged compared to  the previous  year.  However,  some  questions  have  been  removed,  added  or amended.  The new  questions  have been  highlighted in  the  survey. Answers  to  the  survey  questions  will  have  to  be  submitted  through  the  CSSF eDesk  portal  by  15  April.

2 February 2022: Annual RC report for RAIFs

Reserved Alternative Investment Funds (RAIFs) in Luxembourg are now required by the AED to provide an annual RC report for AED's review no later than five months after the end of the financial year end of the RAIF.

The RC report must cover at least the following points:

1. The results regarding the identification, the assessment of the AML/CFT risks and the measures taken to mitigate them , as well as the tolerance level of the AML/CFT risk of the RAIF;
2. The results of due diligence measures performed on clients, initiators of the RAIF, portfolio managers to whom the management has been delegated, investment advisors, including the ongoing due diligence ;
3. The results of enhanced due diligence measures performed on intermediaries acting on behalf of their clients, including the ongoing due diligence;
4. The results of enhanced due diligence measures on identified individuals as politically exposed persons (PEPs) under the provisions of article 3-2 (4) (d) of the AML/CFT Law;
5. The results of due diligence measures performed on the assets of the RAIF, including the ongoing due diligence;
6. The monitoring of blocked positions for AML/CFT purposes at the level of the registers of bearer shares of the RAIF and/or the intermediaries acting on the marketing of the RAIF ;
7. The periodic review of any business relationship according to its risk level ;
8. In case of delegation of tasks concerning professional obligations to third parties, the results of controls performed on the compliance of services made by these third parties, not only with the legal and regulatory provisions, but also with the contractual provisions, if appropriate, the reasons for which the RAIF has chosen new third parties during the year ;
9. The statistical background of identified suspicious transactions, including the number of reports of suspicious transactions made by the RAIF to the Luxembourg Financial Intelligence Unit, the Cellule de renseignements financiers (CRF), as well as the amount of related funds ;
10. The statistical background of reported transactions within the framework of financial sanctions regarding the terrorist financing as well as those linked to the implementation of the resolutions of the United Nations Security Council and the acts adopted by the European Union, as well as the amount of related funds ; and
11. The number of noticed breaches of professional obligations on AML/CFT purposes. If this number is equal to nil, it must be specified explicitly.

The signed version of the RC report must be submitted by email to the following email address: AED.finvehicles@en.etat.lu