REGULATORY CLIENT UPDATE / DECEMBER 2023

Highlights:

The CSSF has published version 17 of its FAQ on UCITS. It has added Q&A 6.7.2 on timelines applying to the update of PRIIPs KID for Luxembourg UCITS and the update of information on past performance.

Luxembourg Market Update:

The aggregate net assets of regulated Luxembourg-domiciled investment funds – UCITS and Part II funds, SIFs and SICARs – amounted to €5,008bn at the end of October, a decrease of 2.15% from the previous month and of 1.12% over the previous 12 months, according to the CSSF. The financial regulator says the monthly decline was mostly down to the falling price of financial market securities, which accounted for €99.6bn, plus net outflows of €10.38bn. The number of fund structures fell by 16 from the end of September to 3,303, including 2,159 umbrella structures containing 12,914 sub-funds. The number of active fund units totals 14,058 including 1,144 funds with a single portfolio.

Luxembourg's alternative investment funds experienced €5.5bn in net outflows in September, while UCITS domiciled in the grand duchy Luxembourg saw €21.3bn in net outflows during the same period, according to the European Fund and Asset Management Association. The alternative sector also saw a €1.6bn drop in the value of existing assets, while UCITS fund assets declined by €49.4bn during the month. Ireland and Germany saw net inflows for both AIFs and UCITS, while France and Denmark reported net outflows for AIFs. European AIFs overall experienced €11bn of net outflows in September, and UCITS funds of €2.39bn, but ETFs enjoyed net inflows of €11bn despite investor concern about the global economic outlook.

Regulatory Developments in and beyond Luxembourg:

15 November 2023: FinDatEx published an FAQ on EET PAI data fields

FinDatEx has issued an FAQ to provide additional information material to the European ESG Template (EET), with a focus on the use of Principal Adverse Impact Indicators (PAI) data fields.

30 November 2023: AIFMD review

Further to the provisional political agreement reached in July 2023, the technical trilogues concerning the review of the AIFMD and UCITS directive have been concluded and the EU Council has confirmed the final text.

The European Parliament has set an indicative date for a plenary sitting on 5 February 2024. Accordingly, the final text could be published in the Official Journal in February or March 2024.

1 December 2023: Circular CSSF 23/846: Application of ESMA Guidelines of on reporting under EMIR

The CSSF has published Circular CSSF 23/846 informing that it applies ESMA’s Guidelines on reporting under EMIR (Ref. ESMA74-362-2281) published on 23 October 2023. Consequently, the CSSF has integrated the Guidelines into its administrative practice and regulatory approach with a view to promoting supervisory convergence in this field at European level. The Guidelines fulfil several purposes regarding the harmonisation and standardisation of reporting under EMIR. This is key to ensure high quality of data necessary for the effective monitoring of systemic risk. Furthermore, increased harmonisation and standardisation of reporting facilitates the containment of costs along the complete reporting chain - the counterparties that report the data, the TRs which put in place the procedures to verify the completeness and correctness of data, and the authorities under Article 81(3) of EMIR which use data for supervisory and regulatory purposes.  The Guidelines provide clarifications on the following aspects:

• transition to reporting under the new rules;
• the number of reportable derivatives;
• exemption from intragroup derivatives reporting;
• delegation of reporting and allocation of responsibility for reporting;
• reporting logic and the population of reporting fields;
• reporting of different types of derivatives;
• ensuring data quality by the counterparties and the TRs;
• construction of the Trade State Report and reconciliation of derivatives by the TRs;
• data access.

The Guidelines are attached to this circular and are available on ESMA’s website https://www.esma.europa.eu/.

13 December 2023: CSSF communiqué on UCITS marketing notifications

Following a communiqué published on 15 November 2023 on UCITS marketing notifications, the CSSF would like to inform the supervised entities concerned that a new version of the ”User guide – eDesk – ePassporting module” is now available. All the necessary information and practical specifications in relation to the transmission of cross-border marketing notifications and de-notifications for UCITS through eDesk or through an API solution (S3 technology) can be found in the user guide.

14 December 2023: ESMA postpones and amends its guidelines on funds' names using ESG or sustainability-related terms

ESMA published a statement setting out the contemplated amendments to its guidelines on funds' names using ESG or sustainability-related terms (the Guidelines). ESMA has decided to postpone the adoption of the Guidelines until shortly after the entry into force of the amended versions of the AIFMD and UCITS Directives. The Guidelines aim to prevent investors being misled by requiring that funds that use ESG or sustainability-related terms in their names align such terms and names with their investment policies and objectives. ESMA has amended the Guidelines based on feedback from the public consultation, which was open between November 2022 and February 2023.

There is no change to the scope of the Guidelines, which will apply to all fund documentation and marketing communications addressed to investors of UCITS and AIFs (including EuVECAs, EuSEFs and ELTIFs).

The main changes are:

• No additional 50% threshold for sustainable investments for a fund to use sustainability-related terms: Instead, funds using sustainability-related terms in their names should have a minimum portion of 80% of investments that meet their sustainability characteristics or objectives, apply the Paris-aligned Benchmark (PAB) exclusions (i.e. companies involved in controversial weapons or tobacco or violating the UNGC or OECD Guidelines for Multinational Enterprises and companies deriving a certain percentage of revenues from mining, coal, lignite, fuel, gas or major greenhouse gases electricity production), and invest meaningfully in sustainable investments, as defined by SFDR.
• New category for transition-related terms: Funds using these terms should, in addition to the minimum portion of 80% of investments mentioned in the previous paragraph, apply the Climate Transition Benchmark (CTB) exclusions.
• Separation of environmental, social, and governance terms: Only funds using environmental terms in their names should apply the PAB exclusions. Funds combining E, S and/or G terms in their names should apply the Guidelines cumulatively, except for funds using a combination of environmental and transition terms, which should apply the CTB exclusions instead of the PAB exclusions.
• Measurability for transition and impact terms: To use these terms, funds should ensure that the minimum proportion of investments mentioned in the first paragraph above are also made to generate positive and measurable social or environmental impact or that they demonstrate a clear and measurable path to social or environmental transition.

The Guidelines will apply three months after their publication on ESMA's website in all EU languages. UCITS management companies, AIFMs, EuVECAs, EuSEFs and ELTIFs managers should comply from the application date for new UCITS and AIFs, and within six months for existing UCITS and AIFs

15 December 2023: Circular CSSF 23/846: Application of ESMA Guidelines of on reporting under EMIR

The CSSF issued a communiqué outlining that an updated European Long-Term Investment Funds (ELTIFs) application form has been made available on their website. The original ELTIF Regulation (EU) 2015/760 was amended by Regulation (EU) 2023/606 in 2023. The amended ELTIF Regulation (ELTIF 2.0) entered into force on 9 April 2023 and will apply as from 10 January 2024. The CSSF expects market participants to use the updated application for new authorisation requests as from Friday 15 December 2023. The CSSF outlines that "the updated ELTIF application form aims to facilitate and thereby accelerate new ELTIF authorisation requests as well as subsequent requests for amendment."

15 December 2023: Request Form for ELTIF

The original Regulation (EU) 2015/760 on European Long-Term Investment Funds (ELTIFs) was amended by Regulation (EU) 2023/606 of 15 March 2023 (hereinafter “revised ELTIF Regulation”). The revised ELTIF Regulation brings important innovations compared to the original ELTIF Regulation. For further details, please see the revised ELTIF Regulation which is available here.

The revised ELTIF Regulation was published in the Official Journal of the European Union on 20 March 2023. It came into force on 9 April 2023 and will apply as of 10 January 2024.

As the application date of the revised ELTIF Regulation approaches, the CSSF updates its existing ELTIF application form. You will find the updated ELTIF application form here: Request for a European Long-Term Investment Fund (ELTIF)

The CSSF underlines that the updated ELTIF application form aims to facilitate and thereby accelerate new ELTIF authorisation requests as well as subsequent requests for amendment.

In this regard, you will notice that the updated ELTIF application form includes various thematic sheets. Some sheets contain key questions that trigger further questions to respond to. Depending on the answer to a key question, form fields will be greyed out or not. For example, if an ELTIF is not intended to be marketed to retail investors, most sections in sheet “RETAIL PROFESSIONAL” will be greyed out and will therefore not require you to provide the type of information/documents that are required in case the ELTIF was intended to be marketed to retail investors.

This will allow the CSSF to clarify key points at an early stage of the ELTIF authorisation process. This also requires that the ELTIF application form is completed with the necessary care and diligence. The column titled “Footnotes” is intended to help to complete the ELTIF application form correctly.

The updated ELTIF application form must be used for any new authorisation request submitted as from the publication of this press release. 

It should also be used for opt-in notifications and the communication of substantial changes to an initial application.

Please be reminded that:

• all authorisation requests should be sent to setup.uci@cssf.lu
• all notification requests should be sent to amendments.uci@cssf.lu
• all amendment requests should be sent to amendments.uci@cssf.lu

18 December 2023: Updated FAQ on virtual assets in UCIs

The CSSF has updated its FAQ on virtual assets in UCIs by amending question 3 on authorisation for the management of virtual assets stating that each Luxembourg authorised Investment Fund Manager (“IFM”) which intends to manage an alternative investment fund, regulated or not (“AIF”), investing directly or indirectly in virtual assets, needs to obtain prior authorisation from the CSSF for the strategy “Other-Other Fund-Virtual assets”.

19 December 2023: Updated Council Regulation (EU) 2023/2873 and (EU) 2023/2875 concerning sanctions regarding the Ukraine conflict

The EU Council has updated Regulations (EU) 2023/2873 and (EU) 2023/2875 amending Regulation (EU) No 269/2014 concerning “restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.”

28 December 2023: CSSF FAQ on UCITS – PRIIPs updates

The CSSF has published version 17 of its FAQ concerning the Luxembourg Law of 17 December 2010 relating to undertakings for collective investment. It has added Q&A 6.7.2 on timelines applying to the update of PRIIPs KID for Luxembourg UCITS and the update of information on past performance:

• There is no specific timeline. Article 15 of Commission Delegated Regulation (EU) 2017/653 requires PRIIP manufacturers to review the information contained in the PRIIPs KID at least every 12 months following the date of the initial publication of the PRIIPs KID without providing for a specific annual timeline for such annual update. However, PRIIPs manufacturers are encouraged to annually update the PRIIPs KID for UCITS and to subsequently submit such document to the CSSF within 35 business days after 31 December of each year.
• The website or the document where past performance is made available (in accordance with Article 8(3) of Delegated Regulation (EU) 2017/653) shall be updated within 35 business days after 31 December of each year. However, in case the PRIIP manufacturer has chosen to include the past performance data in the PRIIPs KID itself, then the latter needs to be updated and submitted to the CSSF within such same period of time.

Tobias Ettlin

m: +352 691 111 931

tobias.ettlin@one-gs.com

Disclaimer: This regulatory update has been prepared for clients of ONE group solutions and its subsidiaries for informational purposes and is not intended to be relied upon as professional advice. Please visit: https://www.one-gs.com/