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Highlights:
The European Council has adopted DAC8. This directive, while primarily focused on introducing transaction reporting obligations for crypto-asset service providers, extends its impact to existing directives, notably DAC2 (CRS) and DAC6.
Luxembourg Market Update:
Luxembourg's regulated investment fund industry saw a 1.5% decrease in net assets under management in September, according to financial regulator CSSF. The drop of €77.8bn to €5.12trn resulted from net redemptions of €26.8bn and a €51bn drop in the value of financial market assets, although the sector's net assets were up by 1.59% over the previous 12 months. The CSSF recorded a total of 3,319 fund structures, down from 3,323 the previous month - comprising 2,171 umbrella funds with 12,953 sub-funds and 1,148 single-portfolio entities.
The number of alternative investment funds domiciled in Luxembourg increased from 6,932 to 8,172 last year, with their aggregate volume of assets totalling €1.869bn, up from €1.482bn at the end of 2021, according to the CSSF. The financial regulator notes that 48% of the total volume of assets was held by the largest 4% of funds, a slight increase from 45% the previous year, while 64% of funds had less than €100m in assets. Private equity funds account for 27% of Luxembourg's alternative fund market.
Around 53% of the total assets under management in cross-border funds were domiciled in Luxembourg at the end of the first quarter, according to corporate services and financial data provider Broadridge. Half of the aggregate assets of €5.788trn were managed by US fund groups, ahead of the UK and France with 11% each. Cross-border funds accounted for 14% of assets under management worldwide and 49% in Europe at the end of March.
Regulatory Developments in and beyond Luxembourg:
28 September 2023: ESAs issue a report on the extent of voluntary disclosure of principal adverse impacts under SFDR
The European Supervisory Authorities (“ESAs”) published their second annual report on the extent of voluntary disclosure of principal adverse impacts under Article 18 of the Sustainable Finance Disclosure Regulation (“SFDR”). In the results, the ESAs appreciated an overall improvement compared to the previous year, although there has been significant variation in the extent of compliance with the requirements and in the quality of the disclosures both across financial market participants and jurisdictions. Yet, the report mentions that, even though they were encouraged to do so under the SFDR, financial market participants were generally not disclosing to what extent their investments align with the Paris Agreement.
29 September 2023: ESAs issued advice on criticality criteria and oversight fees for critical ICT third-party providers under DORA
The ESAs published their joint response to the European Commission’s Call for Advice on two EC delegated acts under the Digital Operational Resilience Act (DORA) specifying further criteria for critical ICT third-party service providers (CTPPs) and determining oversight fees levied on such providers. The ESAs propose 11 quantitative and qualitative indicators along with the necessary information to build up and interpret such indicators following a two-step indicator-based approach to perform a holistic criticality assessment as envisaged in Article 31(2) of DORA:
- Step 1: Assessing ICT TPPs against a set of minimum relevance thresholds;
- Step 2: Further assessment of ICT TPPs.
Regarding the oversight fees, the ESAs make proposals for determining the amount of the fees to be levied on CTPPs and the way in which they are to be paid.
13 October 2023: Circular CSSF 23/841
The CSSF has issued Circular CSSF 23/841 (only in French) covering the application of the Guidelines of the European Securities and Markets Authority (“ESMA”) on certain aspects of the MiFID II remuneration requirements (ESMA35-43-3565). The Circular repeals Circular CSSF 14/585 and modifies Circular CSSF 07/307.
16 October 2023: Circular CSSF 23/842 - Adoption of revised EBA guidelines on ML/TF risk factors – complement of Circular CSSF 21/782
The purpose of this circular is to inform the market that the CSSF applies the European Banking Authority (“EBA”) guidelines on customer due diligence and factors fund managers should consider when assessing the money laundering and terrorist financing (“ML/TF”) risks associated with individual business relationships and transactions (“Guidelines on ML/TF risk factors”) under Articles 17 and 18(4) of Directive (EU) 2015/849 (EBA/GL/2021/02), published on 31 March 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.
17 October 2023: European Council adopts DAC8
The European Council has adopted DAC8 on administrative cooperation in taxation. The amendments mainly concern the reporting and automatic exchange of information on revenues from transactions in crypto-assets and on advance tax rulings for the wealthiest (high-net-worth) individuals. The aim of the Directive is to strengthen the existing legislative framework by enlarging the scope for registration and reporting obligations and overall administrative cooperation of tax administrations.
Additional categories of assets and income, such as crypto assets, will now be covered. There will be a mandatory automatic exchange between tax authorities of information which will have to be provided by reporting crypto-asset service providers. So far, the decentralised nature of crypto assets has made it difficult for member states’ tax administrations to ensure tax compliance. The inherent cross-border nature of crypto-assets requires strong international administrative cooperation to ensure effective tax collection.
This directive covers a broad scope of crypto-assets, building on the definitions that are set out in the regulation on markets in crypto-assets (MiCA). Also, those crypto-assets that have been issued in a decentralised manner, as well as stablecoins, including e-money tokens and certain non-fungible tokens (NFTs), are included in the scope.
23 October 2023: Adaptation of the CSSF’s communication channels
The has informed the public that, as of 19 October, the CSSF’s X (Twitter) account is no longer available. Other communication channels remain unchanged:
25 October 2023: CSSF Communiqué AML/CTF relaying message from the Israeli Ministry of Justice
The CSSF has released a communiqué relaying a recent message from the Israeli Ministry of Justice, and asks the supervised entities to exercise particular vigilance in relation to the transfers referred to in the message. In the message, The Israel Money Laundering and Terror Financing Prohibition Authority (IMPA) calls on the financial sector and the public to increase their vigilance towards terrorist financing attempts in light of the ongoing war and state of emergency.
25 October 2023: Launch of the ESMA Common Supervisory Action on MiFID II sustainability requirements
The European Securities and Markets Authority (ESMA) has announced that it will launch a Common Supervisory Action (CSA) with National Competent Authorities (NCAs) on the integration of sustainability in credit institutions as well as investment firms’ MiFID II suitability assessment and product governance processes and procedures in 2024: ESMA to launch Common Supervisory Action on MiFID II sustainability requirements (europa.eu).
The methodology of this CSA will be developed by ESMA and aims to ensure a common supervisory approach among NCAs.
The CSA will cover the following aspects:
- How firms collect information on their clients’ “sustainability preferences”;
- Which arrangements have been put in place by firms to understand and correctly categorise investment products with sustainability factors for the purpose of the suitability assessment;
- How firms ensure the suitability of an investment with respect to sustainability (including the use of a “portfolio approach”);
- How firms specify any sustainability-related objectives a product is compatible with as part of the target market assessment of the investment product.
The CSA follows ESMA’s recent update of two sets of guidelines on suitability and product governance, both of which entered into application on 3 October 2023. The CSSF will contact a sample of supervised entities.
30 October 2023: CSSF issues Annex of Circular CSSF 22/822 on high-risk jurisdictions on which enhanced due diligence and jurisdictions under increased monitoring of the FATF
The CSSF has issued Annex of Circular CSSF 22/822 on high-risk jurisdictions. Of note, Cayman Island has been removed from the list.
For further information, please contact:
Tobias Ettlin #ONEteam
#onewithyou
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/