Important aspects for investment funds and asset managers
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English Français DeutschImportant aspects for investment funds and asset managers
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As part of the state of emergency, declared on 18 March 2020 by the Luxembourg government for a period of three months, some temporary measures have been adopted by way of a Grand Ducal Regulation to address the impact of the COVID-19 crisis on shareholder meetings. All Luxembourg companies, private or listed, including investment funds of the corporate type, are authorised to hold their shareholder meetings exclusively in digital form that is, without any shareholder or proxyholder attending the meeting in person.
Notwithstanding any contrary provisions in the articles of associations and within the limits provided by the Grand Ducal Regulation, companies are also allowed to postpone their shareholder meetings.
The Grand Ducal Regulation adopted in the context of the state of emergency has ceased to apply as of the end of the state of emergency, being 24 June 2020. The law of 20 June 2020, which was later replaced by the law of 23 September 2020, aims at extending the increased flexibility measures under the Grand Ducal Regulation regarding the means used to hold general meetings and other meetings of companies’ corporate bodies. The Luxembourg legislator has extended these measures until 31 December 2021. For more information, please click here_
For more details please contact: FF_Covid19_impact@arendt.com
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(07/07/21)
Investment funds will have some leniency in this respect. On 9 April 2020, ESMA has issued a public statement, addressed to investment fund managers concerning the publication of annual and half-yearly reports. ESMA highlights that investment fund managers are expected to exercise their best efforts to prepare the annual reports and half-yearly reports and publish them within the relevant legislative deadlines. However, it concedes where fund managers may be prevented from fulfilling the requirements due to COVID-19, national regulators, while acting in accordance with national rules are, when possible, not to prioritise supervisory actions against these market participants during the specific period as defined in the ESMA statement. The CSSF has stated its intention to comply with this ESMA statement. Moreover, it requires that investment fund managers have to immediately inform the CSSF if they expect annual and half-yearly reports to be published beyond the regulatory deadlines. Accordingly, investment fund managers must also inform investors as soon as practicable of such a delay.
As regards all Luxembourg investment funds not covered by the ESMA statement, that is all SIFs, SICARs and Part II UCIs not managed by an authorised AIFM, the deadline for submission of the annual, respectively the half-yearly report has been extended by three months through respective Luxembourg legislation. However, it is to be noted that this three-month extension period is valid only for annual, respectively half-yearly reports to be published between 18 March 2020 (the date of declaration of the state of emergency) and 24 June 2020 (the date of the end of the state of emergency).
On 29 May 2020, the law of 22 May 2020 introducing a set of temporary measures in relation to accounting and filing requirements entered into force. The aim of the law is to extend the filing and publication deadlines for annual accounts, consolidated accounts and related reports as well as the holding of annual general meetings, in order to avoid exposing managers and directors to liability and sanctions that are disproportionate given the exceptional circumstances. For more details please click here.
As regards the submission of the long form report, the CSSF has already previously clarified in a press release dated 25 March 2020 that this report may be submitted up to four months after the annual general meeting of the audited investment fund. However, it also stated that investment funds cannot both delay their annual general meetings and, at the same time, benefit from the leniency as regards the submission of the long form report. See also “Given the ban on public and private meetings, can a SICAV postpone its annual general meeting?”
For more details please contact: FF_Covid19_impact@arendt.com
(11/06/20)
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All CSSF supervised entities are asked to respect the timelines for their regulatory reporting and to undertake, even during the current situation, the necessary steps to keep up with their regulatory duties. The CSSF reminds the entities under its supervision that continued reporting to the regulator is crucial, even more so during a time of crisis. However the CSSF also signalled that it will not apply a strict enforcement policy, if the delayed reporting is justified with operational reasons due to the operational challenges faced under COVID-19. The CSSF requires however to be informed ahead of the reporting deadlines about any such delays. (CSSF press release on regulatory reporting dated 23 March 2020).
In order to further render clarity on the regulatory reporting duties under the current situation, the CSSF has defined the timeframes for a possibly delayed submission of most regulatory reports, provided that the CSSF is informed thereof. The CSSF has listed the reports benefiting from such temporary measure together with the respective submission deadline in question 7 of its FAQ on Covid-19. The CSSF however reiterates that submission on time is encouraged, where the submission can be made within the usual time limits without compromising the quality of the reporting and in accordance with the restrictions imposed under the current situation.
As an additional measure and in order to receive regular updates on financial data (total net assets, subscriptions and redemptions) and updates on governance arrangements during this current period of market turbulence, the CSSF requires that investment fund managers have to respond to and submit a respective questionnaire on a weekly basis until further notice. The questionnaire must be filed by Luxembourg investment fund managers and by EU and non-EU investment fund managers managing at least one Luxembourg UCITS, AIF (regulated or non-regulated) or any other UCI (not qualifying as AIF) via the CSSF’s eDesk portal. The filing has to occur by each Wednesday, for the first time by 22 April 2020, covering the week of 13 to 17 April 2020.
For more details please contact: FF_Covid19_impact@arendt.com
(17/04/20)
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Yes. Certain large investment fund managers are required to notify any significant events affecting the functioning of all regulated and non-regulated investment funds managed by these investment fund managers. Furthermore, these investment fund managers are also to notify large redemptions as well as the application of redemption gates and/or deferred redemptions at the level of all Luxembourg regulated funds managed by them. All investment fund managers subject to this specific notification on fund issues and large redemptions have been contacted by the CSSF.
The notification must be filed through the CSSF’s eDesk portal as of 2 June 2020 and remains in place until further notice. It replaces the existing monitoring of significant developments and issues as well as the related decisions and measures taken by investment fund managers, which were established by the CSSF on 10 March 2020.
The reporting “early warning on large redemptions” which is relevant for a limited number of UCITS is suspended until further notice.
For more details please contact: FF_Covid19_impact@arendt.com
(19/05/20)
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In an industry accustomed to non-face-to-face relationships and the use of intermediaries, cybercrime and fraud pose significant operational risks to financial institutions. In the current extraordinary circumstances, these risks are more pronounced than ever. Beyond this, the situation surrounding COVID-19 is creating new ML/TF risks, as described in recent publications by the EBA, the FATF, Interpol, Europol and the CSSF. Some of these risks are of particular relevance for the asset management industry, such as bribery and corruption related to government support schemes, insider trading and market manipulation. The risks to financial institutions stem largely from the potential to launder illicit proceeds.
On 10 April 2020, the CSSF released Circular 20/740 on financial crime and AML/CFT implications during the COVID-19 pandemic. In this circular, the CSSF describes several mitigating actions that professionals subject to AML/CFT obligations should focus on.
The main recommendation is for each financial institution to assess its exposure to emerging ML/TF threats in the current context without delay, and to ensure that mitigating measures are in place. Communication with staff is one key component of such measures.
In particular, the CSSF expects financial industry actors to continue to implement and maintain effective systems and controls, which must not be abandoned or allowed to weaken due to the disruption of their operating models. The CSSF highlights several areas that supervised professionals should target. These are: (1) AML/CFT business continuity, (2) transaction monitoring, (3) customer due diligence (CDD), (4) ML/TF risk assessment and (5) cooperation with authorities.
The CSSF also encourages professionals to consult the recent guidance on COVID-19 typologies published by the Cellule de Renseignement Financier (CRF), which lists a number of indicators of suspicious activity.
For further details, please contact: Stéphane Badey (stephane.badey@arendt.com), Manfred Hoffmann (manfred.hoffmann@arendt.com)
(16/04/20)
On 10 April 2020, the CSSF released Circular 20/740 on financial crime and AML/CFT implications during the COVID-19 pandemic. In this circular, the CSSF describes several mitigating actions that professionals subject to AML/CFT obligations should focus on.
The CSSF urges professionals subject to AML/CFT obligations to strengthen their customer due diligence (CDD) measures with respect to non-face-to-face relationships. In the asset management industry, strong CDD measures are already the norm. However, asset managers may struggle to obtain wet-inked documentation or certified true copies from their usual sources in a timely manner, and should be wary of the consequences this could have for internal compliance with their own AML/KYC rules.
The CSSF supports FATF’s call to utilise financial technology to help manage the CDD issues raised by COVID-19. In particular, it encourages professionals to consult the FATF Guidance on Digital ID, while recalling that measures must always comply with the requirements of the law on AML/CFT in relation to CDD. The CSSF also reminds professionals that where the identification of a customer cannot be completed, or where suspicions about a customer’s identity are raised, they must refrain from entering into the business relationship, and must cooperate with the authorities.
For further details, please contact: Stéphane Badey (stephane.badey@arendt.com), Manfred Hoffmann (manfred.hoffmann@arendt.com)
(16/04/20)
Asset managers should be aware of the correlated risks that emerge during times of crisis, such as the likelihood of increased redemptions. Forced selling into a dried-up market at significant discounts poses a serious threat to investment fund liquidity and profitability. Meeting redemption requests should always be done in the best interest of all investors, meaning both those redeeming their shares and those remaining in the fund. Forced selling at a discount will rarely be in the best interest of the latter group.
Moreover, asset managers should be wary of the potential risk of net asset value calculation errors. Such errors may trigger a mandatory recalculation of the asset side of the net asset value, and can consequently lead to a reporting obligation to the regulator and to investors, among others. For Luxembourg regulated funds, the consequences of net asset value calculation errors are addressed in CSSF Circular 02/77 on the protection of investors in case of NAV calculation error and correction of the consequences resulting from non-compliance with the investment rules applicable to UCIs. This circular is mandatory for all UCITS and UCIs, and also applies by default to SIFs which have not adopted a specific internal policy in this respect.
Your contacts for more details : RiskTeamARC@arendt.com / FF_Covid19_impact@arendt.com
(24/03/20)
Investment funds are usually required to value their assets at fair value derived either from the available market prices of liquid assets or from valuation models. The latter may serve as a back-up solution for when market prices are no longer available. These valuation models must be subject to approval and ongoing review.
Asset managers should therefore carefully review existing valuation practices in order to make sure that:
The above will not generally pertain to debt-like securities valued at amortised cost which are held to maturity.
Asset managers should take action now to assess their valuation department’s capacity to cope with the current situation. Back-up valuation models should be established for assets for which no such models exist, and assumptions should be reviewed.
Your contacts for more details : RiskTeamARC@arendt.com / FF_Covid19_impact@arendt.com
(24/03/20)
Asset managers should review their valuation framework on a regular basis, and whenever particular circumstances arise that give the asset manager cause to suspect the existing framework may no longer be adequate or suitable. Asset managers should take action now to assess their valuation department’s capacity to cope with the current situation. Back-up valuation models should be established for assets for which no such models exist, and assumptions should be reviewed.
It is clear that there is a significant potential impact on global asset managers from the current situation. As market uncertainty grows, so does volatility on available markets. Depending on the exposures of your investment fund, sufficient flow of price information may no longer be available, or available information may quickly become inaccurate or cease to apply. Under these extraordinary conditions, valuation is a challenging exercise.
Members of your valuation staff may be, or may have been, unavailable or less available due to travel restrictions and the constraints of remote working. This may not create significant issues for plain vanilla asset classes, but may lead to critical disruptions when it comes to valuing complex investment products.
The current crisis is an extraordinary situation. Asset managers should ensure that their business continuity plans are adequate to facilitate the continuous smooth operation of the valuation department throughout this crisis. As an example, valuation committees should have the ability to meet remotely and the uninterrupted flow of data should be ensured for the proper valuation of assets.
Your contacts for more details : RiskTeamARC@arendt.com / FF_Covid19_impact@arendt.com
(24/03/20)
In the current market conditions caused by the COVID-19 crisis, investment managers may face an increased risk of breaching the investment restrictions set out in legislation or fund documents.
Breaches may have a variety of causes, such as changes in underlying market values, the liquidation of substantial positions and a need for additional borrowing in order to meet redemptions, or the reclassification of securities from liquid to illiquid. Indirect breaches may also occur. For instance, a change in underlying market conditions may cause a fund to exceed counterparty risk limits with derivatives counterparties.
A key factor is to determine whether a breach should be viewed as active or passive. A passive breach is generally defined as one caused by reasons beyond the control of the fund and its manager, or by the exercise of subscription rights in the fund. In particular, indirect breaches of cash limits through redemption payments will need to be monitored closely.
Passive breaches do not have to be notified to the CSSF: investment fund managers should take appropriate steps to meet the relevant limit within a reasonable time period, while taking into consideration the prevailing market conditions and the best interests of investors.
For Luxembourg regulated funds, the consequences of active investment breaches are addressed in CSSF Circular 02/77 on the protection of investors in case of NAV calculation error and correction of the consequences resulting from non-compliance with the investment rules applicable to UCIs. This circular is mandatory for all UCITS and UCIs, and also applies by default to SIFs which have not adopted a specific internal policy in this respect. CSSF Circular 02/77 sets out the rules applicable to the remediation of investment breaches, the indemnification of the fund, communications to investors and reporting to the regulator.
Your contacts for more details :
Nicolas Bouveret (nicolas.bouveret@arendt.com) and
Michèle Eisenhuth (michele.eisenhuth@arendt.com)
FF_Covid19_impact@arendt.com
(20/04/20)
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In the current market conditions and increased volatility caused by the COVID-19 crisis, investment managers may face issues in complying with UCITS global exposure limits, including the regulatory VaR limit (absolute or relative) or any other more restrictive internal VaR limit as set out in the UCITS’ prospectus.
The CSSF has specifically reminded that a passive breach of the global exposure limit (and more generally of investment restrictions applicable to the UCITS) does not have to be notified to the CSSF: in case of a passive breach, investment fund managers should take appropriate steps to meet the relevant limit within a reasonable time period, while taking into consideration the prevailing market conditions and the best interests of investors.
Furthermore, the CSSF also clarified that breaches of the regulatory or internal VaR limit are to be considered as passive breaches, provided they are the result of the volatility in financial markets and were not caused by new positions that increased the risk of the portfolio. Any additional risk exposure taken by the UCITS increasing the overall level of risk of the portfolio will be considered as an active breach and the CSSF will need to be notified with the information as set-out in its FAQ on COVID-19.
Your contacts for more details :
Nicolas Bouveret (nicolas.bouveret@arendt.com) and
Michèle Eisenhuth (michele.eisenhuth@arendt.com)
FF_Covid19_impact@arendt.com
(20/04/20)
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Considering the special circumstances caused by the COVID-19 crisis on financial markets, the CSSF will expect enhanced transparency on the liquidity management tools used by investment managers. The CSSF has required certain market participants to provide specific reporting of certain redemption events, the use of a swing factor, or significant events related to the impact of the COVID-19 crisis on the financial markets such as changes in valuation methods or delays in net asset value calculation.
Generally speaking, investor disclosure and notification requirements will depend on the terms in the fund documents and the relevant product legislation.
To the extent that the implementation of the swing pricing is made in accordance with the rules laid down in the prospectus, no notification to investors should be required. If however, the investment manager wishes to make use of an increased swing factor, the CSSF has clarified that this action would require the notification of investors (see our separate question on this subject). The same would apply to anti-dilution levy mechanisms.
Adapting the valuation rules may generally be done without investor notification provided that valuation is still carried out in accordance with the principles and methodologies set out in the fund documents.
Implementing a suspension of redemptions would generally require the notification of investors of the relevant fund, and the regulator should be notified without undue delay. Investors would also need to be notified when applying redemption gates.
Amendments to the fund documents with the aim of providing more flexibility in terms of liquidity management would, in most cases, require that investors be notified and, for regulated funds, would need the prior approval of the CSSF.
As a rule, investors should be notified by the means provided for in the prospectus. However, given the restrictions on people and services imposed under the various lockdown measures, certain communication channels may no longer be available or be efficient, and may need to be replaced temporarily by electronic means of communication only.
Your contacts for more details : Henning Schwabe(henning.schwabe@arendt.com) / FF_Covid19_impact@arendt.com
(23/03/20)
The use of the relevant tools is subject to the terms and conditions disclosed in the fund documents, as well as in the relevant product legislation. Generally speaking, both UCITS and AIF managers are required, as part of risk management, to maintain liquidity management policies and systems appropriate for the liquidity profile of the fund. For Luxembourg open-ended UCIs, additional regulatory guidelines are set out in CSSF Circular 19/733 implementing the IOSCO recommendations.
Specific guidelines may be needed in view of the circumstances. In particular, the CSSF has published specific guidelines on the use of swing pricing, which have recently been updated to address the current market conditions caused by the COVID-19 crisis (see our separate question on this subject).
The ESMA guidelines on liquidity stress testing for UCITS and AIFs, although not yet in force, may also provide useful guidance on regulators’ expectations on liquidity stress testing procedures and assessing the impact of market stresses, anticipating activity in stressed market conditions and identifying potential vulnerabilities.
Your contacts for more details : Henning Schwabe(henning.schwabe@arendt.com) / FF_Covid19_impact@arendt.com
(23/03/20)
The choice of the most appropriate liquidity management measures will vary on a case-by-case basis depending on the particular features of the fund in question.
Investment managers may take a variety of measures aiming at passing on transaction costs to redeeming investors: swing pricing, anti-dilution levies, valuation according to bid or ask prices, or a combination of the above. Other tools are more disruptive as they restrict or delay investor access to some or all of their invested capital. These include deferral or gating of redemptions, suspensions of redemptions and side-pocket arrangements.
Certain indirect measures may also be taken, such as amending certain terms in the fund documents as far as possible, such as altering non-dealing days to capture certain market disruption events, reducing the frequency of permitted redemption days, extending the settlement period, extending the cut-off time, or a combination of the above.
To solve short-term liquidity issues, investment managers may consider borrowing, subject to the restrictions contained in the product law and the prospectus.
Ultimately, investment managers may need to consider closing and liquidating certain funds or restructuring their product range.
Your contacts for more details : Henning Schwabe (henning.schwabe@arendt.com) / FF_Covid19_impact@arendt.com
(23/03/20)
In the current market circumstances, large redemptions or decreases of assets under management may result in the need to reorganise Luxembourg fund structures. Under Luxembourg law, different options are available for this.
Subject to the constitutive documents of the fund, the governing body of the fund will usually have the power to liquidate a fund or sub-fund and order the redemption of all shares, units or interests on the liquidation date. The procedure may be different for the liquidation of a stand-alone fund or the last sub-fund within an umbrella structure and, in certain circumstances, investor consent or a vote may be required. The governing body may also decide to suspend subscriptions and redemptions until the effective liquidation date. The calculation of the net asset value of the relevant sub-fund would typically be suspended before starting the liquidation process. Investors must be informed of the decision to liquidate the sub-fund and to suspend dealings by the means prescribed in the constitutive documents. In respect of regulated funds, the CSSF must be notified of the decision to suspend dealings and liquidate the fund, and will review any communication to investors.
Alternatively, funds or sub-funds may be merged to rationalise the range of products or to save on running costs. The UCITS Directive provides for a specific regime governing the merger of UCITS funds or sub-funds thereof, whether in corporate form (SICAV) or contractual form (FCP). This regime provides for a unique set of rules applicable to the merger of UCITS on a national and cross-border basis. Regarding the merger of funds in corporate form, other than UCITS, the formalities and conditions of Luxembourg corporate law apply. To the extent that the merger occurs on a cross-border basis, local legal requirements regarding the foreign fund may impact the merger process. An analysis may be required on a case-by-case basis to determine the applicable procedure.
Your contacts for more details : Michèle Eisenhuth (michele.eisenhuth@arendt.com) / FF_Covid19_impact@arendt.com
(23/03/20)
Yes. The CSSF has clarified the following in an update to its CSSF FAQ on Swing Pricing Mechanisms:
Where the prospectus provides an option to exceed the maximum swing factor in certain circumstances, the swing factor can be increased in accordance with its provisions. Given the current exceptional market circumstances, where the prospectus does not provide an option to exceed the maximum swing factor, it can still be temporarily increased beyond the maximum level indicated in the prospectus. It is sufficient to update the prospectus ex post at the entity’s earliest convenience, specifying that the maximum swing factor can be exceeded under certain predefined conditions.
In each case, the decision to make such an increase must be duly justified and must take into account the best interest of investors. Furthermore, the decision must be communicated to all current and new investors, and the CSSF must be duly informed of the reasons for the increase. The CSSF has further clarified that in situations where the prospectus does not provide for the possibility to exceed the maximum level it sets out, before applying an increase of the swing factor beyond the maximum indicated, the board of directors must communicate this to investors through the usual communication channels.
Note that the CSSF typically expects the maximum swing factor to range between 1% and 3% (depending on the asset class in question). In the current market environment, however, the maximum swing factor may temporarily be increased beyond this, provided that the revised swing factor is the result of an appropriate internal governance process and is based on robust methodology designed to ensure that the NAV is representative of prevailing market conditions. The CSSF has the authority to request an ex-post justification of the size of the swing factor applied, as well as documentary evidence that the swing factor was representative of the prevailing market conditions at any point in time.
Your contacts for more details : Francis Kass (francis.kass@arendt.com) / FF_Covid19_impact@arendt.com
(08/04/20)
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To consult the updated CSSF FAQ on COVID-19, please click here.
The rapid changes in the market environment caused by the ongoing COVID-19 crisis may reshape how private funds managers view their existing portfolios of private assets. Additional capital may be required to maintain the value of their investments or restructure portfolio companies, requiring larger capacity for follow-on investments than initially planned or investment in a broader range of assets (such as distressed debt). The crisis may also open new investment opportunities with respect to certain industries or regions.
In these cases, investment managers will have to ensure that their funds have sufficient commitments available for investment or reinvestment though recycling provisions, will have to monitor the conditions for follow-on investments, and must be satisfied that the investment policy disclosed to investors is broad enough to capture these new opportunities.
If a fund has run out of investable capital, reopening the fund to new or increased commitments outside of the offering period will typically be difficult, unless all investors can agree. Managers may need to set up a separate top-up vehicle for existing investors who wish to increase their commitments. Alternatively, managers may decide to collect additional capital from a select group of investors wishing to participate in one or more identified opportunities, through a separate co-investment vehicle. These possibilities will depend on the type of investments envisioned, but also on the scope of the limitations on co-investments, on competing funds and on other activities.
Any such new vehicle will qualify as an alternative investment fund (AIF) for AIFMD purposes if it meets the criteria set out in Article 4(1)(a) of AIFMD and the related ESMA guidance. In most cases, new top-up funds would generally qualify as AIFs, whereas co-investment vehicles would either qualify as AIFs or have the characteristics of a non-AIF private investment vehicle set up at the initiative of its participants, depending on a variety of factors including the terms of the co-investment arrangements and the participants. If a vehicle qualifies as an AIF, marketing in the EU (if any) will be subject to the AIFMD marketing regime (marketing passport through notification process, national private placement regime or reverse solicitation, as applicable).
In these circumstances, timing is of the essence. Luxembourg offers a variety of legal forms that allow vehicles to be set up very quickly. Typically, a tax-transparent vehicle such as a special limited partnership (SCSp) can be set up privately in a very short timeframe. Funds can also be set up under the RAIF regime, which offers the benefit of flexible corporate forms and an efficient tax regime within a widely recognised legal framework for funds.
Your contacts for more details : Nicolas Bouveret (nicolas.bouveret@arendt.com) / FF_Covid19_impact@arendt.com
(23/03/20)
In case of large outflows, EU Regulation 2017/1131 on money market funds (the “MMF Regulation”) provides for two main liquidity management scenarios for public debt “Constant Net Asset Value” (or public debt CNAV) money market funds (MMFs), and for “Low Volatility Net Asset Value” or LVNAV MMFs.
Firstly, if the proportion of weekly maturing assets falls below 30% of the total assets of the fund and the net daily redemptions on a single business day exceed 10% of total assets, there are certain measures that the fund can take, such as applying liquidity fees on redemptions that adequately reflect the cost of achieving liquidity, activating redemption gates for any period of up to fifteen working days, or suspending redemptions for any period up to fifteen working days, all within the limits set out in the MMF Regulation. The fund may also take no immediate action other than to adopt the correction of the situation as a priority objective.
Secondly, if the proportion of weekly maturing assets falls below 10% of total assets, the MMF Regulation provides that the fund must either apply liquidity fees on redemption, or suspend redemptions for a period of up to fifteen working days. Suspensions of redemptions should, however, be limited to fifteen working days within a period of ninety days, to prevent the fund in question from automatically ceasing to qualify as a public debt CNAV MMF or a LVNAV MMF under the MMF Regulation.
Should the MMF not fall within the above-mentioned scenarios, the constitutive documents of the MMF may provide for alternative solutions, such as 10% gating provisions, redemption in kind (although this will usually require the redeeming investor’s consent), deferral of payment of redemption proceeds and suspension of the NAV calculation.
For more details please contact:
Michèle Eisenhuth (michele.eisenhuth@arendt.com)
Fiona de Watazzi (fiona.dewatazzi@arendt.com),
(08/04/20)
The COVID-19 crisis has created a lack of liquidity in short-term instruments, thus directly impacting money market funds (MMFs). This lack of liquidity in short-term instruments may make it difficult for MMFs to deal with investor outflows. The provisions of EU Regulation 2017/1131 on money market funds (the “MMF Regulation”) address some operational difficulties for MMFs in dealing with such liquidity issues.
Firstly, MMFs which qualify as “Low Volatility Net Asset Value” or LVNAV MMFs can publish a net asset value (NAV) as calculated under the amortised cost method and under the mark to market method (or mark to model, as applicable). Until the difference between these two NAVs reaches less than 0.20%, investors can make subscriptions and redemptions at a NAV based on the amortised cost method. The current environment puts this spread at risk, and may force MMF managers to process redemption and subscription requests at a NAV based on the mark to market value.
Secondly, the options available to MMFs with respect to addressing portfolio liquidity issues are limited, insofar as MMFs are prohibited from receiving external support where such support is provided with a view to maintaining either liquidity or stability. The current crisis raises questions as to the scope of this prohibition, and whether third parties could intervene in the acquisition of certain less liquid assets on an arm’s length basis. There are ongoing discussions with the authorities to determine whether any flexibility may be granted to MMFs in order to offer additional liquidity solutions in the current context. In particular, solutions available to US money market funds are being considered.
For more details please contact:
Michèle Eisenhuth (Michele.Eisenhuth@arendt.com)
Fiona de Watazzi (fiona.dewatazzi@arendt.com),
(08/04/20)
Given the extraordinary and temporary situation related to the COVID-19 pandemic, the CSSF recommends to all financial institutions under its prudential supervision to remain careful when considering allowing the return to the office. On 14 May 2020, the CSSF recommended in particular that all professionals under its supervision should continue working from home, where possible, to limit to a minimum the return to the workplace and to hold external meetings by video or audioconferencing rather than physical meetings. In cases where staffs are allowed to return to the office, the CSSF requires the adoption of strict health protection guidelines as further defined in its communication.
As mentioned in previous communications in March 2020, the CSSF’s authorisation to work from home is subject to satisfactory IT security conditions.
According to the CSSF, each supervised entity is responsible for defining the conditions, including with respect to IT security, under which it authorises one or more of its employees to work from home, in proportion to the risks to which it is exposed. These risks are, in particular, based on the role and the access rights of the relevant employees, the duration of this remote access and the sensitivity of the systems and data involved.
In its FAQ on COVID-19 the CSSF has issued minimum recommendations in terms of access rights, communication channels and connection monitoring. The CSSF has also clarified that remote access should be considered as a temporary measure subject to time limitations.
Your contacts for more details : FF_Covid19_impact@arendt.com
(19/05/20)
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Yes. Nothing has changed concerning the filing of out-of-court complaints. The CSSF has announced that it will remain fully operational, and that its officers are working remotely. However, because the CSSF offices are temporarily closed to the public, it published a press release on 26 March 2020 explaining that incoming complaints and any communication about complaints already registered must be sent by e-mail instead of post or fax, or submitted through the online complaint form provided by the CSSF.
In the press release, the CSSF also reminded the public that all of its outgoing communications will be made by e-mail, and will not be signed by hand.
To consult the CSSF press release dated 17 March 2020 on operational issues, please click here
For more details please contact: FF_Covid19_impact@arendt.com
(26/03/20)
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