European asset management regulators teaming up – on-site inspections and how to get prepared

in Regulatory/Compliance, 13.02.2020

EU-wide coordination between national and supranational regulatory authorities has increased steadily in recent months: supervisory reviews and actions are more common, and regulatory scrutiny is intensifying. For many companies, this step-change is nowhere more apparent than in the rise of on-site inspections, both systematic and thematic. Key themes emerging include liquidity management, anti-money laundering and EMIR.

Today, shared EU issues are increasingly tackled through common supervisory actions (CSA) conducted by the European Securities and Markets Authority (ESMA) in cooperation with local supervisors. One recent example from the UCITS world is the introduction of a new CSA on liquidity management, to be carried out by national competent authorities.

For Luxembourg, 2020 is the year in which the national regulatory authority (CSSF) will get serious about on-site inspections of local organizations and their implementation of Circular 18/698.

In order to absorb the additional workload that comes with this commitment, it created a unit responsible for on-site inspections.

The CSSF’s reinvigorated stance is already apparent: It recently published administrative sanctions against two management companies for, inter alia, their risk and portfolio management, governance and internal control practices.

What are the implications for asset managers in Luxembourg?

Following 2019 gap analyses based on Circular 18/698, regulatory mock inspections have proven to be an effective way to mitigate regulatory uncertainties and risks among market players. This dress rehearsal helps asset managers understand the CSSF’s perspective and focus areas before their potential arrival.

Armed with that knowledge and practice, organizations will get a better understanding of regulatory focus areas within policies, procedures and key documentation, also prepping them for interviews and communications with the CSSF.

Market players that harness this strategy better position themselves to launch a bespoke action plan that holds up to regulatory scrutiny.

Additionally, diligent asset managers liaise regularly with the CSSF, gaining regulator feedback on any changes to their business plan. Such exchanges let organizations tweak plans while it’s still possible. Not only does this level of cooperation help mitigate regulatory risk, but the CSSF appreciates proactive actions.

Finally, alternative asset managers should keep an eye on the immediate focal points – AML, valuation, risk management, EMIR, etc. – and endeavor to understand them inside and out.