Management companies and AIFMs: time for a health check

in Regulatory/Compliance, 18.09.2018

On 23 August 2018, the CSSF released Circular 18/698 setting out rules for the authorisation and organisation of investment fund managers.

The new circular aims to define a harmonised approach to Chapter 15 management companies, as well as AIFMs, replacing Circular 12/546 which laid down the CSSF’s expectation for UCITS managers only (though served as a benchmark for AIFMs). It combines requirements from previous circulars into a single document, covering Circulars 12/546, 98/143 (Internal Audit Function), and 04/155 (Compliance Function). As a result, Circular 12/546 is abrogated and Circulars 98/143 and 04/155 no longer apply to investment fund managers.

The circular explicitly outlines the current state of play, but also goes further by introducing several new requirements. We recommend that fund managers pay close attention as the CSSF has tightened rules in the following areas:

  • governance framework and staffing
    • maximum number of mandates for directors and conducting officers, and independence rules
    • terms of reference for board and management meetings
    • guidance on committees, including a new product and intermediary approval committee
    • minimum number of staff
  • internal organisation requirements
    • obligations in relation to EMIR and MMF
    • conflicts of interest
  • internal control function requirements
    • objectives, responsibilities, and scope of work for compliance, risk, and internal audit functions
    • format, content, and timing of reports
  • delegation requirements (with group entities and sub-delegates in scope) and oversight of the delegates
    • detailed minimum requirements for initial and periodic due diligence and for ongoing monitoring
  • organisation of key functions
    • covering portfolio management, administration, marketing, and evaluation
    • additional delegation requirements for the above key functions

A lengthy sub-section of the circular is given over to outlining the investment fund managers’ duties with regards to AML/CTF, presented based on four scenarios, one of which covers the situation where distributors and transfer agents are appointed by the funds directly.

The circular came into immediate effect. Investment fund managers are advised to invest some time to conduct a health check to confirm compliance with the requirements and plan the requisite steps to close any gaps. By anticipating onsite visits from the regulator, and preparing management and staff in advance, companies can ensure peace of mind when the time for inspection comes.

KPMG offers a robust health check you can trust, which can be supplemented by rigorous training on the key requirements detailed in the circular. The delegation oversight process is also affected by the circular, particularly due diligence. With a mix of technology and expertise in the various key functions, KPMG stands ready to accompany you in your journey towards efficient and sustainable operations. Visit our webpage or contact me for more information.

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