New rules on handling Nav errors are coming very soon and fund firms should prioritise proper documentation of their delegation arrangements, a top Luxembourg financial regulator told the audience of asset management professionals attending an industry conference in Kirchberg on Tuesday.
, director in charge of investment funds at the Luxembourg Financial Sector Supervisory Commission (CSSF), was speaking at the Association of the Luxembourg Fund Industry’s Global Asset Management Conference on 19 March 2024.
Eltif 2.0
Zwick noted that the grand duchy was home to 60% of the European Long-Term Investment Funds created under the EU’s initial regime. An updated version, dubbed Eltif 2.0, was introduced in January 2024, with draft regulatory technical standards . Some fund firms have already sought regulatory approval without the final rules in place, but Zwick said Eltifs that were already approved “do not lose authorisation” after the full set of standards get finalised. If fund firms “stick” to their original investment objectives and “just implement the RTS” they would not trigger investor protection provisions.
The CSSF is frequently asked how long the Eltif application process will take, and Zwick said that “we have a team to treat applications quickly” and have created some standardised documentation to expedite the process.
SFDR
Zwick conceded that the data collection and reporting required under the EU’s Sustainable Finance Disclosure Regulation was an “intensive process”. He said that, for example, some fund prospectuses were doubling in length from 500 to 1,000 pages. “You have to produce it, we have to review it and investors have to read it,” he quipped. But “we need data ourselves” to be an effective regulator.
“You are responsible for keeping data provided to the CSSF up-to-date” at all times, he added, at the behest of some of his colleagues at the agency.
Circular 02/77
Zwick said that the CSSF is in the process of updating its Circular 02/77, rules 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 undertakings for collective investment,” a 12-page document that was published in .
The Luxembourg regulator and fund firms have more than two decades of experience in dealing with net asset value (Nav) and other types of errors, Zwick noted, but the guidelines were developed when the local industry was predominately focussed on Ucits funds. In the meantime, private market fund structures have taken off in the grand duchy.
The revamped rules will provide specifics on roles and responsibilities for alternative funds, as well as more detailed definitions of various types of errors. The CSSF reviewed Nav calculated tolerance thresholds, looking back at the past couple decades of market volatility, but determined that it will keep nearly all of the current thresholds in place. Except, Zwick said, for money market funds, which will shift from 25 basis points to 20bps.
Despite 22 years of the rules being known as Circular 02/77, the CSSF “will allocate a new number” when the document is released, which is expected at the end of the month. Zwick disclosed that the new circular will be a bit beefier; it will be 50 pages.
Delegation checks
Addressing the CSSF’s onsite inspections surrounding rules, Zwick told asset management executives in the audience that “when you delegate, you remain responsible.” Firms need to maintain proper documentation on their due diligence with partners, both on initial checks and ongoing supervision, he advised. Firms need not only draft policies, but “need a register and the register should not be empty.”
Zwick was interviewed onstage at the Alfi conference by , investment fund partner at the law firm of Clifford Chance.