On 16 May 2022, the Commission de surveillance du secteur financier (the “CSSF”) issued Circular 22/811 on the authorisation and organisation of entities acting as UCI administrators (the "Circular").
In the Circular, the CSSF repeals Chapter D of IML Circular 91/75 setting out the rules concerning the central administration of Luxembourg undertakings for collective investment (“UCIs”).
The Circular applies to entities carrying out the activity (or part of the activity) of administrator of regulated or unregulated UCIs, established in Luxembourg or abroad, and determines the principles of sound governance and the requirements to be complied with by entities providing UCI administration services in terms of substance, internal organisation (including but not limited to delegation models) and reporting.
Scope of the Circular
The following entities are eligible to act as UCI administrator:
Luxembourg investment fund managers (“IFMs”), such as Management companies pursuant to chapters 15 and 16 of the law of 17 December 2010 relating to undertakings for collective investment and alternative investment fund managers;
Foreign investment fund managers (“IFM”) pursuing the activity of UCI administrator for Luxembourg UCIs;
Regulated Luxembourg UCIs which, however, may only act as UCI administrator for themselves; and
Luxembourg external service providers authorised under the Law of 5 April 1993 on the financial sector as amended (“1993 Law”), such as credit institutions, registrar agents, client communication agents and administrative agents (in the latter two cases only for certain functions).
Authorisation
The appointment to act as UCI administrator is subject to prior authorisation by the CSSF. This can be through a complete authorisation application (under, for example the sectorial legislation applicable to a registrar agent or a client communication agent) or through a defined administrative procedure (for Management Companies, AIFMs, Foreign IFMs, regulated UCIs and Banks or Luxembourg branches of foreign banks). Annex A of the circular sets out the list of information to be provided to the CSSF to apply for authorisation to act as UCI administrator.
UCI administration activity
The Circular provides that the administration activity may be split into three main functions: the registrar function, the NAV calculation and accounting function and the client communication function. The CSSF considers only one service provider may be designated and is responsible for a specific UCI administration function. The Circular sets out globally what the UCI administration activity comprises of and then individually details the three functions referred to above.
Organisational Arrangements
The Circular sets out provisions regarding the internal organisation of the UCI administrator including in relation to the control framework, the level of resources, the need for a written contract with the UCI, rights of access for the CSSF, auditors etc.
There is a specific section regarding ICT resources, business continuity and disaster recovery planning. The CSSF recommends that UCIs and IFMs comply with the principles of circular 20/750 on the requirements regarding information and communication technology and security risk management.
Depositary
The Circular clarifies that it is essential that the UCI administrator act independently from the depositary. Where performed by the same entity, functional and hierarchical separation between business lines must be implemented.
Delegation
One or more tasks within UCI administration may be delegated. It is not however permitted to delegate the monitoring of such tasks or the due diligence / oversight of delegates. Adequate initial and ongoing due diligence must be performed by the UCI administrator on its delegates. There must be a written contract between the UCI administrator and each of its delegates, which must set out their respective roles, rights, obligations and responsibilities in detail. A UCI administrator that intends to delegate a critical or important operational task must notify the CSSF in advance of its plans in accordance with the instructions and, where applicable, the forms available on the CSSF's website. In general, this notification must be submitted at least three months before the planned delegation enters into effect (except when delegating to a client communication agent or an administrative agent authorised pursuant to the 1993 Law in which case the notice period is reduce to one month).
Annual reporting
Starting on 30 June 2023, UCI administrators have to file information regarding their business activities and resources on an annual basis to the CSSF, no later than five months from the close of the UCI administrator's financial year. The list of information to be provided is set out in annex B to the Circular.
Entry into force of circular
The Circular enters into force with immediate effect. Entities already acting as UCI administrator on 16 May 2022 do not need to apply for the CSSF’s authorisation to act as UCI. A grandfathering period up until 30 June 2023 is allowed for such entities to comply with the remaining provisions of the Circular.