New CSSF Circular 16/644 On UCITS Depositary Bank Duties

On 11 October 2016, the Commission de Surveillance du Secteur Financier ('CSSF') published the CSSF Circular 16/644 (the 'New Circular') which is a revised set of rules of the former CSSF Circular 14/587 ('Circular 14/587'). The New Circular repeals and replaces Circular 14/587.

The New Circular is addressed to Luxembourg credit institutions acting as depositary banks for UCITS and to all Luxembourg UCITS and managements companies acting for these UCITS. It includes clarifications of the regulatory requirements contained in the Law of 17 December 2010, as amended (the 'Law of 2010') and by the Commission Delegated Regulation (EU) 2016/438 (the 'Regulation'). The New Circular also clarifies the regulatory framework applicable to depositary banks for UCITS by adding new definitions and requirements and confirming the vast majority of the rules previously detailed in Circular 14/587.

The safekeeping of assets

The New Circular clarifies and confirms that the cash has to be considered as part of the other assets and not the financial instruments to be held in custody. Hence depositary duties relating to cash are to be in line with those relating to other assets.

Designation of a credit institution as depositary for UCITS

The provisions of the New Circular relating to the procedure and criteria to be fulfilled by a credit institution to act as a depositary remain substantially the same as under Circular 14/587.

The New Circular however details the information that shall be submitted to the CSSF to enable their assessment of the substance of the entity, and stresses that the CSSF analysis will mainly be based on the delegation and operational model adopted by the credit institution.

The New Circular also states that an additional approval from the CSSF is only required in case of fundamental change in the elements of the initial approval, such as changes in the delegation or operational model.

Clarification of strategic definitions

The New Circular provides a clear distinction between 'delegation' and 'outsourcing' of activities. 'Delegation' refers to the safekeeping activities entrusted to a third party whereas 'outsourcing' refers to the complete or partial transfer of operational tasks from the depositary to a third party, which may be part of the same group. Only the delegation of safekeeping duties may be named 'delegation' under the regime of the New Circular.

Further to the split between 'delegation' and 'outsourcing', the New Circular...