UCITS VI Preparations - CSSF Regulation Regarding Risk Management And Conflict Of Interests

UCITS VI PREPARATIONS

Only few weeks upon the issuance of its "UCITS V Proposal Directive", the European Commission has issued on 26 July 2012 its "Consultation Paper" on Undertakings for Collective Investment in Transferable Securities which aims to follow on and deepen the Commission's understanding of specific notions which are:

the eligible assets and use of derivatives, the efficient portfolio management techniques, the over the counter derivatives (OTC), the extraordinary liquidity management rules, the depositary passport, the money market funds, the long term investments, and the UCITS IV key points. This Consultation Paper addresses different issues and invites actors of the fund industry to contribute, by answering the different questions raised in it and which are related to the above mentioned topics, in order to complete and improve the current UCITS framework. Responses to this wide-ranging consultation are invited by 18 October 2012 at the latest.

CSSF REGULATION REGARDING RISK MANAGEMENT AND CONFLICT OF INTERESTS

Long awaited CSSF regulation n° 12-01 regarding risk management and conflict of interests has been issued and lays down detailed rules for the application of article 42bis of the amended Luxembourg law of 13 February 2007 relating to specialized investment funds.

The regulation n°12-01 issued by the CSSF (the "Regulation") lays down detailed rules for applying paragraphs (1) and (2) of article 42bis of the amended Luxembourg law of 13 February 2007 relating to specialized investment funds (the "Law") (the "SIF(s)") regarding (i) on one hand the appropriate management of risks referred to in this article and in particular the criteria for assessing the adequacy of the risk management systems used by SIFs and (ii) on the other hand providing details on structures and organizational requirements designed as to minimize the risk of conflict of interests.

Regarding the question of risk management, clarifications have been provided by the Regulation on how SIFs shall establish and document an adequate risk management system and in particular with regards to the risk management function and its delegation to third parties.

The Regulation clearly states that the risk management system shall be adopted by the directors of the SIF and submit it to an adequate review on a regular basis, so as to be able to notify the CSSF with any material change that may occur. Except duly authorized by the CSSF, the risk management function...