The regulatory landscape for the asset management industry: the need of constant agility

by Emmanuel Gutton, ALFI Director Legal and Tax

It is an ambitious exercise to identify a common theme in the regulatory landscape for the asset management industry.

Without doubt, 2021 was impacted by the implementation of several measures of the Capital Markets Union (CMU) plan. In November 2021, four legislative proposals were released aiming at implementing a series of key measures of the 2020 CMU action plan, namely the European Single Access Point (ESAP), the review of the European Long-Term Investment Funds (ELTIFs) Regulation, the review of the Alternative Investment Fund Managers Directive (AIFMD) and the review of the Markets in Financial Instruments Regulation (MiFIR). The functioning of the securitisation framework was also high on the agenda with a targeted consultation released in July 2021 aiming at collecting feedback from market participants on a broad range of issues.

The ESG and sustainability agenda increased further in 2021 and beginning of 2022, in particular with the implementation of the Taxonomy regulation on 1 January 2022, the preparation by market participants of the requirement to integrate client sustainability preferences into their suitability assessments as from 2 August 2022, and the implementation of the SFDR level 2 rules as from 1 January 2023.

AML was also high on the European agenda, with the presentation of the AML package by the EU Commission in July 2021 aiming at strengthening AML/CFT rules and including a proposal for the creation of a new EU authority dedicated to the fight against money laundering (AMLA).

Some additional impactful topics were initiated or further discussed by the European legislator such as the proposed “Unshell” Directive aiming at preventing the misuse of so-called shell entities for tax purposes in the EU as well as PRIIPS (Packaged Retail Investment and Insurance-based Products), MMFR (Money Market Funds Regulation), CSDR (Central Securities Depositories Regulation) and other topics, which are detailed in this annual report.

The Luxembourg supervisor has been quite busy in 2021 with

  • The publication of three circulars on 22 December 2021 (Circular CSSF 21/790, Circular CSSF 21/789, Circular CSSF 21/788) reforming drastically the content and scope of the long form report which now applies also to IFMs, SIFs and SICARs. The aim is to modernise and improve the effectiveness of this 20-year-old supervision tool;
  • The release, on 22 April 2022, of Circular CSSF 22/806 on Outsourcing arrangements accompanied by corresponding FAQs. It aims at implementing the EBA guidelines on outsourcing arrangements. IFMs and UCITS fall under the scope of application of Circular CSSF 22/806 when performing ICT outsourcing.
  • The reshaping of chapter D of IML Circular 91/75, initially published more than 30 years ago, to set the rules for the central administration of Luxembourg undertakings for collective investment (UCI). On 16 May 2022, the CSSF released CSSF Circular 22/811 regarding the authorisation and organisation of entities acting as UCI administrator. As per this circular, the CSSF repeals chapter D of IML Circular 91/75 and establishes a detailed regulatory framework to all entities providing central administration services.

The CSSF published its  FAQs on virtual assets, one dedicated to UCIs (amended for the last time in March 2022) and the other addressed to credit institutions (amended for the last time in January 2022). This is an important step forward in establishing a legal framework that makes it easier for funds to invest into crypto-assets.

Finally, just as Covid-19 restriction measures had been relaxed, the invasion of Ukraine on 24 February 2022 once again demonstrated that the industry must be ready to face, and adapt to, the unexpected. Various measures had to be taken. In particular, the 61 Luxembourg-domiciled funds with more than 10% of their net assets invested in Russian assets had to react. In this context, 41 funds were suspended, and on 31 March 2022, the CSSF published FAQs providing guidance on different options including the segregation of illiquid assets from liquid assets (“side pockets”).

These regulatory developments combined with unexpected public health or political developments with long-lasting effect generate the need for the asset management and fund industry to constantly adapt, anticipate, review existing set-ups and processes and create new ones with a high impact on existing organisations.

ALFI has been assisting market participants in particular by providing forums aiming at elaborating common positions, guidance and informative publications. We also performed extensive advocacy work, responding to various consultations and interacting with public bodies at national or European level to convey key messages from our members.

Along with representatives from members who engage in the numerous committees and working groups set up and organised by ALFI, the association's specialists in the legal and tax team work hard to coordinate these bodies' activities. The vast amount of output from the groups reflects the complexity and dynamic of the fund centre. The legal and tax specialists at ALFI also closely monitor all relevant legislative and regulatory developments and have summarised some of the major subject matters below.

During the period reported, ALFI members have contributed to more than 200 working groups which, in aggregate, generated more than 670 meetings and responded to 22 legal and tax consultations.

Emmanuel Gutton, Director Legal and Tax

Reviewing the AIFMD, but not only

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Cross-border distribution of collective investment undertakings

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Digital and Fintech

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Setting up Luxembourg EuVECA funds and managers

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Market infrastructures

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Clarifying marketing and distribution

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PRIIPS: rapid changes and a broader review

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Risk management

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Sustainable finance

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