Luxembourg Funds Intelligence Briefing (10/26/2020)

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Commission consults on possible restrictions to delegation outside EU after Brexit, and other business-critical fund industry news

Luxembourg Funds Intelligence Briefing
26th October 2020

The European Commission has taken a step closer to the possibility of changing rules on delegation of functions such as portfolio management for alternative and perhaps other funds. Following ESMA’s call last summer for tighter rules on outsourcing of key functions to non-EU entities after Brexit, the Commission has launched a consultation on possible amendments to the AIFMD, such as quantitative limits on delegation or a list of core critical functions that should be carried out in the EU. Currently rules merely say delegation should be for clear business reasons and not undermine the effectiveness of national supervision, without prescribing specific limits. The consultation also invites comment on whether further restrictions are needed on letterbox entities controlled by delegates abroad, and whether investor protection rules should take account of delegates’ location.

— Simon Gray, Editor in Chief

Sustainable Finance
Investment funds without ESG label will soon disappear from market: PwC Luxembourg

Investment funds that do not carry an environmental, social and governance label will no longer be attractive to investors within the next couple of years, with seven out of 10 asset managers saying they will stop selling non-ESG products in 2022, according to a report by PwC Luxembourg on the potential of sustainable investments in Europe. The analysts forecast that European ESG assets will make up between 41% and 57% of total fund assets in Europe by 2025, up from 15% at the end of 2019.

Best source: Finews (in German)

Fund Services
Switzerland’s Kieger chooses Northern Trust to provide services to Luxembourg funds

Swiss asset manager  Kieger has chosen Northern Trust to provide a full range of back-office services for its Luxembourg-domiciled corporate and contractual funds, including fund administration, global custody, depositary and currency management services.  Founded in 2000, Kieger manages several billion euros in assets for funds focused on healthcare and sustainability as well as private equity investments and multi-asset portfolios aligned with environmental, social responsibility and governance criteria. Established in the grand duchy in 2004, Northern Trust acquired the fund administration operations of UBS Asset Management in Switzerland and Luxembourg in 2017.

Best source: Global Custody
See also: Global Custodian
See also: Asset Servicing Times

Commission launches consultation on possible restrictions to EU alternative fund delegation

The European Commission has taken up a suggestion by the European Securities and Markets Authority to examine whether the EU should increase oversight or introduce restrictions on delegation of portfolio management by alternative funds to entities outside the union. The move, part of a review of the Alternative Investment Fund Managers Directive, has been prompted by the UK’s future status as a third country on the expiry of its Brexit transition at the end of December. A Commission consultation paper invites comment on whether the EU should set quantitative limits on delegation or designate critical functions that must be performed in the EU. Current rules say delegation should not hinder supervision by regulators, but imposes no specific requirements.

Best source: Financial Times (subscription required)

Irish regulator warns fund groups over ManCos’ staffing and risk management failings

The Central Bank of Ireland has warned asset managers to correct significant shortcomings in the governance of their Irish management company entities, saying a significant proportion of the country’s 358 management companies have failed to comply with rules governing staffing levels, oversight and risk management imposed three years ago to make the sector more robust. Derville Rowland, director of financial conduct at the regulator, says the shortcomings observed in the €3trn fund sector are unacceptable amid pressure on Ireland’s cross-border fund industry model. The European Securities and Markets Authority has proposed changes to EU rules on delegation, which allows funds’ portfolio management to be carried out outside the country in which they are domiciled.

Best source: Financial Times (subscription required)

EU regulators urge further reform of money market fund rules

European regulators say problems experienced by money market funds earlier this year amid market stress stemming from the Covid-19 pandemic have revived concern about systemic risks arising from the asset management sector. Robert Ophèle, head of France’s Autorité des Marchés Financiers, European Securities and Markets Authority chairman Steven Maijoor and Gerry Cross, a director at the Central Bank of Ireland, have urged further reforms after the market suffered turmoil in March at the onset of the pandemic, despite changes to improve the sector’s robustness after the 2008 financial crisis.

Best source: Financial Time (subscription required)

Crime and Litigation
Authorities receive more Panama Papers documents with connection to Luxembourg

The authorities in the grand duchy have received additional documents from Germany that form part of the April 2016 Panama Papers disclosures that contain references to Luxembourg individuals or entities. The leaked documents contained details of more than 10,000 companies, many used for alleged tax avoidance and evasion, established by Panama law firm Mossack Fonseca. Revelations that several Luxembourg companies were involved in creating complex international financial structures resulted in four banks and five investment firms in the grand duchy being sanctioned by the CSSF. Finance minister Pierre Gramegna says the authorities are examining the new batch of documents, which comprise e-mails, offshore company incorporation documents, trust contracts, shareholder resolutions and copies of passports.

Best source: Luxembourg Times (subscription required)

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