On 14 October 2019, Luxembourg's financial regulator, the Commission de Surveillance du Secteur Financier ("CSSF") issued a press release1 regarding the results of its 2018 EMIR investment fund managers' ("IFM") questionnaire.
In August 2018, the CSSF issued a questionnaire on Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories ("EMIR") to IFMs under its supervision. The aim of the questionnaire was to collect information directly from IFMs regarding the existence of adequate EMIR monitoring and oversight procedures to ensure that each IFM and the funds they manage comply with their EMIR obligations.
Outcome of the Review
Following the CSSF's review of the questionnaires, it has identified that:
(i) the current monitoring and oversight procedures are, in general, not compliant with the EMIR requirements nor, where relevant, are they compliant with the EMIR requirements set out in CSSF Circular 18/698; and
(ii) a small number of IFMs have potentially significant deficiencies.
As a result, the CSSF has contacted a number of IFMs with potentially significant deficiencies in order to request these IFMs to improve their EMIR monitoring and oversight procedures by the end of the year.
The CSSF has highlighted a number of key points in the press release:
• Written Procedures: Adequate written procedures and arrangements must be in place to cover the supervision of all EMIR obligations even when a specific obligation does not apply further to the IFM's assessment. IFMs must document their assessments and review the adequacy of their monitoring and oversight procedures on a regular basis.
• Delegation: IFMs are responsible for ensuring that the funds they manage comply with their EMIR obligations, even when these obligations have been delegated to another entity. In addition, IFMs must carry out initial and ongoing due diligence on the delegate to appropriately monitor the delegated EMIR obligations and put in place arrangements to clearly establish the roles and responsibilities of the IFM and the delegate and ensure an adequate ongoing oversight by the IFM of the delegated EMIR obligations.
• Application to Derivative Contracts: EMIR applies to derivative contracts concluded for both investment purposes and hedging purposes.
• Registered AIFMs: The press release emphasised that registered AIFMs are within the scope of EMIR and that the CSSF is the competent authority to ensure compliance with the provisions of EMIR.
In its press release, the CSSF indicated that, while it focused primarily on the EMIR monitoring and oversight procedures, it would assess compliance with EMIR requirements in the near future. It further indicated that it would look to improve the data quality of trades reported to trade repositories.
IFMs should consider the results of the 2018 EMIR IFM questionnaire together with Regulation (EU) No 2019/834 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No 648/2012 with regards to; the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivative contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories ("EMIR Refit"), and amend where necessary, their procedures to comply with all their EMIR and EMIR Refit obligations.
For assistance on the above matters, please speak with your usual Maples Group contact or any of the contacts listed below.