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Magazine Issues » September 2020

Regulatory compliance and the key role of the IFM

Gavel lawbooksAn article for professional investors only by Kavitha Ramachandran, Head of Business Development & Client management (Continental Europe), Maitland.

CSSF guidance for Luxembourg investment funds is driving demand for third-party services.

From enhanced risk assessment technology to new legislation from governing bodies, the regulatory landscape in Luxembourg is constantly changing. The Anti-Money Laundering guidance from the Commission de Surveillance du Secteur Financier (CSSF) issued on 25 November 2019 will help to reinforce Luxembourg’s prominent position as a leading hub for funds and alternative investments in Europe. 

The CSSF guidance, which takes into consideration the results from the Luxembourg National Risk Assessment published in December 2018 regarding in particular the Money Laundering and Financing of Terrorism with respect to collective investments, was delivered in the form of FAQs and requires that each regulated Alternative Investment Fund (AIF) appoints two Anti-Money Laundering/Counter Terrorism Financing (AML/CTF) functions, being:

  • A function for compliance (‘responsable du respect des obligations’, hereafter the “RR”) at the AIF management level, that is at the AIF/General Partner board level; and
  • A function for control (‘responsable du contrôle du respect des obligations’, hereinafter the “RC”).

The above two roles cannot be fulfilled by the same person, and must be duly communicated to the CSSF with all required information and documentation.

The Guidance aims at ensuring awareness and governance from the top (that is, boards of the funds), in addition to providing support to the board members by having a specialist in AML/CTF in place, either from the board members or a third party.

Although the Guidance does not strictly apply to unregulated AIFs, it is generally advisable for such AIFs to implement similar measures.

Catalysed by COVID-19, the recent trend towards a remote working business environment has renewed focus on security and the AML risk assessment process, leading many Luxembourg regulated funds to outsource the RC role to third parties. The Investment Fund Manager (IFM) is named as a potential third party which can perform this function and a number of regulated AIFs are leaning this way.

While we expect to see new players entering the market as structures around the new regulation take shape, correct guidance and support is required to fully navigate this environment.

The RC plays an important role and essentially acts as the eyes and ears 

of the board in respect of AML/CFT monitoring and reporting. It goes without saying that the RC needs the requisite skill set, experience and expertise to fulfil the function.

MS Management Services S.A., a regulated IFM and subsidiary of Maitland, offers AIFMD-compliant services to third-party alternative investment funds as well as to the Maitland platform for Specialised Investment Funds (SIFs). Founded in Luxembourg over 40 years ago, Maitland’s experience within the funds industry combined with its in-depth AML expertise and knowledge of the Luxembourg regulatory landscape, continue to attract new clients. We constantly evolve our services to meet the needs of our clients and we are able to provide regulated Investment Funds in Luxembourg with the ability to be fully compliant with the RC role requirement and support fund boards with sound governance.

Maitland Luxembourg S.A. is licensed as Professional of the Financial Sector (“PSF”) and is regulated by the Commission de Surveillance du Secteur Financier (CSSF). Maitland Luxembourg S.A. holds a “Conseil Economique Licence”. MS Management Services S.A is an Alternative Investment Fund Manager and Chapter 16 Management Company in Luxembourg and is regulated by the Commission de Surveillance du Secteur Financier under licensed numbers A00000548 / S00000983.
The information and opinions herein are for information purposes only. They are not intended to constitute legal, financial or other professional advice, and should not be relied upon as such or treated as a substitute for specific advice relevant to particular circumstances. Maitland as a group or any of its member firms or affiliated entities accepts no responsibility for any errors, omissions or misleading statements in this publication, or for any loss which might arise from reliance on the material. No mention of any organisation, company or individual, whether on these pages or not, shall imply any approval or warranty as to the standing and capability of any such organisations, companies or individuals on the part of Maitland. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser.

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