SIFs face regulatory change - Dechert
14 September 2011 Luxembourg
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A Luxembourg Bill submitted to Parliament will bring numerous changes to the current rules regulating specialised investment funds (SIFs) if voted in, writes Dechert's Financial Services Group.
The Bill provides for changes to the regulatory approval process and includes new provisions with respect to portfolio management, delegation to third parties, risk management and conflicts of interest, according to the law firm.
In terms of third party delegations, SIFs will have to meet conditions such as adequately informing the Luxembourg regulator, the Commission du Surveillance du Secteur Financier (CSSF), and ensuring that the mandate does not prevent the effective supervision of the SIF, among other requirements, Dechert notes.
This means that any delegation and agreements with relevant entities, such as asset services providers, must be disclosed while seeking approvals.
Antonios Nezeritis, Luxembourg funds partner at Dechert, notes that clients are showing the most interest in rules that would require all new funds, or new sub-funds of existing funds, to get approval from the CSSF before launch, however the CSSF has undertaken to turn approvals around in 10 days.
“This [10-day approval] is expected for standard structures and we have been strongly recommending that new promoters obtain approval even if it would take more time, otherwise they risk the CSSF requiring material changes which may negatively impact the product as a whole,” says Nezeritis.
"As third party delegations, such as to fund administrators and asset managers, must be disclosed in the offering document, the approval of the delegation is included in the 10-day approval process for new funds. The same review period will apply for SIFs that already exist and that wish to delegate certain functions,” he adds.
For European, US or Hong Kong jurisdictions or any major financial centre, the new rules on the delegation of investment management functions will not be an issue, but for the more exotic countries, Cayman, Bermuda and others that are not considered regulated jurisdictions, the choices are relatively limited – either find a set-up acceptable to the regulator or replace the investment manager with another entity that fulfils the criteria, notes Nezeritis.
Although the Bill is expected to become law by the end of this year, existing SIFs will have until 30 June 2013 to comply with new requirements on third party delegations. Some three weeks later similar requirements will be coming into force under the Alternative Investment Fund Manager Directive (AIFMD).
“In practice everyone should be ready by that time or they would not be compliant with AIFMD...it is at least giving the opportunity for all funds to comply with the relevant provisions by that period and time,” he says, adding that clients are taking the changes in stride.
Monitoring of risk management and conflicts of interest compliance is scheduled for 30 June 2012, however, Dechert recommends tackling this sooner than later.
The Bill provides for changes to the regulatory approval process and includes new provisions with respect to portfolio management, delegation to third parties, risk management and conflicts of interest, according to the law firm.
In terms of third party delegations, SIFs will have to meet conditions such as adequately informing the Luxembourg regulator, the Commission du Surveillance du Secteur Financier (CSSF), and ensuring that the mandate does not prevent the effective supervision of the SIF, among other requirements, Dechert notes.
This means that any delegation and agreements with relevant entities, such as asset services providers, must be disclosed while seeking approvals.
Antonios Nezeritis, Luxembourg funds partner at Dechert, notes that clients are showing the most interest in rules that would require all new funds, or new sub-funds of existing funds, to get approval from the CSSF before launch, however the CSSF has undertaken to turn approvals around in 10 days.
“This [10-day approval] is expected for standard structures and we have been strongly recommending that new promoters obtain approval even if it would take more time, otherwise they risk the CSSF requiring material changes which may negatively impact the product as a whole,” says Nezeritis.
"As third party delegations, such as to fund administrators and asset managers, must be disclosed in the offering document, the approval of the delegation is included in the 10-day approval process for new funds. The same review period will apply for SIFs that already exist and that wish to delegate certain functions,” he adds.
For European, US or Hong Kong jurisdictions or any major financial centre, the new rules on the delegation of investment management functions will not be an issue, but for the more exotic countries, Cayman, Bermuda and others that are not considered regulated jurisdictions, the choices are relatively limited – either find a set-up acceptable to the regulator or replace the investment manager with another entity that fulfils the criteria, notes Nezeritis.
Although the Bill is expected to become law by the end of this year, existing SIFs will have until 30 June 2013 to comply with new requirements on third party delegations. Some three weeks later similar requirements will be coming into force under the Alternative Investment Fund Manager Directive (AIFMD).
“In practice everyone should be ready by that time or they would not be compliant with AIFMD...it is at least giving the opportunity for all funds to comply with the relevant provisions by that period and time,” he says, adding that clients are taking the changes in stride.
Monitoring of risk management and conflicts of interest compliance is scheduled for 30 June 2012, however, Dechert recommends tackling this sooner than later.
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