Update from the Luxembourg regulator

Claude Marx, the CSSF director general told the conference that even though Luxembourg funds are relatively lightly exposed to Russian assets, the CSSF is watching how sanctions continue to affect fund liquidity. Less than 0.3% of Lux fund assets were in invested in Russian securities at the end of last year, with 61 fund compartments (out of a total 15,000 plus) having more than 10% of their assets based in that country. “Redemptions have been suspended for 41 of these compartments, which is more than during the Covid crisis,” Mr Marx said, “but we haven't seen any other liquidity situation.” 

Sanctions an important challenge

As for the need for financial businesses to apply sanctions, Mr Marx had some sympathy with the complexity of the task, and he pointed to CSSF guidance on the topic. “But it's very important that all actors perform their roles on this, as this is about the reputation of your organisation and Luxembourg,” he said.

Managing greenwashing risk

On greenwashing, he said “this is about misrepresentation, manipulation, mislabelling” which contrasts to diligent efforts to meet regulatory requirements. “The regulator will not expect you to do the impossible,” he said. “You should focus on what is clear and what is required, identify the right data sources, and prepare your systems to integrate this and to make good use of it. I think then you are going to be on the safe side as far as greenwashing accusations are concerned.” 

That said, he expressed his irritation with “over inflating small imperfections in this area, because one should not forget that this is about the contribution of the finance sector to save the planet.”

Regulators in the spotlight on ESG

He spoke of how the European authorities are mindful of the need to avoid “regulatory arbitrage”, whereby funds could pick the jurisdictions with more flexible interpretation of ESG rules. Disclosure will be central to combatting this, particularly SFDR with its product categories, he said. These efforts are part of the ESMA sustainable finance roadmap which will have three aspects: tackling greenwashing and promoting transparency; building supervisory capabilities; monitoring and analysing ESG markets and risks. 

UCITS, AIFMD, ELTIF reform

Regarding UCITS and AIFMD reform, Mr Marx pointed to concerns about increased substance and notification requirements in the context of delegation arrangements, with a move to relying more on quantitative rather than qualitative assessments. “We currently have a system that is functioning and so we should be careful not to abandon this,” he said. 

As regards the idea of extending certification requirements, he mentioned the risk of increased workloads for businesses and regulators. He welcomed the principle of aligning UCITS and AIFMD reporting but suggested some proposals around UCITS might be too narrow. He mentioned the risk that the depositary passport measure could result in excessive industry fragmentation. 

On the ELTIF, he used a somewhat sceptical tone, noting concerns about redemptions for retail investors in what tend to be closed funds.

Agnostic on virtual assets

For virtual assets, he reaffirmed the CSSF’s commitment to being technologically neutral, with them open to these assets being used on the condition that regulations are followed. On this basis he said that UCITS funds should not be exposed to these assets, but professional investors they can use AIFs for this asset class.