Luxembourg - Investment Funds - Impact of the Madoff fraud case

The Luxembourg regulator (CSSF) has on 22 December 2008 issued a press release analysing the impact of the Madoff fraud case on the Luxembourg investment funds.
The CSSF noted that the impact on Luxembourg investment funds which are directly or indirectly exposed to the Madoff case amounts to 1.9 billion Euro which represents only 0.15% of the total net assets of undertakings of collective investment as at 30 November 2008. The CSSF furthermore noted that it does not imply that this amount is entirely lost but that it represents the maximum responsibility at stake.

Investment Funds - Guidelines of the Committee of European Securities Regulators (CESR) concerning eligible assets for investment by UCITS

The CSSF has issued on 26 November 2008 circular 08/380 in relation to the CESR's guidelines concerning eligible assets for investment by UCITS. This Circular replaces circular 08/339.
The only amendment that has been made compared to circular 08/339 is point 24 paragraph 1. The amended paragraph reads as follows: “Techniques and instruments relating to transferable securities and money market instruments include, but are not limited to, collateral under the provisions of directive 2002/47/EC on financial collateral arrangements, repurchase agreements, guarantees received, and securities lending. The requirement to comply with the provisions of Article 21 of Directive 85/611/EEC imply in particular that if UCITS are authorized to use repurchase agreements or securities lending, these operations must be taken into account to calculate the global exposure of the UCITS.”

Investment Funds - UCITS risk management process - clarification on the information to be provided to the CSSF

Two particularly relevant pieces of legislation in the context of eligible assets for investments by UCITS have recently been implemented in Luxembourg. The first one is the Grand-Ducal Regulation dated 8 February 2008, which amends certain definitions specified in the 2002 Law, and which replicates closely the EC Directive 2007/16/EC.
The other piece of legislation is the groundbreaking CSSF Circular 08/339 (released on 19 February 2008) which points out, inter alia, that the provisions of the above Grand-Ducal Regulation must be read in conjunction with the CESR guidelines.
Investors should first note that UCITS already set up at the time of the implementation of the guidelines will benefit from an extension until 23 July 2008 at the latest to comply with the guidelines.
However, more fundamentally, what should be raised is the somewhat more flexible attitude adopted by the CSSF, particularly in circumstances where there is further need of interpretation of the provisions of the Grand-Ducal Regulation and the CESR guidelines. The impact of this Circular should however not be overestimated since the CSSF already fully applied the provisions of the Directive and the related CESR advices, and hence no significant changes are to be expected in practice. However, this evolution of the CSSF’s practice is especially remarkable throughout the appreciation of the circumstances in which a security embeds a derivative or permitted investment within the 10% trash ratio (e.g possibility to include regulated open-ended hedge funds, funds of hedge funds, real estate funds and commodity funds). This more flexible attitude of the CSSF is also to be noted in its administrative practice.