Luxembourg corporate lawyers

The Financial Sector Supervisory Authority (CSSF) has confirmed it has issued a circular requiring investment funds domiciled in the grand duchy to report whenever they receive investor redemption requests amounting to more than 10% of the fund’s asset in a day or more than 30% over a week.

The CSSF is acting in response to broader concern about the impact on the fund industry of market volatility stemming from the coronavirus pandemic. It has also requested that funds notify it of any other significant developments, such as operational or liquidity issues

The regulator initially contacted the 60 biggest asset managers with funds domiciled in the grand duchy on March 10, and issued the circular including a standard reporting template three days later. It has not indicated how many funds, if any, have seen redemptions request levels requiring reporting.

The CSSF’s action reflects the possibility of high levels of redemption requests following precipitous falls in stock markets in March, that previously liquid assets may become harder to trade, and that fund managers and service providers may have problems determining an accurate valuation of fund assets.

A number of funds have already suspended trading as a result of the volatility, especially UK-domiciled open-ended property funds that offered daily trading, but also equity and credit funds in the Nordic countries and France.

However, the CSSF says it believes that at present, the use of existing liquidity management tools approved by the Luxembourg regulator and other international authorities, such as gating, will enable funds to operate in the best interest of investors.