Published on 24 July 2024
Communiqué

Clarification by the CSSF regarding controls to be implemented by Luxembourg depositaries in relation to alternative investment funds (AIFs) investing in illiquid assets

The CSSF has recently observed that, for a certain number of AIFs investing in illiquid assets, diverging approaches amongst Luxembourg depositaries, as regards the controls implemented for properly executing their safekeeping duties of ownership verification and record keeping obligations, are being applied. While some depositaries tend to collect a certain number of information and transaction documents prior to investments being made in illiquid assets, others solely rely on ex-post checks.

The CSSF hereby reminds all Luxembourg depositaries that checks and controls must be carried out prior to the acquisition of illiquid assets (i.e. ex-ante). This is to ensure full compliance with the requirements applicable in the context of both (i) their safekeeping duties regarding ownership verification and record keeping, in particular those set forth under Article 90 of Commission Delegated Regulation (EU) No 231/2013, as amended (“AIFMR”), but also (ii) their duties regarding the timely settlement of transactions, in particular those set forth under Article 96 of the AIFMR.

More specifically, the CSSF expects that controls in connection with transactions involving the acquisition of illiquid assets would typically be implemented as follows:

  1. Prior to payment: prior notification of the relevant transaction by the alternative investment fund manager (“AIFM”) to the depositary with supporting documents (in draft form, where applicable). This is a means of allowing the depositary to verify the existence of the transaction and the relevant assets, the structure through which the transaction is designed to take place and the counterparties thereto as prerequisite to authorising the payments or authorising the AIFM to proceed with the payments, in line with expectations foreseen under paragraph 105 of the Circular CSSF 18/697;
  2. At the time of payment: consistency checks between the details of the payment instructions and the documents referred to in point i) above;
  3. After payment: verification of the effective ownership of the assets by the relevant AIF based on the final executed transaction documents and, where applicable, extract from an external register (e.g. land register, commercial register, etc.).

In light of Article 90(1) of the AIFMR, Luxembourg authorised AIFMs are correspondingly required to provide in a timely manner the depositary of the AIFs they manage with all relevant information necessary for the depositary to comply with its safekeeping duties regarding ownership verification and record keeping (as further specified under Article 90(2) of the AIFMR). For the avoidance of doubt, this includes the aforementioned ex-ante controls.