Investment funds: publication of Circular CSSF 25/901 and the compilation of key concepts and terms used

In recent years, SIFs, SICARs and Part II UCIs have shown such great capacity for innovation that the regulatory framework no longer corresponds to the current practices or market requirements. For that reason, the CSSF has reviewed the main circulars which apply to these investment funds.

The approach underlying the changes made may be summarised as follows:

• group the different circulars in a single, thematically structured document which can be supplemented if need be;
• draw up a comprehensible document in order to democratise alternative investment funds by using a clear and consistent terminology;
• provide for rules which are consistent with the European regulations, appropriate from an investor protection perspective while also promoting the attractiveness and competitiveness of Luxembourg investment funds;
• define general principles rather than detailed rules in order to avoid recurring adaptations and provide for possibilities to derogate from them;
• adopt a flexible approach to adjust the risk according to the type of targeted investor;
• refrain from undermining the rules adopted by the existing funds.

It appears that certain concepts require explanations which, if included in the circular, could be mixed up with the more prescriptive rules, thus making the circular less clear.

Consequently, the CSSF drew up two documents:

The circular repeals Circulars CSSF 02/80, CSSF 07/309, CSSF 06/241 and Chapters G and I of Circular IML 91/75. The provisions of Circular CSSF 08/356 as well as Chapter H of Circular IML 91/75 are no longer applicable to Part II UCIs.

It replaces these circulars while maintaining their core principles and adapting them to the practical experience gained since their publication.

It does not call into question the rules adopted by the funds or compartments authorised by the CSSF before the date of entry into force of the circular.

It raises the current investment and borrowing limits upwards to allow a level-playing field between the targeted funds and European funds. To this end, it adopts a flexible approach correlating the incurred risks with the investor profile.

It also allows the CSSF to grant derogations based on a duly motivated justification.

It clarifies the possibility to use indirect investments and explains the CSSF’s expectations with respect to some elements which must be included in the fund’s sales document.

The circular explicitly refers to the following document to illustrate the concepts used.

This is an innovative document.

It intends to clarify the most common concepts in the area of alternative investment funds by placing them in their relevant contexts.

By explaining how the CSSF defines them, it aims to foster a better understanding and to facilitate exchanges with the CSSF.

It includes a warning highlighting that the document’s sole purpose is to provide a summary and inform the public concerned. The terminology and content were adapted to this potentially large public.

The document has not been formalised into a CSSF circular or regulation in order to remain flexible and adaptable if needed. It does not purport to be exhaustive.

Its first version is composed of four parts: the first concentrates on the concept of investment policy, the second on the strategies and asset classes, the third on the investment methods, and the fourth on the subscription and redemption models.