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Articles 101 to 124 of the Law of 17 December 2010 relating to undertakings for collective investment (“2010 Law”), establish the legal requirements which must be respected in order to obtain authorisation to act as a management company under Chapter 15 of the 2010 Law.
Article 42(1) of the 2010 Law requires the setting-up of a method of risk management.
CSSF Regulation No 10-4 and Circular CSSF 18/698 provide the rules for implementation of certain articles of Chapter 15 of the 2010 Law. Additionally, Circular CSSF 11/512 establishes the guidelines to be followed in relation with the use of a risk management method.
The legal requirements and the procedure to be followed in order to obtain authorisation to act as a management company under Chapter 15 of the 2010 Law are detailed below.
A management company may take the form of a public limited company (société anonyme), a private limited company (société à responsabilité limité), a cooperative company (société coopérative) or a cooperative company set up as a public limited company or a corporate limited partnership (société en commandite par actions). The capital of that company must be represented by registered shares.
1) Authorisation of a management company is subject to having a share capital of at least 125,000 euros.
2) The minimum share capital must be fully paid up in cash. In principle, the CSSF does not permit contributions in kind or loans, neither at the date of constitution of the management company, nor for any subsequent capital increases.
3) Furthermore, a management company whose authorisation is limited exclusively to collective management must, at all times, dispose of sufficient own funds calculated with reference to assets under management and operating expenses of the previous financial year (Article 102(1)a) of the 2010 Law). Those management companies whose authorisation also covers one or more of the services outlined in Article 101(3) of the 2010 Law must additionally, in conformity with Article 101(4) of the 2010 Law, respect the provisions of the Luxembourg legislation on the capital adequacy of investment firms and credit institutions, as well as any subsequent directives. In this respect, the provisions of Circular CSSF 07/290 are applicable (as amended by Circulars CSSF 10/451, 10/483, 10/497 and 13/568).
4) Furthermore, the 2010 Law stipulates in Article 102(1)a), final paragraph, that management companies are authorised not to provide up to 50% of the additional amount of own funds if they benefit from a guarantee of the same amount given by a credit institution or an insurance undertaking.
The credit institution or insurance undertaking must have its registered office in a Member State of the European Union or in a non-Member State provided that it is subject to prudential rules considered by the CSSF as equivalent to those laid down in Community law.
Own funds must be maintained at the continuous disposal of the management company and invested in its own interest. This therefore implies that own funds may be used neither for investment purposes for the shareholder, nor as a means of financing a loan granted to the shareholder. Subject to the obligation to apply the principle of prudence, it is however permissible to invest these funds in order to finance the operating costs of the management company.
The management company must have sound administrative and accounting procedures, control and safeguard arrangements for electronic data processing and adequate internal control mechanisms. The applicant must therefore have the appropriate infrastructure in Luxembourg for the envisaged activities. Consequently, the applicant must put in place at its head office an appropriate infrastructure which will allow it to perform the envisaged activities, the required operational systems, operational documentation in addition to its own supervisory infrastructure which will allow a continuous control of the activity (activities) of the entity (entities) to which one or more activities have been delegated, should this be the case.
Additional clarifications with respect to requirements formulated in the previous paragraph are provided by CSSF Regulation No 10-4 and Circular CSSF 18/698.
Both natural and legal persons are eligible to become shareholders or members of a management company. Authorisation is subject to communication to the CSSF of the identity of the shareholders or members, whether direct or indirect, natural or legal persons, that have qualifying holdings in the management company to be authorised as well as the amount of those holdings. A qualifying holding means any direct or indirect holding in a management company which represents at least 10% of the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of the management company in which that holding subsists.
Authorisation is subject to the condition that shareholders or members having a qualifying holding possess the requisite qualities to ensure a sound and prudent management. The notion of sound and prudent management must be assessed in light of the evaluation criteria formulated in Article 108 of the 2010 Law which makes reference to Article 18 of the Law of 5 April 1993 on the financial sector. The five criteria are: the professional standing of the applicant shareholder, the professional standing and professional experience of each person responsible for managing the activities of the management company as a result of the acquisition transaction, the financial soundness of the applicant shareholder, the compliance with prudential and supervisory requirements at group level, the risk of money laundering and financing of terrorism.
Each company becoming part of the direct shareholding of a management company must, in principle, have own funds that are at least equivalent to the percentage which it intends to hold of the share capital of the target company, less any deductions for other holdings, should they exist.
Furthermore, authorisation is subject to the condition that the ownership structure, whether direct or indirect, of the management company is transparent and organised in such a way that the authorities responsible for the prudential supervision of the management company and, where relevant, of the group to which it belongs can be clearly determined. This transparency requirement should allow the prudential supervision to be exercised unhindered and as effectively as possible.
In order to obtain authorisation, the natural persons and, where relevant, the legal persons, the members of the administrative, management and supervisory bodies, the persons in charge of the day-to-day management (referred to hereafter as “dirigeants”) as well as shareholders or members having a qualifying holding must be of adequate professional standing.
Professional standing should be assessed not only on the basis of police records but also on all factors which may establish that the persons concerned are of good repute and provide all guarantees of an irreproachable business activity.
In order to assess if the above-mentioned persons are of the required professional standing, the natural or legal persons concerned must submit to the CSSF a declaration of honour which may be downloaded from the CSSF website. Natural persons must additionally submit to the CSSF a copy of their identity card/passport, a signed and dated curriculum vitae as well as a recent extract of their police records. Legal persons must forward to the CSSF a copy of their articles of incorporation, an extract of the trade and companies register and the annual reports (balance sheet and profit and loss account) of the previous three years.
The dirigeants must be authorised to effectively determine the direction of the company and must have already acquired an adequate level of professional experience through the performance of similar activities at a senior level in terms of responsibility and independence.
The principle of independence of the management company from the depositary bank of UCITS/UCIs under management implies that the dirigeants of the management company cannot be employees of the depositary bank.
The authorisation of a management company is subject to the condition that the audit of its annual accounting documents is entrusted to one or more réviseur(s) d’entreprises agréé(s) (approved statutory auditor(s)) who can provide proof of an adequate professional experience.
Management companies whose authorisation covers the services provided for by Article 101(3) of the 2010 Law and therefore provide discretionary management services, must participate in the Système d’Indemnisation des Investisseurs Luxembourg (SIIL), which is the investor compensation scheme referred to in Article 2(1) of Directive 97/9/EC recognised in Luxembourg, in accordance with Article 156 of the Law of 18 December 2015 on the failure of credit institutions and certain investment firms, as amended. The SIIL is chaired by the CSSF.
The application for authorisation must be delivered by the interested party (or a representative of the professional or of the new management company) to the CSSF. The latter approves the application after examination of the application file and control of the legal requirements.
Approved management companies will be included by the CSSF in an official list. Inclusion in this list implies approval is granted and the management company concerned is duly notified by the CSSF. Applications for approval must be filed with the CSSF prior to the incorporation of the management company. The incorporation of the management company can only take place after notification of authorisation by the CSSF. This list, as well as any amendments thereto, is published in the Mémorial by the CSSF.
The duration of the authorisation is in principle unlimited and the management company (in the case where the latter continuously respects all legal obligations) may commence its activity once approval has been given.
The applicant is requested to submit an application file to the CSSF which contains at least the following information
and should include the Market Entry Form that will have to be filled out and submitted through our eDesk Portal:
Description of the direct and indirect ownership structure
1) Shareholder(s) is a (are) legal person(s)
2) Shareholder(s) is a (are) natural person(s)
Where relevant, the draft guarantee that the credit institution or insurance undertaking intends to issue in order not to provide 50% of the additional amount of own funds in accordance with Article 102(1)a) of the 2010 Law.
Additional clarifications regarding the above-mentioned points can be found in CSSF Regulation No 10-4 and Circular CSSF 18/698.
The preceding list of requirements is for guidance purposes only. The applicant seeking authorisation may add all information which s/he deems useful and necessary for the presentation and clarity of understanding of his/her application file. Furthermore, the CSSF may request additional information which is necessary in order to complete the assessment of the application file.
The examination fees are referred to in the Grand-ducal Regulation of 21 December 2017 relating to the fees to be levied by the CSSF.