Legal requirements and authorisation procedure for a Management Company – Chapter 15

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 in and submitted through our eDesk Portal:

Description of the direct and indirect ownership structure

1) Shareholder(s) is a (are) legal person(s)

• Presentation of the group;
• Organisation chart of the direct and indirect ownership highlighting the entities which are subject to prudential supervision and indicating their respective regulatory authorities;
• Identification of the final beneficial owner(s);
• Denomination of the shareholder(s) with an indication of the number of shares held;
• The last three audited annual reports of the shareholders or the latest available non-audited balance sheet, respectively in the case where the first financial year of the shareholder has not yet been finalised or the opening balance sheet for those shareholders is in the process of being established;
• The instrument(s) of incorporation of the shareholder(s);
• Information on possible consolidated supervision exercised by a regulatory authority on the group to which direct shareholder(s) belong(s);
• Confirmation that the share capital has not been sourced from a loan or other cash advance and that the shares of the management company are unsecured;
• In order to evaluate the suitability and financial soundness of the proposed shareholder(s), the application for authorisation must contain the information outlined in Appendix II of the document “Guidelines for the prudential assessment of acquisitions and increases in holdings in the financial sector required by Directive 2007/44/EC” annexed to Circular CSSF 17/669.

2) Shareholder(s) is a (are) natural person(s)

• Name of the shareholder(s) with an indication of the number of shares held;
• Originals of biographical information, extracts of police records and declarations of honour of the shareholder(s) (cf. model declaration of honour form for natural persons available under the heading “Forms”);
• Proof provided by the shareholder(s) by means deemed appropriate by them that they dispose of sufficient financial resources to ensure a sound and prudent management of the management company;
• Confirmation that the share capital has not been sourced from a loan or other cash advance and that the shares of the management company are unsecured;
• Confirmation that the shareholder(s) hold(s) the shares for their own account and not for a third party;
• Identification of the final beneficial owner(s);
• Indication as to whether the shareholder(s) is (are) subject to regulation as a natural person by a supervisory authority;
• In order to evaluate the financial soundness of the proposed shareholder(s), the application for authorisation must contain the information outlined in Appendix II of the document “Guidelines for the prudential assessment of acquisitions and increases in holdings in the financial sector required by Directive 2007/44/EC” annexed to Circular CSSF 17/669.

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.

• Originals of biographical information signed and dated, extracts of police records, if available, and declarations of honour (cf. model declaration of honour form for legal and natural persons available under the heading “Forms”) of the members of these bodies and of the dirigeants;
• Division of the areas of responsibility of the dirigeants (a minimum of two dirigeants is required) with a description of their experience in their respective areas of responsibility;
• Submission of the employment contract, and/or the convention regulating the availability of dirigeants, respectively;
• In the case where the dirigeants work for several companies, proof is to be provided that each of these persons is able to fulfil, at all times, the tasks for which they are responsible.

• Presentation of the management company (denomination, legal form, share capital, authorisations sought);
• Reasons for establishing business in Luxembourg;
• Programme of activities in accordance with Chapter 9 of Part II of Circular CSSF 18/698;
• Provisional three-year budget of the management company;
• Draft articles of association of the management company;
• Description of the administrative, accounting and IT infrastructure of the management company, including a functional organisation chart which indicates the number of persons working for the management company and, where possible, their names;
• Designation of a person within the management company responsible for the provision of information on the financial situation of the management company;
• Detailed description of the activities performed internally by the management company and those which are delegated to professionals (a list of the delegatees indicating their denomination, address and, where applicable, the name of the supervisory authority to which they are subject is to be enclosed);
• Draft contracts concluded with the delegatees;
• Detailed description of the controls performed by the management company on the delegatees;
• Designation of a person responsible for the accounting administration of the UCIs within the management company;
• Information on the distribution network put in place by the management company: countries of distribution, intermediaries in charge of the distribution, target client base;
• Where the management company intends to perform the administration for UCIs, the information available under the section Forms “Authorisation as UCI administrator” is to be provided;
• Explicit confirmation concerning the compliance with the provisions of Articles 109(1) and 111 of the 2010 Law as regards a policy of conflict of interests, the respect of conduct of business rules and the related procedures as intended by Circular CSSF 18/698;
• Details of the investment policy of the share capital, indicating, where applicable, the name of the financial institution at which the share capital is deposited;
• Name of the réviseur d’entreprises agréé (approved statutory auditor);
• Where applicable, the name of the company responsible for maintaining the management company’s accounting records;
• A description of the remuneration policy put in place by the management company in accordance with Circular CSSF 10/437;
• Details of the person responsible for the function “compliance” including his/her curriculum vitae (the compliance function and the internal audit function cannot be undertaken concurrently by the same person) in accordance with Article 11 of CSSF Regulation No 10-4;
• Details of the person responsible for the function of internal audit including his/her curriculum vitae (who cannot be an employee of the réviseur d’entreprises agréé (approved statutory auditor)) in accordance with Article 12 of CSSF Regulation No 10-4;
• Details of the person responsible for risk management including his/her curriculum vitae (the risk management function and the compliance function cannot be undertaken concurrently by the same person) in accordance with Article 13 of CSSF Regulation No 10-4;
• The name of the person responsible for the processing, centralisation and follow-up of complaints, including a description of the complaints handling procedure put in place;
• The draft anti-money laundering procedures put in place.

Additional clarifications regarding the above-mentioned points can be found in CSSF Regulation No 10-4 and Circular CSSF 18/698.

• Description of the risk management method applied by the management company to the UCIs managed in accordance with Circular CSSF 11/512, CSSF Regulation No 10-4 and “CESR’s Guidelines on Risk Measurement and the Calculation of Global Exposure and Counterparty Risk for UCITS (ref.: CESR/10/788)”.

• Provision of a business programme which includes information with respect to discretionary management, investment advice and the safekeeping and administration in relation to units of UCIs;
• Templates of the discretionary management/investment advisory services contracts which the management company intends to request its clients to sign;
• Confirmation that the MiFID provisions are respected (Articles 37-1 and 37-3 of the Law of 5 April 1993 on the financial sector, completed by the provisions of Grand-ducal Regulation of 13 July 2007 relating to organisational requirements and rules of conduct in the financial sector).

• Details of the entity (entities) which instigated the launch of the UCIs managed by the management company (i.e. the group to which the management company belongs or a third-party entity outside of the group);
• Indication if the management company intends to manage (one) foreign UCI(s). Where applicable, the country of origin of the UCI(s), the investment policy of the UCI(s) and the services offered (i.e. portfolio management, administration or distribution) by the management company on behalf of the UCI(s) concerned must be mentioned.

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 23 December 2022 relating to the fees to be levied by the CSSF.

All legal and regulatory documents (including FAQs) can be found in the Regulatory framework section.

All forms can be found in the Publication and Data section.