CSSF Issues Updated Rules for Luxembourg UCIs on NAV Errors and Investment Breaches

The Commission de Surveillance du Secteur Financier (CSSF) published Circular 24/856 on March 29, 2024, which will replace Circular 02/77 and provide updated rules for Luxembourg Undertakings for Collective Investment (UCIs) regarding net asset value (NAV) calculation errors, non-compliance with investment rules, and other errors. The new circular, effective from January 1, 2025, codifies legal and regulatory developments, administrative practice, and industry evolutions over the last two decades.

Circular 24/856 applies directly to UCITS, Part II UCIs, Specialized Investment Funds (SIFs), Investment Companies in Risk Capital (SICARs), UCITS Part II UCIs and SIFs set up as money market funds (MMF), and Part II UCIs, SIFs, and SICARs set up as European Long-Term Investment Funds (ELTIFs), European Venture Capital Funds (EuVECA), or European Social Entrepreneurship Funds (EuSEF).

The circular sets materiality thresholds for NAV calculation errors, ranging from 0.2% for MMFs to 0.5-1% for UCITS and Part II UCIs open to retail investors. It also differentiates between active and passive breaches of investment rules, with active breaches requiring notification to the CSSF and immediate remediation.

Why this matters: The updated rules aim to enhance investor protection and ensure a consistent approach to handling NAV errors and investment breaches across Luxembourg's UCI industry. The circular's provisions will impact a wide range of funds and require asset managers to reform their policies and procedures accordingly.

Under the new circular, UCIs must have policies and procedures in place to address NAV calculation errors, non-compliance with investment rules, and other errors. The CSSF's updated rules are expected to strengthen the oversight and governance of Luxembourg UCIs, promoting transparency and safeguarding investor interests in the event of material errors or breaches.

Key Takeaways

• CSSF publishes Circular 24/856 to replace Circular 02/77 on NAV errors, investment breaches.
• Circular applies to various Luxembourg UCIs, sets materiality thresholds for NAV errors (0.2-1%).
• Differentiates between active and passive investment breaches, requires notification and remediation.
• Aims to enhance investor protection and ensure consistent approach to NAV errors, breaches.
• Requires UCIs to have policies and procedures to address NAV errors, investment breaches.