LUXEMBOURG Trends and Developments Contributed by: Claire Guilbert, Geoffroy Hermanns and Cyril Clugnac, Norton Rose Fulbright
investors in case of net asset value (NAV) calcu - lation error and correction of the consequences resulting from non-compliance with the invest - ment rules applicable to undertakings for col - lective investment (UCI) – under CSSF Circular 02/77 – and it has been clear that the industry evolved in different directions during this period. Many significant milestones have changed the landscape of UCI. These milestones include the implementation of Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the co-ordination of laws, regu - lations and administrative provisions relating to UCI in transferable securities, the implementa - tion of Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers, and the emergence of new products such as special - ised investment funds (SIFs), ELTIFs, European venture capital funds (EuVECAs), the European social entrepreneurship fund (EuSEF) and money market funds (MMFs). These new products, and the evolution of related industries in Luxembourg, came with a growing investor base, thus increasing inves - tors’ exposure to the risks and consequences of NAV calculation errors and non-compliance with the relevant investment rules for UCIs. This was something the CSSF was very aware of, resulting in it updating the CSSF Circular 02/77 framework through active communication with the industry, conducting inspections and issu - ing fines. But one should not forget the key aim of the framework set by CSSF 02/77, which was to ensure that investors have confidence in UCIs – something that controls, sanctions and a fragmented framework do not foster. Thus, it was time to consolidate and clarify the rules and bring more things within their scope to reflect the reality of the industry. As a result, CSSF Circu - lar 24/856, published on 28 March 2024, sets a
high bar for the industry by, among other things, approaching compliance and investor protection as a collaborative and proactive exercise that concerns all those involved with a particular UCI. It reinforces the methodologies for correction, prevention and rectification of NAV calculation errors – and for non-compliance with the invest - ment rules and other errors (including tolerance thresholds) – and it addresses a broader spec - trum of operational risks. CSSF Circular 24/856 is also key for investors in UCIs as it provides explicit guidelines for compensation and cost bearing in relation to NAV calculation errors, non-compliance with the investment rules and other errors, including incorrect fee payments and investment alloca - tion errors. This new Circular will certainly require UCIs to update their NAV calculation proce - dures, enhance their internal controls and ensure that proper internal training on these new rules is provided. It is also important to note that, when it comes to NAV calculation errors, CSSF Circular 24/856 distinguishes between open- and closed-end - ed UCIs, taking into account the fact that such errors have more significance for opened-ended UCIs, which normally calculate their NAV on a daily basis, allowing investors to enter or exit on any day. CSSF Circular 24/856 does not require closed-ended UCIs to notify the CSSF of NAV calculation errors (as they are exempt though certain of the guidelines set out in Chapter 4 of CSSF Circular 24/856, which should be fol - lowed by closed-ended UCIs). However, other types of error (eg, incorrect fee payments) must be reported to the CSSF by closed-ended UCIs, and all errors (even if not reportable to the CSSF) must be corrected.
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