The CSSF issued on 24 July 2024 a clarification regarding the controls Luxembourg depositaries must implement when handling AIFs investing in illiquid assets. The CSSF has observed inconsistencies in how depositaries approach their safekeeping duties, particularly in ownership verification and record-keeping obligations.
Some depositaries have been conducting comprehensive checks and gathering necessary documents before investments in illiquid assets are made, while others have been relying primarily on ex-post (after the fact) checks. The CSSF has emphasized that all Luxembourg depositaries must carry out these checks and controls prior to the acquisition of illiquid assets (ex-ante). This approach ensures compliance with their safekeeping duties under Article 90 of Commission Delegated Regulation (EU) No 231/2013 (“AIFMR”) and their responsibilities regarding the timely settlement of transactions under Article 96 of the AIFMR.
The CSSF expects the following procedures to be implemented by depositaries:
Prior to payment
The depositary should receive prior notification of the transaction from the Alternative Investment Fund Manager (AIFM), along with supporting documents, even in draft form. This allows the depositary to verify the transaction's existence, the structure, and the involved counterparties before authorizing payments.
At the time of payment
The depositary should conduct consistency checks between the payment instructions and the earlier provided transaction documents.
After payment
The depositary must verify the AIF’s effective ownership of the assets based on the final executed transaction documents and external registers where applicable (e.g., land or commercial registers).
Additionally, AIFMs authorized in Luxembourg are required to provide all relevant information to depositaries in a timely manner to allow them to fulfil their safekeeping duties, as specified under Article 90(1) and (2) of the AIFMR. This includes adhering to the ex-ante controls emphasized by the CSSF.
This clarification serves as a critical reminder to ensure consistent and rigorous control measures across Luxembourg depositaries, thereby safeguarding the interests of investors and ensuring full regulatory compliance.
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