CSSF feedback report on ESMA CSA on valuation

Further to the publication by ESMA of its report on the Common Supervisory Action (“CSA”) on valuation in May 2023 (“CSA on Valuation”), the CSSF published its own feedback report on 18 July 2023 based on the analysis of the Luxembourg-domiciled investment fund managers (“IFMs”) managing undertakings for collective investment in transferable securities (“UCITS”)/open-ended alternative investment funds (“Report”).

ESMA highlighted that the national competent authorities considered that there is an overall satisfactory level of compliance of the investment fund managers with the applicable regulatory requirements in the sample but also noted some shortcomings and vulnerabilities.

In this Report, the CSSF highlights the key areas where shortcoming/vulnerabilities have been observed and provides recommendations to all IFMs managing UCITS and/or alternative investment funds (“AIFs”). Therefore, the CSSF has broadened the scope for its recommendation to the closed-ended funds as well.

In particular, the CSSF requires all IFMs managing UCITS and/or AIFs (i) to conduct a comprehensive assessment of their valuation framework in relation to the observations made by ESMA as well as in its Report and (ii) to take the necessary corrective measures by 31 December 2023.

In a nutshell, IFMs must review and update their valuation policies and procedures, notably in order to enhance governance around (i) the valuation framework and changes to it under stressed market conditions, (ii) the valuation methodology/model’s independent review and validation, and (iii) use of external service providers avoiding overreliance.

However, other areas are also affected by those recommendations, such as the conflicts of interest policy/register, the communication between valuation function and risk management function, the remuneration policy or the involvement of the depositaries.

Further information on the points to be covered by the review/update is provided in the article “CSSF feedback report on ESMA CSA on valuation” published on our website.