Olivier Sciales Investments Law Blog on Lawyers.com

In its Circular 07/308, the CSSF dwelt on the required procedure concerning the use of financial derivative instruments and the management of financial risks by UCITS.
A crucial element enabling the CSSF to play its supervisory role is obviously the information that UCITS need to communicate to the CSSF, and especially towards its risk management process.
The CSSF recently re-affirmed the importance of such elements and set out a list of them in its annual report, list which may be summarized as follows:

• name of the UCITS;
• risk profile of the UCITS (sophisticated or non-sophisticated);
• global exposure calculation method (commitment, relative Value at Risk (VaR), absolute VaR);
  ? the maximum limit, which must not exceed the regulatory limit as determined in the Circular (100% for the commitment approach, 200% relative VaR, 20% absolute VaR);
• reference portfolio (if relative VaR limitation); and
• exposure (i.e. use of maximum limit).

However, the CSSF later on clarified a few of these elements. It stated for instance that the global exposure limit set by the UCITS should be in line with its given risk profile. Consequently, this may mean that a UCITS making use of the VaR methodology will have to determine, because of its given risk profile, a VaR limit lower than the maximum regulatory limit the investment policy of a UCITS. The CSSF will therefore not accept that UCITS, regardless of their risk profile, apply and report in all cases a VaR limit which corresponds to the highest permitted limit.

Investors shall be informed furthermore that the information has to be drawn up and filed with the CSSF on an annual basis, the CSSF however reserving itself the right to request those information on a higher frequency.

Chevalier & Sciales is a Luxembourg law firm mainly focused on Investment Funds (UCITS and SIFs), Securitizations, Corporate Law and Private Equity. For more information please visit our website at www.cs-avocats.lu or contact Olivier Sciales at oliviersciales@cs-avocats.lu