On November 29, the Luxembourg Supervision Commission of the Financial Sector (CSSF) published a guidance, composed of a FAQ for Undertaking for Collective Investments (UCIs) to provide practical responses to issues related to investments in virtual assets by undertakings for collective investment in transferable securities (UCITS), alternative investment funds (AIF) and Luxembourg investment fund managers (IFM) as well as any mitigation of money laundering and terrorist financing (ML/TF) and proliferation financing.
Points that must be retained are as follows:
- UCITS, UCIs addressing non-professional customers and pension funds are not allowed to invest directly or indirectly in virtual assets. Assets that qualify as financial instruments, such as shares of companies active in the virtual asset ecosystem may potentially fall within the scope of eligible investments for UCITS.
- AIFs with an authorised AIFM may invest directly and indirectly in virtual assets under the cumulative condition that (i) the AIF markets its units only to professional investors and ii) that the authorised AIFM obtains an extension of authorisation from the CSSF.
- Authorised Investment Fund Manager (“IFM”) which intends to manage an AIF, regulated or not, investing in virtual assets, must obtain prior authorisation from the CSSF for the strategy “Other-Other Fund-Virtual assets”. The IFM is required to submit some information/documentation,
Description of the project and of the different services providers/delegates involved
Information on whether or not the investments in virtual assets will be made directly or indirectly
An updated risk management policy including in particular how the risks in relation to the virtual assets are managed
An updated valuation policy including the rules as to how the value of the virtual assets will be determined
Description regarding the experience of the portfolio manager in virtual assets
Description of how the custody of the assets will be organised by the depositary
Information regarding the targeted investors and the distribution channels of the AIF
The IFM’s AML/CTF analysis on the assets side
- The Responsable du Contrôle and the Responsable du Respect (RR) of supervised entities investing in virtual assets must demonstrate that they have the adequate understanding of the related ML/TF risks and the necessary framework to mitigate them. In this regard, the CSSF refers to specific guidelines including the FATF Guidance for a Risk-Based Approach to Virtual Assets and VASPs that we have previously written about here.
A second FAQ focusing on virtual assets for Credit institutions will be published in the second half of December 2021.