Key guidelines of CSSF Circular 24/856 on Investor Protection (NAV errors/breach of investment restrictions and other errors)
As a reminder, on 28 March 2024, Luxembourg’s Commission de Surveillance du Secteur Financier (CSSF) issued Circular 24/856 providing comprehensive guidelines for the protection of investors in cases of errors related to the Net Asset Value (NAV) calculation, non-compliance with investment rules and other administrative errors at the level of Undertakings for Collective Investment (UCIs) under the supervision of CSSF. An English version of the circular has recently been released.
Key objectives
- Investor protection: Ensuring that investors are protected in the event of NAV calculation errors or instances of non-compliance with investment rules.
- Prescribing the materiality/tolerance threshold with respect to NAV errors and drawing a distinction between money market funds, retail funds and funds aimed at well-informed investors.
- Clarity and detail: Providing clear and detailed guidelines for handling various errors at the UCI level.
- Repealing previous circular: Replacing Circular CSSF 02/77, which previously addressed NAV calculation errors and non-compliance issues effective 1 January 2025.
The Circular applies to all UCIs, including UCITS, UCI Part II, SIFs, SICARs, MMFs, ELTIFs, EuVECAs, and EuSEFs. It also includes directives for investment fund managers and other entities involved in the functioning and control of these UCIs.
The Circular outlines the roles and responsibilities of various stakeholders, including UCI dirigeants (directors), investment fund managers, UCI administrators, and depositaries, in addressing and correcting errors.
NAV calculation errors
- Definition and tolerance: It defines what constitutes a NAV calculation error and sets tolerance thresholds.
- Correction procedures: Detailed procedures for correcting significant NAV calculation errors and determining their financial impact are provided.
Non-compliance with investment rules
- Active vs passive non-compliance: Differentiates between active and passive non-compliance with investment rules.
- Correction methods: Specifies methods for correcting instances of non-compliance, including both accounting and economic methods.
Other errors at UCI level
The Circular also addresses other types of errors, such as incorrect application of swing pricing, non-compliant payment of fees, incorrect application of cut-off rules, and investment allocation errors.
General guidelines
- Compensation: Guidelines for compensating affected investors and the UCI are provided, including specific rules for financial intermediaries and the use of the de minimis rule.
- Statutory auditor's role: The intervention of the réviseur d’entreprises agréé (approved statutory auditor) is mandated for certain controls and reports.
Notification and reporting
The Circular mandates the notification of errors and instances of non-compliance to the CSSF and other competent authorities, outlining specific deadlines and procedures for such notifications.
CSSF Circular 24/856 aims to strengthen investor protection by providing clear and detailed guidelines for managing and correcting NAV calculation errors, non-compliance with investment rules, and other errors at the UCI level. It ensures transparency, accountability, and consistent practices within the Luxembourg investment fund industry.
Circular 24/856 can be found here.
