NAV calculation error and investment breaches

Posted - 27.10.2020


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The CSSF clarifies its expectations in relation to CSSF Circular 02/77 on NAV calculation error and investment breaches.

An FAQ in relation to the provisions set out in CSSF Circular 02/77 concerning the protection of investors in case of NAV calculation error and correction of the consequences resulting from non-compliance with the investment rules applicable to UCIs was published on 7 July 2020 on the CSSF website.

This FAQ applies to UCITS and Part II UCIs1. It also outlines the principles to be applied by SIFs.

As part of the organisational requirements of the investment fund managers (“IFMs”), the CSSF requests the latter to put in place robust policies, processes and procedures governing the treatment of NAV calculation errors and investment breaches. In this respect, the CSSF further requires that a detailed policy is established and implemented by the IFMs and approved by their board of directors and, if applicable, the board of directors of the UCIs.

The FAQ also gives guidelines on the items to be covered by the policy mentioned above and the related operational procedures (e.g. governance process, the NAV error threshold applied, the methodology used for the calculation of the financial impact in case of active breach, definition of active and passive breaches). The CSSF recommends that this policy is also drawn up and implemented by Part II UCIs which are not managed by an authorised AIFM and SIFs subject to Part I of the SIF Law.

Chapter II of the FAQ provides that the board of directors of the IFM and, if applicable, the board of directors of the UCIs are also in charge of the internal policy governing the treatment of an investment breach and, as such, are the ultimate body responsible for choosing between the economic or the accounting method used by the Funds for the determination of the compensation amount.

Chapter III of the FAQ also provides for clarification on the tolerance threshold specifying for instance that (i) it is not applicable in the event of overcharged fees and costs borne by a UCI (i.e. fees and costs higher than those specified in the UCI prospectus), (ii) the CSSF should be notified even if the tolerance threshold applies, and (iii) how the tolerance threshold applies to fund of funds, index trackers and feeder funds.

  • 1.Part II UCIs” refer to Undertakings for Collective Investment subject to Part II of the Luxembourg Law of 17 December 2010 relating to UCIs, as amended.

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