Article Post on 11 December 2020

CSSF Circular 20/758 Relating to Central Administration, Internal Governance and Risk Management

_The CSSF issued a new Circular 20/758 on 7 December 2020 in respect of central administration, internal governance and risk management. The new Circular will be applicable to investment firms from 1 January 2021, replacing CSSF Circular 12/552. The latter will remain applicable to credit institutions and to some extent, to professionals performing lending operations (as amended by CSSF Circular 20/759).


The reason for the split of applicable texts is the increasing divergence in the regulatory frameworks covering credit institutions and investment firms. 

The main changes introduced in Circular 20/758(1) (versus Circular 12/552) relate to:

  • wider scope, to include financial holding and mixed financial holding companies;
  • refined proportionality concept depending whether an establishment is considered or not as an establishment of significant importance (which includes investment firms of systemic importance within the meaning of the law dated 5 April 1993 on the financial sector as well as other investment firms, where appropriate, as determined by the CSSF on the basis of their size, internal organization, nature, scale and complexity of their activities) and clarifications of such concept in relation to the implementation of control functions;
  • increased supervision of the management body in terms of its diversity and independence (in principle at least one board member should be considered as independent, however for establishments of significant importance or whose shares are admitted to negotiation on a regulated market it is necessary to ensure having sufficient independent board members considering their organisation, nature, complexity of the business); and
  • requirements in terms of environmental, social and governance (ESG) factors which shall be taken into consideration by the board of directors to ensure the development and viability of a durable business model. 

In addition, the Circular includes some other requirements and clarifications, such as relating to specialised committees, a chief risk officer for establishments of significant importance or outsourcing of internal audit which is only allowed for operational tasks and it also removes provisions relating to credit risk and asset encumbrance risk. 

>> Investment firms that are impacted by the changes in the new Circular should review their structures, policies, and adapt them as necessary to meet the new requirements.

If you are in any doubt as to how these changes impact your firm, please do not hesitate to get in touch with a member of Wildgen’s Banking and Finance or Investment Funds Practice Groups.  

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(1) Circular 20/758 includes guidelines and recommendations of the European Banking Authority (EBA) relating to Internal Governance (EBA/GL/2017/11), management of interest rate risk arising from non-trading book activities (EBA/GL/2018/02), guidelines on corrections to modified duration for debt instruments under the second subparagraph of Article 340 (3) of Regulation (EU) 575/2013(EBA/GL/2016/09) as well as joint ESMA and EBA guidelines on the assessment of the suitability of the members of the management body and key function holders (EBA/GL/2017/12).

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