The Commission de Surveillance du Secteur Financier (the « CSSF») published on 7 December 2020 the following circular letters relating to central administration, internal governance and risk management which will come into force on 1st January 2021:
circular letter 20/757 which introduces circular letter 20/758 relating to central administration, internal governance and risk management for investment firms;
circular letter 20/758 relating to central administration, internal governance and risk management for investment firms (the “Circular Letter 20/758”); and
circular letter 20/759 which amends circular letter 12/552 on central administration, internal governance and risk management for credit institutions (and in part to professionals carrying out lending operations).
Pursuant to the above, the CSSF carries out several changes to the existing framework on central administration, internal governance and risk management applicable to credit institutions and investment firms.
First, the CSSF separates the rules applicable to credit institutions from those applicable to investment firms. This distinction may be explained by the fact notably that the regulatory framework applicable to credit institutions diverges more and more from that applicable to investment firms. Furthermore, investment firms may benefit from more flexible rules in accordance with the proportionality principle. Finally, from a practical perspective, it became difficult to manage a single text covering different entities with different activities.
Second, the CSSF updates the amended circular letter 12/552 on central administration, internal governance and risk management (the “Circular Letter 12/552”) in order to align its regulatory standards to those set out under recent EBA guidelines (e.g. on internal governance, on the definition of default, on the management of interest rate risk arising from non-trading book activities) and comply therewith. These guidelines have also been included, where relevant, in the Circular Letter 20/758.
Third, the CSSF carries out several changes to the aforementioned circular letters and in particular extends its scope of application to holding financial companies and mixed financial holding companies, specifies the application of the proportionality principle in the setting up of the internal control functions, reinforces the management body in its supervisory role, taking into account environmental, social and governance risk factors, etc.
Finally, the CSSF has published a new prudential approval procedure for members of the board of directors, daily managers and key function holders in investment firms applicable as of 1st January 2021. This procedure replaces the previous version which continues to apply until 31 December 2020.
Our dedicated team can assist in assessing how these new circular letters impact your credit institution or investment firm as applicable and in reviewing inter alia your governance structure and internal policies to ensure compliance with these new requirements.
For any questions relating to the above, please do not hesitate to contact one of our specialists.
