The Luxembourg Financial Supervisory Authority (CSSF) and the European Securities and Markets Authority (ESMA) are closely monitoring the COVID-19 situation and have issued the following recommendations for fund managers.
The CSSF recently issued a statement emphasising that financial sector professionals should take reasonable and appropriate measures to ensure the safety of their staff. It is therefore acceptable, as a precautionary measure, to allow employees to work remotely, provided that IT security can be ensured.
Risk management: carry out stress tests and review business continuity plans
In its COVID-19 action recommendation of 11 March 2020, ESMA recommended that fund managers "continue to apply the requirements on risk management and react accordingly".
In this regard, the CSSF further emphasised that, if required, companies must activate their business continuity plan and, if necessary, be prepared to use alternative production facilities inside or outside Luxembourg. The CSSF's prior authorisation is not required to do so.
Many financial sector professionals have already reviewed or are in the process of reviewing their business continuity policy and performing IT system checks aimed at ensuring, in the event of an emergency, the preservation of essential data and functions, the maintenance of services and activities and, where applicable, the timely recovery of such data and functions and the timely resumption of services and activities.
Verify compliance with own fund requirements
The EU AIFM Directive (2011/61/EC) and EU Undertakings for Collective Investment in Transferable Securities (UCITS) Directive (2009/65/EC) require that fund managers hold either professional indemnity insurance or additional own funds to be able to cover potential losses, such as those arising from business disruption. In the case of insurance, it is recommended to check if the policy would cover a significant disruption resulting from the COVID-19 pandemic.
Adapt disclosure and reporting requirements
ESMA recommends that all issuers disclose, as soon as possible, any relevant significant information concerning the impact of COVID-19 on their fundamentals, prospects or financial situation in accordance with their transparency obligations under the EU Market Abuse Regulation (596/2014), which came into force in Luxembourg in 2016.
Further, ESMA stresses that issuers:
should provide transparency on the actual and potential impacts of COVID-19, to the extent possible based on both a qualitative and quantitative assessment on their business activities, financial situation and economic performance in their 2019 year-end financial report if these have not yet been finalised or otherwise in their interim financial reporting disclosures.
Keep an eye out for new opportunities
A disruptive event can give rise to certain opportunities. For instance, portfolio companies could be affected by underperforming production lines, while fund managers with substantial liquid assets under management could be affected in the short term by capital markets conditions. The present circumstances could also give rise to refinancing and restructuring opportunities for lending institutions and potentially cheaper prospective assets for asset managers.
