Luxembourg regulators urged to increase supervision of fund industry
The International Monetary Fund has warned Luxembourg regulators to closely monitor the country's large investment fund industry.
30.08.2017
Luxembourg
regulators must increase their monitoring of risks in the investment
fund industry, the International Monetary Fund (IMF) has warned.
In a
series of reports on Luxembourg's finance industry, the IMF said the
extensive use of delegation by fund managers and the concentration of
fund directorships required more attention from regulators.
"The
typical model adopted by Luxembourg fund managers involves
significant delegation of activities, often including portfolio and
risk management," the report stated.
"Although
this structure has not given rise to problems in the past, given the
rapid growth in the industry in recent years and the extent to which
funds in Luxembourg avail of delegated activities, additional
supervisory scrutiny is warranted."
Luxembourg's
investment fund industry is the world's second largest by assets
under management, standing at €3.35trn in November 2016 --
equivalent to around 62 times Luxembourgish GDP.
The
IMF suggested that the Commission du Surveillance de Secteur
Financier (CSSF) should issue formal guidance on the substance
threshold required in Luxembourg for investment managers - the amount of manpower and resources required to be based in the country - and on an
appropriate threshold, in terms of a time commitment, for
directorships.
Investor
runs and issues surrounding illiquidity in funds should also be
examined and the CSSF should increase on-site inspections, the report
urged.
In a
note on banking supervision, the IMF warned there was still potential
for government or industry interference in the "operational
independence" of the CSSF.
It
also highlighted potential vulnerabilities for Luxembourg banks
facing high levels of intra-group exposure to foreign parents and
funding risks from investment fund industry deposits should there be
a shock to that industry.