On 17 December 2021, the CSSF issued Circular 21/790 (the “Circular”) applicable to Luxembourg regulated funds (UCITS, Part II Funds, SIFs and SICARs). The Circular covers a number of topics applicable to the regulated funds themselves and to their auditors:
- It introduces an obligation for such funds to complete and submit a self-evaluation questionnaire each year.
- It specifies the information, which such funds must spontaneously provide to the CSSF if the auditor issues a modified audit opinion to the annual accounts.
- It specifies the role of the auditor in its audit of annual accounts.
- It introduces a specific regulatory framework for the management letter.
- It introduces an obligation for the auditor to prepare a separate distinct report in relation to the fund in question.
Each regulated fund will be required, for financial periods on or after 30 June 2022, to complete a questionnaire which will be made available on the CSSF’s eDesk. The questionnaire will comprise questions around pre-defined themes. In particular, it is aimed at having funds self-evaluating their conformity with legal and regulatory requirements. AML themes are not included.
The directors/managers of the fund in question are responsible for the information in the questionnaire. It must be submitted within 3 months of the end of the financial year for UCITS and 4 months for all other regulated funds.
In case a fund is removed from the official list, the questionnaire needs to be completed for the period from the end of the last financial year to the date of such removal.
Information to be provided in case of a modified audit opinion
A “modified audit opinion” includes a qualified opinion, an unfavourable opinion or a refusal to give an opinion, by the fund’s auditor.
Each time the audit report, established by the auditor, contains such a modified opinion the directors/managers of the fund must spontaneously send a letter to the CSSF explaining the underlying reasons for the qualified opinion, its impact on the fund and its investors, an outline of what corrective measures are being taken and the timing of such measures.
The CSSF give further information on the specific information to be provided on their website.
Practical rules relating to the role of the auditor
The Circular specifically provides that the fund subject to an audit obligation or the relevant auditor shall inform the CSSF of the removal or resignation of the auditor in the course of a mandate and explain the reasons for such removal or resignation. Upon a request for change of auditor the CSSF will analyse the reasons for the change and whether or not the fund in its procedure to choose a new auditor has adequately evaluated the competence and resources of the auditor vis à vis the type and volume of activity of the fund in question.
The Management Letter
For each financial period, the auditor has to prepare a management letter to be addressed to the managers/directors of the relevant fund. A template letter is available on the eDesk portal. Once received the managers/directors have to submit the management letter to the CSSF via the eDesk Portal. This applies for financial periods ending on or after 30 June 2022 and it needs to be submitted, for UCITS and Part II Funds within 4 months of the end of the financial year and for SIFs and SICARs within 6 months of the end of the financial year.
The Management Letter should highlight any weaknesses or points for improvement in the operation of the fund, which, in the auditor’s professional judgement need to be highlighted to the managers/directors and the CSSF. The Management Letter should also refer to any points raised in management letters from previous financial periods that have not been closed out.
Each point raised by the auditor needs to relate to a theme in a pre-determined list set out by the CSSF (in the template Management Letter on the eDesk). The auditor also needs to provide complementary information by responding to a questionnaire attached to the template Management Letter. This is to allow the CSSF to determine the level of risk for each weakness or point of improvement.
In addition, each weakness or point of improvement needs to be accompanied by a commentary from the managers/directors of the fund in question including an explanation as to why this situation occurred, information on measures taken to correct the situation accompanied by a remediation plan.
If the managers/directors do not respond in a reasonable time, the auditor should issue the Management Letter specifying that they received no comments from the managers/directors.
If the auditor has no points to be included in a Management Letter then they nevertheless need to validate the Management Letter on the eDesk Portal utilising the filed “No comment ML”.
The Report on the Self-Evaluation Questionnaire
The Circular introduces an obligation for the fund’s auditor to prepare a report on the Self-Evaluation Questionnaire (the “Report”) to be completed via the eDesk Portal. The Report consists of responses to certain pre-defined questions and the aim is to assess the reliability of certain responses to the Self-Evaluation Questionnaire. This Report is to be submitted within 5 months of the end of the financial year for UCITS and within 6 months of the end of the financial year for the other regulated funds.
The requirement for a Report applies to financial years ending on or after 30 June 2022 for UCITS and Part II Funds and 30 June 2023 for SIFs and SICARs.
In case a fund is removed from the official list, the Report needs to be completed for the period from the end of the last financial year to the date of such removal.
The eDesk Portal contains further explanations on the practicalities of preparing and submitting the Self-Evaluation Questionnaire, the Management Letter and the Report. The Circular abrogates CSSF circular 02/81 as well as chapter P of Circular IML 91/75. For financial years ending on or after 30 June 2022, the Management Letter should no longer be submitted to the CSSF pursuant to the provisions of circular 19/708.