Global Trustee and Fiduciary Services Bite-Sized Issue 6 2023

Bite-Sized | 2023 Issue 6 14 QUICK LINKS AIFMD ANTI-MONEY LAUNDERING CMU — RETAIL INVESTMENT PACKAGE CBDC COSTS & CHARGES CRYPTOASSETS ELTIF IFD/IFR LIBOR TRANSITION MIFID II/MIFIR MONEY MARKET FUNDS OPERATIONAL RESILIENCE SUSTAINABLE FINANCE/ESG WHISTLEBLOWING AUSTRALIA EUROPE LUXEMBOURG NORTH AMERICA UNITED KINGDOM EUROPE ESMA Report Points Out Improvements Needed in Supervision of Asset Valuation On 24 May 2023 the European Securities and Markets Authority (ESMA) published a report on the Common Supervisory Action (CSA) with National Competent Authorities (NCAs) on the supervision of the asset valuation rules under the UCITS Directive and AIFMD. In the report ESMA presents its analysis and conclusions from the 2022 CSA exercise, and finds room for improvement in the following areas: 1. The appropriateness of valuation policies and procedures; 2. Valuation under stressed market conditions; 3. Independence of the valuation function and use of third-party valuers; and 4. Early detection mechanisms for valuation errors and compensation to investors. ESMA states that, in light of the current economic environment, it is important that NCAs’ supervision addresses the deficiencies identified in the course of the CSA exercise and keeps paying close attention to potential valuation issues arising from less liquid assets, whose nature can amplify the structural liquidity mismatches of certain types of investment funds. This is particularly true for funds investing in Private Equity and Real Estate assets which might be more exposed to revaluation risks in light of the heavy reliance on long-term models and the illiquidity of their assets. The CSA was launched in January 2022, with the aim of assessing, fostering and enforcing the compliance of supervised entities with the organisational requirements with respect to asset valuation. The CSA also looked at supervised entities’ adherence to valuation principles and methodologies with a view to reflecting a true and fair value of their financial positions both under normal and stressed market conditions in line with the applicable rules. Building on the findings of the CSA exercise, ESMA will facilitate discussions among NCAs on the topic of asset valuation, particularly under stressed market conditions, in order to ensure that both market participants and NCAs are better prepared to address valuation-related challenges in future periods of stress. Moreover, ESMA welcomes that NCAs have planned to follow-up on the deficiencies identified in the course of the CSA and encourages the use of enforcement, where appropriate. Link to the Report here LUXEMBOURG Thematic Review on the Use of Artificial Intelligence in the Luxembourg Financial Sector On 3 May 2023 the Banque Centrale du Luxembourg (BCL) and the Commission de Surveillance du Secteur Financier (CSSF) published a joint Thematic Report on Artificial Intelligence (AI) (Thematic Report). The Thematic Report says that AI is an innovative technology that can positively affect the financial sector by enabling, for example, improved processes, enhancing fraud detection mechanisms, new customer insights, fostering inclusion, etc. Nevertheless, AI also brings new challenges and risks to be considered both by the regulator and the entities using this technology. In order to gather information about the usage of AI (and Machine Learning in particular) in the Luxembourg financial sector and the particular use cases being implemented by credit institutions, payment institutions and e-money institutions supervised by the CSSF, the BCL and the CSSF launched a joint survey in October 2021.