The Annual Compliance Report

As per CSSF Circular 18/698 section 5.3.2, the Compliance Officer is required to provide regular and ad hoc written reports to senior management, specialized committees, and governing bodies of the Management Company, detailing the follow-up of past and current issues, risks involved, proposed corrective measures, and the positions of relevant parties. 

At least once a year, Compliance Officers must also prepare a summary report on their activities which must be approved by management and governing bodies and submitted to the CSSF by the May 31st of each year.

The summary report should cover, among others, the organization of the permanent compliance function, objectives and work carried out, compliance monitoring plan, list of recommendations made and shortcomings identified. 

The report should cover the following areas (non-exhaustive list): 

• governance of the IFM; 
• compliance with the legal and regulatory requirements with respect to own funds and their use; 
• management of conflicts of interest; 
• net asset value errors;
• non-compliance with the investment policy and restrictions; 
• personal transactions; 
• best execution; 
• handling of third-party claims and complaints; 
• handling of reports of infringements of the regulatory framework (whistleblowing); 
• non-compliance with the applicable reporting deadlines; 
• fraud and cyber-attacks 
• update of the manual of procedures 
• approval of new business relationships and new products; 
• update of contracts; 
• follow-up carried out following interactions with the supervisory authorities (on-site inspections, meetings, written correspondence, telephone conversations, etc.);
• reporting to the management body/governing body; 
• staff training; 
• changes in the compliance policy and compliance charter.

In October 2022, the Commission de Surveillance du Secteur Financier (CSSF) issued a Frequently Asked Questions (FAQ) guide on the Cross Border Distribution of Funds (CBDF) Regulation. The focus of this guide is on marketing communications in accordance with Article 4 of the CBDF regulation. The CSSF advises that compliance with Article 4 of the CBDF regulation should form part of the Compliance Officer's annual report to the CSSF. 

The trend of Teleworking has gained considerable momentum over the past years. Keeping in mind the significance of this trend, the CSSF circular 21/769 (Telework Circular) as amended by CSSF Circular 22/894  states that internal control functions, such as Compliance, must review the Telework policy and process, and ensure adherence to legal and regulatory requirements in their multi-year work programs  and annual reports.

It is noteworthy that standardized report templates are readily available, usually generated by Luxembourg associations and working groups.

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