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Explanation RR and RC

Magnifying glass pawns We continue to receive a lot of questions on the functions of RR and RC. To provide some initial guidance we put together this blog post with an overview and explanation.

What is the Basis for the RR / RC?

The basis of the requirements for the functions of RR and RC are laid out in Article 4(1) of the Law of 12 November 2004 as amended. This Law requires that every Luxembourg Investment Fund and Investment Fund Manager subject to AML/CFT supervision appoint of two different persons/parties according to Article 4 (1) (fourth paragraph and second paragraph, sub-paragraph a) as follows:


  1. a person among the members of their management bodies, responsible for compliance with the professional obligations as regards the fight against money laundering and terrorist financing (the original French version of the law refers to a “responsable du respect des obligations” – the “RR”), and
  2. if the size and nature of the activity so require, a compliance officer at appropriate hierarchical level (the original French version of the law refers to a “responsable du contrôle du respect des obligations” – the “RC”).

What does this mean in practice?

For Investment Funds supervised by the CSSF for AML/CFT purposes:
  • The RR can be the board of directors acting as one body, or
  • The board may appoint one of its members as RR.
  • The RR must be reachable for any contact by the Luxembourg AML/CFT competent authorities.
  • The RC shall be mandated by the board of directors
  • The RC may be a member of the board with appropriate experience meeting the conditions (see below), or
  • The board may appoint a third party (e.g. qualified staff member of IFM or professionals / parties in Luxembourg provide these services) as RC and must enter into a contractual relationship with the RC personally or, where the contract is concluded with the employer of the RC, which must include:
    • the name the RC
    • the condition that any replacement of the RC must be subject to the board’s approval and
    • the RC must acknowledge its appointment in writing.
  • The RC must be available in Luxembourg for the accomplishment of the required tasks. Note: As an exception it is acceptable for the RC to be located outside of Luxembourg, e.g. if the IFM and its relevant staff member acting as RC are not domiciled in Luxembourg (there are other options, but you will need to motivate properly for not having RC in Luxembourg).
For Investment Fund Managers supervised by the CSSF for AML/CFT purposes
  • The RR can be the entire board of directors of the IFM or can be one of the members of the board of directors
  • The RC shall be the compliance officer at appropriate hierarchical level in charge of AML/CFT aspects for the IFM.

What are the requirements for the RR?

  • The RR needs to have sufficient AML/CFT knowledge and expertise with regard to the applicable Luxembourg legislation and regulation. The RR will need to demonstrate this (e.g. certificates of attendance of seminars / training sessions)
  • The RR needs to be knowledgeable about the investments and distribution strategies of the Fund or services offered by the IFM, and
  • The RR needs to be be available without delay upon contact by the Luxembourg AML/CFT competent authorities (if the board is appointed as RR, at least one of its members must fulfil this requirement).

What are the requirements for the RC?

  • The RC needs to have sufficient AML/CFT knowledge and expertise with regard to the applicable Luxembourg legislation and regulation. The RC will need to demonstrate this (e.g. certificates of attendance of seminars / training sessions).
  • The RC needs to be knowledgeable about the investments and distribution strategies of the Fund or services offered by the IFM
  • The RC needs to be available without delay upon contact by the Luxembourg AML/CFT competent authorities, and
  • The RC will need to have access to all internal documents and systems required necessary for performing its tasks (This condition is particularly relevant in scenarios where the RC is not present in Luxembourg on an on-going basis).

Which entities are required to appoint RR/RC?

This Law requires that every Luxembourg Investment Fund and Investment Fund Manager subject to AML/CFT supervision appoint an RR/RC. With the amendment of the Law in 2019 the initial perception was that only Funds / IFMs regulated by the CSSF were in scope of the RR/RC requirements. Note: this includes “Registered” IFMs. However, in 2020 the Luxembourg Indirect Tax Authorities (“ITA” or Administration de l’enregistrement de domain et de la IVA – “AED”) issued a statement through a FAQ that also unregulated funds (specifically RAIFs) are in scope of the RR/RC requirements. The “ITA” considered the similarities between CSSF regulated and unregulated funds and determined that similar AML/CFT risks exists. Consequently, using its authority determined that they consider the RR/RC requirements applicable in the same manner as for regulated funds.

What are the reporting requirements for RR/RC?

In accordance with Article 42 (7) of the RCSSF 12-02, entities are obliged to submit the AML/CFT RC report (signed by RC) within five months following the end of the Fund’s or IFM’s financial year. The report needs to be submitted in any case, so also if there are no findings to report. The CSSF has issued an extensive FAQ on the requirements on the report and obligations of the RC. If you are interested, click this link.

Comment / observation

  • Appointing an RR/RC will definitely improve AML/CFT oversight and controls. The question remains if this is not overkill for smaller funds that appoint a PSF as central administrator – who will perform AML/CFT as well. For the smaller funds it just seems to add a layer of cost without much real added value.
  • The fact that the ITA considers themselves “supervisor” – in relation to the text “… every Luxembourg Investment Fund and Investment Fund Manager subject to AML/CFT supervision…“ is still intriguing.

Actions

None, your administrator and/or legal council will guide you in this process and can assist in bringing you in contact with third parties providing RC services in Luxembourg.

Internal links

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