Ancillary liquid assets limited to bank deposits at sight representing maximum 20% of the UCITS net assets
The updated FAQ clarifies that ancillary liquid assets under article 41(2) of the UCI Law are limited to bank deposits at sight, which means that the deposits must be accessible on demand or after a very short notice period. For instance, cash held in current bank accounts - accessible at any time - to cover (ordinary or exceptional) payments or which is temporarily retained for the period strictly necessary pending reinvestment or more favourable market conditions, is a deposit at sight.
Ancillary liquid assets may not exceed 20% of the UCITS (or the relevant sub-fund’s) net assets, except in extraordinary unfavourable market conditions (the CSSF mentions as examples the ones following the 9/11 attacks or the Lehman Brothers bankruptcy) and for a period strictly necessary when circumstances so require and the investors’ interests so justify. This contrasts with the previously accepted position that ancillary liquidity could represent up to 49% of net assets.
Other bank deposits, money market instruments and MMFs may be eligible assets but not as ancillary liquid assets
The updated FAQ further specifies that bank deposits, money market instruments (MMIs) and MMFs that meet the criteria of article 41(1) of the UCI Law are eligible assets but cannot be included in the ancillary liquid assets.
Mandatory disclosure in the UCITS’ investment policy of all categories of eligible assets, including bank deposits and MMIs
A UCITS must clearly disclose in its investment policy the categories of eligible assets which it is authorised to hold for investment, treasury or in the event of unfavourable market conditions.
In our view, this means that in the case of an umbrella fund, the disclosure should be included in the relevant investment policy of each sub-fund.
Investments in a category of assets not disclosed in the investment policy would be considered an active breach of the investment policy triggering the remediation actions and potential indemnification foreseen in CSSF Circular 02/77.
Margin accounts are collateral and do not account as bank deposits or ancillary liquid assets
Initial and variation margins relating to financial instruments are considered as collateral received or posted. Margin accounts therefore do not qualify as bank deposits under article 41(1)(f) of the UCI Law nor as ancillary liquid assets.
Margin accounts are collateral and do not account as bank deposits or ancillary liquid assets
Initial and variation margins relating to financial instruments are considered as collateral received or posted. Margin accounts therefore do not qualify as bank deposits under article 41(1)(f) of the UCI Law nor as ancillary liquid assets.
Limits in deposits with the same credit institution under MMFR equally apply to ancillary liquid assets
In its updated FAQ on MMFR, the CSSF confirms that the 10% concentration limit in deposits held with the same credit institution also applies to ancillary liquid assets. Ancillary liquid assets held by an MMF are also limited to 20% of its net assets.
UCITS prospectus to be updated as soon as possible and expected no later than 31 December 2022
The CSSF expects UCITS to comply with these clarifications as soon as possible but at the latest by 31 December 2022, taking into account the best interests of the investors.
