On 20 December 2019, the CSSF published Circular 19/733 on liquidity risk management for open-ended undertakings for collective investment (the "Circular"). The objective of the Circular is to implement recommendations and good practices of the International Organization of Securities Commissions (“IOSCO”) on liquidity risk management for undertakings for collective investment (the "IOSCO Recommendations").


The Circular applies to management companies regulated by Chapter 15 and Chapter 16 of the Law of 17 December 2010 relating to undertakings for collective investment (the "2010 Law"), Luxembourg branches of investment fund managers subject to Chapter 17, investment companies which did not designate a management company within the meaning of Article 27 of the 2010 Law, alternative investment fund managers authorised under Chapter 2 and internally managed alternative investment funds within the meaning of point (b) of Article 4(1) of the Law of 12 July 2013 on alternative investment fund managers (the "2013 Law"), that are managing open-ended undertakings for collective investment (the "UCIs").
The CSSF also recommends open-ended UCIs subject to Part II of the 2010 Law which are not managed by an authorized alternative investment fund manager to consider applying the provisions of the Circular.

The Circular, following the IOSCO Recommendations, addresses three elements of the UCIs life cycle where liquidity risk management has to be particularly present.
The UCI design process should take into account:

- the establishment of liquidity risk management effective in both normal and stressed market conditions;
- the establishment of frequency arrangements appropriate to the investment strategy and underlying assets of the UCIs;
- the manner in which the planned marketing and distribution are likely to impact the liquidity of UCIs;
- the integration of an appropriate range of additional liquidity management tools (the "LMTs") which could contribute to a better management of liquidity risk under exceptional market conditions;
    tools to ensure that liquidity risk of the UCIs and the liquidity risk management processes are effectively disclosed to investors and prospective investors.

The day-to-day liquidity management should include:

- regular checks of the UCIs' liquidity;
- due consideration and integration of liquidity management into investment decisions. Transactions should be conducted only if the investments or techniques/strategies employed do not compromise the ability of the UCI to comply with the redemption obligations or other liabilities;
- a process to facilitate the identification of emerging liquidity pressures/shortages before they occur and should integrate relevant data and factors in order to have a holistic view of the possible risks;
- ongoing liquidity assessments and stress testing in different market conditions.

Contingency planning:

- contingency plans should be implemented and periodically tested to ensure that any applicable LMTs can be used where necessary;
- the CSSF reminded that the IOSCO Recommendations indicate a list of the LMTs which are available to Luxembourg domiciled UCIs.


The Circular entered into force with immediate effect.