Luxembourg’s CSSF ranked among EU’s top depositary supervisors

Luxembourg’s financial regulator CSSF has been ranked among the strongest supervisors of depositaries in the EU, according to a review by the bloc’s financial markets watchdog published on Monday.

However, the report by the European Securities and Markets Authority (ESMA) also recommended that the CSSF make some adjustments to certain elements of its supervisory approach.

The peer review, which assessed the national regulators of Luxembourg, Ireland, Italy, Sweden and the Czech Republic, singled out Luxembourg and Czechia as the two authorities with the most effective and robust supervision of how depositaries carry out key oversight duties for investment funds.

ESMA pointed to the CSSF’s detailed on-site inspections, strong documentation and use of sanctions as signs of solid supervisory work.

The positive verdict comes against the backdrop of Luxembourg’s dominant position in Europe’s fund industry, with ESMA noting that the country hosts almost a third of all UCITS and AIF assets in the EU27. That makes strong supervision of depositaries, which safeguard fund assets and monitor compliance, particularly important.

Strong marks for on-site work

ESMA underscored how thorough the CSSF’s on-site inspections are when it comes to valuation controls and checking that funds respect investment and leverage rules.

The review cited the regulator’s detailed inspection plans, clear expectations for firms, strong follow-up work and the use of financial penalties when shortcomings were found.

Based on these elements, the peer review placed Luxembourg, along with Czechia, in the group showing the strongest supervisory practices in this field, even though the CSSF’s overall rating was marked as “largely meeting expectations” because of concerns about one specific aspect of its approach.

The review noted that the CSSF permits “depositaries to provide ex-post first-level controls on a delegation basis despite their oversight obligations concerning the same activities.” ESMA said this approach was not observed in the other countries reviewed and invited the CSSF to reassess it to ensure depositaries are not handling work that overlaps with the CSSF’s oversight role.

In a statement annexed to the report, the CSSF said it welcomes ESMA’s findings and stressed that the delegated tasks relate to administrative functions and are subject to strict internal separation and conflict-of-interest controls.