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Enyu Zhao, Consultant at NoW Partners

XX/10/2023

What is RR and RC in investment fund?

Background

On 14 August 2020, the concept of the Responsable du respect des obligations (“RR”) and Responsable du contrôle du respect des obligations (“RC”) were first introduced through CSSF Regulation 20-05. A regulation that modified CSSF Regulation 12-02(“CSSF 12-02”) of 14 December 2012 on the fight against money laundering and terrorist financing (“AML/CFT”), implementing European Directive 2018/843 (“Fifth AML/CFT EU Directive”).

Given the background that the Luxembourg national risk assessment classifies the fund industry generally as having a high inherent ML/FT risk, In line with the Luxembourg’s national risk assessment pertaining to the investment fund sector, Considering the results of Luxembourg’s national risk assessment regarding the investment fund sector, article 4(1) of the 12-02 requires that every Luxembourg Investment Fund and Investment Fund Managers (“IFMs”) subject to AML/CFT supervision by the CSSF is required to appoint two persons (RR and RC) responsible for overseeing AML/CFT compliance. Following the same pace, the AED also published, on 12 October 2022, similar requirements for unregulated AIFs.

Role

The RR and RC are responsible for the identification, assessment and understanding of the fund’s risks.

Both RR and RC must possess sufficient AML/CFT knowledge, a good understanding of investments, distribution strategies, and they must be available without delay upon the authority’s request. Furthermore, they must have access to all internal documents necessary to perform the tasks.

Who is the RR

The RR may consist of the Board of Directors (or other governing body) acting as a collegial body or, alternatively, one of its members.

Who is the RC

The RC is selected by the board of directors (or other governing body) of the Fund. The RC may also be one of the board member with appropriate experience or a third party.

Function

Practically, it means that the RC is responsible for, for example, the implementation and review of the AML/CFT policy and procedures, provide AML trainings, drafting of annual risk assessments and RC reports, as well as the oversight of activities and responses to authorities. On the other hand, the RR shall, for instance, validate the policy and procedures, approve business relationships, review reports.

Interaction

The activity of the RC involves interactions with many actors in the financial market.

  • National authorities: this includes suspicious activities reports, responding to observation letters and questionnaires.

  • Board: participate in board meetings, draft and present the annual report, identify deficiencies and provide recommendations, if necessary, draft periodical reports.

  • IFMs: if serving as the RC of any fund, they collaborate with the delegated IFM to acquire documents such as IFM report. In cases where IFM has delegated the portfolio manager, the RC also obtains the investment- related KPIs from them.

  • Transfer Agent: to obtain the KPIs related to investors, to approve high-risk investors, politically exposed persons.

  • External audit: certain funds are required to appoint an external auditor to comment on the outcomes of the AML/CFT work performed. The RC shall assist during this process.

Remark

It should be noted that the RC and RR function must be continuous. If there is a change in these roles, the fund or IFM must have adequate measures in place to ensure that a replacement is promptly appointed.

NoW Partners

NoW Partners can help clients to identify gaps in relation to their AML/CFT obligations and close them. This can also be done on an advisory basis to an existing RC function, if requested by the client.

 In order to discuss your company’s RC needs, please get in touch with:…

 L’exercice de l’autorité et des responsabilités, mécanismes de protection et de prévention, style de direction et de supervisions, équilibres des pouvoirs, diffusion des valeurs éthiques et des lignes de conduites : autant de dimensions structurantes conditionnées de façon dont les groupes ont choisi de concevoir et articuler leur environnement de contrôle interne au sein de leur organisation. Les acteurs impliqués sont également multiples. Aussi, un effort d’organisation de ces différentes fonctions (contrôle interne, audit interne, conformité..) doit être mis en place.

Comment s’insère la conformité dans les mécanismes de défense ? les évolutions réglementaires récentes ont-elles modifié le positionnement des fonctions de contrôle dans les entités?