SFF Magazine March 2024 Archives | SFF

Training on “SFF Learning Solutions: Transfer Pricing for Family Office Structures” held

Camara de Comercio — Thu, 02 May 2024 14:19:16 +0000

Training on “SFF Learning Solutions: Transfer Pricing for Family Office Structures” held

In the framework of the Spanish Financial Forum working group, the Official Spanish Chamber of Commerce in Belgium and Luxembourg has held a new session of its training entitled “Transfer Pricing for Family Office Structures“.

The training took place on 25 April in person and was mainly addressed to people interested in deepening or consolidating their knowledge of legal and fiscal aspects for Luxembourg commercial companies.

The training, given by Vanessa Ramos Ferrín, Managing Partner of TransFair Pricing Solutions, covered topics such as changes in the management and objectives of family offices, types of family offices and the role of transfer pricing.

After the session, attendees were invited to attend a networking cocktail.

In collaboration with:

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DS Compliance will become DS Advisory services

SFF — Wed, 06 Mar 2024 07:12:27 +0000

SFF Magazine March 2024

Topics: Advisory, Compliance

After ten years of existence, DS Compliance will become DS Advisory services.
Elisa Da Silva is the Managing Director of DS Compliance, a consulting firm she launched in 2014 and in 2024, her services are evolving.

Over the last ten years, Elisa Da Silva has been providing services to the professionals of the financial sector and of the non-financial sector such as advisory, RC mandates for funds (“Responsable du contrôle des obligations”); secondment in Compliance and trainings.

In 2024, she will go on servicing her clients and additionally, she is also an Aspiring Independent Non-executive Director to the Boards of funds (alternative and UCITS), management companies/ AIFM and professionals of the financial sector (PFS).

She has 23 years of experience in the Compliance field and strong expertise in Regulatory Compliance, governance and anti-money laundering and combating terrorism financing (AML-CFT).

Her added value to a Board is entrepreneurship spirit, when running her consulting firm, she had to pivot her strategy and change clients’ base during COVID crisis and more recently she changed service provider after ten years of business relationship.

She can also bring value to international companies in the financial sector starting from scratch their business, by setting-up their Compliance framework, and as such, liaising directly with the “Commission de surveillance du secteur financier” (CSSF), the financial authority in Luxembourg. From 2016 to 2017, she assisted an US Fund administrator specialized on Real estate assets, when they applied to a specialized Professional of the Financial Sector’s (PFS) license with the CSSF.

She has 23 years of experience in the Compliance field and strong expertise in Regulatory Compliance, governance and anti-money laundering and combating terrorism financing (AML-CFT).

She can put into the table her persistence and dedication in international environment in fund distribution. She had been dealing with distributors on Compliance Regulatory and AML-CFT matters, in the Middle East (Emirates; Qatar; Saudi Arabia and Oman); in Europe (Andorra, San Marino) and Latin America.

From 2008 to 2012 she oversaw the Compliance Function for the Spanish platform, Allfunds Bank. She proposed at this time, a new methodology on risk assessment and distribution due diligence including onsite visits of distributors. She was exposed to international fund managers.

Then, for four years, from 2017 to 2020, she did the same exercise for a French Asset manager and Global distributor, Natixis Investment Managers. In 2019, she went to Panama, and performed risk assessment, distribution due diligence in Panamanian distributors.

In many opportunities, she has been exposed to the Boards when reporting to the management companies, AIFM and Professionals of the Financial sector’s Boards in her Compliance functions; and currently, in her advisory role, when providing specific AML-CFT trainings and RC mandate services to the Fund Boards.

The last three years, she also attended some courses as Aspiring Directors’ Program in INSEAD, France and Sustainable Finance in the University of Luxembourg.

She is active in Working groups and Committees in “Institut Luxembourgeois des Administrateurs” (ILA), “Association Luxembourgeoise des fonds d’investissement” (ALFI) and “Luxembourg Private Equity Association” (LPEA) in fraud, distribution, AML-CFT and ESG.

For further information, please get in touch with her.

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AML/CTF: regulatory perspectives and trends

SFF — Wed, 06 Mar 2024 07:10:52 +0000

SFF Magazine March 2024

Topics: Alternative Investment, AML, Trends

In the dynamic and complex world of finance, combating money laundering and terrorism financing (AML/CTF) has become an undeniable priority for both regulatory authorities and financial institutions. From the implementation of stricter regulations to the adoption of innovative technologies, the AML/CTF landscape is constantly evolving, challenging financial institutions to remain agile and adaptive in their approach to combating these threats.

In this opinion section, we ask our members about the regulatory outlook and emerging trends in AML/CTF.

From the point of view of the AML sector, 2024 is a year full of corrective exercises, although no major changes are expected with respect to the standards set in 2023.

Following the inspections, feedback and meetings held with the CSSF and focusing specifically on alternative funds, we can confirm the following trends in Luxembourg:

The CSSF is placing special emphasis on the analysis and due diligence of fund assets and their screening against international sanctions. This is a complicated field because many vehicles invest through brokers and in OTC securities, and it is not possible to identify the counterparty to transactions, so the due diligence analysis must be carried out thoroughly on the broker or platform as a first step. Likewise, country risk updates and the exposure of real estate funds to these environments, with changing conflicts, must be taken into account.
The regulator is paying special attention to the perfect coordination of actions and data regarding the annual RC Report, the external audit of AML and the documentation related to the investment policies and risk of the funds. Any discrepancies in this area are highlighted and must be rectified at the risk of sanction.
Finally, and with the introduction of new types of assets, specifically crypto and tokenization, the regulator is putting special pressure on the delegation of these functions to be carried out by TAs that have the appropriate risk, on-boarding and screening systems for the instrument and that there is an alignment with the general risk policy of the rest of the fund.

Definitely and based on the 2023 reports, this year we expect a trend in the reinforcement of control measures and in the examination of fund managers, especially RRs, of their knowledge of fund activity and the specifics of Luxembourg legislation and practice.

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New requirements on cybersecurity: Overview of the DORA Regulation

SFF — Wed, 06 Mar 2024 07:10:48 +0000

SFF Magazine March 2024

Topics: ICT, Tax

Introduction

On 16 January 2023, the EU’s Regulation 2022/2554 of the European Parliament and of the Council of 14 December 2022 on digital operational resilience for the financial sector (“DORA” or “Regulation”) entered into force. Financial entities and third-party information and communication technologies (“ICT”) service providers have until 17 January 2025 to comply with DORA before enforcement starts.

The European Union is placing a strong focus on the digitalization of the financial sector and the related increased security risks. This has resulted in the implementation of a harmonized rules framework in cybersecurity.

The general objective of DORA is to strengthen the digital operational resilience of the EU financial sector and to ensure that the latter stays resilient through a severe operational disruption.

For that purpose, DORA streamlines and upgrades existing rules, but it also brings new obligations on both financial entities and critical third-party providers to strengthen the security of the IT systems they use and to ensure they recover from any ICT-related threats.

Financial institutions should start performing its gap assessment based on the Regulation and the regulatory technical standards (“RTS”) that have been released by the European Supervisory Authorities (ESAs), i.e., EBA, EIOPA and ESMA, on 17 January 2024.

What are the key takeaways of the DORA? To whom does this regulation apply?

(1) DORA’s scope of application

DORA covers a wide range of financial entities regulated at the EU level, including credit institutions and investment firms, payment and electronic money institutions, central counterparties and trade repositories, alternative investment managers, (re)insurance undertakings and intermediaries, crypto-asset services providers, and issuers and crowdfunding service providers.

Although most of these entities are already subject to some form of cybersecurity regulation in the EU, DORA significantly expands the scope of these regulations and will apply to most of an in-scope entity’s business activities in the EU.

In addition, ESAs will be able to designate “critical ICT third-party service providers” based on preset criteria and the potential systemic impact they could cause if they were to experience a large operational failure.

(2) DORA’s key provisions

DORA requires all financial institutions regulated at EU level to ensure that they can withstand all types of ICT-related disruptions and threats.

This means implementing measures across the following core areas, which are called the five pillars of resilience:

a) ICT risk management. The first pillar concerns the adoption of a comprehensive ICT risk management framework and governance to address evolving digital risks. In particular, financial institutions shall ensure that their ICT documentation (procedures, policies, controls, tools) complies with DORA requirements. In this respect, the Regulation requires that the ICT risk management framework covers the identification, protection and detection of ICT risks and puts in place mechanisms that allow to learn from external and internal incidents.

ICT governance shall also be adapted. The Regulation explicitly requires that members of the management body of the financial entity actively keep up to date with sufficient knowledge and skills to understand and assess ICT risk and its impact on the operations of the financial entity, including by regularly following specific training commensurate to the ICT risk being managed. Furthermore, members of the management body must play an active and central role in steering and adapting to DORA the entity’s ICT risk framework and overall digital resilience strategy.

b) ICT incident management and reporting. The second pillar concerns ICT incident management and reporting. Financial institutions shall use a streamlined procedure to log and classify ICT incidents, and report major incidents to authorities.

This minimizes the possible impact of cyber threats on consumer trust and financial stability by ensuring a prompt and coordinated response.

DORA also provides requirements to notify, voluntarily, competent authorities about an important cyber threat.

c) Digital operational resilience testing program. The third pillar requires that financial institutions regularly perform assessments, such as vulnerability assessments, penetration testing, and scenario-based exercises.

All critical systems and processes will be put through rigorous and thorough testing by DORA to ensure that they can resist and bounce back from operational shocks.

d) Strategy for ICT third-party risk. Obligations are imposed on financial institutions which shall adopt and regularly review a strategy in order to regularly assess the risks coming from ICT third-party service providers, including cloud computing services.

The strategy on ICT third-party risk shall include a policy on the use of ICT services supporting “critical or important functions” provided by ICT third-party service providers.

In addition, financial organizations must make sure that their third-party providers meet the same demanding requirements for operational resilience. This involves carrying out due diligence, monitoring performance, and making sure contractual agreements have clauses that mandate compliance with DORA requirements.

A register of information related to all contractual arrangements on the use of ICT services shall be maintained.

e) Information and intelligence sharing. The fifth pillar provides for the possibility, on an optional basis, for financial entities to exchange information and intelligence about cyber threats, enhancing the financial sector’s overall capacity to identify, respond to and reduce ICT risks.

“DORA covers a wide range of financial entities regulated at the EU level, including credit institutions and investment firms, payment and electronic money institutions, central counterparties and trade repositories, alternative investment managers, (re)insurance undertakings and intermediaries, crypto-asset services providers, and issuers and crowdfunding service providers.”

(3) DORA’s newly published technical standards

ESAs have been mandated to jointly develop several policy instruments, which shall complement DORA’s pillars.

In this respect and as indicated above, on 17 January 2024, the ESAs published the first set of draft regulatory technical standards (RTS) and one new Implementing Technical Standard (ITS), which represent guidelines for concerned parties to adhere to concretizing the requirements of DORA.

The RTS and the ITS cover the following:

a) RTS on ICT risk management framework and on a simplified ICT risk management framework

The regulatory standards outlined in this document specify the specific criteria outlined in Articles 15 and 16.3 of the DORA.

These criteria pertain to the guidelines and procedures for safeguarding, preventing, identifying and responding to ICT risks within the realm of management.

The standards highlight the essential components that financial institutions operating under the simplified regime and possessing lower levels of scale, risk, size and complexity must adhere to. They establish a simplified framework for managing ICT risks, emphasizing the principles of proportionality and a risk-based approach.

The ICT Framework is regulated by RTS, which requires a comprehensive set of 20 policies and procedures covering areas such as ICT asset management, encryption and cryptographic controls, ICT project management, acquisition, development and maintenance of ICT systems, physical and environmental security, human resources, identity management, access control, ICT-related incident management, and ICT business continuity.

Additional technical standards for advanced testing of ICT systems utilizing threat-led penetration testing will be released on 17 July 2024.

Furthermore, the ESAs may consider developing further guidelines in the areas that have been removed for the time being from the RTS, and also on cloud computing security aspects.

b) RTS on criteria for the classification of ICT-related incidents

These new RTS specify the criteria for the classification of major ICT-related incidents, including the approach for the classification of major incidents, the materiality thresholds of each classification criterion, the criteria and materiality thresholds for determining significant cyber threats, the criteria for competent authorities to assess the relevance of incidents to competent authorities in other member states, and the details of the incidents to be shared in this regard.

These RTS also set out a list of seven classification criteria for determining whether an incident constitutes a “major ICT-related incident,” as well as detailed materiality thresholds for each criterion. The criteria are as follows: clients and financial counterparts affected, reputation impact, geographical spread, duration and service downtime, data losses, critical services affected, and economic impact.

Details of the draft incident notification templates will be published on 17 July 2024.

c) RTS to specify the policy on ICT services supporting critical or important functions provided by ICT third-party service providers

These new RTS specify parts of the governance arrangements, risk management and internal control framework that financial institutions must put in place regarding the use of ICT third-party service providers. Their objective is to guarantee that financial organizations maintain authority over their operational risks, data security and business continuity for the duration of their contractual arrangements with these ICT third-party service providers.

They focus on ICT third-party service providers (intra-group) contractual arrangements. The draft RTS have been developed considering already existing specifications provided in Guidelines on outsourcing arrangements published by the ESAs and other relevant specifications provided in the EBA Guidelines on ICT and security risk management.

On 17 July 2024, further technical standards will be published on how to evaluate ICT third-party service providers in the context of sub-contracting of “critical or important functions”, as well as on how to conduct oversight for ICT TPPs identified as critical.

d) Implementing Technical Standards (ITS) to establish the templates for the register of information

The provided templates establish the framework for an ICT-outsourcing register that financial entities must maintain and regularly update with regard to their contractual agreements with ICT third-party service providers.

The ICT Outsourcing Register will play a vital role in the management of ICT third-party risks for financial institutions and will be utilized by competent authorities to monitor compliance with DORA and identify critical ICT third-party providers subject to DORA supervision. Establishing this register will require significant effort for many companies, whether it involves introducing new tools or making extensive modifications to existing systems.

The ESAs will submit the final draft RTS to the European Commission for adoption. Following its adoption in the form of a Commission Delegated Regulation, it will then be subject to scrutiny of the European Parliament and the Council before publication in the Official Journal of the European Union. The expected date of application of these RTS is 17 January 2025.

(4) Luxembourg implementation

On 4 August 2023, draft law No. 8291^[1] (“Draft Law”) was submitted to the Luxembourg Parliament (Chambre des Députés).

Considering that the provisions of the Regulation will be directly applicable in Luxembourg law as of 17 January 2025, the main objectives of the Draft Law are confined to the following:

a) Designating the competent Luxembourgish authorities responsible for ensuring that the Regulation is applied by the in-scope entities subject to their supervision, namely, the Commission de Surveillance du Secteur Financier (CSSF) and Commissariat aux Assurances (CAA).

b) Providing the CSSF and CAA with the supervisory and investigative powers they need to perform their duties.

c) Establishing an appropriate system of sanctions and other administrative measures

“The ESAs will submit the final draft RTS to the European Commission for adoption. Following its adoption in the form of a Commission Delegated Regulation, it will then be subject to scrutiny of the European Parliament and the Council before publication in the Official Journal of the European Union. The expected date of application of these RTS is 17 January 2025.”

Based on the Draft Law in its current version, the CSSF and the CAA will be notably empowered to pronounce, within the limits of their respective powers, specific sanctions against persons subject to their respective supervision if certain provisions of DORA are violated.

In addition to implementing DORA, the Draft Law transposes into Luxembourg laws Directive (EU) 2022/2556 of 14 December 2022 (“DORA Amending Directive”), which amends specific European financial sector directives to implement digital resilience and ICT security requirements.

In this respect, the Draft Law introduces targeted amendments to nine Luxembourg laws relating to the financial sector, such as the law of 5 April 1993 on the financial sector (as amended) (“LFS”); the law of 10 November 2009 on payment services (as amended) (“LPS”); the law of 17 December 2010 on undertakings for collective investment (as amended); the law of 12 July 2013 on alternative investment fund managers (as amended); and the law of 7 December 2015 on the insurance sector (as amended).

“Based on the Draft Law in its current version, the CSSF and the CAA will be notably empowered to pronounce, within the limits of their respective powers, specific sanctions against persons subject to their respective supervision if certain provisions of DORA are violated.”

(5) Practical implications: What does DORA mean for Luxembourg financial entities?

a) Outsourcing arrangements

In February 2019, the European Banking Authority (EBA) issued revised guidelines on outsourcing arrangements, which were integrated by the CSSF into its administrative practice and regulatory approach by means of CSSF Circular 22/806 on outsourcing arrangements dated 22 April 2022 (“Circular CSSF 22/806″).

Given the implementation of DORA and the transposition of the Directive into Luxembourg’s national laws, we can expect that Circular CSSF 22/806 will be impacted. Indeed, outsourcing arrangements shall, at all times, comply with the organizational requirements for outsourcing in accordance with the provisions of the LFS and the LPS.

As these two laws will be amended to incorporate/follow DORA’s new regime, it ultimately means that the aforementioned Circular CSSF 22/806 will require revision as well.

Still, relevant entities currently following the outsourcing rules implemented in the Circular CSSF 22/806 will have some degree of comfort in knowing that there will be significant elements of compliance already in place.

b) Impact on third-party contracting

DORA’s application is broad. Not only does it apply to outsourcing arrangements, but also to ICT services as a whole.

In practice, this broader scope means that financial services entities that have already completed a project to comply with regulatory guidance on outsourcing will need to review those services that were not considered to be outsourcing but that will fall under the DORA definition of ICT services.

They will then need to assess those contracts against the contractual requirements of DORA.

For all contracts involving a financial entity and ICT third-party service providers on the use of ICT services, DORA sets out contractual requirements, with more stringent standards applying to providers that support “critical or important functions.” Article 3 of DORA defines the functions as follows:

“The disruption of which would materially impair the financial performance of a financial entity, or the soundness or continuity of its services and activities, or the discontinued, defective or failed performance of which would materially impair the continuing compliance of a financial entity with the conditions and obligations of its authorization, or with its other obligations under applicable financial services law“.

These will have an impact on both new and existing contracts. The rights and obligations of the financial entity and the ICT third-party service provider must be expressly set forth in any relevant contracts, which must be in writing.

DORA’ s contractual criteria closely follow the EBA Guidelines for outsourcing contracts referred to above. Several clauses will be familiar, such as the following:

An exhaustive list of contractual specifics (e.g., description of the services, locations of services provision, and data storage and processing).
Requirements to include specific termination rights
Obligations on the ICT. provider to, among others, comply with appropriate information security standards.
Provisions to ensure access, recovery and return of data in the event of the insolvency, resolution or discontinuation of the operations of the ICT provider, or in the event of the termination of the contract.

DORA goes one step further, requiring the incorporation of new contractual provisions (e.g., ICT providers shall offer assistance “at no additional cost or at a cost that is determined ex-ante” when specific ICT-related issues have an impact on the service).

c) “Critical ICT third-party service providers”

As indicated above, the ESAs shall be entitled to review ICT third-party service providers on the basis of criteria specified in Article 31 of DORA and classify them as “critical” if necessary, based on several factors, including the following:

The potential systematic impact on the provision of financial services in the event of a large-scale failure.
The type and importance of entities that rely on the provider.
How easily the provider can be replaced.

Where the ICT third-party service provider belongs to a group, the criteria referred to above shall be considered in relation to the ICT services provided by the group as a whole.

For each critical ICT third-party service provider, one of the ESAs is appointed as the “Lead Overseer.” The powers of the Lead Overseer under Article 35 paragraph 1 of DORA include the following rights:

To request all relevant information and documentation it deems necessary for the performance of its duties.
To conduct general investigations and (on-site) inspections.
To request reports upon completion of oversight activities.
To issue recommendations, such as on ICT security and quality requirements or on subcontracting

The Lead Overseer shall notify the ICT third-party service provider of the outcome of the assessment leading to its designation as “critical ICT third-party service provider.”

After designating an ICT third-party service provider as critical, the ESAs, through the Joint Committee,^[2] shall notify the ICT third-party service provider of such designation and the starting date from which they will effectively be subject to oversight activities.

Such starting date shall be no later than one month after the notification. The ICT third-party service provider shall notify the financial entities to which they provide services of their designation as critical.

Conclusion

Although most financial institutions are already subject to some form of cybersecurity regulation in the EU and in Luxembourg (for instance NIS 1 and upcoming NIS 2), DORA significantly expands the scope of these regulations and will apply to at least some their business activities in the EU.

As such, we strongly recommend financial institutions to carry out the following:

a) Review existing technical and organisation security measures (including systems, protocols and tools) against DORA’s requirements.

b) Determine the extent to which current processes and procedures can be leveraged or updated.

c) Integrate DORA’s ICT risk management requirements into a wider organisational risk framework.

d) Involve stakeholders from across the business, including legal, compliance and IT, with the board having ultimate oversight.

^[1] Draft law No. 8291 aimed at: (i) implementing Regulation (EU) 2022/2554 of 14 December 2022 on the digital operational resilience of the financial sector and amending Regulations (EC) No 1060/2009, (EU) No 648/2012, (EU) No 600/2014, (EU) No 909/2014 and (EU) 2016/1011; (ii) transposing Directive (EU) 2022/2556 of 14 December 2022 amending Directives 2009/65/EC, 2009/138/EC, 2011/61/EU, 2013/36/EU, 2014/59/EU, 2014/65/EU, (EU) 2015/2366 and (EU) 2016/2341 as regards the digital operational resilience of the financial sector; (iii) amending (a) the amended law of 5 April 1993 on the financial sector; (b) the amended law of 13 July 2005 on institutions for occupational retirement provision in the form of a SEPCAV and an ASSEP; (c) the amended law of 10 November 2009 on payment services; (d) the amended law of 17 December 2010 on undertakings for collective investment; (e) the amended law of 12 July 2013 on alternative investment fund managers; (f) the amended law of 7 December 2015 on the insurance sector; (g) the amended law of 18 December 2015 on the failure of credit institutions and certain investment firms; (h) the amended law of 30 May 2018 on markets in financial instruments; (i) the amended law of 16 July 2019 on the implementation of European regulations in the field of financial services.

^[2] “Joint Committee” means the committee referred to in Article 54 of Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010.

Authors

Jean-François Trapp

Partner

Baker & McKenzie

Ana Vazquez

Director

Baker & McKenzie

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ALFI Roadshow to Madrid

SFF — Wed, 06 Mar 2024 07:10:38 +0000

SFF Magazine March 2024

News, SFF Magazine March 2024

Luxembourg, Europe’s leading fund hub on tour, will visit Madrid on 25 April 2024.

For the third consecutive year, the Association of the Luxembourg Fund Industry (ALFI) organises its Roadshow to Madrid. This annual event explores opportunities for increased cooperation with Spanish asset managers. In a nutshell, this type of ALFI event features expert discussions on pivotal industry topics such as European market developments, regulatory updates at European and Luxembourg levels, trends on investor demand for products (private assets, ESG, for instance), innovation on distribution and digital transformation.

Britta Borneff, ALFI’s CMO commented on this year’s event:

“The 2024 edition of the ALFI Roadshow is quite compelling. We are curating an attractive agenda that we trust will be insightful, stimulating and educational to Spanish asset managers.”

The roadshow will open up with a welcome address by Jean-Marc Goy, chairperson of ALFI, and H.E. Christian Biever, Ambassador of the Grand Duchy of Luxembourg to Spain, followed by a panel that will focus on the benefits and practical aspects of setting up a fund in Luxembourg.

Britta Borneff, ALFI’s CMO

As at December 2022, there were 4,730 Luxembourg-domiciled funds distributed in Spain out of a total of 8,416 foreign-domiciled funds (about 56%). Spain, indeed, ranks in the Top 5 for Luxembourg-domiciled funds (Source: PwC/ALFI, 2023).

Chart A. Fund promotion

0bn EUR

Total AuM of LU-domiciled funds promoted by Spanish fund houses

(as at Dec 22) (Monterey Insight, 2023)

Total number of Luxembourg-domiciled funds promoted by Spanish fund houses

(as at Dec 22) (Monterey Insight, 2023)

Number of Spanish fund houses promoting Luxembourg-domiciled funds

(as at Dec 22) (Monterey Insight, 2023)

One of the new features of the 2024 Roadshow is the speed briefings, that cover, in a succinct and effective manner, pressing concerns of the industry. “As dynamism is undeniably one of the characteristics of the fund industry, we thought that offering a dynamic solution in the form of rapid-fire executive briefings would be the way to go”.

ELTIFs
Luxembourg is the primary domicile for ELTIFs in the EU, accounting for approximately 60%, Spain comes in the foutrh place. As of today, there are two Spanish domiciled ELTIFs, marketed only in Spain). However, out of the 65 Luxembourg domiciled ELTIFs, 35 are marketed in Spain. (Source: ESMA, 2024).

Indeed, ALFI speed briefings delve into regulatory nuances and hard-hitting business facts while analysing how they possibly impact business models and value chains of asset managers, management companies, and their products. With a total of 4 briefings, each lasting just 7 minutes, the Madrid session will touch upon the Luxembourg toolbox, AIFMD II, ELTIFs and tokenisation.

Mixed with engaging Q&A sessions, the ALFI Roadshow to Madrid will also feature a second panel on ESG and sustainability and how asset managers are coping with investor demands and pressing regulation.

The ALFI Roadshow to Madrid, taking place at El Beatriz Madrid on 25 April 2024, is free of charge. For more information on the event and the agenda, visit this page. Registrations are currently open.

Britta likes to recall, especially when ALFI goes on tour: “Coming together is a beginning. Keeping together is progress. working together is success.” (Edward Everett Hale).

Chart B. Top 5 Spanish fund houses by AuM of Luxembourg-domiciled funds

Management Group	AuM (in EUR bn)
1. Grupo Santander	8.2
2. Asesores y Gestores Financieros	2.3
3. MAPFRE Asset Management	1.8
4. Arcano Group	1.4
5. Banco Bilbao Vizcaya Argentaria (BBVA)	1.3

(as at Dec 22) (Monterey Insight, 2023)

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The CaixaBank AM Group evolves its liquid alternatives management model by delegating mandates to international third-party asset management companies for its discretionary management service for Master Portfolios

SFF — Wed, 06 Mar 2024 07:10:35 +0000

SFF Magazine March 2024

Topics: Asset Management, Fund distribution

For the implementation of these strategies, the CaixaBank Alternative Master Fund, FI will invest in a Luxembourg fund (CaixaBank Global Alternative Strategies) using our Luxembourg asset management company, CaixaBank Asset Management Luxembourg (100% owned by CaixaBank Asset Management). With this project, the Luxembourg asset management company, which celebrates its 30th anniversary in Luxembourg this year, will multiply its assets under management.

In 2019 we launched the Master Portfolios service in Spain, with a current volume of more than €33,000 million, which invest in exclusive CaixaBank Master funds with direct investment in the different financial markets and which include the advice of 5 specialist international fund managers. At the launch of Master portfolios, investment in liquid alternatives remained in funds of funds.

After the successful experience of the Master portfolios since their launch, we have decided to go one step further in the alternative management model. We are transforming the funds of funds into funds with direct investment through the delegation of management to different international fund management companies. With this change, we are pursuing a threefold objective: transparency, flexibility and efficiency.

Transparency: direct access to the securities and strategies that constitute the portfolios
Flexibility: mandates tailored to management needs.
Efficiency: access to the best international asset managers avoiding a less agile and more cost-efficient fund structure.

The new model is part of the Master Portfolio management service in the liquid alternative asset class.
The fund delegates mandates to different managers with specific strategies, providing an adequate diversification of risks. This delegated management is done through a platform, which is very innovative and makes it possible to be very efficient in making changes of mandates and asset managers in an agile manner.
The selected asset managers are as follows:

Wellington Management serves more than 2,500 clients in over 60 countries. The firm manages over $1.1 trillion, making it one of the world’s largest and most experienced independent managers of alternative management strategies. Our tailored mandate is supported by the firm’s top equity managers.

Anima is one of the leading independent asset managers in Italy, with €191.5 billion of assets under management. The selected mandate has one of the best track records of its strategy, standing out for its flexible management approach that adapts to every macroeconomic market scenario.

Loomis, Sayles & Company, a subsidiary of Natixis Investment Managers, manages $335 billion in assets globally. This mandate is an alternative long/short equity investment strategy of growth companies, managed by a team with more than 12 years of experience. This long-term investment focus on quality, growth-style U.S. companies perfectly complements the fund’s portfolio.

Alliance Bernstein L.P., holding company of AllianceBernstein Limited, is a leading investment management firm with $736 billion in client assets under management. This tailored strategy is based on a robust and consistent investment process, with a market neutral approach.

All management mandates are compliant with European UCITS regulations with daily liquidity.
The objective of this fund is to further increase the efficiency of the Master portfolios to the client, with greater transparency, more flexibility and efficiency.
The fund will not vary the risk levels or alter the type of strategy in which it invests today and will benefit from the new structure.
This new structure will allow CaixaBank AM to launch new similar initiatives in the future.

“In 2019 we launched the Master Portfolios service in Spain, with a current volume of more than €33,000 million, which invest in exclusive CaixaBank Master funds with direct investment in the different financial markets and which include the advice of 5 specialist international fund managers.”

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MEET THE TEAM – Andbank Asset Management Luxembourg

SFF — Wed, 06 Mar 2024 07:05:29 +0000

SFF Magazine March 2024

Andbank Group

Today we would like to introduce the Andbank Asset Management Luxembourg team.

Andbank Asset Management Luxembourg is a Luxembourg-based investment fund management company belonging to the Andbank Group.

The Andbank Group owns a bank and an investment fund management company in Luxembourg, but today’s presentation is about the investment fund management company.

Andbank has its headquarters in Andorra, but currently, Spain is its first market, where it has registered a spectacular growth in recent years, reaching, globally, more than 30 billion euros in assets under management, mainly in its core business, which is private banking.

In terms of employees, Andbank has more than 1,200 employees, of which around 60 are based in Luxembourg, including both the bank and the asset management company.

Andbank also stands out for its commitment as a highly responsible company, promoting several products with the social responsibility label and collaborating in various social initiatives, including contributions to several cancer organizations.

The importance of Luxembourg

Andbank is currently present in 12 countries. Spain has the largest presence, but Luxembourg is in the top 5. Luxembourg is for us a strategic location, both for the development of private label investment funds, as well as being an alternative market to Spain within the European Union.

Luxembourg is considered a global investment fund hub and we believe that, despite Ireland’s growth, this leadership position will not change. From our point of view, anyone who wants to have an international presence in the investment fund industry must have a presence in Luxembourg. Having a fund branded “Luxembourg” denotes an image of quality, as it is associated with the stability of the country, the commitment to quality of its regulator and the market as a whole, and very open to cross-border marketing.

Andbank Asset Management Luxembourg

Focusing on our management company, we started in Luxembourg 15 years ago, in 2009. At that time, the investment fund industry was developing rapidly.

After a very dynamic first few years in which years of strong growth alternated with years of stagnation, the last 5 years have been characterized by greater stability, with an unmistakable upward trend and figures that are by no means negligible, considering the size of our bank.

Our products

Concerning the products we offer to our clients, we have a very diversified and competitive range of funds, with three main segments:

Funds holding one of Andbank’s own brands such as Sigma Investment House or Merchbanc: These funds are mainly distributed to Group clients, although they are accessible to any investor through fund distribution platforms.
Family funds: Although open to subscription by any investor, these funds are mainly created at the request of a family group or investor group. They are completely tailor-made vehicles, and we try to adapt them to the needs of the investor group.
“Third-party” funds: In this case, Andbank, as asset management company, creates a casing in the form of an investment fund in order to transfer the management to a third party, generally another asset management company without a presence in Luxembourg (product adaptable to the advisory mode). These funds are also tailor-made for the management company to which management is delegated. Our objective is to ensure that this fund manager simply does what it does best, i.e. manage, while we take care of the other aspects.

In total, we manage around 90 investment funds, with practically all investment vocations:

Global Equity, with profile “Growth”, “Value”, etc. or investing in themes in countries such as Japan, Europe, Spain, etc. ….
Fixed income, both short term and with flexible maturities that allow us to adapt to the market situation. We also have fixed income funds called “High yield”, which invest in riskier assets but with higher expected returns.
Finally, we would differentiate the mixed funds, some of them funds of funds (investment funds that invest in other investment funds, achieving greater diversification), adaptable according to the investor’s different risk aversion profiles (conservative, moderate, aggressive, dynamic, etc.).

Obviously, we encourage everyone to visit our website or fund platforms and check our offer of funds that may be more interesting to you according to your investment profile and needs.

The “third party” fund business is in high demand by many of our potential clients. In fact, we are very proud to accompany in the Luxembourg adventure several Spanish and international fund managers and brokerage firms that have trusted us to take this leap.

Our positioning and added value

Our positioning with Spanish clients focuses on being very close to them, trying to respond to their concerns and needs. The Spanish client values our closeness, not only that we speak to them in Spanish, but also our knowledge of the Spanish and Luxembourg markets, and the knowledge that if they pick up the phone and call us, they will have us ready to help them, which will be more difficult for them with an international firm.

In addition, we try to cover our clients and assist them in everything related to the Luxembourg market: from leading the creation of the fund, the relationship with the regulator and all the counterparties (depositary, administrator, auditor, etc.), along with the day-to-day running of the fund and the performance of all those services that are not the management of the investments themselves.

Our team

We provide these services with a team of 26 people, taking into account the multiculturalism of the country… Although approximately half of us are Spanish or Spanish-speaking, in our team there are French, German, Italian, Belgian, or from different countries of North Africa, etc. and there is even a Luxembourger… That is why in our offices it is common to hear people speaking in different languages, although obviously English predominates as a common language.

We honestly believe that we have managed to maintain a highly motivated team, eager to give their best and keep growing, and we have created a very dynamic and flexible environment, where respect is above all things. Our team combines talent, experience, and the desire to learn and grow that younger people bring.

Authors

Alexandre Trinel

Conducting Officer

Andbank Asset Management Luxembourg

Oriol Panisello

Conducting Officer

Andbank Asset Management Luxembourg

Martin Wienzek

Conducting Officer

Andbank Asset Management Luxembourg

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Why structuring your debt strategy through a securitisation vehicle in the Grand Duchy of Luxembourg?

SFF — Wed, 06 Mar 2024 07:05:16 +0000

SFF Magazine March 2024

Topics: Tax, Trends

Introduction

The Grand Duchy of Luxembourg stands out as one of the leading financial hubs for structuring asset managers’ debt strategies through securitisation structures.

Indeed, it maintains a pioneering role in the credit financing landscape by reinforcing and updating its legal framework in line with the latest market trends.

One major change was the 2022 amendments to the law of 22 March 2004 on securitisation (the Luxembourg Securitisation Law) ^[1], which made securitisation a much more flexible and attractive regime, placing Luxembourg on the same playing field than the most important EU securitisation jurisdictions like Ireland.

Core benefits of the Luxembourg Securitisation Law

Flexible methods of setting up a securitisation vehicle and legal forms

The Luxembourg Securitisation Law allows for the set-up of securitisation vehicles (SV) either as securitisation companies or securitisation funds managed by a management company.

SVs in the form of a company may be set up as a tax-opaque corporate entity, such as public limited liability companies (société anonyme – SA) and private limited liability companies (société à responsabilité limitée – Sàrl), or tax-transparent partnerships, such as a special limited partnerships (société en commandite spéciale – SCSp).

On the contrary, securitisation funds do not have legal personality (ergo tax transparent) as they are portfolios of assets managed by a Luxembourg management company. They can be structured either as a co-ownership of their investors or as a fiduciary estate where the management company holds the securitised assets as fiduciary property, which will be segregated from its own assets.

“The Luxembourg Securitisation Law allows for the set-up of securitisation vehicles (SV) either as securitisation companies or securitisation funds managed by a management company.”

Possibility of creating compartments

The Luxembourg Securitisation Law allows for the set-up of multiple compartments, permitting the segregation or so-called ring-fencing of assets and liabilities in each of the independent compartments of the vehicle. This possibility of creating separate compartments within an SV is almost unique in continental Europe and triggers a significant reduction of costs as well as formalities for multiple or repetitive transactions initiated by the same originator and/or arranger.

Regulatory supervision

SVs may be regulated or not. The key factor is the access to funds from the public. If an SV makes offers of financial instruments to the public on a continuous basis (i.e. more than three times during one financial year), then it will need to obtain a license granted by the Luxembourg regulatory authority, the Commission de Surveillance du Secteur Financier (the CSSF).

However, if the SV is primarily engaged in private placements of financial instruments and occasional public offerings (subject to the relevant conditions), this authorization will not be required.

Risks that can be securitised

Unanimously, one of the major advantages of Luxembourg’s Securitisation Law is that any foreseeable income or risk stream can be securitised. Added to this, assets that will arise in the future can also be part of a securitisation transaction. Some of the assets that may be securitised are those listed below:

Fixed income debt instruments;
Non-fixed income debt instruments;
Beneficiary shares;
Shares; and
Corporate units or partnership interests.

Multiple ways of financing an SV

The Luxembourg legal framework being quite flexible permits the financing of the SV through a multitude of ways including, inter alia, the issuance of financial instruments including all types of debt securities such as bonds, notes, certificates in registered, bearer or dematerialised form, options, warrants, futures conferring the right to acquire shares, or any contracting instrument evidencing claim rights such as loans or promissory notes. It is also possible for an SV to be financed through equity securities, and/or beneficiary shares.

Active management of CLOs and CDOs

Under Luxembourg’s recently amended Securitisation Law, SVs, when issuing financial instruments through private placement, are permitted to actively manage pools of risks, consisting of debt securities, debt financial instruments or claims. This change expanded the scope of the Luxembourg debt market by welcoming the so-called collateralised loan obligations (CLOs) or collateralised debt obligations (CDOs).

“The Luxembourg legal framework being quite flexible permits the financing of the SV through a multitude of ways including, inter alia, the issuance of financial instruments including all types of debt securities such as bonds, notes, certificates in registered, bearer or dematerialised form, options, warrants, futures conferring the right to acquire shares, or any contracting instrument evidencing claim rights such as loans or promissory notes.”

Statutory subordination for different types of financial instruments

The Luxembourg Securitisation Law provides for the subordination of different types of debt and equity instruments issued by an SV. The instruments issued by an SV in corporate form are classified in the following order, starting from the senior:

Claim subordination provision;
Non-recourse provision;
Non-petition provision; and
Non-seisure of assets.

unless the articles of incorporation, the management regulations or any agreement entered into by the SV may contain provisions which define differently the rank of the rights of investors and creditors.

Favorable tax regime

The tax benefits provided by the Luxembourg Securitisation Law and Luxembourg’s tax framework constitute one of the most crucial elements in selecting this as the ideal jurisdiction for setting asset managers’ debt strategies.

Tax-opaque SVs (SA or Sàrl) are fully taxable and subject to corporate income tax, municipal business tax and an employment funds’ contribution (hereafter, income taxes) in Luxembourg (resulting in an aggregate rate of 24.94% in Luxembourg City for 2024) .

However, tax-opaque SVs benefit from a special tax deduction right pursuant to which commitments (which are generally considered to include any dividends and interest charges) vis-à-vis shareholders and creditors are generally considered as operating expenses and thus are tax deductible (except if specific rules restricting such deduction apply, e.g. interest deduction limitation rules, or interest due to investors in EU non-cooperative or “blacklisted jurisdictions”).

SVs are exempt from net wealth tax (except for the annual minimum net wealth tax, which generally amounts to EUR 4,815).

Dividend distributions and interest accrued or paid by tax opaque SVs is not subject to withholding tax in Luxembourg (except for certain interest payments made to Luxembourg tax resident individuals).

With regards to value added tax, qualifying management services received by an SV incorporated in Luxembourg are exempt. Generally, SVs are not obliged to register for value added tax purposes in Luxembourg except when receiving VAT taxable services from abroad, namely accounting or legal services.

Furthermore, tax-opaque SVs are in principle fully entitled to benefit from more than 80 double tax treaties that Luxembourg has signed and are currently in force.

SVs under the partnership form (SCS or SCSp) are in principle tax transparent and are therefore generally not subject to income taxes, nor to net wealth tax in Luxembourg. This is subject to Luxembourg “reverse hybrid” rules being applicable in relation to income taxes.

There is no WHT on profit distributions or interest accrued or paid by an SV in the form of a partnership (except for certain interest payments made to Luxembourg tax resident individuals).

Value added tax effects are in principle the same as for tax opaque SVs. Such vehicles are in principle not entitled to double tax treaty benefits.

Finally, although the Securitisation Law allows for the creation of compartments, this is disregarded from a tax perspective, meaning that the SV is considered as a single tax payer.

Increased investor protection

Ensuring increased investor protection is one of the most significant aspects of the Luxembourg Securitisation Law. The bankruptcy remoteness principle separates securitised assets from any insolvency risks of the SV or originator, service provider and all other parties involved.

Therefore, in the event of the bankruptcy of the originator or of the services entrusted by the SV with the collection of cash flows from the assets, the Luxembourg Securitisation Law stipulates that the SV is entitled to claim the transfer of ownership of the securitised assets and any cash received on its behalf before the opening of liquidation proceedings.

Also, the Luxembourg Securitisation Law allows for contractual provisions that are valid and enforceable and which aim to protect the SV from the individual interests of involved parties, consequently enhancing the SV’s protection as follows:

Claim subordination provision;
Non-recourse provision;
Non-petition provision;
and Non-seisure of assets.

“Ensuring increased investor protection is one of the most significant aspects of the Luxembourg Securitisation Law. The bankruptcy remoteness principle separates securitised assets from any insolvency risks of the SV or originator, service provider and all other parties involved.”

In addition, the Luxembourg Securitisation Law provides that assets are exclusively available to satisfy investors’ claims on an SV or a compartment in case of several compartments, and to satisfy creditors’ claims in respect of those assets. Thus, compartment segregation prevents insolvency contamination between different compartments and provides limited recourse to the assets of a given compartment only.

Conclusion

Luxembourg is undoubtedly your key European gateway to structuring your next securitisation project, offering a wide range of benefits including, inter alia, an array of possible corporate forms, flexible financing methods, the possibility to actively manage a debt portfolio under certain conditions, new rules on the creation of compartments and an attractive tax regime.

Do not wait any longer to get your project started! Get in touch now with the Capital Markets experts Aurélien Hollard, José Ocaña or Stamatina Stylianopoulou as well as our securitisation tax aspects specialists: Frédéric Feyten, Alejandro Dominguez and Pierre George now.

¹https://www.cssf.lu/wp-content/uploads/L_220304_securitisation.pdf

Authors

Aurélien Hollard

Partner

CMS Luxembourg

Stamatina Stylianopoulou

Associate

CMS Luxembourg

Fréderic Feyten

Managing Partner

CMS Luxembourg

Pierre George

Senior Associate

CMS Luxembourg

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Transfer Pricing in Family Offices: Navigating Generational Shifts

SFF — Wed, 06 Mar 2024 07:03:24 +0000

SFF Magazine March 2024

Topics: Family Businesses, Family Offices, Tax, Transfer Pricing, Trends

Over the next two decades, we are going to witness an unprecedented transfer of wealth, estimated at $90 trillion in the US alone^[1], phenomenon denominated “great wealth transfer”^[2].
This approaching transfer of wealth, including both ownership and decision-making power, from older generations to the succeeding ones, will require that family offices adjust their investment strategies to align with the mindset of the new generation. This adjustment may also imply potential restructuring of businesses to better suit the preferences and priorities of the emerging successors.
Thus, it is crucial to consider the perspectives and actions of Family Offices to understand the implications for transfer pricing. This article delves into the current landscape of European family offices, Luxembourg family offices, and their involvement in transfer pricing, addressing typical intercompany transactions, transfer pricing requirements, and the associated challenges.

European family offices

In accordance with a report from Campden Wealth, which is based on a survey to European single-family offices and private multi-family offices, it is reported that the collective wealth of participating European families is US $177 billion and family offices control, on average, US $0.9 billion^[3] of assets under management (AUM). The two largest asset classes in European family office portfolios are equities and private markets (private equity, venture capital, and private debt) both averaging 28% of AUM.

Insights derived from the same report suggest that a significant percentage of European family offices are planning to increase their allocation to private markets and alternatives. Despite some considering divestment, a net increase is anticipated, with:

28% in private equity,
21% in venture capital,
21% in real estate,
15% in developed market bonds/equities,
15% in forestry and agricultural land,
9% in hedge funds,
6% in Cryptocurrency / digital assets, and
4% in Commodities.

Regarding geographic asset allocation, the data indicates a robust diversification strategy among European family offices, with approximately half of their assets allocated in Europe, followed by 29% in the United States and 7% in Asia. Nevertheless, anticipations reveal an expected net increase of 23% in the United States and 21% in the Asia Pacific region, signifying a strategic realignment in global asset allocation strategies.

Luxembourg family offices

In accordance with a report from UBS, which is also based on a survey but to Global family offices, the wealth of families is founded on a combination of operational and investment activities.

Concerning their operational businesses, it is estimated that a substantial portion (79%) of family offices^[4] maintain close connections with them. Notably, common sectors for these operational businesses include real estate (38%)^[4], industrials (21%)^[4], financials (20%)^[4], and consumer discretionary (19%)^[4].

Furthermore:

A significant portion (37%)^[4] of family businesses transfer cash flows into family offices for ongoing investments.
Nearly half (48%)^[4] of family offices operate entirely independently from the family’s operational businesses.
While in 8% of cases^[4], the family office injects cash into the family’s operational businesses.

Regarding their investment businesses, wealthy families typically manage their investment activities through either a multi-family office or a single-family office.

Multi-family offices specialize in providing comprehensive wealth management services to multiple wealthy families, acting as independent service providers with no direct or indirect ties to the trusts, investment vehicles, and foundations associated with these families.

Current data from the “Commission de Surveillance du Secteur Financier” (CSSF) indicates the existence of 66 multi-family offices^[5] based in Luxembourg. Moreover, several other entities own alternative licenses, facilitating wealth management services for individuals and families.

Single-family offices specialize in providing tailor-made wealth management services to one individual and his family. It is often owned by the individual and his family or trusts which own investment vehicles for performing multi type investments.

It is worth mentioning that gathering precise and reliable data on single-family offices is challenging due to a considerable number of entities being categorized as “Business and other management consultancy activities”, even though their primary purpose is to operate as family offices.

“Single-family offices do need to contemplate transfer pricing considerations, as they operate exclusively to serve to one individual and his family, who do control or own the office. In this scenario, transfer pricing considerations should be taken into account when determining compensation for the services provided by the single-family office to trusts, investment vehicles, foundations, or operational businesses associated with the family members.”

Family offices involvement in transfer pricing

The transfer pricing considerations may arise according to the level of relationship among wealthy families, family offices, foundations, trusts, investment vehicles and operational businesses.

Multi-family offices do not typically require the observation of transfer pricing considerations, as they operate to serve multiple wealthy families, who do not control or own the office. However, exceptions may arise if the multiple wealthy families have ownership stakes in the multi-family office and hold direct or indirect shares in the associated foundations, trusts, and investment vehicles.

Single-family offices do need to contemplate transfer pricing considerations, as they operate exclusively to serve to one individual and his family, who do control or own the office. In this scenario, transfer pricing considerations should be taken into account when determining compensation for the services provided by the single-family office to trusts, investment vehicles, foundations, or operational businesses associated with the family members.

Typical intercompany transactions within Family Offices

The extent of intercompany transactions within single-family offices depends on the degree of interaction between their operational and investment businesses. For wealthy families with investment businesses, their single-family offices typically offer a range of services including advisory^[6], investment management^[7], family^[8] and administration^[9] services to family members, trusts, investment vehicles, and foundations.

The figure below illustrates the typical setup of a single-family office, primarily designed to support the activities of the investment businesses of family members.

Conversely, in cases where wealthy families engage in both operational and investment businesses, single-family offices commonly provide additional support such as treasury management, invoicing and collection, marketing, commercial, coordination, as well as advisory and administration services tailored to the operational businesses of family members.

The figure below illustrates the typical setup of a single-family office, primarily designed to support the activities of the operational and investment businesses of family members.

Transfer Pricing requirements for Family Offices

In accordance with Luxembourg transfer pricing regulations^[10], all transactions between a Luxembourg company and its group or associated companies must adhere to arm’s length market conditions, as no exceptions or thresholds are provided by law.

As a result, every family office engaging in intercompany transactions must ensure that these transactions comply with the arm’s length principle. Compliance requires the preparation of transfer pricing documentation, which must be readily available to the Luxembourg tax authorities upon request. This documentation should support the data included in the tax returns concerning transactions between associated entities.

In practice, local tax authorities typically set a deadline of 1 to 2 weeks for the submission of transfer pricing documentation, with the possibility of extensions in some cases. Failure to comply may result in general administrative fines^[11] ranging from a minimum of 5% to a maximum of 50% of the avoided taxes.

“As a result, every family office engaging in intercompany transactions must ensure that these transactions comply with the arm’s length principle. Compliance requires the preparation of transfer pricing documentation, which must be readily available to the Luxembourg tax authorities upon request. This documentation should support the data included in the tax returns concerning transactions between associated entities.”

Transfer Pricing challenges for Family Offices

The transfer pricing challenges for single-family offices are influenced by the complexity of intercompany transactions, the involvement of family members, activities exercise by associated entities, and compliance requirements across jurisdictions.

Here are some potential transfer pricing challenges:

Ensuring that the compensation charged for the various services provided to different entities within the family’s ecosystem is in line with the arm’s length principle.
Managing transfer pricing compliance requirements across multiple jurisdictions.
Monitoring the validity of the transfer pricing policy and documentation.
Managing transfer pricing audit resolutions with local or foreign tax authorities.
Implementing intercompany services agreements in accordance with the arm’s length principle.
Adjusting transfer pricing policy, documentation, and agreements in accordance with changes in the nature or scope of the services.
Allocating expenses among the operational and investment businesses.
Properly aligning the actual conduct of the parties in relevant documents.

Conclusions

The evolving landscape of family office business strategies demands modifications to existing intercompany services or the introduction of new ones. Therefore, it is imperative to observe the complexities associated with managing intercompany transactions and investments. As family wealth extends across generations, effective risk management and compliance with transfer pricing regulations emerge as top priorities.

This priority is highlighted by a significant percentage of family offices planning to increase their allocation to private markets and alternatives. This strategic shift emphasizes the importance of navigating transfer pricing challenges with diligence and anticipation, ensuring that intercompany transactions align with regulatory requirements while optimizing investment opportunities for future generations.

[1] Source: The article “Millennials stand to become the richest generation in history, after $90 trillion wealth transfer” published by CNN on March 1, 2024.

[2] Source: The article “Great Wealth Transfer: How The $90 Trillion Windfall for Millennials Could Change The Job Market And Economy” published by “Forbes” on March 1, 2024.

^[3] Source: The European Family Office Report 2023. The report was prepared by Campden Wealth in partnership with HSBC Global Private Banking and published on December 4, 2023. It is based on a statistical analysis of 102 survey responses from European single-family offices and private (not commercial) multi-family offices.

^[4] Source: The Global Family Office Report 2023. The report was prepared by UBS AG and published on May 31, 2023. It is based on a statistical analysis of 230 survey responses from global family offices.

^[5] Source: The CSSF Statistics. 43 Authorised Family Office out of 66 are not performing actively the activity Family Office.

^[6] Advisory services include estate/financial/tax planning, insurance, legal and succession.

^[7] Investment management services include accounting, asset allocation, due diligence, real estate, reporting, risk management, administration, custody & reporting, and performance.

^[8] Family services include concierge, next-gen education, security, and travel.

^[9]Administration services include Human resources, information technology and premises.

^[10] Luxembourg transfer pricing rules are disclosed in Article 56 and 56bis of the Luxembourg Income Tax Law (LITL), §171 of the Luxembourg Tax Code, and Circular L.I.R. No. 56/1-56-bis/1 (the “Transfer Pricing Circular”)

[11] The general administrative fines are disclosed in section I of the circular LG – A n ° 67.

Authors

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Interview with José Luis Blanco, Executive Managing Director at Instituto de la Empresa Familiar

SFF — Wed, 06 Mar 2024 07:00:35 +0000

SFF Magazine March 2024

Topics: Family Businesses, Trends

José Luis Blanco is a lawyer. He holds a law degree from the Universidad Autónoma de Barcelona and later completed his Master of Laws degree at Yale University School of Law (LLM Yale “86”).

His professional career began at Arthur Andersen, where he was a global partner. He was part of the integration committee between Arthur Andersen and Garrigues, which gave rise to Garrigues & Andersen.

In 1999 he joined Cuatrecasas as national M&A coordinator.

In 2007 he founded Latham & Watkins in Spain, a firm of which I was Managing Partner until 2017, when I became Retired Partner of the firm.

In 2020 he joined Instituto de la Empresa Familiar (IEF) as Executive Managing Director.

In addition to this professional responsibility, he continues to practice as a lawyer, advising companies in strategic transactions and special situations. He also acts as arbitrator in national and international proceedings related to mergers and acquisitions.

Since its foundation in 1992, the Instituto de la Empresa Familiar (IEF) has become one of the leading business organizations in Spain. What is its organizational structure, what are its objectives and what added value does it bring to its members?

The IEF is a non-profit association formed by a numerus clausus of one hundred members that brings together the most important family businesses in Spain.

The work of the IEF focuses on two main areas. Firstly, to promote best practices within family businesses with the aim of encouraging better corporate governance and the necessary actions to address the specific challenges of family businesses such as generational change, the integration of the different family branches in the business project, among others.

Secondly, the IEF’s mission is to give prestige to family businesses and to ensure that society is aware of and values everything they represent as a vehicle for integrating people into society and as an instrument of progress and prosperity.

“The IEF is a non-profit association formed by a numerus clausus of one hundred members that brings together the most important family businesses in Spain.”

How does the Institute collaborate with other institutions and organizations to strengthen the family business ecosystem? What are the benefits of networking and partnerships in this context?

These actions are developed by the IEF in coordination with the eighteen Territorial Associations (AATT) with which it is linked, present throughout Spain and to which almost two thousand family businesses are affiliated.

Thus, the IEF and the eighteen AATTs, with the utmost respect for their autonomy, work together in the pursuit of shared objectives.

In the development of this task, the IEF and the AATTs collaborate with academic, public and private institutions to deepen their knowledge of the reality of family businesses and in the analysis and study of their main problems.

By way of example, it is worth mentioning the “Red de Cátedras” which brings together thirty-nine university institutions that have academic centers specialized in family businesses.

In addition, the IEF, together with IESE, has launched the annual forum for reflection on family business, which reviews issues of major interest to family businesses with the participation of academics and entrepreneurs.

Other areas of institutional collaboration include the development of a forum on family business and capital markets, in collaboration with the Comisión Nacional de Mercado de Valores (CNMV), Bolsas y Mercados and leading professional firms, which addresses the main issues related to the access and permanence of family businesses in the capital markets.

Finally, the IEF is the Spanish representative in the European Family Businesses (EFB) and the Family Business Network (FBN), international business organizations of which it has been an active promoter and committed member.

“The IEF is the Spanish representative in the European Family Businesses (EFB) and the Family Business Network (FBN), international business organizations of which it has been an active promoter and committed member.”

In Spain, private family businesses represent almost 90% of the business network. What value does this group contribute to the Spanish economy as a whole?

Spain is one of the countries in the world whose business network shows the greatest presence of family businesses.

In Spain, family businesses have been an extraordinary example of growth, modernization and development.

A major part of the transformation and growth of Spain in the last 45 years since the 1978 Constitution can be better explained and understood when the extraordinary impulse that family businesses have given to our economy and our society can be seen.

Without losing their roots in our country, Spanish family businesses today compete successfully throughout the world, demonstrating the capacity for innovation and commitment to customers and to the society’s needs that justify their international success.

From an international perspective, what are the main sectors in which Spanish family businesses have achieved a leading position beyond their borders?

Spanish family businesses have achieved an international presence in practically all sectors. Even in those sectors that are apparently more closely related to the Spanish territory and geography, as could be the tourism sector, family businesses in the sector have been a clear example of internationalization, with investments in other tourist destinations in America, Africa and Europe, providing very high value management methods.

We find examples of family businesses in leading positions in the textile sector, infrastructure, automotive components, land and maritime transport, engineering, food and beverages, beauty and fashion products, among many others.

Some studies show that the main strategic objective of family businesses is to “guarantee the survival of the company”, ahead of the profit-making that usually characterizes non-family businesses. From your point of view, what factors determine the survival of a family business over time?

In a context of continuous technological innovation and where most of the 100 companies with the largest market capitalization in the world barely existed just 10-15 years ago, the average longevity of IEF companies is eighty years. The longevity of any company faces enormous challenges.

For family businesses, the challenge is even greater, since they must meet the challenges while preserving control of the family. We have been able to verify, through recent studies, that family businesses have a high degree of efficiency in innovation management, both in technological aspects and in the renewal and adaptation of processes. One of the tasks that most interest the IEF is precisely to help family businesses to share their respective experiences in order to face the challenges raised not only by markets and competition, but also by the incorporation of new generations and the change of leadership in management. Without underestimating the importance of these challenges, the progress and improvement experienced by IEF member family businesses in this area serves as an example for our entire business network.

“We have been able to verify, through recent studies, that family businesses have a high degree of efficiency in innovation management, both in technological aspects and in the renewal and adaptation of processes. One of the tasks that most interest the IEF is precisely to help family businesses to share their respective experiences in order to face the challenges raised not only by markets and competition, but also by the incorporation of new generations and the change of leadership in management.”

Digital transformation, sustainability, internationalization, new generations… From your perspective and experience, what are the main challenges currently facing IEF members and family businesses in general?

In the current situation, the main characteristic is that all the issues raised in this question must be addressed simultaneously. Without falling into complacency, I believe that the members of the IEF have been able to rigorously and diligently address the need for internationalization, which is essential to compete in a globalized economy. This internationalization effort is impossible without incorporating the tools of the digital economy into production processes. And the demands of our society make sustainability a necessary part of the definition of competitive business models.

The emergence of new generations in the management of family businesses is contributing decisively to the adoption and promotion of all these practices with great ambition and efficiency.

Today’s Spanish family businesses are, by far, the best companies that Spain has enjoyed in its history. Precisely because of the awareness and commitment to continue improving in all these areas, we can feel very proud of the reality of today’s family businesses.

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SFF Magazine March 2024

The post Interview with José Luis Blanco, Executive Managing Director at Instituto de la Empresa Familiar appeared first on SFF.

SFF Magazine March 2024 Archives | SFF

Training on “SFF Learning Solutions: Transfer Pricing for Family Office Structures” held

Training on “SFF Learning Solutions: Transfer Pricing for Family Office Structures” held

DS Compliance will become DS Advisory services

SFF Magazine March 2024

She has 23 years of experience in the Compliance field and strong expertise in Regulatory Compliance, governance and anti-money laundering and combating terrorism financing (AML-CFT).

Authors

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AML/CTF: regulatory perspectives and trends

SFF Magazine March 2024

Authors

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New requirements on cybersecurity: Overview of the DORA Regulation

SFF Magazine March 2024

Introduction

What are the key takeaways of the DORA? To whom does this regulation apply?

“Based on the Draft Law in its current version, the CSSF and the CAA will be notably empowered to pronounce, within the limits of their respective powers, specific sanctions against persons subject to their respective supervision if certain provisions of DORA are violated.”

Authors

Jean-François Trapp

Partner

Baker & McKenzie

Ana Vazquez

Director

Baker & McKenzie

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ALFI Roadshow to Madrid

SFF Magazine March 2024

“The 2024 edition of the ALFI Roadshow is quite compelling. We are curating an attractive agenda that we trust will be insightful, stimulating and educational to Spanish asset managers.”

Chart A. Fund promotion

Total AuM of LU-domiciled funds promoted by Spanish fund houses

Total number of Luxembourg-domiciled funds promoted by Spanish fund houses

Number of Spanish fund houses promoting Luxembourg-domiciled funds

ELTIFs

Chart B. Top 5 Spanish fund houses by AuM of Luxembourg-domiciled funds

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The CaixaBank AM Group evolves its liquid alternatives management model by delegating mandates to international third-party asset management companies for its discretionary management service for Master Portfolios

SFF Magazine March 2024

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MEET THE TEAM – Andbank Asset Management Luxembourg

SFF Magazine March 2024

Andbank Group

The importance of Luxembourg

Andbank Asset Management Luxembourg

Our products

Our positioning and added value

Our team

Authors

Alexandre Trinel

Conducting Officer

Andbank Asset Management Luxembourg

Oriol Panisello

Conducting Officer

Andbank Asset Management Luxembourg

Martin Wienzek

Conducting Officer

Andbank Asset Management Luxembourg

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Why structuring your debt strategy through a securitisation vehicle in the Grand Duchy of Luxembourg?

SFF Magazine March 2024

Introduction

Core benefits of the Luxembourg Securitisation Law

“The Luxembourg Securitisation Law allows for the set-up of securitisation vehicles (SV) either as securitisation companies or securitisation funds managed by a management company.”

“Ensuring increased investor protection is one of the most significant aspects of the Luxembourg Securitisation Law. The bankruptcy remoteness principle separates securitised assets from any insolvency risks of the SV or originator, service provider and all other parties involved.”

Conclusion

Authors

Aurélien Hollard

Partner

CMS Luxembourg