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EU securities watchdog probes Luxembourg regulator - email

By Reuters

LONDON – The European Union’s securities watchdog is conducting a preliminary inquiry into whether Luxembourg’s regulator breached EU rules in its supervision of a group of investment funds, according to an email seen by Reuters.

The European Securities and Markets Authority (ESMA) said in the email it was looking into Luxembourg regulator CSSF‘s oversight of a group of funds called LFP I SICAV.

LFP I SICAV is a series of funds that was run by asset manager Luxembourg Fund Partners, several of which have closed.

ESMA said in the email dated Sept. 1 it was aiming to finalise the preliminary probe “this autumn.”

An ESMA spokesperson said it could not comment on a specific case. A CSSF spokesperson also said it could not comment on the issue.

The inquiry follows a complaint by David Mapley, who is representing investors in the funds seeking lost cash. Mapley said in the complaint, seen by Reuters, that the CSSF had failed to uphold the EU’s MIFID II regulations concerning investor protection.

One of the largest funds in LFP I SICAV, hedge fund Columna Commodities Fund, collapsed at the end of 2016.

Alter Domus, a Luxembourg fund platform and administrator which has financial backing from private equity giant Permira, bought Luxembourg Fund Partners in December 2017, after Columna’s collapse.

LFP I SICAV’s assets under management (AUM) then totalled nearly 400 million euros ($458 million). Its AUM is currently around 20 million euros, according to Mapley.

Alter Domus did not immediately respond to a request for comment.

A preliminary inquiry is the first step by ESMA before deciding whether to proceed to a formal investigation.

ESMA has no powers to fine CSSF if it carries out a full investigation and considers there has been a breach of EU law, known as an Article 17 investigation. But it could publicly call on the Luxembourg watchdog to make changes, if necessary.

The EU’s executive European Commission could also initiate infringement proceedings, a step that could end up in the bloc’s top court.

ESMA requested information from three national watchdogs in 2019 to determine if a formal breach of EU law investigation should be opened. Last year, it received 196 complaints of alleged breaches of law by national regulators, but so far none has been upheld.

Last year, ESMA criticised Germany’s BaFin regulator for not doing enough to avert the Wirecard fraud under a different type of investigation known as a peer review.

($1 = 0.8735 euros)