Skip to content

Subscribe to Asset Servicing & Fintech Insights

Discover more information in our monthly publication, the AXIS newsletter, including industry trends, product innovation, Fintech and more from our team of experts.

Luxembourg Funds Industry Roundtable: From Regulation to Tech

Kieran Dowling, Head of Client Coverage and New Business Implementation, Northern Trust Luxembourg, recently joined Funds Europe’s Luxembourg Roundtable to discuss key asset servicing trends, including the review of AIFMD, the evolution of technology and the impact of COVID-19.

The following is an extract from Funds Europe’s Luxembourg Funds Industry Roundtable

How are fund services evolving against the backdrop of themes such as tech, regulation, Covid-19 and Brexit?

There was a convergence of these factors over the past 18 months and while the world is profoundly impacted by the COVID-19 crisis, I think you can say that the investment fund industry fared better than many other industries. This was thanks to the fund boards and the ManCos (management companies), and the service providers, who all reacted quickly, and to regulators – such as the CSSF in Luxembourg - who played an important role in maintaining stability.

The focus now is on applying a lot of the positive lessons and adapting them for the future.

This year the EU is reviewing the Alternative Investment Fund Managers Directive (AIFMD). How far-reaching is this review and what changes can the industry expect once the ‘AIFMD II’ is finished?

One key benefit of AIFMD has been the ease of distribution for alternative investment funds (AIFs) due to the AIFMD passport, which ultimately allows EU investment funds to be distributed across the region with fewer restrictions. One of the big open questions is whether AIFMD II will contemplate a marketing passport for third country managers and funds.

When AIFMD was first implemented it set out a timeframe for third-country provisions. With the UK’s decision to leave the EU, the region has evolved and this is an area that we will be watching. In November 2021 the European Commission published a legislative package to amend certain aspects of the AIFMD such as harmonised liquidity management tools and clarity on delegations rules for functions outside of the EU. However, the package does not appear to progress the issue of third-country marketing passport provisions.

The funds industry has seen sweeping changes to fund governance regimes in recent years, at the EU level and locally. What have been the main changes for the Luxembourg funds industry?

The number of management companies that exist in Luxembourg is considerably higher than in other fund administration centres of excellence, such as Ireland and we’ve seen consolidation of some reasonably sized players coming together to create what we could call ‘super-ManCo’ groups. We’ll see more of this, I expect, certainly with the requirements that regulators have now in terms of people and technology.

We have robust governance in the marketplace and Luxembourg has a good reputation for this. Over the past year we’ve clearly shown that governance flexible enough to adapt to what is a rapidly changing environment during the pandemic, is essential. Good governance exercised by investment funds, and ManCos, is key to maintaining Luxembourg’s positive reputation.

One main topic within governance that we see increasing is Environmental, Social and Governance (ESG) and the responsibility on fund boards to oversee the criteria that’s been set out in the Sustainable Finance Disclosures Regulation (SFDR) which came into play in March of this year and concerns ESG disclosure by investment funds.

The funds industry’s adoption of technology has in the past been described as advancing at a “glacial” pace. Is this still true today?

I don’t believe the comment about ‘glacial’ is still true today. Certainly the industry is moving away from building everything inhouse and instead pursuing multiple tech pathways. Northern Trust has developed a ‘Whole Office’ approach which integrates proprietary architecture with innovative partners to facilitate client access to new technologies and capabilities across the entire investment lifecycle.

Within alternative asset servicing, we’ve launched a digital document capture capability for asset owner clients that invest in complex private market and unlisted assets, and this is really a foundation of a multi-year investment in digitising alternative asset servicing. Digital document capture enables Northern Trust to streamline historically manual workflows by automating the receipt and processing of alternative asset documents and fund manager reports on holdings and performance of hedge funds, private equity and other alternative assets. We all see the flows that are coming into private market and unlisted assets, so we need to move past the manual work involved with supporting these asset classes - and certainly AI and other technologies to support that is important.

Funds Europe: What must Luxembourg do in order to tighten the AML regime, particularly with regards to the Luxembourg Register of Beneficial Owners (RBO) which has this year attracted criticism?

A lot of time is spent creating the AML skillset and the technology to support it in our business. We spend a lot of time engaging with clients and their distribution teams, explaining to them why information is being requested and what the standard is. Being compared to other jurisdictions where AML may be less onerous, it shows that there is a really robust governance process around this in Luxembourg – both in the context of onboarding new investors and periodic review depending on risk ratings.

How will the Luxembourg funds industry look in five years’ time?

Even with the challenges over the last 18 months the industry is still growing at a significant pace, whether in a UCITS format or under the AIFMD. We have to make sure that the industry does not become complacent. We must continue to promote these trends – and never stand still.


As featured in Funds Europe’s Luxembourg Funds Industry Roundtable. Read the full version here.

Kieran Dowling

Head of Client Coverage and New Business Implementation, Northern Trust Luxembourg
Kieran Dowling is a Senior Vice President and the Head of Client Coverage and New Business Implementation at Northern Trust Luxembourg which involves leading client relationships requiring asset servicing solutions, supporting business development and the execution of strategic planning.

RELATED ARTICLES

Insights on Luxembourg's resilient and innovative approach as discussed in Funds Europe's Luxembourg Report 2021 roundtable.

Confidentiality Notice:  This communication is confidential, may be privileged, and is meant only for the intended recipient.  If you are not the intended recipient, please notify the sender as soon as possible.  All materials contained in this presentation, including the description of Northern Trust, its systems, processes and pricing methodology, are proprietary information of Northern Trust. In consideration of acceptance of these materials, the recipient agrees that it will keep all such materials strictly confidential and that it will not, without the prior written consent of Northern Trust, distribute such materials or any part thereof to any person outside the recipient’s organization or to any individual within the recipient’s organization who is not directly involved in reviewing this presentation, unless required to do so by applicable law.  If the recipient is a consultant acting on behalf of a third party client, the recipient may share such materials with its client if it includes a copy of these restrictions with such materials.  In such event, the client agrees to comply with these restrictions in consideration of its accepting such materials.

© 2021 Northern Trust Corporation. Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A. Incorporated with limited liability as an Illinois corporation under number 0014019. Products and services provided by subsidiaries of Northern Trust Corporation may vary in different markets and are offered in accordance with local regulation. This material is directed to professional clients only and is not intended for retail clients. For Asia-Pacific markets, it is directed to expert, institutional, professional and wholesale clients or investors only and should not be relied upon by retail clients or investors. For legal and regulatory information about our offices and legal entities, visit northerntrust.com/disclosures. The following information is provided to comply with local disclosure requirements: The Northern Trust Company, London Branch, Northern Trust Global Investments Limited, Northern Trust Securities LLP and Northern Trust Investor Services Limited, 50 Bank Street, London E14 5NT. Northern Trust Global Services SE, 10 rue du Château d’Eau, L-3364 Leudelange, Grand-Duché de Luxembourg, incorporated with limited liability in Luxembourg at the RCS under number B232281; Northern Trust Global Services SE UK Branch, 50 Bank Street, London E14 5NT; Northern Trust Global Services SE Sweden Bankfilial, Ingmar Bergmans gata 4, 1st Floor, 114 34 Stockholm, Sweden; Northern Trust Global Services SE Netherlands Branch, Viñoly 7th floor, Claude Debussylaan 18 A, 1082 MD Amsterdam; Northern Trust Global Services SE Abu Dhabi Branch, registration Number 000000519 licenced by ADGM under FSRA # 160018; Northern Trust Global Services SE Norway Branch, 3rd Floor, Haakon VII's Gate 6, 0161 Oslo, Norway; Northern Trust Global Services SE, Leudelange, Luxembourg, Zweigniederlassung Basel is a branch of Northern Trust Global Services SE (itself authorised by the ECB and subject to the prudential supervision of the ECB and the CSSF). The Branch has its registered office at Aeschenplatz 6, 4052, Basel, Switzerland, and is authorised and regulated by the Swiss Financial Market Supervisory Authority FINMA. The Northern Trust Company Saudi Arabia, PO Box 7508, Level 20, Kingdom Tower, Al Urubah Road, Olaya District, Riyadh, Kingdom of Saudi Arabia 11214-9597, a Saudi Joint Stock Company – Capital 52 million SAR. Regulated and Authorised by the Capital Market Authority License # 12163-26 CR 1010366439. Northern Trust (Guernsey) Limited (2651)/Northern Trust Fiduciary Services (Guernsey) Limited (29806)/Northern Trust International Fund Administration Services (Guernsey) Limited (15532) Registered Office: Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 3DA. Northern Trust International Fund Administration Services (Ireland) Limited (160579) / Northern Trust Fiduciary Services (Ireland) Limited (161386),  Registered Office: Georges Court, 54-62 Townsend Street, Dublin 2, D02 R156, Ireland.