Funds: Luxembourg’s financial regulator has been accused of “lax, selective or oblivious” supervision of investment funds by a firm representing Belgian investors.
Luxembourg financial regulator CSSF selectively applies its “redress procedure”, a firm representing a group of investors has charged. Investor Protection Europe, which describes itself as “a Brussels based company aiming at protecting and defending private and institutional investors”, has made the accusations to several senior politicians, EU financial authorities and to the press.
The investor advocates had written on behalf of its clients to the CSSF about several Luxembourg domiciled bond funds run by Belgian investment firm Petercam, alleging the broker breached CSSF rules in 2008 and 2009 by holding positions that did not follow the strategies it outlined in investor prospectuses.
IPE said it received confirmation from the Grand Duchy’s financial regulator in October 2011 that Petercam had broken the rules in the case of one bond fund. Yet disciplinary action had not been taken by this spring, according to the advocacy firm.
That led IPE managing director Albert Biebuyck to send a series of letters--to Luxembourg prime minister Jean-Claude Juncker and finance minister Luc Frieden, and European Commission officials, among others--highly critical of the CSSF’s performance and implying that weak enforcement of investment rules would damage the Grand Duchy’s reputation.
“You will certainly agree that a lax, selective or oblivious supervision of Luxembourg funds might have negative consequences, besides the losses incurred by investors,” read part of the letter that was published May 20 in the Financial Times.
CSSF refutes charges
On May 24, the CSSF answered in a media release that it: “refutes the statements given in the press as the complaint submitted to the CSSF by the claimant has been dealt with according to the applicable complaint procedures. The grievances set forth by the claimant have been analyzed and the CSSF informed the concerned parties of its assessment. Out of a list of grievances, one was considered as justified by the regulator and has been addressed.”
The CSSF added that when it “concludes that the complaint is not justified, the regulator informs the customer of the legal action he may take in case he aims to continue the dispute.”
In response, Biebuyck penned a new dispatch, addressed to CSSF chief Jean Guill, arguing the agency has mishandled complaints on a wider scale. “The main problem raised” in the FT article “is not the handling by the CSSF of the complaint of a group of investors represented by Investor Protection Europe. The issue is that it appears that the CSSF does not always enforce its redress procedure in case of a breach of investment rules.”
The latest letter--which was dated May 30 and seen by Delano--alleges that the CSSF improperly supervised three other Petercam bond funds. “These four funds had total net assets of €1.8 billion on June 30, 2008.” Biebuyck wrote. “Most of the investors in these funds were European.”
The advocate closed this dispatch by saying that he hoped the CSSF’s own rules “will finally be applied to all Luxembourg funds, without any exceptions.”
Separately, the European Securities and Markets Authority, an EU agency, will investigate the claims that the CSSF “did not adequately help investors” in the cases, the FT reported on May 29.
A spokeswoman for ESMA said it had “no comment to make” for this article.
As of this writing, representatives of the CSSF had returned Delano’s messages seeking comment.