Ethics and governance in the European Financial centers

I have quoted circular IML 91/75 (as amended by Circular CSSF 05/177) to demonstrate that the depositary's liability is not as clear as what Luxembourg authorities are saying to reassure the investors.

This circular was modified by a recent circular that is definitely worrying for the investors.

CSSF circular 05/177 dated 6 April 2005 is relating to the abolition of any prior control by the CSSF of advertising material used by persons and companies supervised by the CSSF. (See original text in French)

It is a very short circular the wording of which is worth commenting.


Use of the verb Refrain

“the persons and companies subject to the supervision of the CSSF must continue to comply with the rules of conduct of the financial sector both in Luxembourg and abroad, in refraining from issuing misleading advertising material with regard to the services offered”

This means that It is up to the professional to decide not to circulate misleading Ads. The wording is not direct like “Misleading Ads are prohibited”. It is pragmatic.

Investor's liability

“by mentioning, where necessary, the particular risks inherent to these services and in bringing to the client's attention his own responsibility”

Furthermore a liability may be put on the investor as the professional is invited to mention the particular risks inherent to the services if necessary and bring to the client's attention his/her own responsibility.
When reading Luxalpha documentation it is written is the subscription form a clause, to be signed by investors or their agents, that states that assets would be “safekept” by a US broker – although it did not name Mr Madoff, and investors would bear most of the risk of that broker’s default. A suscription form is not an advertising material but why Luxalpha subscription form was circulated with such clause?


No sanction

“The control of the compliance with the rules of conduct of the financial sector regarding advertisement remains within the competence of the CSSF, which has the authority to require the withdrawal of any misleading advertisement with regard to the services offered as well as of any inappropriate communications of information on the Luxembourg legal framework”

The circular does not state a sanction, but only the withdrawal, which is not a sanction.





Above all, the circular states at the beginning that “advertising material used by persons in charge of the distribution of units of undertakings for collective investment and their representatives no longer needs to be submitted to the CSSF for their control, even if this material is not subject to control by the competent authorities in countries where it is used."

The European passport from Luxembourg is a threat as no control is done at all on the communication from Luxembourg investment funds.

In the context of the Madoff case, this means that the investor cannot trust anymore the communication from Luxembourg investment funds.

QED.