Fund Due Diligence

Are you aware of an imminent review by the CSSF of delegation oversight and market practices for conducting due diligence over delegates that could have significant implications for fund managers?

Starting to think now about the potential scope of this could help you prepare and get ahead.

CSSF review of delegation and oversight framework

In 2018, the CSSF outlined the principles guiding delegation oversight frameworks for asset managers in its circular 18/698, including:

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Implementation of procedures and delegation framework governance

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Comprehensive pre‑delegation/initial due diligence and contract obligation

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Proportionality and a risk‑based approach

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Ongoing monitoring and periodic due diligence

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No “letter‑box” arrangements

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Responsibility remaining with the UCITS management company or alternative investment fund manager (“AIFM”).

Management companies and AIFMs are required to apply this framework including due diligence measures to clients, marketing intermediaries such as distributors, fund initiators, portfolio managers and investment advisers (i.e. the “delegates”) as well as fund assets.

Now, as part of its 2026 priorities for supervising the investment fund sector, the CSSF is set to commence a study to investigate how the delegation and oversight compliance framework of management companies and AIFMs is working in practice. The Luxembourg authority has furthermore specified that, following ESMA’s 2025 publication of 14 principles on third-party risk supervision which largely aligns with the CSSF circular, this review will cover how third‑party delegation risks are managed as part of overall risk management processes.

Current market practices for conducting due diligence over delegates typically involve periodic dissemination of due diligence questionnaires (DDQs) and the collection of supporting documentation.

However, these methods can give rise to a number of inefficiencies, including:

Heavy reliance on manual processing, leading to inefficiencies and increased risks of human error
Significant resource mobilization for non-value-added activities, such as dissemination and follow-ups with delegates
Reduction in time available for in-depth analysis of responses and key performance indicator (KPI) generation
Challenges in adhering to annual exercise schedules, often resulting in delays or compromised quality.

Practical implications

The final assessment, oversight responsibility, liability and ongoing monitoring of delegated activities cannot be outsourced and must remain with the management company or AIFM, respectively.

However, preparatory work to address the inefficiencies outlined above can be outsourced as part of an efficient and robust delegation framework – enabling you to get ahead.

How we can assist you

With our proprietary application and due diligence services team, KPMG offers an all-in-one service which combines strong client relationships with technology and analysis, covering all aspects of due diligence activities, including delegate outreach and management, automatic risk scoring, creation of board packs and inspection ready materials.