Circular BCL 2002/171 of 5 June 2002 — Modification of statistical tables S1.3, S2.10, S2.11 and S2.12

Luxembourg, 5 June 2002

To all Luxembourg collective investment undertakings

CIRCULAR BCL 2002/171

Modification of statistical tables
S 1.3 "Monthly statistical balance sheet of UCITS", S 2.10 "Breakdown by country", S 2.11 "Breakdown by currencies" and S 2.12 "Details on securities held by UCITS"

Ladies and Gentlemen,

On 23 November 1998, the Council (EC) adopted Regulation No 2533/98 concerning the collection of statistical information by the European Central Bank (ECB). This Regulation complements the framework of the ECB's statistical activities necessary to enable the European System of Central Banks (ESCB) to perform its functions by defining the natural and legal persons subject to reporting obligations, the confidentiality regime and adequate implementation and sanction provisions, in accordance with Article 5.4 of the Statutes of the European System of Central Banks and of the European Central Bank.

Following this Council Regulation, the Governing Council of the ECB adopted Regulation ECB/2001/13 on the consolidated balance sheet of the monetary financial institutions sector.1

The ECB's statistical reporting requirements within the framework of the consolidated balance sheet of the monetary financial institutions (MFI) sector are based on three essential rules.

First, the ECB must receive comparable, reliable and up-to-date statistical information, collected under similar conditions throughout the euro area.

1 Regulation of the European Central Bank of 22 November 2001 on the consolidated balance sheet of the monetary financial institutions sector (ECB/2001/13).

Second, the reporting obligations set out in the Regulation must respect the principles of transparency and legal certainty. The Regulation is therefore binding and applies directly throughout the euro area. It imposes obligations directly on legal or natural persons, under penalty of sanctions that may be imposed by the ECB if reporting requirements are not met.

The statistical information subject to reporting in accordance with the ECB's statistical requirements and the minimum standards to be respected are detailed in the aforementioned ECB Regulation.

The objective of this Circular is twofold: on the one hand, it sets out the selection criteria for money market funds (MMFs), and on the other hand, it describes the new statistical reporting requirements for MMFs.

With regard specifically to the selection criteria for MMFs, point 2 "Adaptation of the selection criteria for MMFs" sets out the only change compared to the criteria presented in Circular IML 98/144 and currently applicable.

However, in order to be explicit and coherent, it has been decided to include in the text point 1 "Money Market Funds" describing all the criteria that form the basis for the selection of MMFs.

1. Money Market Funds

In the case of undertakings for collective investment in transferable securities (UCITS), funds that invest in money market assets (MMFs) meet the necessary liquidity conditions and are therefore included in the MFI sector. MMFs are defined as UCITS whose shares are, in terms of liquidity, close substitutes for deposits and whose investments are essentially made in money market instruments and/or other transferable debt securities with a residual maturity of one year or less and/or bank deposits and/or whose objective is to offer a yield close to money market rates. The criteria for enumerating MMFs can be assessed from multiple sources: prospectuses, fund regulations, legal nature of the companies, articles of association or constitutional rules, subscription documents or investment contracts, commercial documents or any other declaration having similar effects.

1.1. Selection criteria for MMFs

The objective being to obtain a homogeneous population, it is important that different countries use identical or at least similar definitions to define the respective sub-groups.

For the purposes of the definition of money market UCITS mentioned in point 1 above:

1. UCITS are undertakings whose sole purpose is the collective investment of capital raised from the public and whose shares are, at the request of the holders, repurchased or redeemed directly or indirectly from the assets of the undertaking. Such undertakings may be legally founded on the basis of either contract law (such as funds managed by management companies), company law (such as variable capital investment companies) or statutes (such as investment companies).

2. Bank deposits are cash deposits made with credit institutions, repayable on demand or with notice up to three months or with initial maturities of up to two years, including sums paid to credit institutions as part of a transfer of securities during repurchase or securities lending operations.

3. UCITS shares are close substitutes for deposits in terms of liquidity in that they can, under normal market circumstances, be repurchased, redeemed or transferred, at the request of the holder, such that the liquidity of the shares is comparable to that of deposits.

4. "Essentially" means at least 85% of the investment portfolio.

5. Money market instruments represent categories of transferable debt securities that normally trade on the money market (for example, certificates of deposit, commercial paper, bank acceptances, Treasury bills and local government bonds) due to the following characteristics:

i. liquidity, in that they can be repurchased, redeemed or sold at limited cost, with low commissions, limited bid-ask spreads and reduced processing times;

ii. market depth, in that they are traded on a market capable of absorbing a large volume of transactions, with large volume trades having little influence on their price;

iii. value precision, in that their value can be determined precisely at any time or at least once a month;

iv. low interest rate risk, in that the residual maturity is one year or less, or if regular yield adjustments, consistent with money market developments, take place at least every twelve months;

v. low credit risk, in that these instruments are:

• either listed on an official list of a stock exchange or traded on other regulated markets that operate regularly, are recognized and accessible to the public;
• or issued under regulations aimed at protecting investors and savings;
• or issued by:
  • a central, regional or local authority, the central bank of a Member State, the European Union, the European Central Bank, the European Investment Bank, or a non-member State or, if the latter is a federal state, one of the entities belonging to the federation, or an international public institution to which one or more Member States belong;
  • or
  • an institution subject to prudential supervision, in accordance with criteria defined by Community legislation or an institution subject to and complying with prudential rules considered by competent authorities to be at least as stringent as those provided for by European legislation, or guaranteed by any institution of this type;
  • or
  • an undertaking whose securities have been listed on an official list of a stock exchange or are traded on other regulated markets that operate regularly, are recognized and accessible to the public.

Based on this definition, it has been decided to automatically include UCITS whose policy consists of:

• collective investment in money market instruments: that is, debt securities and instruments representing claims, whether or not they have the character of transferable securities, including bonds, certificates of deposit, treasury bills and all other similar highly liquid instruments;
• or investment in deposits with credit institutions;
• and UCITS whose object is collective investment in money market instruments and/or deposits with credit institutions and which benefit, for the calculation of the subscription tax, from the reduced rate of 0.01% provided for in Article 108 amended of the Law of 30 March 1988 on collective investment undertakings.

Also to be included:

• UCITS that do not benefit from the reduced subscription tax rate and whose investment policy consists of collective investment in money market instruments: that is, debt securities and instruments representing claims, whether or not they have the character of transferable securities, including bonds, certificates of deposit, treasury bills and all other similar highly liquid instruments, or investment in deposits with credit institutions;
• UCITS pursuing an investment policy primarily aimed at investing in liquid or short-term assets in order to guarantee the liquidity of shares to investors.

2. Adaptation of the selection criteria for MMFs

In 1998, during the implementation of the concept of monetary financial institution (MFI) which includes among others money market collective investment undertakings (MMFs), the Luxembourg Monetary Institute (IML) was based on the definition of MMFs provided in Regulation ECB/1998/16. However, in order to be able to carry out a pragmatic implementation of theoretical concepts, the European Central Bank (ECB) had accepted the exclusion from the list of MFIs of MMFs whose shares are essentially sold outside the euro area. Based on these discussions with the ECB, the Luxembourg Monetary Institute opted for the exclusion of MMFs that sell more than 95% of their shares outside the euro area (cf. page 3 of Circular IML 98/144).

As other euro area countries have decided to apply the definition provided by the Regulation without however resorting to the option of excluding MMFs that market the majority of their shares outside the euro area, this results in a heterogeneous definition of the money-creating sector, namely the MFI sector, in the euro area.

Such heterogeneity is, however, contrary to the initial wish to obtain a list of MFIs that is as homogeneous as possible and sufficiently stable for statistical purposes. Thus, the ECB carried out an analysis of the implications of each of the two approaches adopted on the M3 monetary aggregate and on the M3 aggregate counterparts. The conclusions of this work led the ECB to ask countries such as Luxembourg to review their position and include in the official list of MFIs all MMFs regardless of the country of marketing of their shares.

Based on these considerations, the BCL adapts point 1 "Money Market Funds" of Circular IML 98/144 by deleting the following paragraph under point 1.1 "Criteria" on page 3:

Excluded:

• collective investment undertakings that market at least 95% of their shares outside the European Union

It follows that MMFs that were excluded from the list of MFIs based on this criterion will be reinstated on the list. In the future, exclusions based on this specific criterion will no longer be admitted. This modification will become applicable from 1 January 2003.

2.1. The list of MMFs

The IML contacted Luxembourg law UCITS active at the end of September 1997 and potentially qualifying as MMFs according to the criteria set out in point 1.1 above in December 1997 and March 1998. At the same time, the IML informed these UCITS or compartments that, in case of non-contestation on their part, they would be included on the list of monetary financial institutions.

Currently, the CSSF is responsible for drawing up the list of MMF UCITS or compartments that are or will be included on the list of monetary financial institutions. The BCL is informed by copy of the correspondence exchanged between the CSSF and the UCITS or compartments and can thus transmit to the ECB the list of Luxembourg monetary financial institutions. The ECB is responsible for publishing the list of Luxembourg MFIs, together with the lists of other countries in the European Union.

It is understood that UCITS that make modifications, either to their investment policy or to the marketing of their shares having an implication on their qualification as monetary financial institutions, are invited to inform the CSSF as soon as possible.

3. Collection of statistical data

This collection of statistical data is addressed exclusively to MMF UCITS or compartments registered on the list of MMFs established by the CSSF.

The production of monetary statistics will take place in three steps ("layered approach"). In a first step, national central banks will collect individual data from reporting institutions. In a second step, they will consolidate this data and send it to the ECB, which, in a third step, will operate the consolidation of national data at the EU level. This data collection is intended for purely statistical purposes.

3.1. Reporting

For the purpose of collecting statistical data by the ECB, MMF UCITS or compartments must periodically submit additional specific information to the BCL, which includes in particular a breakdown of financial instruments by initial maturity, by economic sector, by country and by currencies.

These financial information must be prepared according to tables S 1.3, S 2.10, S 2.11 and S 2.12 which are attached to this document as annexes. These tables also include the definitions and comments relating to the items of the tables in question.

In each table, the name of the employee responsible for preparing the relevant table as well as the telephone number at which he/she can be contacted by the BCL if necessary must be indicated in the space reserved for this purpose.

In order to minimize the use of estimates and to significantly increase the quality of data delivered to the ECB, the BCL has decided to waive exemptions in statistical reporting.

Thus, all MMF UCITS appearing on the official list established by the CSSF will be required to report all monthly and quarterly statistical tables to the BCL.

4. Main modifications of statistical tables S 1.3, S 2.10, S 2.11 and S 2.12

The essential modification stems from a need for more detailed information, at the monthly level, regarding the liability elements necessary for the calculation of euro area monetary aggregates as well as credits granted to euro area residents and which therefore constitute the counterpart of monetary aggregates.

In order to integrate these modifications into tables S 1.3 and S 2.10, S 2.11 and S 2.12, it was necessary to modify both the structure of the table and the detail of the information to be reported.

4.1. Modifications of statistical table S 1.3 "Monthly statistical balance sheet of UCITS"

4.1.1. Breakdowns by initial maturity and by economic sector

• at the asset level, the breakdown by initial maturity is reorganized and more detailed for the items of loans and debt securities held. At the liability level, the breakdown by initial maturity is introduced for the items of demand, term, notice loans and firm sale and repurchase operations.
• a more detailed sectoral breakdown is introduced for all asset and liability items.

4.1.2. Modifications of asset and liability items

• at the asset level, the item "Money market debt securities" is deleted due in particular to the difficulty inherent in the correct identification of money market securities. Henceforth, money market debt securities are to be included under the item "Debt securities held".
• at the asset level of the balance sheet, a new item titled "Shares of MMFs" is introduced to enumerate shares issued by MMFs appearing on the official list of monetary financial institutions and held in portfolio by monetary financial institutions.
• at the liability level of the balance sheet, the loans item is now subdivided into four sub-items, namely demand, term, notice loans and firm sale and repurchase operations.

4.2. Modifications of statistical tables S 2.10 "Breakdown by country", S 2.11 "Breakdown by currency" and S 2.12 "Breakdown by economic sector".

The modifications to the structure of the tables have a dual purpose, namely to allow the enumeration of information requested by the new ECB Regulation and to create a parallel with table S 1.3 "Monthly statistical balance sheet of UCITS".

4.2.1. Report S 2.10 "Breakdown by country"

• the item "Money market debt securities" is deleted due in particular to the difficulty inherent in the correct identification of money market securities. Henceforth, money market debt securities are to be included under the item "Debt securities held".

• report S 2.10 is expanded by the introduction of the "liability" part which is composed of a single item, namely loans. The loans item is to be broken down by the country of the counterparty but is not subject to a breakdown by initial maturity.

• at the asset level, a sectoral breakdown, distinguishing between MFI and non-MFI, is introduced for the loans item and a breakdown by initial maturity is introduced for the debt securities held item.

• a new item titled "Shares of MMFs" is introduced at the asset level to enumerate shares issued by MMFs appearing on the official list of monetary financial institutions and held in portfolio by monetary financial institutions.

4.2.2. Report S 2.11 "Breakdown by currencies"

• the item "Money market debt securities" is deleted due in particular to the difficulty inherent in the correct identification of money market securities. Henceforth, money market debt securities are to be included under the item "Debt securities held".

• report S 2.11 is expanded by the introduction of the "liability" part which is composed of a single item, namely loans. The loans item is to be broken down by the currencies in which the operations are denominated as well as according to the initial maturity of the operations.

• at the asset level, a sectoral breakdown, distinguishing between MFI and non-MFI, as well as a breakdown by initial maturity are introduced for the loans item.

4.2.3. Report S 2.12 "Breakdown by economic sector"

• a new item titled "Loans" is introduced at the asset level.

• the breakdown by initial maturity of debt securities held is expanded.

5. Integration of ECB requirements into the BCL statistical collection

As the requested modifications do not fundamentally question the current architecture of tables S 1.3 "Monthly statistical balance sheet of UCITS" and S 2.10 "Quarterly statistical annex - Country", S 2.11 "Quarterly statistical annex - Currencies", S 2.12 "Quarterly statistical annex - Details on securities held by UCITS", it has been decided to maintain the existing tables while incorporating the aforementioned additional information.

The detail of the breakdowns as well as the description of the items of the different tables are presented in the update of the "Collection of instructions to monetary financial institutions". As for its part, the ECB has established a "Compilation Guide on Money and Banking Statistics" (www.ecb.int) which is regularly updated when questions and/or problems arise, the BCL will ensure to adjust the collection as needed in light of the ECB guide.

6. Quality of transmitted data

In accordance with existing instructions, asset and liability amounts are to be broken down according to the economic sector of the counterparty.

The initial results of the analysis of aggregated data from the financial center reveal substantial differences between deposits and interbank loans in Luxembourg, whereas the correct identification of counterparties should however lead, at the aggregated figures level of the financial center, to equality between deposits and loans between monetary financial institutions.

It is therefore reminded to the establishments concerned to scrupulously ensure the correct identification of their counterparties and to use for this purpose in particular the official list of credit institutions published by the Commission de Surveillance du Secteur Financier (CSSF) as well as the official list of MFIs made available to reporting establishments on the ECB website.

We therefore consider it necessary to re-emphasize the importance of the quality of data transmitted to the BCL and the necessity to submit data before transmission to the verification rules detailed in the technical documentation. Only rigorous control carried out from the production of data will allow to meet both quality requirements and imposed deadlines. This point is all the more important as the data thus collected will be controlled by the ECB services before their aggregation with data from other Member States. Any significant error or negligence will have damaging repercussions on the reputation of the entire Luxembourg monetary financial institutions community.

7. Respect of reporting deadlines

The BCL will establish and communicate, by circular, to MMF UCITS a table listing the precise dates on which the monthly and quarterly statistical tables are to be submitted.

It is reminded to the concerned monetary financial institutions (OPC) that the Banque Centrale du Luxembourg (BCL) must transmit monthly statistical reports to the European Central Bank within a period of 15 working days, and quarterly statistical reports within a period of 28 working days following the period to which they relate. It is therefore essential that institutions strictly respect the delivery deadlines defined in this circular so that the BCL can fulfill its commitments within the SEBC.

8. Implementation of the new collection
   The submission of this information is mandatory starting from the deadlines of end of January and end of March 2003, respectively. The modified tables S1.3 and S2.10, S2.11, and S2.12 must thus be delivered by 14 February 2003 and 20 April 2003 at the latest.

This circular replaces and abrogates, with effect from 1 January 2003, Circular IML 98/144 of 10 April 1998.

Please accept, Ladies and Gentlemen, the assurance of our very distinguished sentiments.

BANQUE CENTRALE DU LUXEMBOURG
The Management
Serge KOLB Andrée BILLON Yves MERSCH

Annexes: 4