Fund Governance

How has governance matured since the last update of the ALFI Code of Conduct in 2013?

There is a broad consensus in the Luxembourg investment fund industry that the ALFI Code of Conduct, which was last updated in 2013, does currently not need to be changed. However, since 2013 there have been considerable developments in fund governance practice which are summarized as follows:

  • Fund board evaluations  

According to the ILA / PwC Luxembourg Fund Governance survey 2016, institutional investors and regulators have been paying greater attention in recent years to board effectiveness and performance evaluation. Board evaluations are increasingly seen as a best practice. The ALFI Code of Conduct recommends that the board “conducts a periodic review of its performance and activities.”

According to the survey the number of UCITS boards who perform such an evaluation has risen from 10% in 2012 to 55% in 2016.

  • Development as regards “independent non-executive directors”

The actual composition of boards is attracting ever more attention from regulators and investors alike. Retaining independent non-executive directors is increasingly seen as a sign of good governance. The 2016 Fund Governance Survey referred to above states that “….although a majority of the directors continue to be employed by the fund promoters, a definite trend in the direction of independent directors is emerging. That said, we find a greater ratio of independent/non-executive board members at the fund level (that is, within UCITS and AIFs) than at management company level. This most likely is reflective of a reluctance on the part of the headquarters/promoter to add independent directors to the boards of their “inside” corporate entities.

We expect the number of independent board members to continue to increase, in line with the spirit of the ALFI code of conduct and certain regulatory requirements.”

  • Continuing professional development / ongoing education

Again the findings of the 2016 Fund Governance Survey summarise the clear trend in this area: “Ongoing education and orientation is no longer viewed as just a matter of good practice – it is considered essential to directors being able to keep up with developments in the industry and regulations. A majority of board members take more than three days of training on a personal basis and many of them take more than five days.

When examining the areas in which respondents take additional training on a personal basis, the most common areas are AML/KYC developments, risk management, legal and regulatory updates, products and tax. We also note that cybersecurity and digitalisation are new hot topics of growing interest and orientation for directors. Indeed, half of Super-ManCo board members have received training on cybersecurity or digitalisation in the past 12 months.”

What are the achievements of the ALFI Fund Governance Forum over the past 12 months? What is it currently working on in terms of publications?


  • In 2016 a Memorandum of Understanding was concluded between ALFI and ILA. In particular the “development and making available of joint material” by both associations was a focal point therein.
  • The set-up of a dedicated fund governance page on the ALFI website was a key development providing links to guidance material on topics related to fund governance on both the ALFI and ILA websites.
  • The publication of guidance material on a set of Principles for the Oversight of Financial Intermediaries in Distribution of Funds, in line with its mission to help members in their efforts  to encourage professionalism, integrity and quality within the Luxembourg fund industry.

Current work:

  • Producing a set of guidance notes on the implementation process of the ALFI Code of Conduct has been published on the ALFI website.
  • The Fund Governance Forum is currently working on producing guidance material on topical issues, including:
    • Independence
    • Directors’ Reports
    • Board evaluations
    • Time capacity
    • Letters of appointment
    • Conflicts of interest

How has financial technology changed the Board Room over the past 5 years?

The evolution of technology over the last few years has brought several changes to the board room. Some examples of these changes are as follows:

  • There has been a clear increase in the use of digital board packs, which enables a higher level of security, easy navigation and annotation. Digital board packs are also environmentally friendly as they remove the need for paper versions. According to the 2016 Fund Governance Survey more than a third of UCITS use a web-based application to distribute board papers. Furthermore board needs to take into account cybersecurity when disseminating board papers – password protection should be used as highlighted by recent CSSF recommendations.
  • In general there is an increasing and important focus on cyber security to the extent that it is now a standard agenda item for many board meetings.
  • Video conferencing facilities are become more widespread and their quality and reliability are continually improving.
  • Circular resolutions – digital applications, which remove the need for paper versions, are becoming increasingly widespread.

Henry Kelly (KellyConsult S.à r.l.)

Chair of the ALFI Governance Forum