EY Luxembourg Study: T+1, ESG & CSRD Trends 2025

Fast-tracked settlements, tougher ESG standards, and Luxembourg’s growing dominance in global fund management. The year 2025 is shaping up to be a big year for investment professionals operating in Luxembourg.

The latest EY Luxembourg Market Pulse highlights how the above changes are impacting fund management.

From adapting to T+1 settlement changes to navigating Luxembourg’s ever-expanding role in cross-border funds, I believe investment firms must find ways to turn these developments into competitive advantages.

The T+1 settlement shift is pushing fund managers operating in multiple jurisdictions toward different trading processes (see the benefits of T+! highlighted by J.P. Morgan here.)

ESG rules are making sustainability claims more credible, and Swiss asset managers are doubling down on Luxembourg as the go-to hub for cross-border funds, reinforcing its role as a key player in capital markets.

Meanwhile, liquidity management strategies are evolving, AML regulations are strengthening, and tax changes are creating new incentives for fund structures.

For those ready to embrace these changes, there’s probably never been a better time to scale, streamline, and future-proof operations.

At Vestlane, we’re at the forefront of simplifying fund administration, compliance, and regulatory reporting.

The insights from this EY Luxembourg Market Pulse confirm that operational resilience and strategic adaptation will be key to success in the year ahead.

CSSF Position on Investment Compliance in the Context of US T+1 Settlement

The transition to T+1 settlement in the US, which took effect in May 2024, is now creating ripple effects across European capital markets.

The shortened settlement cycle has introduced liquidity and compliance challenges, particularly for funds structured in Luxembourg and other jurisdictions that still operate on a T+2 basis.

With less time to process transactions, fund managers are facing operational risks, increased costs, and potential breaches of investment restrictions.

The European Securities and Markets Authority (ESMA), the EU’s financial markets regulator and supervisor, has already recommended that the EU adopt T+1 by October 2027.

The CSSF, Luxembourg's financial supervisory authority, has issued guidance to help funds adapt, recommending strategies such as shortening settlement cycles, using cash sweep programs to optimize liquidity, and diversifying banking relationships to mitigate counterparty risk.

Some funds may also need to adjust their operating hours or introduce temporary borrowing measures to bridge the gap between incoming and outgoing cash flows.

For fund administrators, this shift underscores the urgent need for automation and real-time settlement tracking.

At Vestlane, we are already working with investment professionals to digitize fund workflows and enhance compliance automation, ensuring they remain agile in this evolving landscape.

CSSF Guidance for Mitigation and Accepted Breaches

In response to the challenges posed by the US T+1 settlement cycle, the CSSF issued updated guidance on June 20, 2024, through its FAQ and communiqué, clarifying permissible mitigation measures for UCITS. Key tools outlined include:

• Utilization of shorter or extended settlement cycles where feasible
• Implementation of cash sweep programs and the opening of additional bank accounts
• Use of temporary borrowing, within the regulatory limit of 10%

Passive breaches caused by the timing mismatch are accepted, provided they are appropriately documented and justified.