How to comply with article III.2 of CSSF 20/758?

Question

I need to bring my Luxembourg organisation into compliance with article III.2 of CSSF 20/758 (CSSF 20/758). What are the concrete requirements, the sanctions, and how can Luxgap support me?

Accepted Answer

The classic trapCSSF Circular 20/758 requires credit institutions and investment firms to identify, measure and monitor concentration risks. The trap the CSSF sanctions in practice is not the absence of a concentration policy, but its purely declarative nature: a limit written in an internal document, never tested against real exposures. During on-site inspections, the CSSF verifies that concentration limits (by counterparty, sector, geography, collateral type) are effectively computed, updated and escalated. A theoretical framework that fails to detect a breach in real time is deemed deficient.The blind spots the CSSF targets in inspectionIndirect concentration: several counterparties linked by a single economic group, not consolidated in the exposure calculation.Collateral concentration: a pool of guarantees backed by the same real estate sector or asset class.Funding concentration and dependence on critical infrastructure providers.Limits defined but never recalibrated against balance sheet evolution.Absence of an audit trail proving escalation to the risk committee upon a breach.Undocumented interaction with Risk Transfer Pricing (chapter 3), where concentration should increase the internal cost of capital.How Luxgap automates this riskOur Luxgap Concentration Sentinel makes silent limit breaches impossible: it recomputes your concentration exposures continuously and triggers escalation before the CSSF inspector finds it for you. The tool connects to your core banking (Sopra, Temenos, Avaloq), your risk datawarehouse and your counterparty reference data to rebuild the real consolidated view, including linked client groups, without asking the risk team to rework a single spreadsheet.Automatically detects groupings of counterparties linked by ownership or economic dependence through a graph engine, revealing indirect concentration invisible in a unitary view.Computes in real time the concentration ratios by counterparty, sector, geography, collateral class and funding source, tested against your internal limits.Instantly alerts the risk committee by notification when an alert threshold or hard limit is crossed, with timestamp.Links each concentration to the Risk Transfer Pricing module to adjust the internal cost of capital and demonstrate the consistency required by chapter 3.Produces a timestamped and sealed PDF report, enforceable before the CSSF during an on-site inspection, tracing the history of breaches and escalations.Available as a complement to a Luxgap CISO mandate or as a dedicated SaaS module depending on your scope. Request a tailored quote and our teams will prepare a demonstration on your real data, with a free blank audit within 48h to measure your exposure before any engagement.

Chapitre 2 - Risques de concentration

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