Implementing Robust Due Diligence Procedures: A Must for Financial Firms
In light of recent regulatory changes, financial firms operating in the sector are under increased scrutiny to implement robust due diligence procedures to ensure compliance with anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations.
New Circular from the Commission de Surveillance du Secteur Financier (CSSF)
A new circular from the CSSF emphasizes the importance of understanding the risk exposure of regulated securitization vehicles (SVs) and implementing measures to mitigate those risks. The regulator highlights several key obligations for SVs, including:
Key Obligations
- Implementing a risk appetite statement in line with the risk exposure of the company
- Conducting ML/TF risk analysis on each asset type, including identification, assessment, and understanding of specific risks
- Performing Targeted Financial Sanctions/Proliferation Financing (TFS/PF) controls on all assets and relevant parties connected to transactions
- Maintaining records of AML/CFT due diligence controls
- Reporting any suspicious activity or transaction to the relevant authorities
- Establishing a written annual AML/CFT risk analysis report, including the results of due diligence conducted on assets
Identifying Ultimate Beneficial Owners (UBOs)
The CSSF has also emphasized the importance of identifying UBOs and assessing whether there are individuals exercising control over the SV through other means.
Adequate Checks and Due Diligence
To ensure compliance, firms must perform adequate checks at the time of onboarding SVs to understand the purpose and nature of transactions. AML due diligence must be performed on all types of assets, including securities, structured products, and derivatives.
EY’s Expertise in AML/CFT Compliance
Firms can rely on EY’s expertise in providing services such as:
- Review of AML framework or gap analysis
- AML/CFT remediation support (Know Your Customer/ Know Your Transaction/ Know Your Assets/ Know Your Distributor/ Know Your Investor)
- Staff and director training
- Review of specific relationships (clients, distributors, investors, among others)
- Onboarding assistance, due diligence services
- AML tax services: AML tax impact assessments, KYC and KYT tax onboarding remediation assistance, review of AML tax procedures and AML tax workshops on applicable AML tax circulars
Importance of a Risk-Based Approach
The CSSF has made it clear that firms must take a risk-based approach to AML/CFT due diligence, conducting thorough analyses and implementing measures to mitigate risks. Firms that fail to comply with these regulations may face severe consequences, including fines and reputational damage.
Conclusion
As the regulatory landscape continues to evolve, financial firms must prioritize compliance with AML/CFT regulations to maintain their reputation and avoid potential penalties. EY’s experts can help firms navigate this complex landscape and ensure compliance with all applicable regulations.