Asset Managers Must Oversee Investment Decisions to Combat Money Laundering
In France, portfolio asset management companies are required to establish procedures to oversee their investment decisions and ensure compliance with anti-money laundering regulations. This is in line with Article R. 561-38-2 of the Monetary and Financial Code, which mandates that management companies must take necessary measures to identify, assess, and classify risks associated with their investments.
Delegation of Due Diligence
Management companies can delegate part or all of the due diligence process related to investments to an external service provider. However, they are still responsible for ensuring that the necessary measures are taken to identify, assess, and classify risks associated with their investments.
Guidelines from the French Financial Regulator
The Autorité des Marchés Financiers (AMF) has issued guidelines outlining the procedures that portfolio asset management companies must follow to combat money laundering and terrorist financing. The guidelines emphasize the importance of a risk-based approach in identifying and assessing potential risks associated with investments.
Identifying Risks
Portfolio asset management companies are required to identify three types of risks:
- Product Risk: Evaluating the proposed transaction terms, including term, co-investment, size of investment, and use of intermediate structures.
- Country Risk: Focusing on the location of targets and the source or destination of financial flows involved in investment transactions.
- Customer Risk (or Counterparty Risk): Assessing the capacity of co-contracting parties to meet their obligations.
Assessing and Classifying Risks
Once risks have been identified, portfolio asset management companies must assess and classify them based on their likelihood and potential impact. The AMF recommends that companies follow a proportionate approach in performing due diligence, taking into account the level of risk associated with each investment.
Enhanced Due Diligence Measures
In cases where the identified risk is considered high, portfolio asset management companies are required to take additional and/or enhanced due diligence measures before establishing a business relationship. These measures may include:
- Obtaining approval from senior management or an executive body
- Collecting additional information and supporting documents related to the purpose of the business relationship and the source of assets and funds involved
- Intensifying constant due diligence measures
Conversely, where investments are made in low-risk assets, such as shares or bonds traded on a regulated market, portfolio asset management companies may only need to perform minimal due diligence.
Recommendations
The AMF has provided additional recommendations for portfolio asset management companies when collecting information about co-investors and counterparties. For example:
- Before investing in a private equity fund, companies should collect reliable information about the identity of management and beneficial owners, as well as financial data to assess consistency with the company’s business.
Real Estate Asset Due Diligence
Portfolio asset management companies specializing in real estate investments must perform due diligence adapted to the nature of their target assets. This includes assessing the risk of money laundering and terrorist financing associated with property acquisition and disposal transactions.
Conclusion
In conclusion, portfolio asset management companies in France are required to establish procedures to oversee their investment decisions and ensure compliance with anti-money laundering regulations. By following these guidelines and recommendations, companies can help prevent financial crimes and maintain the integrity of the financial system.