Financial Crime World

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Risks of Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) in France’s Financial Sector

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The French financial sector is facing significant risks related to Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT). This article discusses the key points related to fintech, regtech, asset management, risk management, regulation, and AML/CFT risks in France.

Fintech and Regtech

France’s fintech industry has experienced significant growth, with many Paris marketplaces using external technological solutions for filtering clients. However, this raises concerns about:

  • Data quality: The use of external solutions can compromise the accuracy and reliability of client data.
  • Lack of personalized analysis: Fintech companies may not have the necessary expertise to conduct thorough risk assessments on individual clients.
  • De-risking: The practice of avoiding high-risk clients or investments is a concern in the fintech industry.

Asset Management Sector

The asset management sector occupies an important position in France’s economy, with around €3,674 billion in assets under management (2018). This sector is:

  • Highly integrated into global and European financial systems: French asset managers are connected to a vast network of international investors.
  • Characterized by high concentration: 60% of assets managed by top 10 companies.
  • Heterogeneous market participants’ profiles: A mix of large, well-established firms and smaller, specialized companies.

Risk Management

The practice of “de-risking” is established in France’s asset management sector, where companies prefer to avoid clients or investments considered too risky. Most asset management companies declare a low ML/TF risk exposure, which may indicate that they are not taking adequate steps to mitigate AML/CFT risks.

Regulation

Asset management companies in France are subject to one or both of the following directives:

  • AIFM Directive: Regulates alternative investment fund managers.
  • UCITS Directive: Regulates undertakings for collective investment in transferable securities.
  • MiFID Rules: Apply when providing investment services.

Asset management companies are prohibited from receiving deposits of funds or securities from clients. This regulation is aimed at preventing AML/CFT risks associated with client deposits.

AML/CFT Risks

French asset management companies face exposure to AML/CFT risks, which vary depending on products or services offered. They are themselves liable under AML/CFT regulations and must comply with rules set by the Autorité des Marchés Financiers (AMF).

Overall, France’s financial sector is facing challenges related to AML/CFT, particularly in the asset management sector. While some risks are identified, they are not considered significant at this point.