Financial Crime World

Financial Crime on the Rise: CSSF Introduces Risk-Based Approach to Anti-Money Laundering

Unprecedented Economic Instability Creates Fertile Ground for Financial Criminals

The COVID-19 pandemic has brought about unprecedented economic instability and uncertainty, creating a fertile ground for financial criminals to thrive. With the rapid adoption of digital payments, virtual currencies, and advanced technologies, perpetrators are finding new ways to launder money at an alarming rate.

Luxembourg Regulator CSSF Introduces Risk-Based Approach

In response to this growing threat, the Luxembourg regulator CSSF has issued Circular 21/788, which reinforces regulatory requirements for investment fund managers (IFMs) and investment funds under its supervision. The circular aims to strengthen anti-money laundering and counter-terrorist financing (AML/CTF) measures by introducing a risk-based approach.

Key Requirements of the Circular

  • REAs will be required to verify responses provided by IFMs in their annual CSSF AML/CFT survey
  • Sample testing or specific procedures must be performed by the REA, with sample size determined by the methodology set by the CSSF
  • IFMs must implement effective AML/CTF frameworks, including adopting sustainable and compliant frameworks, implementing robust technological solutions, and reducing manual tasks

Importance of Annual CSSF AML/CFT Survey

The annual CSSF AML/CFT survey is a key tool in combating financial crime. It aims to collect information on the risks of money laundering and terrorist financing, as well as measures taken by IFMs to mitigate these risks. The survey must be completed by the compliance officer or responsible individual.

Enhanced Governance Requirements

To further combat financial crime, the CSSF has introduced an additional layer of governance, requiring REAs to draw up an AML/CFT report to validate the responses submitted by IFMs. This will involve sample testing or specific procedures, with a focus on risk-based approaches.

Applicability and Effective Date

Circular 21/788 is applicable to all Luxembourg IFMs, including registered AIFMs and investment funds supervised by the CSSF for AML/CFT purposes. The circular comes into effect on December 31, 2021, and entities must submit their reports via the CSSF eDesk within six months of their financial year-end.

Practical Considerations

  • Selecting an audit partner to assist with report preparation
  • Evaluating existing processes and operational factors critical for AML/CTF activities moving forward
  • Refreshing outdated data collection and analysis methods