Financial Crime World

Financial Crimes on the Rise in Digital Age: Luxembourg Regulator Takes Action

The Luxembourg regulator, CSSF, has issued three new circulars aimed at strengthening anti-money laundering and counter-terrorism financing (AML/CTF) regulations for investment fund managers (IFMs). This move comes as a response to the increasing threat of financial crimes, which have taken advantage of the economic instability caused by the COVID-19 pandemic.

Strengthening Regulations

The three circulars - 21/788, 21/789, and 21/790 - require IFMs to implement robust measures to prevent money laundering and terrorist financing. One such measure is the requirement for independent auditors (REAs) to verify responses submitted by fund managers in their annual AML/CTF survey.

Luxembourg Financial Intelligence Report Highlights Concerns

According to the Luxembourg Financial Intelligence Report (2020), there has been a decline in the number of suspicious reports, but fraud, tax evasion, and corruption remain significant concerns for banks, asset managers, insurers, and regulators. The report highlights the need for IFMs to implement robust technological solutions to automate manual tasks and reduce the opportunities for financial crime.

Compliance Requirements

To protect themselves and their investors from financial crime, IFMs must comply with regulations and take steps to mitigate serious financial risks. One approach is through the annual CSSF AML/CTF survey, which aims to collect key information on money laundering and terrorist financing risks, as well as measures taken by IFMs to mitigate these risks.

Report Requirements

The new regulation requires REAs to prepare an AML/CTF report validating responses submitted by IFMs. The report will cover a range of topics, including:

  • Entity’s risk-based approach
  • Due diligence on funds, investment assets, and channels of distribution

Practical Considerations for IFMs

Practical considerations for IFMs include:

  • Reviewing existing processes for:
    • KYC/KYD/KYI
    • AML onboarding and remediation
    • Due diligence
    • AML tax
  • Refreshing outdated data collection and analysis methods, IT tools, automation processes, AML/CTF frameworks, and policies

Expert Insights

“The CSSF AML/CTF survey acts as a great starting point for IFMs across Luxembourg - and Europe - to holistically consider both their approach to protecting their investors’ assets as well as their contribution to promoting and protecting the financial market,” concludes Christophe Wintgens, Wealth & Asset Manager Leader at EY Luxembourg.