Financial Crime World

Luxembourg Cracks Down on Financial Crimes with New Regulations

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The financial sector in Luxembourg has been facing a surge in financial crimes since the COVID-19 pandemic. Criminals have taken advantage of economic uncertainty and technological advancements to launder money at unprecedented speeds and volumes. In response, the Luxembourg regulator, CSSF, has issued new regulations aimed at combating these crimes.

New Regulations: Anti-Money Laundering and Counter-Terrorist Financing

The CSSF has published three circulars (21/788, 21/789, and 21/790) in December 2021, reinforcing the regulatory requirements for investment fund managers (IFMs) and investment funds under its supervision. The circulars cover:

  • Anti-money laundering and counter-terrorist financing (AML/CFT)
  • Governance
  • Internal controls

Verification of AML/CFT Measures

Under Circular 21/788, independent auditors will now be required to verify the responses provided by IFMs in their annual AML/CFT survey. This includes:

  • Sample testing or specific procedures to determine the effectiveness of the fund’s AML/CFT measures
  • Reporting must be submitted via the CSSF eDesk within six months of the financial entity year-end

Mixed Reaction from Entities

The new regulation has received a mixed reaction, with some entities expressing concerns about the added burden and complexity. However, experts argue that implementing robust technological solutions and adopting sustainable frameworks can help mitigate the risks of financial crime.

Luxembourg’s AML/CTF Regulations

Luxembourg’s AML/CTF regulations for investment funds are already extensive and apply to both regulated and unregulated funds. Despite this, fraud, tax evasion, and corruption continue to be major concerns for banks, asset managers, insurers, and regulators.

The Role of Independent Auditors

The annual CSSF AML/CFT survey aims to collect key information about the risks of money laundering and terrorist financing, as well as the measures taken by IFMs to mitigate these risks. This year, independent auditors will play a crucial role in validating the responses provided by IFMs.

Industry Expert’s Perspective

Industry experts believe that the new regulation is a step in the right direction, but more needs to be done to combat financial crime. “The CSSF AML/CFT 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,” said Christophe Wintgens, Wealth & Asset Manager Leader at EY Luxembourg.

Compliance Requirements

Entities approaching their financial year-end must take steps to ensure compliance with the new regulation. This includes:

  • Selecting an independent auditor for the specific purpose of preparing the report
  • Evaluating processes and operational factors critical for AML/CTF activities moving forward