Luxembourg Takes Aim at Financial Crime Risk with New Assessment Tools

Introduction

In a significant move to combat financial crime, Luxembourg has published its first National Risk Assessment of money laundering and terrorist financing (NRA) in December 2018. The assessment identified corporate service providers as carrying a high inherent risk, echoing findings from international bodies such as the Financial Action Task Force (FATF) and the European Commission.

Identifying High-Risk Entities

The NRA highlighted Corporate Service Providers as a high-risk entity for money laundering and terrorist financing. This finding is consistent with assessments made by:

• Financial Action Task Force (FATF): An international task force that sets standards for combating money laundering.
• European Commission: The executive arm of the European Union, responsible for promoting economic growth and financial stability.

Analyzing Risk Factors

To better understand the risks faced by high-risk entities, Luxembourg’s financial regulator, the Commission de Surveillance du Secteur Financier (CSSF), conducted a sub-sector risk assessment on Trust and Company Service Providers (TCSP). The focus was on Specialised Professionals of the Financial Sector (Specialised PFS), a subset of TCSP.

Evaluating Risk-Mitigating Factors

The sub-sector risk assessment evaluated both inherent money laundering and financing of terrorism (ML/FT) risks and risk-mitigating factors applied by Specialised PFS and the CSSF. The resulting residual risk level provides valuable insights into the effectiveness of current measures in place.

Informing Regulatory Requirements

The findings from this sub-sector risk assessment aim to inform Specialised PFS on how to update their frameworks to better address ML/FT risks, ensuring they remain compliant with regulatory requirements.

Benefits for Supervised Entities

The results of this sub-sector risk assessment are expected to benefit not only Specialised PFS but also other CSSF-supervised entities that provide TCSP services. By adopting these insights and conclusions, entities can enhance their own risk-mitigation strategies and contribute to a more secure financial environment in Luxembourg.

Conclusion

Luxembourg’s commitment to addressing financial crime risks through the National Risk Assessment and subsequent sub-sector risk assessments demonstrates its dedication to promoting a secure financial environment for all stakeholders.