Luxembourg Tightens Financial Crime Regulations Amid Pandemic-Driven Risks
As the COVID-19 pandemic continues to impact global economies, Luxembourg has taken swift action to strengthen its anti-money laundering and counter-terrorism financing (AML/CTF) regulations. This move aims to combat financial crime and maintain a secure financial environment.
New Regulations: Key Changes and Implications
In December 2021, the Commission de Surveillance du Secteur Financier (CSSF), Luxembourg’s financial regulator, issued Circulars 21/788, 21/789, and 21/790. These circulars reinforced regulatory requirements for investment fund managers (IFMs) and investment funds under CSSF supervision.
Impact on IFMs and Independent Auditors
The new regulations have significant implications for IFMs and their independent auditors (REAs). REAs will now be required to:
- Verify responses provided by fund managers in the annual CSSF AML/CFT survey
- Perform sample testing or specific procedures with a risk-based approach determining the sample size
Existing Regulations and Compliance Requirements
Luxembourg’s existing AML and CTF regulations for investment funds are already extensive, applying to both regulated and unregulated funds. However, recent statistics from the Luxembourg Financial Intelligence Report (2020) show a decrease in suspicious reports, despite ongoing concerns about fraud, tax evasion, and corruption.
Protecting Against Financial Crime
To protect themselves and their investors from financial crime, IFMs must:
- Comply with regulations
- Implement robust technological solutions that automate manual tasks
- Adopt sustainable and compliant frameworks for AML/CTF and tax
CSSF’s Annual AML/CFT Survey
The CSSF’s annual AML/CFT survey aims to collect key information on money laundering and terrorist financing risks, as well as measures taken by IFMs to mitigate these risks. The survey must be completed by the compliance officer or individual responsible for compliance with professional obligations.
New Requirements for REAs
As of December 31, 2021, REAs are required to draw up an AML/CFT report to validate responses submitted by IFMs. This new process applies to all Luxembourg IFMs, including registered AIFMs and investment funds supervised by the CSSF.
Expert Advice: Assessing Preparedness and Proactive Measures
Experts recommend that IFMs assess their preparedness and take proactive steps to evaluate processes and operational factors critical for their AML/CTF activities moving forward.