Financial Crime World

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Luxembourg Takes Tough Stance on Financial Crimes Reporting

The COVID-19 pandemic has created a perfect storm for financial criminals, with digital payments and virtual currencies offering new opportunities to launder money at unprecedented scales. To combat this growing threat, Luxembourg’s financial regulator, CSSF, has issued three circulars aimed at tightening anti-money laundering (AML) and counter-terrorism financing (CTF) regulations.

Reforms and Requirements

The reforms, which came into effect on December 31, 2021, require investment fund managers (IFMs) to submit an annual AML/CTF survey to the CSSF. In addition, IFMs will now need to appoint an independent auditor to validate their responses and perform sample testing or specific procedures to ensure compliance.

New Regulations: A Significant Departure

The new regulations mark a major step forward in Luxembourg’s efforts to combat financial crime. According to the CSSF, there has been a decrease in suspicious reports in recent years, but fraud, tax evasion, and corruption remain major concerns for banks, asset managers, insurers, and regulators alike.

Implementation and Mitigation

To mitigate these risks, IFMs must implement robust technological solutions that automate manual tasks and adopt sustainable and compliant frameworks for AML/CTF and tax. The annual survey is a key tool in achieving this goal, providing valuable insights into the effectiveness of an entity’s processes in protecting against financial crime.

Applicability and Scope

The new process is applicable to all Luxembourg IFMs, including registered alternative investment fund managers (AIFMs) and all Luxembourg investment funds supervised by the CSSF for AML/CTF purposes. The external AML report will cover a range of topics, including:

  • Risk-based approach
  • Due diligence on funds
  • Investment assets
  • Channels of distribution

Practical Considerations

For IFMs, practical considerations include selecting an independent auditor they can trust to assist with the report, reviewing existing processes for know-your-customer (KYC), anti-money laundering (AML) onboarding and remediation, due diligence, and AML tax. The deadline for submission is six months after the financial year-end, but has been extended to nine months for entities with a year-end of December 31, 2021.

Industry Insights

According to Christophe Wintgens, Wealth & Asset Manager Leader at EY Luxembourg, “While we have witnessed much change over the past decade, we expect the next ten years to be even more transformative. 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.”