Financial Investment Advisor Warns of Money Laundering and Terrorist Financing Risks
A Growing Concern in the Financial Industry
A leading financial investment advisor has recently issued a warning about the importance of considering money laundering and terrorist financing risks when investing in assets. As the threat of these illicit activities continues to pose a significant risk to the financial industry, it is crucial for collective investment management companies to take necessary measures to mitigate these risks.
Assessing Risks: A Legal Requirement
According to Article R. 561-38-2 of the Monetary and Financial Code, collective investment management companies are required by law to assess the risks of money laundering and terrorist financing presented by their activities, including investments or disinvestments made in assets. This includes identifying potential risks associated with “Product” Risk, Country Risk, and “Customer” or Counterparty Risk.
Identifying Risks: A Proportionate Approach
To identify these risks, collective investment management companies must consider factors such as:
- Proposed transaction terms
- Location of targets
- Source or destination of financial flows involved in investment transactions
The advisor emphasized the importance of a proportionate approach to due diligence, noting that the scope of due diligence should be determined based on the assessment of the risk of money laundering or terrorist financing.
Consequences of Non-Compliance
Failing to collect necessary information to assess the money laundering and terrorist financing risk could result in serious consequences, including fines and even criminal prosecution. Therefore, it is essential for collective investment management companies to take their legal obligations seriously and conduct thorough due diligence.
Enhanced Due Diligence: A Higher Standard
In cases where a high-risk assessment is made, collective investment management companies must take additional and/or enhanced due diligence measures before establishing the business relationship. This may include:
- Obtaining additional information and/or supporting documents
- Intensifying constant due diligence measures
- Ensuring that the decision to invest is taken at a higher managerial level
Minimal Due Diligence: A Low-Risk Approach
Conversely, when investing in low-risk assets such as shares or bonds traded on a regulated market in the EEA, minimal due diligence may be required.
Best Practices for Collecting Additional Information
To ensure compliance with regulatory requirements and mitigate risks, the advisor recommends that collective investment management companies follow best practices for collecting additional information, including:
- Identifying the issuer
- Collecting information that justifies the low risk