Arendt & Medernach Investment Management partner Isabelle Lebbe and Arendt Regulatory & Consulting Executive Director Stéphane Badey say new requirements mean Luxembourg fund firms must ensure their AML systems and processes are fit for purpose.
More demanding AML duties
In the past, fund management firms may have seen the issue of money laundering and terrorist financing as a problem for other financial institutions, but no longer. A succession of European directives, Luxembourg laws and regulatory circulars, spell out the responsibility of management companies and AIFMs to ensure the efficacy of their AML systems and procedures, by conducting periodic risk assessments. While implementation of AML checks may be outsourced to service providers such as registrars, they remain delegates. Responsibility for compliance with the applicable rules stays with the fund’s ManCo or authorised AIFM, underlined by the requirement to appoint an anti-money laundering and terrorist financing compliance officer, within the responsible management body of the fund. This becomes all the more critical given that fund investors are no longer largely local as they may have been a couple of decades ago. Firms need to ensure robust systems are in place to curb AML risks posed by investors from all over the world – especially as the penalties for failings are more serious than ever, too.
The importance of knowledge
The obligation placed on fund firms to ensure the adequacy of their AML efforts is set out by Luxembourg’s legislation of 12 November 2004, which requires them to conduct an analysis of the risks inherent in their business activities, and to record their findings in writing. Details are set out by CSSF circular 11/529, which indicates that firms must identify their money laundering and terrorist financing risks, establish a methodology to categorise them, and devise and implement measures to mitigate them. Critical to this process is effective education and training of personnel to ensure they understand how to assess areas of potential vulnerability and to use the tools available to eliminate or at least minimise them. Which means drawing up checklists, overseeing service provider, mandates implementing alert mechanisms and establishing reporting procedures, whether the critical tasks are carried out internally or delegated to an external provider.
A comprehensive approach to compliance
Fund firms don’t have to tackle this responsibility alone. Arendt Institute has created an e-learning solution dedicated to the risks and responsibilities of industry members, designed to ensure employees understand what’s expected from them but also where due diligence efforts need to be focused, such as distribution networks and markets carrying heightened risks. The course content draws on the practical experience of Arendt Regulatory & Consulting on the ground with Luxembourg fund administrators, coupled with the legal expertise of Arendt & Medernach. The training represents an important element in the review service offered by Arendt Regulatory & Consulting, with specialist input from the law firm, of AML programmes, analysis of a fund investor base and risk factors, followed by recommendations for improvement and assistance in implementing them. AML obligations may continue to expand, but fund providers can draw on the assistance they need to be sure to meet them. Arendt Institute has created hand in hand with Thompson Reuters an agile platform allowing customisation and delivery e-learning courses to client. An ideal product which already contains a robust anti-money laundering training course…