Anti Money Laundering and Know Your Client. The Challenges Facing Asset Managers in Luxembourg

Transcription

1 Anti Money Laundering and Know Your Client The Challenges Facing Asset Managers in Luxembourg

2 Table of Contents The Findel Group 2 Luxembourg Anti Money Laundering and Counter Terrorist Financing Legislation 3 Challenge 4 High Cost for the Industry 5 Challenge 5 Need for a Market Utility 6 Considerations 6 Important Information 7 1

3 Introduction The Findel Group is formed of Asset Managers focused on identifying common opportunities for operational efficiency in cross-border distribution and where relevant recommending and promoting common solutions to the benefit of fund market participants and ultimately end investors. In the current climate, Findel believes this mission is ever-more relevant because cross-border firms are seeing significant growth in volumes each year with challenges created by manual processes and service gaps becoming more visible. Given a regulatory environment that requires constantly increasing transparency and reporting, the impetus to address these gaps has never been stronger. (Findel sees a clear opportunity in respect of Anti Money Laundering / Know Your Client to work together to identify and articulate the challenges faced by Asset managers in this space.) The aim is not to define a solution but to state the problem and welcome submissions from industry partners in terms of a common resolution. 2

4 Luxembourg Anti Money Laundering and Counter Terrorist Financing Legislation This legislation outlines a risk based approach comprising a risk assessment based on various criteria such as customer risk, country risk, risk associated with products, transactions or the distribution, selling of the product. The key legal framework is shown below: The Law of 12 November 2004 on the fight against money laundering and counter terrorist financing as amended (2004 Law); The Law of 27 October 2010; enhancing the anti-money laundering and counter terrorist financing legal framework; organising the controls of the physical transport of cash entering, transiting through or leaving the Grand Duchy of Luxembourg; implementing the United Nations Security Council resolutions as well as acts adopted by the European Union concerning prohibitions and restrictive measures in financial matters in respect of certain persons, entities and groups in the context of the combat against terrorist financing (2010 Law); The Grand-Ducal Regulation of 01 February 2010 (including the Grand-ducal Regulation of 5 August 2015); providing details on certain provisions of the amended law of 12 November 2004 (GDR 2010); The CSSF Regulation No of 14 December 2012 on fight against money laundering and terrorist financing (Regulation 12-02); and CSSF Circular 13/556 of 16th January 2013 repealing CSSF circulars 10/476 and 08/387 confirming entry into force of the CSSF Regulation Where investment funds deal with an Intermediary acting on behalf of its customers, the relationship is seen as a Correspondent Relationship and as such the Intermediary used is subject to enhanced due diligence measures. 3

5 Challenge As the requirements are based on a risk based approach there are limited prescribed requirements and as such interpretation and/or implementation of legislation can vary in terms of industry participant. Propensity to risk adds additional layers to the following requirement: Assessment of the risk of own activities applicable to each Asset Manager Purpose of the relationship with factors such as size of relationships, geography, delivery channels Implementation of identification and verification measures on the identity of the Intermediary and its customers/beneficial owners where relevant Most appropriate Enhanced Due Diligence measures and additional information based on each risk assessment applicable to each Intermediary. Between a management company and a transfer agent, there may be divergences on the actual measures to be undertaken to perform Enhanced Due Diligence on the Know Your Client aspects of the clients Expectations of the CSSF that documentation is up to date to be combined with resultant pressures from an operational perspective. 4

6 High Cost for the Industry The current process is repetitive and labour intensive. Customers are asked for the same information numerous times by each Asset Manager or their appointed Administrator and/or service providers, this creates inefficiencies and risk and the quality of data varies with no obvious tangible benefit. In order to keep pace with requirements Asset Managers are seeing increased cost from: Renewing, updating and maintaining Know Your Client including outdated independent certification process requiring wet signatures, stamps etc. Enhancing transaction monitoring systems Recruitment of specialists and training Implementation of new regulations such as FATCA, CRS Procedural updates and maintenance of sanction lists Increasing management information systems Anti-bribery and corruption activities Language barriers involving translation costs External verification sites where access to information may be more difficult On-site visits Challenge Ongoing and increasing costs to participants Faster response times to regulatory changes Faster response times to updates and subsequent development and infrastructure changes 5

7 Need for a Market Utility In the current landscape Asset Managers are faced with numerous challenges particularly around collating and gathering customer documentation that is both up to date and complete. The focus is on finding ways to automate, consolidate and standardise processes where possible. There is a real need to create a complete Industry document repository(s) where participants can go to obtain investor documentation. There will be economies of scale in terms of shared operational services, enhanced customer experience (the intermediary will only need to upload documentation once and then keep that record updated) and process efficiencies. This documentation needs to be in line with an agreed minimum standard (in line with relevant regulatory requirements) which can then be overlaid with a particular Asset Manager s risk propensity. The facility could also include additional features such as risk rating functionality and enhanced due diligence capabilities. The facility will be required to be backed by the relevant regulator and seen as a reliable independent source. Solutions developed as an industry approach to data validation should be discussed with the Regulator. ALFI would be instrumental in securing this endorsement and Findel will partner closely with the relevant ALFI Committees. Considerations Need to ensure that information can be shared from a privacy perspective Cost of the utility needs to be reasonable enough to not create a barrier for smaller participants The utility would need to publish its Know Your Client Guidelines showing the minimum requirements it adheres to The utility would need to be audited on an annual basis to ensure they are adhering to the guidelines, keeping their information up to date and keeping participant information secure 6

8 Important Information This document has been compiled for the use of Findel Group members only and is for guidance purposes. This document must not be copied or distributed without written consent from the Findel Group. For any queries regarding this document, please contact With thanks The Findel Group would like to thank Liz Tracey, Chair of the Findel AML/KYC working group and its members for their collaboration and contribution to this document. 7