Luxembourg: The “heavy process” of anti-money laundering

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Our expert panel discusses the AML requirements of Ucits funds, the impact of the Covid-19 pandemic on the industry, Brexit and the growth of private equity.

Luxembourg jurisdiction roundtable

Camille Thommes (director general, Alfi)
Robert Brimeyer (country executive Luxembourg, Alter Domus)
Anja Grenner (market business development lead, TMF Group)
Fèmy Mouftaou (chief commercial director, Luxembourg, IQ-EQ)

Funds Europe – Lloyd’s, the insurer, has moved to end investment in Ucits funds by its member firms owing to strenuous anti-money laundering (AML) requirements. What’s the panel’s reaction to this?

Camille Thommes, Alfi – Ucits are well-regulated products which put strong emphasis on investor protection, both for fund houses and intermediaries on behalf of the fund. Over the years, the Financial Action Task Force and European legislators reinforced measures to combat terrorist financing and money-laundering and introduced additional requirements to properly identify clients investing in funds. 

Luxembourg is operating in a cross-border environment and takes those measures extremely seriously. Our supervisory authority does the same, and it’s something we as an association support. The fact that Lloyd’s decided to disinvest, or recommend its members disinvest from Luxembourg and Irish Ucits, was quite surprising to us. 

It’s a commercial decision which I think we have to accept, but I personally found it a regrettable one because in the end it will certainly offer its customers less choice. Both in Ireland and Luxembourg, we have to apply the highest standards. 

Anja Grenner, TMF Group – We regularly get comments about Luxembourg’s AML KYC [know-your-client] requirements from clients that use TMF Group in different countries. We don’t do Ucits funds, so we are talking about alternative funds – especially when clients have experience with funds in various jurisdictions before coming to Luxembourg, whether that’s Jersey, Guernsey, Hong Kong or Cayman. 

The requirements are more onerous in Luxembourg, and there can be discontent if the topic of Luxembourg KYC-AML differences has not been specifically addressed early on.

This is European law that we are transposing into Luxembourg law. To a certain extent, this law should be the same everywhere in the EU. These requirements are just part of doing business and I think it is actually OK.

Robert Brimeyer, Alter Domus – Given its position as a financial centre in Europe, it is the ambition and probably also the role of Luxembourg to adopt best practice in applying European law. 

The general challenge that we all have is that the whole KYC process is far from being efficient. If you look at large institutional investors investing into multiple funds across multiple jurisdictions, they have to provide the same documents again and again to a broad range of service providers, everyone looking at the same documents. 

As a market, we should have the ambition to address this topic. Identifying who is behind an investor is in essence a quite easy task, but it would be interesting, for example, to establish a kind of an organisation or public administration that would say, ‘I have identified this investor, you have clearance, go and work with them,’ rather than all of us executing the same identification process to all the investors all the time. 

Fèmy Mouftaou, IQ-EQ – It is true that the AML requirements are significant. For example, the identification of the ultimate beneficial owner for every transaction can represent a heavy process for every provider. It is clear that there is potential for greater efficiency in applying the AML and compliance regulation.

Such requirements are applicable throughout the lifecycle of the entity or the investment and are crying out for automation and standardisation. 

All players are looking for solutions to monitor compliance risk closely and efficiently. This is can only be achieved by the use of smarter systems such as regtech solutions and more efficient processes.

Source: https://www.funds-europe.com/

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