AML/CFT controls applied to TCSP activities by certain IFMs
Thematic inspections from November 2021 to January 2022
In July 2020 the CSSF published a money laundering/ terrorist financing (“ML/TF”) sub-sector risk assessment regarding the specialised professionals of the financial sector providing corporate services – Trust and Company Service Provider (“TCSP”) activities. The results of the sub-sector risk assessment indicate an inherent high risk and a residual medium risk for the activity. Although the risk assessment remains focused on one category of professionals of the financial sector, its findings are judged pertinent also for understanding the ML/TF risk of TCSP activities conducted by other professional such as investment fund managers (“IFMs”), albeit being ancillary to their main business activity.
In this context, the CSSF’s “UCI On-site Inspection” department carried out a thematic review from November 2021 to January 2022 of the AML/CFT controls applied by IFMs in regard to their TCSP activities, ancillary to their principle investment fund management activity. The thematic review targeted different types and sizes of market participants1 (hereafter the IFMs) and included four Luxembourg IFMs. Further details on the focus areas of the thematic review are described below.
The main takeaway of the review was that:
- TCSP services mainly consisted in providing a corporate address and directorship services to entities directly linked to their investment fund management activity;
- the AML/CFT controls applied by the IFMs to their TCSP activity are embedded in their general AML/CFT framework;
- the overall understanding of the risks associated with ML/TF linked to the IFMs’ TCSP activity as well as the related mitigation measures put in place by the entities inspected were satisfactory, despite certain findings in particular in the area of customer due diligence and ongoing monitoring.
For some of the IFMs our inspection also revealed best practices such as in particular:
- the governing bodies were specifically made aware of TCSP matters, despite these being ancillary activities;
- the TCSP activity was assessed individually in the IFM’s risk assessment;
- the AML/CFT procedures made specific reference to the TCSP activity.
The CSSF reminds IFMs of the importance to also capture such ancillary activity at the level of the risk appetite statement, the compliance monitoring plan and the annual AML report, in this case by making specific reference to the TCSP activity.
1 Management company incorporated under Luxembourg law and subject to Chapter 15 of the Law of 17 December 2010 relating to undertakings for collective investment and alternative investment fund manager authorised under Chapter 2 of the Law of 12 July 2013 on alternative investment fund managers