Luxembourg’s good result in the 4th mutual evaluation report by the FATF
The Financial Action Task Force (FATF) published on 27 September 2023 the mutual evaluation report of Luxembourg carried out as part of its 4th cycle of mutual evaluations.
Luxembourg has obtained a good overall result. The FATF recognises the quality of the existing framework of Luxembourg regarding the fight against money laundering and the financing of terrorism (AML/CFT) and further issues a certain number of recommendations in order to improve the effectiveness of the overall system. Consequently, Luxembourg has been placed under regular monitoring by the FATF, which corresponds to the best possible result following a mutual evaluation. The full press release from the Luxembourg government as well as the report can be consulted under the following links: Publication du 4e rapport d’évaluation mutuelle du Luxembourg par le GAFI – Sam TANSON // Le gouvernement luxembourgeois and Luxembourg’s measures to combat money laundering and terrorist financing (fatf-gafi.org).
More particularly with regard to the financial sector and its supervision by the CSSF, the analyses carried out by the FATF evaluators regarding the effectiveness of the implementation of the Luxembourg system under “immediate outcomes” number 3 and 4 of the report, highlight the good results for the financial sector, particularly in view of the quality of AML/CFT supervision exercised by the CSSF in matters of AML/CFT. Generally speaking, the FATF report underlines that Luxembourg’s AML/CFT supervisory regime has matured in recent years, that the controls carried out at the time of granting licenses and registrations of professionals by the supervisors are robust (“market-entry controls”), and that supervisory tools and on-site controls become increasingly targeted. The CSSF is positively cited by the FATF for its well-developed and risk-based AML/CFT supervisory approach. This is based on a combination of a desk-based supervision carried out both by AML/CFT experts (so-called offsite supervision) and onsite inspections by staff members who visit the supervised professionals to carry out, among other things, detailed tests (so-called onsite supervision). The use of specific monitoring tools, where appropriate automated, was also highlighted.
The report has further underlined that the CSSF has a good understanding of the ML/TF risks (including in particular the risk of money laundering associated with primary tax offenses) that the financial sector faces, which is particularly important given the status of a financial regional and international center of this sector. On the other hand, the CSSF must continue its efforts in the fight against the financing of terrorism and the sector must better understand this risk, based on the bases provided for, in particular, by the vertical risk assessment report on financing of terrorism adopted in 2022 by Luxembourg.
Another point to improve for the CSSF concerns the form of communications regarding the sanctions taken by it against deficient professionals. These press releases must be further expanded in order to make the information concerning the nature of the deficiencies detected more accessible to the sector as a whole, and therefore the sanctions more effective.
With regard to the prevention efforts carried out by the professionals in the financial sector subject to the supervision of the CSSF, the controls, policies and procedures put in place by them are considered solid and sophisticated by the report. Even if the report highlights in particular that more efforts still need to be made regarding ML/FT suspicion reports to be communicated to the Financial Intelligence Unit, it underlines that professionals have made significant investments in compliance and concludes that these professionals generally have a solid understanding of their professional AML/CFT obligations and a good understanding of ML/TF risks.