More than 50 professionals of Luxembourg’s asset management industry attended the AML  Distributor Due Diligence round table organised by PwC Luxembourg on Tuesday 5 November. After a first AML Breakfast held in February 2013, this second edition gave participants the opportunity to revisit some of the most pertinent aspects related to Anti-Money Laundering and Counter Terrorist Financing (AML/CTF), notably when it comes to the distributor due diligence procedures for marketing funds outside Luxembourg. The peers discussed the latest regulatory evolutions in the sector and shared best practices.

AML Distributor Due Diligence: it’s not an option – it’s an obligation
Coming into force in early 2013, the new CSSF regulation 12-02 reinforces Luxembourg’s legislative AML/CTF arsenal. It notably includes an essential element of the fund industry: the reinforced oversight of distribution channels. In this regard, Luxembourg management companies are prompted to systematically perform both initial and on-going due diligence for the providers they work with worldwide.

“Exploring new market opportunities and developing your distribution network is a key business requirement for Luxembourg investment funds. The lasting reorientation of growth toward emerging countries offers new market outlets. To collaborate with their foreign distributors - current or future - Luxembourg funds and management companies have to be even more meticulous than in the past,” explains Birgit Goldak, Partner and AML Distribution Due Diligence Services Leader, PwC Luxembourg. “Maintaining an appropriate AML distributor due diligence process and making sure investment fund distributors comply with the Luxembourg equivalent rules is not a can-do, it’s a must-do,” she adds.

Nearly a year after the new rules have become effective, industry professionals are facing numerous practical challenges: supervising multiple distributors, communicating in various foreign languages, understanding AML/CTF legislation and key risks of each country… Maintaining a cross-border distribution network or developing one in new countries while adhering to AML distributor due diligence procedures considerably increases the workload and demands additional skills. Cost control and effective distribution remain key concerns for funds and management companies.

Defining the relations between funds, management companies and their providers
Investment funds, management companies, transfer agents, custodians, distributors, fund initiators, final investors… The complexity and multitude of those involved in fund distribution raise the question of where responsibilities of AML/CTF procedures lie and the identification of economic beneficiaries.

As Patrick Wagner, responsible for supervising professionals of the financial sector at CSSF, explained during the meeting, that’s why “the different actors on the financial stage have to communicate with each other to disperse any grey areas. When it comes to implementing due diligence procedures and controlling distributors’ compliance with AML/CTF rules, responsibility must clearly be assigned and executed systematically. Between the management company and the providers, we have to know who does what.”

The CSSF has reinforced its presence in the field by implementing more on site controls. These interventions involve interviews with management, an analysis of the AML/CTF procedures and a verification of their implementation. AML distribution due diligence and the coherent and consistent implementation of the relevant control processes are part of the CSSF review.

This conference contributed an engaging exchange on the fight against money laundering and terrorist financing and enhanced the dialogue between professionals and institutions to become ever more effective and coherent in the practical implementation of Luxembourg’s stringent laws and regulations in this area.