Know Your Assets: Strengthening ML/TF compliance for registered AIFMs
The Know Your Assets (KYA) principle, which necessitates the identification, assessment, and management of money laundering and terrorist financing (ML/TF) risks associated with investments – including the periodic screening of assets for ML/TF purposes as outlined in article 39 (1bis) of CSSF Regulation No. 12-02 – is of increasing importance for Luxembourg’s financial sector professionals, including registered (sub-threshold) alternative investment fund managers (AIFMs).
It is crucial to note the differentiated requirements based on asset type. While assets traded on regulated markets require evidence of the negotiation on a stock exchange, non-listed assets necessitate comprehensive ML/TF risk assessments and due diligence measures, which must be formally documented within the AIFM’s operational procedures.
Proactive, upfront assessment and validation of unlisted assets are paramount, particularly concerning ML/TF risks and adherence to restrictive measures adopted at EU, UN, and national levels. Furthermore, continuous monitoring of all asset holdings, regardless of the trading platform, is mandated. Robust documentation and reporting practices remain fundamental to compliance.
These considerations necessitate a re-evaluation and potential enhancement of existing due diligence processes, potentially incorporating pre-trade screening and the ongoing surveillance (including via automated solutions) of asset portfolios.
The CSSF’s intensified oversight of registered AIFMs’ KYA practices reflects a strengthened regulatory focus on ensuring investor protection and maintaining market integrity. Registered AIFMs whose funds invest in unlisted assets are urged to critically review their current procedures and consider the adoption of automated solutions to enhance their KYA capabilities, if not already implemented.
