AML/CFT update

1. FATF Mutual Evaluation Report – AML/CFT measures in Luxembourg

On 27 September 2023, the Financial Action Task Force (“FATF”) released its Mutual Evaluation Report on Luxembourg (“Report”), following its AML/CFT on-site visit in Luxembourg from 2 to 18 November 2022.

The Report gives Luxembourg a good overall result regarding its AML/CFT framework, placing it among the best-rated FATF member countries.

The Report identified some areas for improvement, in particular with regard to the awareness of terrorist and proliferation financing in non-financial businesses and professions. Nevertheless, according to the Report, Luxembourg has developed consistent efforts to improve its AML/CFT regime following the previous FATF report. In this respect, the Report concedes that some improvements to the Luxembourg AML/CFT legal framework have been initiated only recently (three to five years before the 2023 on-site visit), which explains why they are not yet fully effective.

2. EBA Opinion on ML/TF risks affecting the EU financial sector

On 13 July 2023, the European Banking Authority (“EBA”) released its fourth opinion on ML/TF risks (“Opinion”), the last one having been published in 2021.

In this Opinion, the EBA takes stock of the exposure of the financial sector as a whole to AML/FT risks and makes proposals to European legislators and competent authorities to address the risks identified and strengthen the resilience of the financial sector in this respect.

The EBA notes that, while EU restrictive measures are “unprecedented” within the context of Russia’s invasion of Ukraine in February 2022, national approaches for the enforcement of those measures are not harmonised and new risks are emerging, such as the laundering of proceeds from environmental crimes and cybercrimes.

It concludes that AML/CFT systems and controls in the Member States are not always effective, notably with regard to transaction monitoring and reporting of suspicious transactions to competent authorities.

The proposals presented by the EBA to tackle these issues include:

(I) calls on the competent authorities to improve their understanding of certain risks, including those associated with human trafficking, environmental crime and large-scale cross-border cash transfers; and

(ii) calls on the competent authorities to assess the effectiveness and adequacy of AML/CFT systems and controls of entities from the financial sector (e.g. credit institutions, payment institutions, investment firms, IFMs, UCIs, etc.).

3. Circulars CSSF 23/842 and 23/843 of 16 October 2023

On 16 October 2023, the CSSF issued Circulars CSSF 23/842 and 23/843, respectively endorsing the following EBA guidelines:

(i) EBA Guidelines of 31 March 2023 (EBA/GL/2023/03) amending the EBA ML/TF Risk Factors Guidelines (EBA/GL/2021/02), through the addition of a dedicated Annex setting out specific risk-sensitive measures and risk factors that should be considered when entering into a business relationship with customers that are not-for-profit organizations, notably in terms of governance and control, reputation, funding methods and jurisdictions of operation; and

(ii) EBA Guidelines of 31 March 2023 (EBA/GL/2023/04) on policies and controls for the effective management of ML/TF risks when providing access to financial services. These EBA Guidelines supplement the EBA ML/TF Risk Factors Guidelines with a view to reduce the practice of de-risking, notably encouraging more tailored and incremental approach before refusing to enter into, or terminating relationships with a customer, or a population of customers identified as presenting higher ML/TF risk.  

Each of the aforementioned EBA Guidelines have been applicable since 3 November 2023 to all credit and financial institutions within the meaning of the Law of 12 November 2004 on the fight against money laundering and terrorist financing, as amended (thus including, without limitation, banks, PFS, investment fund managers and investment funds).