Strengthening Financial Integrity: FATF Mutual Evaluation Results and CSSF’s Annual Conference Insights

AIQUNITED-TEAM / February 12th

We bring you noteworthy insights from the heart of Luxembourg's financial landscape, incorporating insights from the FATF's mutual evaluation and the Annual CSSF Conference.
The Financial Action Task Force (FATF) conducted a thorough evaluation of Luxembourg's AML/CFT measures in November 2022, with the corresponding report being published in September 2023. While recognizing the nation's robust framework and effective collaboration with international counterparts, FATF also pinpointed areas for improvement. Luxembourg is urged to ramp up efforts in money laundering investigations, asset recovery, and the supervision of non-profit organizations and specific non-financial sectors.

Luxembourg achieved a commendable "regular monitoring" score, the highest possible outcome. While Zwick, Director of the Commission de Surveillance du Secteur Financier (CSSF), acknowledged that regulators are never fully satisfied, he expressed contentment with this year's report.
In the review, Luxembourg was deemed "compliant" in 28 out of 40 measures, "largely compliant" in 11 fields, and "partially compliant" in only one section. Impressively, Luxembourg received zero "non-compliant" ratings, a testament to the robustness of its anti-money laundering and counter-terrorism financing rules.

Zwick addressed three key criticisms of Luxembourg's financial sector's approach to Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) procedures. Notably, he acknowledged the "high number of existing blocked accounts," currently standing at 86,000. The CSSF plans to issue guidelines that will provide clarity on how financial firms label blocked accounts, differentiating those flagged for AML suspicions or breaches from others. At the annual CSSF conference he explained how to deal with accounts that are blocked for anti-money laundering (AML) reasons. Moving forward, these accounts can only be labeled as such if there is a specific legal requirement that has not been met. Notably, tax compliance cannot be cited as grounds for AML concerns. Additionally, it was clarified that if the non-compliance with an AML requirement is a specific rule implemented in the entity's policy but not enshrined in the law, it does not justify the designation of a blocked account. This nuanced stance emphasizes the necessity of aligning regulatory actions with legal obligations while ensuring a clear distinction between AML and tax compliance issues.

Additionally, Zwick stressed the necessity for increased education to better understand the risks associated with terrorism financing. In response to this, the CSSF, along with other authorities, will be releasing additional guidelines.
Responding to critiques about the CSSF's communication practices by the FATF, Zwick acknowledged the need for improvement. He mentioned that the CSSF is actively working on a new approach to communicate weaknesses, aiming for greater transparency regarding administrative sanctions and the exact reasons behind them. This initiative is designed to facilitate industry learning from mistakes and foster a culture of continuous improvement.

A key focus from the Conference was the imperative to strengthen controls on registered Alternative Investment Fund Managers (AIFMs). The conference underscored the significance of robust oversight measures to ensure the integrity of Luxembourg's financial sector.
Emphasizing a proactive stance against terrorist financing, the conference highlighted the need for a collective understanding of associated risks. The financial industry is urged to enhance its capabilities through education and awareness initiatives. Zwick stressed the importance of bolstering efforts within Luxembourg's financial sector to combat potential terrorist financing.

An important announcement from the conference pertained to the RC report filing process. Starting January 2024, for the reference period of 2023, registered entities are required to submit RC reports through the eDesk platform. This streamlined approach aims to improve efficiency and compliance.
As a major international financial hub, Luxembourg faces significant cross-border financial flows and high-risk products and services, particularly in banking and investment. The banking, investment, trust and company service sectors are recognized as most susceptible to money laundering and terrorist financing. While CSSF has prioritized the banking and investment sectors, there is a need for further development in risk-based supervision for non-financial sectors.

In conclusion, Luxembourg remains committed to fortifying its financial integrity, with ongoing efforts to address identified areas of improvement and maintain its standing as a responsible international financial center with special emphasis on enhancing education, transparency, and regulatory effectiveness.

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