A lack of automation and poor record-keeping means that Luxembourg’s private markets sector is struggling to meet its growing anti-money laundering (AML) compliance requirements.
This is according to Paul Bratch, managing partner for financial services consulting firm Sionic, who spoke to Funds Europe for its recently published Luxembourg Report.
Private market funds have faced a perfect storm as a massive movement of capital from public to private markets has coincided with greater regulatory scrutiny on AML practices.
As of 2020, funds must designate two functions responsible for managing AML reporting.
“Unfortunately, the private markets sector is not generally equipped to deal with these AML issues,” said Bratch.
“There is less automation, with most AML processes done manually, using spreadsheets and emails, to paper-based documentation for identification and sources of income. There are also typically historic shortcomings where records have not been maintained because they haven’t always had to be,” he added.
But while there is no shortage of third party AML services and providers in the market, they need to be more affordable and proven if they are to make any inroads in the private markets sector which is notoriously picky when it comes to technology.
In a separate development, Luxembourg’s funds market was the subject of an international media investigation into the Duchy’s beneficial ownership register that cited “anonymous investment funds buying up swathes of real estate”.
Although described as unhelpful, misleading and nothing to do with actual money laundering, the OpenLux investigation did lead the Luxembourg government to issue a lengthy statement refuting the various allegations.
Silke Bernard, a lawyer at Linklaters in Luxembourg told Funds Europe that “AML is taken very seriously in Luxembourg and everybody is interested in getting it right,” she says, adding that some of the allegations in the OpenLux investigaiton were misleading and were explained partly by the way funds operate.
Read the full Funds Europe report on Luxembourg and AML here:
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