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Magazine Issues » September 2021

Asset servicing roundtable: “We take AML very seriously”

Funds Europe – What must Luxembourg do in order to tighten the anti-money laundering (AML) regime, particularly with regards to the Luxembourg Register of Beneficial Owners (RBO) which has this year attracted criticism?

Albrecht – AML KYC [know-your-customer] rules and regulation have been strongly reinforced over the past ten years, with regular inspection from the regulator, oversight from management companies, and ongoing due diligence exercises. The regulated funds industry is in good shape when it comes to AML KYC.

When I look at technology solutions and initiatives in the market to create an AML KYC repository, and when I see the number of people that are dedicated to account opening in our organisations, believe me, we are taking this very seriously.

Yes, there have been negative headlines around the RBO, but people should recognise that Luxembourg was the first EU member state to make the beneficial ownership register public in 2019, which shows how Luxembourg wishes to be seen as a white-list country for AML KYC.

If the quality of the information in the RBO is sometimes questionable, it boils down to the fact that AML KYC is not a science but is built on a risk-based approach where you need to understand the structure and who is actually the UBO [ultimate beneficial owner] in order to declare the right UBO. Is the UBO the CEO, the majority shareholder, the chairman of the board, the whole board? Or is it all of them?

It comes down to having the right skillset and guidelines to ensure that the RBO is completed appropriately.

Dowling – A lot of time is spent creating the AML skillset and the technology to support it in our business. We spend a lot of time engaging with clients and their distribution teams, explaining to them why information is being requested and what the standard is. Being compared to other jurisdictions where AML may be less onerous, it shows that there is a really robust governance process around this in Luxembourg – both in the context of onboarding new investors and periodic review depending on risk ratings.

Lasch – I echo what you say in that we find clients are not used to the level of requirements that are in place in the Luxembourg AML KYC framework. Luxembourg has gold-plated the Fifth EU Anti-Money Laundering Directive. Even though other countries have very similar regulation, they don’t always require proof for every single part of the KYC process – but that is the case in Luxembourg. Yes, it’s a quite cumbersome process and it hinders us sometimes with account opening. But it’s a strict, very supervised, highly focused area. Maybe with the exception of cyber crime or similar, it’s where we all have made enormous investments in terms of people and systems.

As for the register of beneficial owners, in such a huge database you will always find a field that is awkward, but the process for the RBO is still very robust. Making the RBO register transparent and accessible is another proof of how transparent Luxembourg is around this topic.

Funds Europe – How will the Luxembourg funds industry look in five years’ time?

Albrecht – The industry will be much more efficient and able to leverage available technology to provide new services, because some services we provide today will be difficult to monetise. New data services will be developed, for example, where we can add value and provide an enhanced client experience and easy access to investment opportunities.

The strong growth in services for private capital will continue and may even increase.

And one important area will be the reskilling and upskilling of our workforce. The jobs of today won’t be the jobs of tomorrow and given the accelerating pace of digitisation, we need to evolve our workforce. This might include transforming a shareholder services transaction analyst into a business analyst or an AML KYC specialist, or any job the industry will require in the future.

Lasch – I expect we will see private assets grow, too, and become more tokenised. Tokenised assets will be very much mainstream five years from now. Yet there will be competition for us in private capital, from Dublin and the UK.

Depositary banks will become depositaries for alternative funds because of our safekeeping ability, data and large balance sheets.

Right now, passive investment is a space that Luxembourg does not significantly occupy. Ireland does and will remain in that position, but we should see an increase of this business in Luxembourg, perhaps in active ETFs.

One investment vehicle I expect to grow is the Eltif [European Long-Term Investment Fund]. I think the Eltif, after improving its regulation later on this year, will finally take a big role in the Capital Markets Union and prepare some of our population for their retirement.

Maurier – One trend will be the combination of private assets with sustainable finance requirements. Technology should help us solve this very complex equation. What is so complex about it is to understand the meaning behind an investment in non-listed assets. Working with data providers, we will build these assets and link sustainability with private markets.

Dowling – It’s difficult to add more to what has been said, but yes, I agree with the point about ESG with various approaches and clients at different stages of the journey. We have to ensure the right framework is in place to make sustainable products a success.

I agree about the linkage of innovation and digital transformation with the growing focus on alternative assets. Even with the challenges over the last 18 months, the industry is growing at a significant pace, both under Ucits and the AIFMD. We have to ensure the industry does not become complacent. We must continue to promote these trends - and never stand still.

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